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OFFON

MOELIS & COMPANY

(MC)
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MOELIS & CO Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

10/28/2021 | 04:14pm EST
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes included elsewhere in this
Form 10-Q and our audited consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Forward-Looking Statements and Certain Factors that May Affect Our Business


The following discussion should be read in conjunction with our condensed
consolidated financial statements and the related notes that appear elsewhere in
this Form 10-Q. We have made statements in this discussion that are
forward-looking statements You can identify these forward looking statements by
the use of words such as "may," "might," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "intend," "predict," "potential" or
"continue," the negative of these terms and other comparable terminology. These
forward looking statements, which are subject to risks, uncertainties, and
assumptions about us, may include projections of our future financial
performance, based on our growth strategies and anticipated trends in our
business. These statements are only predictions based on our current
expectations and projections about future events. You should consider the
numerous risks outlined under "Risk Factors" in our Annual Report on Form 10-K
and in this Form 10-Q.

Although we believe the expectations reflected in the forward looking statements
are reasonable, we cannot guarantee future results, level of activity,
performance or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy or completeness of any of these forward looking
statements. You should not rely upon forward looking statements as a prediction
of future events. We are under no duty to and we do not undertake any obligation
to update or review any of these forward looking statements after the date of
this filing to conform our prior statements to actual results or revised
expectations whether as a result of new information, future developments or
otherwise.

Executive Overview


Moelis & Company is a leading global independent investment bank that provides
innovative strategic advice and solutions to a diverse client base, including
corporations, governments and financial sponsors. We assist our clients in
achieving their strategic goals by offering comprehensive integrated financial
advisory services across all major industry sectors. With 21 geographical
locations in the Americas, Europe, the Middle East, Asia and Australia, we
advise clients around the world on their most critical decisions, including
mergers and acquisitions, recapitalizations and restructurings, capital markets
and other corporate finance matters. Our ability to provide confidential,
independent advisory services to our clients across sectors and regions and
through all phases of the business cycle has led to long-term client
relationships and a diversified revenue base.

As of September 30, 2021, we served our clients globally with 651 advisory
bankers. We generate revenues primarily from providing advisory services on
transactions that are subject to individually negotiated engagement letters
which set forth our fees. We generally generate fees at key transaction
milestones, such as closing, the timing of which is outside of our control. As a
result, revenues and net income in any period may not be indicative of full year
results or the results of any other period and may vary significantly from year
to year and quarter to quarter. The performance of our business depends on the
ability of our professionals to build relationships with clients over many years
by providing trusted advice and exceptional transaction execution.

Business Environment and Outlook


Economic and global financial conditions can materially affect our operational
and financial performance. See "Risk Factors" in Part II. Other Information of
this Form 10-Q and in our Form 10-K for a discussion of some of the factors that
can affect our performance. The M&A market data for announced and completed
transactions during the three and nine months ended September 30, 2021 and 2020,
referenced throughout this Form 10-Q was obtained from Refinitiv, formerly known
as Thomson Financial as of October 5, 2021, and October 4, 2020.

For the first nine months of 2021, we earned revenues of $1,115.6 million
compared with $521.2 million earned during the same period in 2020. This
represents an increase of 114% year over year and compares favorably with a 60%
increase in the number of global completed M&A transactions greater than $100
million in the same period.

Our team of investment banking professionals continues to be very active,
providing high quality advice to a growing number of clients around the globe.
During the third quarter of 2021, the global M&A market experienced the
strongest quarter of deal announcements in history, measured by both the number
of transactions and deal value. This resulted in the first nine months of 2021
being the most active nine month period of announcements of all time. Further,
the third quarter of 2021 marked five consecutive quarters of 1,000+ global
announced transactions greater than $100 million, with associated deal values in
excess of one trillion dollars. The underlying drivers of the robust M&A
environment remain firmly in place, which should allow strong levels of activity
to persist in the near to intermediate term. As a result, our M&A activity for
both strategics and financial sponsors remains elevated versus the prior year.
While the health of the global economy has

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improved dramatically since this time last year, our restructuring activity
continues to be steady as companies in certain parts of the economy are
continuing to experience ongoing financial issues as a result of the business
disruption caused by COVID-19. However, given the health of the economy,
availability of capital and financing solutions, the pace of our new
restructuring mandates have slowed dramatically versus this time last year. Over
the longer-term, the record levels of corporate debt issued in the past eighteen
months should also provide a solid level of restructuring activity. In addition,
we continue to grow our capital markets business, which benefits from our SPAC
expertise, and we believe we are well positioned to provide advice to companies
across all sectors on their capital and liquidity needs.

We believe that while COVID-19 may continue to add uncertainty to the business
environment, our Firm remains well positioned due to our business continuity
planning, experienced management team, and focused client coverage.

Results of Operations

The following is a discussion of our results of operations for the three and nine months ended September 30, 2021 and 2020.



                                Three Months Ended September
                                             30,                                          Nine Months Ended September 30,
($ in thousands)                   2021              2020              Variance                2021                2020              Variance
Revenues                       $       490,821$   207,604             136%               $  1,115,594$   521,248             114%
Expenses:
Compensation and benefits              307,590           127,148             142%                    678,106           371,884              82%
Non-compensation expenses               31,083            28,498               9%                     94,679            90,116               5%
Total operating expenses               338,673           155,646             118%                    772,785           462,000              67%
Operating income (loss)                152,148            51,958             193%                    342,809            59,248             479%
Other income and (expenses)             30,435           (1,631)              N/M                     36,376           (6,568)              N/M
Income (loss) before income
taxes                                  182,583            50,327             263%                    379,185            52,680             620%
Provision (benefit) for
income taxes                            42,119             8,534             394%                     69,721          (10,195)              N/M
Net income (loss)              $       140,464$    41,793             236%               $    309,464$    62,875             392%


N/M = Not meaningful

Revenues

We operate in a highly competitive environment. Each revenue-generating
engagement is separately solicited, awarded and negotiated, and there are
usually no long-term contracted sources of revenue. As a consequence, our
fee-paying client engagements are not predictable, and high levels of revenues
in one period are not necessarily predictive of continued high levels of
revenues in future periods. To develop new business, our professionals maintain
an active dialogue with a large number of existing and potential clients. We add
new clients each year as our bankers continue to expand their relationships, as
we hire senior bankers who bring their client relationships and as we receive
introductions from our relationship network of senior executives, board members,
attorneys and other third parties. We also lose clients each year as a result of
the sale or merger of clients, changes in clients' senior management,
competition from other financial services firms and other causes.

We earn substantially all of our revenues from advisory engagements, and, in
many cases, we are not paid until the completion of an underlying transaction.
The vast majority of our advisory revenues are recognized over time, although
the recognition of our transaction fees are constrained until the engagement is
substantially complete.

Complications that may terminate or delay a transaction include failure to agree
upon final terms with the counterparty, failure to obtain required regulatory
consents, failure to obtain board or stockholder approvals, failure to secure
financing, adverse market conditions or unexpected operating or financial
problems related to either party to the transaction. In these circumstances, we
often do not receive advisory fees that would have been received if the
transaction had been completed, despite the fact that we may have devoted
considerable time and resources to the transaction. Barriers to the completion
of a restructuring transaction may include a lack of anticipated bidders for the
assets of our client, or the inability of our client to restructure its
operations, or indebtedness due to a failure to reach agreement with its
creditors. In these circumstances, our fees are generally limited to monthly
retainer fees and reimbursement of certain out-of-pocket expenses.

We do not allocate our revenue by the type of advice we provide because of the
complexity of the transactions on which we may earn revenue and our holistic
approach to client service. For example, a restructuring engagement may evolve
to require a sale of all or a portion of the client, M&A assignments can develop
from relationships established on prior restructuring engagements, and capital
markets expertise can be instrumental on both M&A and restructuring assignments.

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Three Months Ended September 30, 2021 versus 2020


Revenues were $490.8 million for the three months ended September 30, 2021 as
compared with $207.6 million for the same period in 2020, representing an
increase of 136%. The increase in revenues was primarily driven by greater
transaction completions and an increase in average fees earned per completed
transaction as compared to the prior year period.

For the three months ended September 30, 2021 and 2020, the number of fee-paying
clients increased to 167 clients from 146 clients, respectively, and the number
of clients that paid fees equal to or greater than $1 million increased to 80
clients from 43 clients for the same period of 2020.

Nine Months Ended September 30, 2021 versus 2020


Revenues were $1,115.6 million for the nine months ended September 30, 2021 as
compared with $521.2 million for the same period in 2020, representing an
increase of 114%. The increase in revenues was primarily driven by greater
transaction completions and an increase in average fees earned per completed
transaction as compared to the prior year period.

For the nine months ended September 30, 2021 and 2020 we earned revenues from
332 and 238 clients, respectively, and the number of clients who paid fees equal
to or greater than $1 million increased to 220 clients from 126 clients for the
same period of 2020.

Operating Expenses

The following table sets forth information relating to our operating expenses:



                               Three Months Ended
                                 September 30,                                 Nine Months Ended September 30,
($ in thousands)               2021          2020      Variance             2021                          2020                      Variance

Expenses:

Compensation and benefits $ 307,590$ 127,148 142% $

          678,106           $             371,884             82%
% of revenues                      63%           61%                                     61%                             71%

Non-compensation expenses $ 31,083$ 28,498 9% $

           94,679           $              90,116              5%
% of revenues                       6%           14%                                 8%                             17%

Total operating expenses $ 338,673$ 155,646 118% $

         772,785           $             462,000             67%
% of revenues                      69%           75%                                     69%                             89%


Our operating expenses are classified as compensation and benefits expenses and
non-compensation expenses. Compensation and benefits expenses account for the
majority of our operating expenses. Non-compensation expenses, which include the
costs of professional fees, travel and related expenses, communication,
technology and information services, occupancy, depreciation and other expenses,
generally have been less significant in comparison with compensation and
benefits expenses.

Three Months Ended September 30, 2021 versus 2020


Operating expenses were $338.7 million for the three months ended September 30,
2021 and represented 69% of revenues, compared with $155.6 million for the same
period in 2020 which represented 75% of revenues. The increase in operating
expenses was primarily driven by higher compensation and benefits expenses
associated with greater revenues.

Nine Months Ended September 30, 2021 versus 2020


Operating expenses were $772.8 million for the nine months ended September 30,
2021 and represented 69% of revenues, compared with $462.0 million for the same
period in 2020 which represented 89% of revenues. The increase in operating
expenses was primarily driven by increased compensation and benefits expenses
associated with greater revenues.

Compensation and Benefits Expenses


Our compensation and benefits expenses are determined by management based on
revenues earned, gains on founder investments where our employees and the Moelis
advisory platform contributed meaningfully to the value, the competitiveness of
the prevailing labor market and anticipated compensation requirements for our
employees, the level of recruitment of new Managing Directors and other bankers,
the amount of compensation expenses amortized for equity awards and other
relevant factors. As a result, our compensation expenses may fluctuate
materially in any particular period. Accordingly, the amount of compensation
expenses recognized in any particular period may not be consistent with prior
periods or indicative of future periods.

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Our compensation expenses consist of base salary and benefits, annual incentive
compensation payable as cash bonus awards, including certain amounts subject to
clawback and contingent upon a required period of service ("contingent cash
awards") and amortization of equity-based compensation awards. Base salary and
benefits are paid ratably throughout the year. Equity awards are amortized into
compensation expenses on a graded basis (based upon the fair value of the award
at the time of grant) during the service period over which the award vests,
which is typically four or five years. The awards are recorded within equity as
they are expensed. Contingent cash awards are amortized into compensation
expenses over the required service period. Cash bonuses, which are accrued
throughout the year, are discretionary and dependent upon a number of factors
including the performance of the Company and are generally paid during the first
two months of the year with respect to prior year performance. The equity
component of the annual incentive award is determined with reference to the
Company's estimate of grant date fair value, which in turn determines the number
of equity awards granted subject to a vesting schedule.

Three Months Ended September 30, 2021 versus 2020


For the three months ended September 30, 2021, compensation related expenses of
$307.6 million represented 63% of revenues, compared with $127.1 million which
represented 61% of revenues in the prior year period. In comparison to the prior
year period, compensation expenses increased primarily due to higher
discretionary bonus expense associated with greater revenues, and increased as a
percentage of revenues due to compensable gains recorded in other income and
expenses.

Nine Months Ended September 30, 2021 versus 2020


For the nine months ended September 30, 2021, compensation related expenses of
$678.1 million represented 61% of revenues, compared with $371.9 million which
represented 71% of revenues in the prior year period. The increase in
compensation expenses was primarily related to higher discretionary bonus
expense associated with greater revenues and compensable gains recorded in other
income and expenses as compared to the prior year period.

Non-Compensation Expenses


Our non-compensation expenses include the costs of occupancy, professional fees,
communication, technology and information services, travel and related expenses,
depreciation and other expenses.

Historically (prior to COVID-19), our non-compensation expenses have increased
as we have increased headcount which results from growing our business. This
trend may continue as we expand into new sectors, geographies and products to
serve our clients' growing needs.

Three Months Ended September 30, 2021 versus 2020


For the three months ended September 30, 2021, non­compensation expenses of
$31.1 million represented 6% of revenues, compared with $28.5 million which
represented 14% of revenues in the prior year period. The increase in
non-compensation expenses is primarily related to increased travel and other
business development expenses associated with lightened COVID-19 restrictions,
as compared to the prior year period.

Nine Months Ended September 30, 2021 versus 2020


For the nine months ended September 30, 2021, non­compensation expenses of $94.7
million represented 8% of revenues, compared with $90.1 million which
represented 17% of revenues in the prior year period. The increase in
non-compensation expenses is primarily related to increased professional fees
associated with greater activity, partially offset by lower travel and related
expenses.

Other Income and Expenses

Other income and expenses consists of earnings from equity method investments, gains and losses on investments, interest income and expense, and other infrequent gains or losses.

Three Months Ended September 30, 2021 versus 2020


Other income and expenses were income of $30.4 million and expense of $1.6
million for the three months ended September 30, 2021 and 2020, respectively. In
the third quarter of 2021, we recorded gains to other income of $20.2 million
related to the August 2021 sale of 6.0 million shares of our investment in MA
Financial and $5.0 million related to net unrealized gains from the
mark-to-market impact of the Firm's investment in the sponsor units of Atlas
Crest Investment Corp. and equity shares received as payment for advisory
services provided.



                                       30
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Nine Months Ended September 30, 2021 versus 2020


Other income and expenses were income of $36.4 million and expense of $6.6
million for the nine months ended September 30, 2021 and 2020, respectively. In
the third quarter of 2021, we recorded gains to other income of $20.2 million
related to the August 2021 sale of 6.0 million shares of our investment in MA
Financial and $5.0 million related to net unrealized gains from the
mark-to-market impact of the Firm's investment in the sponsor units of Atlas
Crest Investment Corp. and equity shares received as payment for advisory
services provided.

Provision for Income Taxes


The Company's operations are comprised of entities that are organized as limited
liability companies and limited partnerships. For U.S. federal income tax
purposes, taxes related to income earned by these entities represent obligations
of their interest holders, except for certain foreign, state and local income
taxes (for example, the New York City unincorporated business tax ("UBT")). The
Company is subject to U.S. corporate, federal, state, and local income tax on
its allocable share of results of operations from Group LP.

Three Months Ended September 30, 2021 versus 2020


The Company's provision for income taxes and effective tax rates were $42.1
million and 23% and $8.5 million and 17%, for the three months ended September
30, 2021 and 2020, respectively. The income tax provision and effective tax rate
for the aforementioned periods primarily reflect the Company's allocable share
of operating results from Group LP at the prevailing U.S. federal, state, and
local corporate income tax rate.

Nine Months Ended September 30, 2021 versus 2020


For the nine months ended September 30, 2021 and 2020, the Company's provision
for income taxes were an expense of $69.7 million and a benefit of $10.2 million
compared to pre-tax operating results of $379.2 million and $52.7 million,
respectively. The income tax provision and effective tax rate for the
aforementioned periods primarily reflect the Company's allocable share of
operating results from Group LP at the prevailing U.S. federal, state, and local
corporate income tax rate, partially offset by the impact of the excess tax
benefit recognized in connection with equity-based compensation delivered at a
price above the grant date price.

Liquidity and Capital Resources


Our current assets have historically been comprised of cash, short term liquid
investments and receivables related to fees earned from providing advisory
services. Our current liabilities are primarily comprised of accrued expenses,
including accrued employee compensation. We pay a significant portion of
incentive compensation during the first two months of each calendar year with
respect to the prior year's results. We also distribute estimated partner tax
payments primarily in the first quarter of each year with respect to the prior
year's operating results. Therefore, levels of cash generally decline during the
first quarter of each year after incentive compensation has been paid to our
employees and estimated tax payments have been distributed to partners. Cash
before dividends and share buybacks then typically builds over the remainder of
the year.

We evaluate our cash needs on a regular basis in light of current market
conditions. Cash and cash equivalents include all short­term highly liquid
investments that are readily convertible to known amounts of cash and have
original maturities of three months or less from the date of purchase. As of
September 30, 2021 and December 31, 2020, the Company had cash equivalents of
$197.1 million and $119.0 million, respectively, invested in U.S.Treasury
instruments and money market securities. Additionally, as of September 30, 2021
and December 31, 2020, the Company had cash of $81.6 million and $83.5 million,
respectively, maintained in U.S. and non­U.S. bank accounts, of which most bank
account balances exceeded the U.S. Federal Deposit Insurance Corporation
("FDIC") and U.K.Financial Services Compensation Scheme ("FSCS") coverage
limits.

In addition to cash and cash equivalents, we hold various types of government
debt securities that are classified as investments on our condensed consolidated
statements of financial condition as they have original maturities of three
months or more from the date of purchase. As of September 30, 2021 and December
31, 2020, the Company held $279.7 million and $172.7 million of U.S. treasury
instruments classified as investments, respectively.

Our liquidity is highly dependent upon cash receipts from clients which generally requires the successful completion of transactions. The timing of receivable collections typically occurs within 60 days of billing. As of September 30, 2021 and December 31, 2020 accounts receivable were $100.8 million and $89.3 million, respectively, net of allowances of $2.8 million and $3.8 million, respectively.


To provide for additional working capital and other general corporate purposes,
we maintain a $65.0 million revolving credit facility. In addition, Moelis &
Company LLC ("Moelis U.S.") maintains a $30.0 million revolving credit facility
agreement pre-approved by FINRA to provide additional regulatory capital as
necessary.

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Unless the lender of the $65.0 million facility issues a notice of termination
at least 60 days prior to the maturity date of June 30, 2022, this facility will
automatically extend to June 30, 2023. Advances on the facility bear interest at
the greater of a fixed rate of 3.50% per annum or at the Company's option of (i)
LIBOR plus 1% or (ii) Prime minus 1.50%. As of September 30, 2021, the Company
had no borrowings under the credit facility. As of September 30, 2021, the
Company's available credit under this facility was $64.2 million as a result of
the issuance of an aggregate amount of $0.8 million of various standby letters
of credit, which were required in connection with certain office leases and
other agreements. The Company incurs a 1% per annum fee on the outstanding
balances of issued letters of credit.

Under the $30.0 million facility, Moelis U.S. may borrow capital until May 24,
2022, the end of the credit period, and must repay aggregate principal balances
by the maturity date of May 24, 2023. Borrowings on the facility bear interest
equal to the Prime rate, payable quarterly in arrears on the last day of each
March, June, September and December of each calendar year. Moelis U.S. had no
borrowing under the credit facility and the available credit under this facility
was $30.0 million as of September 30, 2021.

The Board of Directors of Moelis & Company declared a special dividend of $2.50
per share in addition to a regular quarterly dividend of $0.60 per share. The
$3.10 per share will be paid on November 19, 2021 to Class A common shareholders
of record on November 8, 2021. During the nine months ended September 30, 2021
the Company paid aggregate dividends of $3.70 per share, which excludes the
$3.10 per share that will be paid on November 19, 2021.

During the nine months ended September 30, 2021 and 2020, the Company
repurchased 1,848,029 and 925,857 shares, respectively, pursuant to the
Company's share repurchase program and shares repurchased from its employees for
the purpose of settling tax liabilities incurred upon delivery of equity-based
compensation awards. In July 2021, the Board of Directors authorized the
repurchase of an additional $100 million of shares of Class A common stock
and/or Class A partnership units of Group LP with no expiration date. The
remaining balance of shares authorized for repurchase under the program was
$149.1 million as of September 30, 2021.

Regulatory Capital


We actively monitor our regulatory capital base. Our principal subsidiaries are
subject to regulatory requirements in their respective jurisdictions to ensure
general financial soundness and liquidity. This requires, among other things,
that we comply with certain minimum capital requirements, record­keeping,
reporting procedures, experience and training requirements for employees and
certain other requirements and procedures. These regulatory requirements may
restrict the flow of funds to and from affiliates. See Note 10 of the condensed
consolidated financial statements as of September 30, 2021 for further
information. These regulations differ in the United States, United Kingdom, Hong
Kong and other countries in which we operate a registered broker­dealer. The
license under which we operate in each such country is meant to be appropriate
to conduct an advisory business. We believe that we provide each of our
subsidiaries with sufficient capital and liquidity, consistent with their
business and regulatory requirements.

Tax Receivable Agreement


In connection with the IPO in April 2014, we entered into a tax receivable
agreement with our eligible Managing Directors that provides for the payment to
eligible Managing Directors of 85% of the amount of cash savings, if any, in
U.S. federal, state, and local income tax or franchise tax that we realize as a
result of (a) the increases in tax basis attributable to exchanges by our
eligible Managing Directors and (b) tax benefits related to imputed interest
deemed to be paid by us as a result of this tax receivable agreement. The
Company expects to benefit from the remaining 15% of income tax cash savings, if
any, that we realize.

For purposes of the tax receivable agreement, income tax cash savings will be
computed by comparing our actual income tax liability to the amount of such
taxes that we would have been required to pay had there been no increase to the
tax basis of the tangible and intangible assets of Group LP as a result of the
exchanges and had we not entered into the tax receivable agreement. The term of
the tax receivable agreement commenced upon consummation of the IPO and will
continue until all such tax benefits have been utilized or expired, unless we
exercise our right to terminate the tax receivable agreement for an amount based
on an agreed value of payments remaining to be made under the agreement.

Payments made under the tax receivable agreement are required to be made within 225 days of the filing of our tax returns. Because we generally expect to receive the tax savings prior to making the cash payments to the eligible selling holders of Group LP partnership units, we do not expect the cash payments to have a material impact on our liquidity.


In addition, the tax receivable agreement provides that, upon a merger, asset
sale, or other form of business combination or certain other changes of control
or if, at any time, we elect an early termination of the tax receivable
agreement, our (or our successor's) obligations with respect to exchanged or
acquired units (whether exchanged or acquired before or after such change of
control or early termination) will be based on certain assumptions, including
that we would have sufficient taxable income to fully utilize the deductions
arising from the increased tax deductions and tax basis and other benefits
related to entering into the tax receivable agreement, and, in the case of an
early termination election, that any units that have not been exchanged are
deemed exchanged for the market value of the Class A common stock at the time of

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termination. Consequently, it is possible, in these circumstances, that the actual cash tax savings realized by us may be significantly less than the corresponding tax receivable agreement payments.

Cash Flows


Our operating cash flows are primarily influenced by the amount and timing of
receipt of advisory fees, which are generally collected within 60 days of
billing, and the payment of operating expenses, including payments of incentive
compensation to our employees. We pay a significant portion of incentive
compensation during the first two months of each calendar year with respect to
the prior year's results. Our investing and financing cash flows are primarily
influenced by activities to fund investments and payments of dividends and
estimated partner taxes. A summary of our operating, investing and financing
cash flows is as follows:



                                                             Nine Months Ended September 30,
($ in thousands)                                                2021                  2020
Cash Provided By (Used In)
Operating Activities:
Net income (loss)                                         $      309,464      $           62,875
Non-cash charges                                                 110,003                 105,146
Other operating activities                                       127,670                (64,580)
Total operating activities                                       547,137                 103,441
Investing Activities                                            (93,069)                (38,890)
Financing Activities                                           (375,947)               (144,302)
Effect of exchange rate changes                                  (1,672)                 (2,672)
Net increase (decrease) in cash                                   76,449                (82,423)

Cash, cash equivalents, and restricted cash, beginning of period

                                                        203,284                 168,572

Cash, cash equivalents, and restricted cash, end of period

                                                    $      279,733      $           86,149


Nine months ended September 30, 2021


Cash, cash equivalents and restricted cash were $279.7 million at September 30,
2021, an increase of $76.4 million from $203.3 million at December 31, 2020.
Operating activities resulted in a net inflow of $547.1 million primarily
attributable to cash collected from clients, net of cash operating outflows,
including discretionary bonuses paid during the period. Investing activities
resulted in a net outflow of $93.1 million primarily attributable to cash
inflows for net purchases of investments. Financing activities resulted in a net
outflow of $375.9 million primarily related to the payment of dividends and tax
distributions and treasury stock purchases.

Nine months ended September 30, 2020


Cash, cash equivalents and restricted cash were $86.1 million at September 30,
2020, a decrease of $82.4 million from $168.6 million at December 31, 2019.
Operating activities resulted in a net inflow of $103.4 million primarily
attributable to cash collected from clients net of operating expenses, including
discretionary bonuses paid during the period. Investing activities resulted in a
net outflow of $38.9 million primarily attributable to cash outflows for
construction in progress. Financing activities resulted in a net outflow of
$144.3 million primarily related to the payment of dividends and tax
distributions and treasury stock purchases.

Contractual Obligations


As of September 30, 2021, the Company has a total payable of $307.6 million due
pursuant to the tax receivable agreement in the condensed consolidated financial
statements and of this amount an estimated $2.8 million will be due in less than
one year. These amounts represent management's best estimate of the amounts
currently expected to be owed under the tax receivable agreement. Payments made
under the tax receivable agreement are required to be made within 225 days of
the filing of our tax returns. We generally expect to receive the tax savings
prior to making the cash payments to the eligible selling holders of Group LP
partnership units, we do not expect the cash payments to have a material impact
on our liquidity. There were payments of $16.3 million made pursuant to the tax
receivable agreement during the first nine months of 2021.

Additionally, the Company has contractual obligations related to its leases for
corporate office space and an aircraft. Please see Note 11 to the condensed
consolidated financial statements for details regarding when these obligations
are due.

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Market Risk and Credit Risk

Our business is not capital-intensive and we do not invest in derivative instruments or, generally, borrow through issuing debt. As a result, we are not subject to significant market risk (including interest rate risk, foreign currency exchange rate risk and commodity price risk) or credit risk.

Risks Related to Cash and Short-Term Investments


Our cash and cash equivalents include all short-term highly liquid investments
that are readily convertible to known amounts of cash and have original
maturities of three months or less from the date of purchase. We invest most of
our cash in highly-rated municipal bonds, U.S. government agency debt securities
and U.S. treasury instruments. Cash is maintained in U.S. and non-U.S. bank
accounts. Most U.S. and U.K. account balances exceed the FDIC and FSCS coverage
limits. In addition to cash and cash equivalents, we hold various types of U.S.
treasury instruments that are classified as investments on our condensed
consolidated statement of financial condition as they have original maturities
of three months or more (but less than twelve months) from the date of purchase.
We believe our cash and short-term investments are not subject to any material
interest rate risk, equity price risk, credit risk or other market risk.

Credit Risk


We regularly review our accounts receivable and allowance for credit losses by
considering factors such as historical experience, credit quality, age of the
accounts receivable, and the current economic conditions that may affect a
customer's ability to pay such amounts owed to the Company. We maintain an
allowance for credit losses that, in our opinion, provides for an adequate
reserve to cover losses that may be incurred. See "-Critical Accounting
Policies-Accounts Receivable and Allowance for Credit Losses."

Exchange Rate Risk


The Company is exposed to the risk that the exchange rate of the U.S. dollar
relative to other currencies may have an adverse effect on the reported value of
the Company's non­U.S. dollar denominated assets and liabilities. Non­functional
currency­related transaction gains and losses are recorded in the condensed
consolidated statements of operations. In addition, the reported amounts of our
revenues and other income from investments may be affected by movements in the
rate of exchange between the pound sterling, euro, Brazilian real, Hong Kong
dollar, rupee, Australian dollar, and the U.S. dollar, in which our financial
statements are denominated. For the three months ended September 30, 2021 and
2020, the net impact of the fluctuation of foreign currencies in other
comprehensive income (loss) in the condensed statements of comprehensive income
were losses of $3.0 million and $0.5 million, respectively, and losses of $1.7
million and $2.2 million for the nine months ended September 30, 2021 and 2020,
respectively. We have not entered into any transactions to hedge our exposure to
these foreign currency fluctuations through the use of derivative instruments or
other methods.

Critical Accounting Policies

We believe that the critical accounting policies included below represent those
that are most important to the presentation of our financial condition and
results of operations and require management's most difficult, subjective and
complex judgment.

The preparation of financial statements and related disclosures in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Estimates and assumptions are reviewed
periodically, and the effects of revisions are reflected in the period for which
they are determined to be necessary.

All intercompany balances and transactions within the Company have been eliminated.

Revenue and Expense Recognition


We earn substantially all of our revenues from advisory engagements, and, in
many cases, we are not paid until the completion of an underlying transaction.
The Company recognizes revenues from providing advisory services when or as our
obligations are fulfilled and collection is reasonably assured. The vast
majority of our advisory revenues, which include reimbursements for certain
out-of-pocket expenses, are recognized over time; however, a small number of
transactions may be recognized at a point in time. We provide our advisory
service on an ongoing basis which, for example, may include evaluating and
selecting one of multiple strategies. During such engagements, our clients are
continuously benefitting from our counsel and the over time recognition matches
the transfer of such benefits. However, the recognition of transaction fees is
constrained until substantially all services have been provided, specified
conditions have been met and it is probable that a significant reversal of
revenue will not occur in a future period. Upfront fees and retainers specified
in our engagement letters that meet the over time criteria will be recognized on
a systematic basis over the estimated period where the related services are
performed. Revenues may be recognized at a point in time if the engagement
represents a singular objective that does not transfer any notable value until
formally

                                       34
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completed, such as when issuing a fairness opinion. In these instances, the point in time recognition appropriately matches the transfer and consumption of our services.


Incremental costs of obtaining a contract are expensed as incurred since such
costs are generally not recoverable and the typical duration of our advisory
contracts is less than one year. Costs to fulfill contracts consist of
out-of-pocket expenses that are part of performing our advisory services and are
typically expensed as incurred, except where the transfer and consumption of our
services occurs at a point in time. For engagements recognized at a point in
time, out-of-pocket expenses are capitalized and subsequently expensed in the
condensed consolidated statement of operations upon completion of the
engagement. The Company records deferred revenues when it receives fees from
clients that have not yet been earned (e.g. an upfront fee) or when the Company
has an unconditional right to consideration before all performance obligations
are complete (e.g. upon satisfying conditions to earn an announcement fee, but
before the transaction is consummated).

Accounts Receivable and Allowance for Credit Losses

The accompanying condensed consolidated statements of financial condition present accounts receivable balances net of allowance for credit losses based on the Company's assessment of the collectability of customer accounts.


The Company maintains an allowance for credit losses that, in management's
opinion, provides for an adequate reserve to cover losses that may be incurred.
For purposes of determining appropriate allowances, the Company stratifies its
population of accounts receivable into two categories, one for short-term
receivables and a second for private funds advisory receivables. Each population
is separately evaluated using an aging method that results in a percentage
reserve based on the age of the receivable, in addition to considerations of
historical charge-offs and current economic conditions.

After concluding that a reserved accounts receivable is no longer collectible,
the Company will charge-off the receivable. This has the effect of reducing both
the gross receivable and the allowance for credit losses. If a reserved accounts
receivable is subsequently collected, such recoveries reduce the gross
receivable and the allowance for credit losses and is a reduction of bad debt
expense, which is recorded within other expenses on the condensed consolidated
statement of operations. The combination of recoveries and the provision for
credit losses of a reported period comprise the Company's bad debt expense.

Income Taxes


The Company accounts for income taxes in accordance with ASC 740, " Accounting
for Income Taxes " ("ASC 740"), which requires the recognition of tax benefits
or expenses on temporary differences between the financial reporting and tax
bases of its assets and liabilities by applying the enacted tax rates in effect
for the year in which the differences are expected to reverse. Such net tax
effects on temporary differences are reflected on the Company's condensed
consolidated statements of financial condition as deferred tax assets. Deferred
tax assets are reduced by a valuation allowance when the Company believes that
it is more-likely-than-not that some portion or all of the deferred tax assets
will not be realized.

ASC 740 prescribes a two-step approach for the recognition and measurement of
tax benefits associated with the positions taken or expected to be taken in a
tax return that affect amounts reported in the financial statements. The Company
has reviewed and will continue to review the conclusions reached regarding
uncertain tax positions, which may be subject to review and adjustment at a
later date based on ongoing analyses of tax laws, regulations and
interpretations thereof. For the nine months ended September 30, 2021 and 2020,
no unrecognized tax benefit was recorded. To the extent that the Company's
assessment of the conclusions reached regarding uncertain tax positions changes
as a result of the evaluation of new information, such change in estimate will
be recorded in the period in which such determination is made. The Company
reports income tax related interest and penalties relating to uncertain tax
positions, if applicable, as a component of income tax expense. For the nine
months ended September 30, 2021 and 2020, no such amounts were recorded.

Recent Accounting Developments


For a discussion of recently issued accounting developments and their impact or
potential impact on our financial statements, see Note 3-Recent Accounting
Pronouncements, of the condensed consolidated financial statements included in
this Form 10-Q.

                                       35

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