Anda di halaman 1dari 27

North America Equity Research

12 May 2014

Initiation

Overweight

Moelis

MC, MC US
Price: $27.55

Initiating Coverage with an Overweight Rating

Price Target: $31.00

We are recommending Moelis with an Overweight rating and 12/2014 price target
of $31. As a leading investment banking boutique, we believe Moelis is
positioned to take advantage of an improving M&A environment, one in which
boutiques are gaining market share as companies seek multiple advisors. Moelis
has a unique compensation structure that we feel better promotes internal growth
and reduces the potential that Moelis will stagnate and peak, as have many other
boutiques historically. We see earnings growth near term being driven by the
seasoning of its MDs and its expansion into new sectors and geographies.
M&A environment recovering. The M&A environment has been slowly
recovering since its recent trough in 2009. Total global deal value recovered to
$2.5tn in 2013 compared with 2009s level of $2.3tn, but it still remains well
below the peak of $4.6tn reached in 2007. Activity levels so far in 2014 are
amongst the strongest since 1995, which we view as a particular benefit to the
boutiques, which have been gaining deal market share, and to Moelis
particularly given its M&A focus with no trading or fixed income businesses.

Brokers, Asset Managers &


Exchanges
Kenneth B. Worthington, CFA

AC

(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com
Bloomberg JPMA WORTHINGTON <GO>
J.P. Morgan Securities LLC
Price Performance
32
30
$ 28
26
24
May-13

Aug-13

Nov-13

Feb-14

May-14

MC share price ($)


RTY (rebased)

Boutiques gaining market share. Boutiques are gaining meaningful market


share of M&A fees. These share gains are being driven by both increased use of
multiple advisors on deals and by a greater absolute use of boutiques given the
recent negative press associated with larger banks. Boutiques now account for
~22% of advisory deal value, up from ~18% in 2009 and ~ 9% in 2000.
Moelis developing a culture of sustainable growth. Moelis has an innovative
compensation structure of restricted compensation as well as clawbacks on cash
awards. Bankers have access to unvested cash, but the potential to have to repay
that award encourages retention and MD focus on junior banker development.
The banking team is cross-trained and collaborative across disciplines, sectors
and geography, enabling greater efficiency and productivity.
Relative valuation attractive; well positioned to earn a premium. We value
Moelis at 17.5x our 2015 EPS estimate, a discount to its boutique peers due to
its more limited operations as a public company and lower-than-peer projected
growth. However, we believe earnings forecasts for Moelis are more
conservative than peers and that as the differences are reconciled, projections
for Moelis will rise and valuation will expand. Our 12/2014 price target is $31.

Moelis & Company (MC;MC US)


FYE Dec
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY

2013A

2014E

2015E

2016E

0.01
0.24
0.17
0.39
0.80

0.37A
0.26
0.37
0.56
1.56

0.38
0.30
0.40
0.68
1.77

0.40
0.30
0.43
0.74
1.88

Source: Company data, Bloomberg, J.P. Morgan estimates.

Company Data
Price ($)
Date Of Price
52-week Range ($)
Market Cap ($ mn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End Date

27.55
09 May 14
28.14-25.75
1,497.80
Dec
54
31.00
31-Dec-14

See page 24 for analyst certification and important disclosures.


J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
www.jpmorganmarkets.com

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

Table of Contents
Investment Thesis ....................................................................3
Risks to Rating and Price Target ............................................4
Company Description ..............................................................5
Moelis Business Overview ......................................................5
Financial Outlook ...................................................................20
Valuation .................................................................................20
Model .......................................................................................21

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

Investment Thesis
Moelis & Co. (MC)
Overweight
Moelis 2013 Revenue Mix
RE, Gmbl.,
Lodg.,&
Leisure,
12%

Healthcare,
6%

Cnsmr,
Retail &
Rest., 11%
Fin. Inst &
Gov't, 18%

Energy &
Power, 4%

Tech,
Media,
Telecom,
28%

Industrials,
21%

Source: Company reports.

Industry (Avg) Mix(5yr avg based on rank


value

RE, Gmbl.,
Lodg.,& Leisure,
9%

Healthcare, 9%

Cnsmr, Retail &


Rest., 12%

Fin. Inst &


Gov't, 15%

Energy &
Power, 19%

Tech, Media,
Tele com, 18%

Source: Company reports.

Industrials,
19%

Moelis Participates in the Growing M&A Marketplace


We view the M&A business as attractive, as it generates high returns on equity and
has stable margins. The business generates high revenues with a minimum amount of
capital and number of employees. Barriers to success are high given that its a highly
relationship-driven business. We expect it will be an increasingly valuable business
as bigger banks seek less capital-intensive sources of revenue given the increased
regulatory costs impacting the trading and fixed income businesses.
Data shows that global M&A activity levels are still down meaningfully compared to
pre credit crisis levels, offering potentially meaningful revenue upside. Activity
levels as measured by deal value completed were $2.4tn in 2013, well below peak
levels achieved in 2007. As a percent of GDP, M&A deal value is 17.4% today
versus over 30% in past peaks and the 23% average over the past two decades. Deal
activity has been improving, with activity levels growing steadily since their recent
trough in 2009. In fact, 2014 has been one of the strongest starts to a year since 1995,
which we believe bodes well for the near- and long-term M&A outlook.
Unlike other banks and most boutiques, Moelis is a pure-play on M&A. Given the
asset management outlook is more uncertain with choppy markets, the exchange
outlook is poor with falling volumes, and the banking outlook is challenged by
higher capital requirements, we believe an investment based on the growing M&A
market would be well placed.
Boutiques Are Taking Market Share
There has been a bigger shift of activity levels to the boutiques over the past 13 years
(2000-2013). Corporate boards of directors are increasingly seeking the independent
advice presented by the boutiques. We see this in the uptick of deals utilizing more
than one advisor, a number that is up 50% over the last 10 years. Boutiques were
involved in ~39% of M&A transactions in 2013, up from ~27% a decade before.
Given the continued demand for multiple advisors and the migration of bankers from
the bulge bracket to boutiques, we see boutiques continuing to gain share.
Moelis Has Developed a Culture for Success, Driving Up Production per Banker
We believe Moelis has developed a culture that distinguishes it from its larger and
smaller peers, one that permits it to grow earnings quicker than peers over time. The
focus point of the differentiation is compensation and Moeliss ability and
willingness to use compensation to influence banker and MD behavior.
Moelis offers restricted stock and options like many other investment banks. What is
different, however, is that Moelis also has a clawback provision for its cash
compensation, which is calculated off a single global bonus pool that doesnt
segment based on region, product or sector.
The nature of the bonus pool and clawback provision increases the level of influence
that Moeliss management has on banker/MD behavior it goes beyond tying pay to
production. Compensation arrangements increase the incentives for senior bankers to
train junior personnel, developing talent for the longer-term success of Moelis. Its

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

the sharing of relationships and contacts as well as sector and banking knowledge
that helps drive better production out of the junior bankers over time.
Earnings Upside Comes from Expansion into New Geographies and Sectors
Earnings upside should result from the seasoning of the new MDs. Productivity
typically increases over time for MDs, which for Moelis has gone from an average of
$4mn in year 1 to $8mn by year 5. Having hired 200 junior bankers over the last
three years, and having brought on and promoted over 20 MDs over the last two
years, we see opportunity for upside. We model that productivity per banker/year
will rise from $5mn in 2013 to $6.4mn in 2016. This leads to projected revenue
increases over that time of $135mn on productivity alone.
Valuation Moelis Comes at a Discount, Offering Potential Upside vs Peers
As a new publicly traded company, we believe investors are valuing Moelis at a
discount to peers while they determine the aggressiveness/conservativeness of
revenue/expense guidance. If the companys compensation structure can drive higher
and more effective growth than expected over the interim, allowing the firm to grow
through the levels at which other boutiques over time have gotten capped. Then we
expect Moelis to go from trading at a discount to trading at a premium to peers.
Moelis currently trades at ~15.5x our 2015 EPS estimate of $1.77, a 3.4x discount to
the peer average. While growth projections are lower for Moelis than its peers, we
think conservative guidance (and therefore estimates) is the root cause. If the M&A
environment continues to improve, then Moelis could exceed estimates and
experience multiple expansion. We value Moelis at 17.5x our 2015 EPS estimate, a
small discount to where the peer group is trading. This brings us to a December
2014 price target of $31, representing upside of ~13% from its current stock price.

Risks to Rating and Price Target


Reputational Risk
We see brand as particularly important to Moeliss business, especially given
Moeliss smaller size and more limited operational history. Were the brand to get
damaged, it could impair the perception of Moelis being able to offer unconflicted
advice, potentially meaningfully driving down its activity, earnings and valuation.
Product Conflicts
Boutiques have been winning market share based on their ability to offer less
conflicted advice, which we think reflects its smaller size and focus on the M&A
advisory. Should the need for other products such as financing play a greater role in
adviser selection, boutiques could suffer losses in market share.
Market Risk
Given Moeliss exposure to market conditions, an adverse M&A environment could
have a negative impact on earnings, as it doesnt have the diversification of many of
its peers. As such, it could be subject to more downside risk.

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

Key Man Risk


A departure by Ken Moelis, the founder and CEO of Moelis & Co., from Moelis
could impair the firms reputation, its ability to attract bankers and clients, and thus
hinder the companys ability to grow and prosper.

Company Description
Moelis & Company is a leading global independent investment bank that provides
innovative strategic and financial advice to a diverse client base, including
corporations, governments and financial sponsors. Moelis advises clients across all
major industry sectors and offers strategic solutions that include but are not limited to
mergers and acquisitions, restructuring and recapitalization, as well as corporate
finance. Moelis employs over 300 advisory professionals, which includes 80+
Managing Directors in 15 offices around the globe who have advised on over
$1 trillion of transactions since the companys inceptions in 2007. The company
became publicly traded in April 2014, and J.P. Morgan acted as a passive advisor.

Moelis Business Overview


Moelis & Co. is one of the leading independent investment banks, offering advisory
services across all major industry sectors to global corporations, governments, and
financial sponsors. As part of its advisory practice, Moelis has one of the top
restructuring businesses. The firm was ranked No.1 global restructuring advisor in
2009 and has placed 12th overall in the US M&A business.
Moeliss Operations Are Broad in Sector and Geography
Moelis participates in all major industries, where it offers traditional M&A advisory
services in the Consumer, Retail & Restaurants, Financial Institutions, Financial
Sponsors, General Industrials, Healthcare, Natural Resources, Real Estate, Gaming,
Lodging & Leisure and Technology, Media & Telecommunications sectors. The
company fully integrates these sectors within its M&A, Recapitalization &
Restructuring, Capital Markets, and Financial Institutions advisory franchises.
Moelis seems to be best known for its work within the General Industries, Media,
FIG and Gaming & Lodging sectors, where its senior bankers have a long history of
expertise and established client relationships. Moelis offers a full suite of advisory
services (as do its peers), but the holistic approach to providing advisory solutions
with integrated capabilities seems differentiated to us and has helped the company
win mandates in some of the biggest advisory deals over the last few years, including
the 30bn+ sale of Natixiss derivative portfolio. Other notable transactions include
the $29.6bn American Airline Chapter 11 bankruptcy and the following $17bn
merger with US Airways, where Moelis demonstrated its integrated advisory
capabilities by working on both the restructuring /bankruptcy as well as the merger.
On the following page, in Table 1, we highlight some of Moelis biggest deals.

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

Table 1: Moelis's Top Cross-Border Deals Demonstrate its Global Footprint and Diverse Industry
Expertise
Client

Deal Size

Transaction

Anheuser Busch

$61.2bn

$61.2 billion sale to InBev SA

Yahoo

$44.6bn

$44.6 billion unsolicited proposal from Microsoft Corporation

Natixis

30bn

Geographies

30 billion sale of most of its complex credit derivative portfolio

Omnicom Group

$35.1bn

American Airlines

$46.6bn

$35.1 billion merger with Publicis Groupe SA*


$29.6 billion Chapter 11 Reorganization;
$17.0 billion merger with US Airways Group, Inc.

Heinz

$28bn

$28 billion sale to Berkshire Hathaway Inc. and 3G Capital, Inc.

Hilton

$26.5bn

$26.5 billion sale to The Blackstone Group L.P.

Gov't of Dubai

$24.9bn

$24.9 billion restructuring of Dubai World Corporation

Source: Company data.

Part of Moeliss success has been driven by its resources outside the US and its
ability to participate in cross-border transactions, which, as seen above, include many
of the larger transactions by deal size. Moelis has made significant investments in
expanding its global advisory footprint and currently advises clients in six regions
(North America, South America, Europe, Middle East, APAC, and China) where it
operates out of 15 offices.
Not surprisingly, Moelis has its biggest presence in North America, where it has six
offices, but sees greater advisory opportunities and attractive industry sectors in
Europe and Asia Pacific, where the company is looking to expand its presence. South
America/LATAM is another strategically important location for Moelis. With a lot of
advisory potential, especially within the commodities, utilities and energy sectors,
Moelis sees budding opportunities for its business there and has already initiated
efforts to establish a presence in the region.
Figure 1: Moeliss Global Footprint (No. of Offices)
%

Mainland China (1)


7%
Asia &
Australia (3)
20%
Middle East (1)
7%
Europe (3)
20%

Source: Company data.

North America
(6)
40%

South America (1)


6%

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

Despite a Competitive Landscape, Moelis Continues to Take Share and Grow


Given Moeliss position as one of the fastest growing independent banks, both
regionally and internationally, the firms competitors include large bulge-bracket
investment banks as well as boutique peers like Greenhill, Evercore, and Lazard.
Moeliss principal businesses are strategic advisory (M&A) and restructuring/
recapitalizations. By its nature, restructuring is inherently a cyclical business and was
a meaningful source of revenue for Moelis during and immediately after the financial
crisis, with the company being ranked as the No.1 global restructuring advisor in
2009. Moeliss biggest revenue driver, however, continues to be its M&A services
segment, which has grown meaningfully in recent years, with the company ranking
as the no.12 US M&A advisor since 2007, growing to generate ~4% M&A market
share most recently in 2013.

M&A Environment Is Attractive and Growing/Recovering


We view M&A as an attractive business with high ROEs as high as 46% for some
peers such as Lazard. Given the increasing capital intensity for fixed income and
derivative businesses, we think the advisory business, with its more consistent but
still attractive margins in the 30% range, will become increasingly valuable to the
more regulated bulge bracket brokers, and thus the standalone companies should earn
a higher valuation over time.
M&A Business Slowly Recovers from the Financial Crisis, with Meaningful
Upside Back to the Prior Volume Peak in 2007
M&A activity has been slowly recovering since the end of the financial crisis in early
2009. The number of M&A transactions has increased over the last five years, and
we have witnessed an upward trend in deal volumes since the more recent trough in
2009. We also point out that M&A activity is having one of the best starts to the year
in the US, with ~$650bn announced through April 30. Over the last two decades,
only 2000 and 2007 started more strongly.
Below, in Figure 2, we show M&A global deal value over the last nearly two
decades. In Figure 3, we show the recovery in the number of transactions each year,
both within and outside the US. We note that while deal value and transaction
activity levels are off trough levels, we see meaningful opportunity to get back to the
peak levels experienced in 2000 and 1997.
Figure 2: M&A ($ Deal Value in mm) Has Shown Modest
Increase over the Last 5 years
5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0

Figure 3: Total M&A Activity Globally (# of


Transactions); M&A Transactions Have Peaked since
2009
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0

Total- ALL M&A Activity Globally (Deal Value $)

Source: J.P. Morgan estimates, Dealogic.

Total M&A Activity Globally (# of Transactions)

Source: J.P. Morgan estimates, Dealogic.

Figures 2 and 3 support our view that activity levels and therefore Moeliss earnings
remain well below their potential based on industry activity levels seen both at peak
and at more normal levels. Figure 4 on the following page highlights M&A deal
7

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

value as a percent of 1-year trailing GDP, which is still well below the highs of 19992000 and 2006- 2007. All of this points to the assessment that deal value is still in the
earlier stages of a cyclical recovery, with meaningfully more room for greater
activity levels.
Figure 4: M&A Deal Value as a % of the 1-yr Trailing GDP, Shows that There Is Still a Lot of Room
for an M&A Recovery Back to Previous Highs
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
M&A as % of 1yr Trailing GDP
Source, J.P. Morgan estimates, Dealogic Bloomberg.

Figure 5: Total M&A Deal Value ($) as a % of ECM Deal


Value ($). M&A Activity in Remains Depressed vs. ECM
Activity

Figure 6: Total M&A Deal Value ($) as % of DCM


(Corp Bond) Deal Value ($). M&A Activity Remains
Depressed vs. DCM (Cop. Bond) Activity
450%
400%
350%
300%
250%
200%
150%
100%
50%
0%

700%
600%
500%
400%
300%
200%
100%
0%
M&A Total as a % of ECM Deal Value ($)

Source, J.P. Morgan estimates, Dealogic.

Total M&A as % of DCM (Corp Bond) Deal Value

Source: J.P. Morgan estimates, Dealogic.

Based on current revenue at Moelis, were activity levels to return to peak levels and
remain there for a year, we estimate Moeliss revenue could grow 70%-80%, which
could lead to an incremental $1.10 of EPS in 2015.
Continued Activity in Recapitalization and Restructuring Market
We believe the restructuring business could also experience growth from current
levels as more frothy credit dynamics season. The amount of leverage, including
floating rate instruments, that companies have taken on in recent years could become
the catalyst for a more consistent recapitalization and restructuring market in the
coming years. As interest rates rise, credit markets could become more difficult to
access, even with an improving macroeconomic environment, increasing the need for
restructuring and recapitalization services. While restructuring has often been
countercyclical to traditional M&A, we see the potential for both Advisory and
Restructuring to potentially be strong at the same time.
Both 2012 and 2013 represented record years of leveraged finance issuance in the
U.S., as companies took advantage of historically low borrowing costs to leverage
their capital structures. We believe Moelis is well positioned to assist companies
8

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

through its holistic approach to providing solutions to clients in both robust and
challenging economic environments.
The Restructuring Business Provides a Strong Ballast to the Traditional
Advisory Business
The M&A business is particularly rewarding in periods of high deal activity, but is
typically cushioned in cycle downturns from strength in the restructuring business. In
times of economic uncertainty and weaker M&A activity, bankers often offer other
investment banking services like recapitalization and restructuring to companies
undergoing bankruptcy or which are in financial distress.
Moelis has done a good job in building out its restructuring business, in our view.
While the restructuring franchise has just a handful of truly dedicated bankers with
particularly focused technical expertise, Moelis has cross trained advisory bankers in
restructuring. According to data provided by Moelis, 2012 and 2013 represented two
of the biggest years of leverage finance issuance as companies took advantage of
lower borrowing costs to finance their capital expenditures. The fact that many
companies have taken on additional leverage in recent years due to historically low
interests rates provides some indication that activity will continue (as interest rates
rise or credit become tighter) in restructuring for Moelis over the next few years.

Boutiques Are Well Positioned within M&A Market


Continue to Gain Share
Independent investment banks/boutiques have taken advantage of the dislocated
financial markets over the recent years to gain M&A advisory market share, which
we believe is a result of continued turmoil and structural struggles at the lager (bulge
bracket) banks, which have faced regulatory scrutiny and a shrinking cost structure.
This is particularly true of European banks, which have continued to disclose layoffs
in the wake of the financial crisis in 2008.
Below, in Figure 7, we show that the boutiques are participating in an everincreasing percentage of M&A deal value, according to Dealogic.
Figure 7: Boutiques Taking M&A Market Share Shown Below as Boutique (Deal $) as % of Total
M&A (Deal $); Boutique Activity Has Increased, Driving Investment Banking Revenues Higher
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Boutique % Share of M&A activity
Source: J.P. Morgan estimates, Dealogic.

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

Corporate Management Teams and Boards of Directors Increasingly Seeking


Boutique Advisors
The dynamics and the nature of advisory services sought by clients have been
increasingly shifting to what can be perceived as more independent advice. In this
search for flexibility, clients corporate boards have been hiring boutiques with
specialized expertise to work alongside the larger banks, and are increasingly hiring
the boutiques instead of and in addition to the bulge bracket firms. No longer do we
typically see one advisor on transactions, but rather two, three, four or five advisors
participating and ultimately sharing the advisory fees. Clients are increasingly
interested in obtaining broad-based advice that enables them to build relationships
with different advisors and utilize these partnerships for future business needs.
Having this flexibility not only helps clients corporate boards hire boutiques with
specialized expertise to work alongside the larger banks, and are increasingly hiring
the boutiques instead of the bulge bracket firms.
Hiring multiple advisors and allocating work to different advisors working on a
single transaction has given boutiques a greater foothold within higher-end deals
(high profile/larger $ size) that in the past were serviced by a few top bulge bracket
firms. Running leaner teams with extensive M&A advisory expertise has given
boutiques an arguably slight edge/competitive advantage in pure M&A advisory over
the larger banks, some of which have struggled to retain top talent and support
continuity of relationships and services. Generally speaking, the ability of boutique
firms to hire and then deploy well-rounded seasoned bankers has enabled them to
operate leaner and more efficient teams that still deliver high caliber services to
clients.
Figure 8: The Number of Deals with More than One Target Advisor Has Doubled Since 2000
14%
12%
10%
8%
6%
4%
2%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
% of M&A Deals with >1 Target Advisor(s) out of Total # of M&A Deals
Source: J.P. Morgan estimates, Dealogic.

Larger Banks Suffer Operational, Regulatory and Financial Challenges,


Resulting in Banker Turnover
Sweeping changes in the regulatory landscape in the aftermath of the financial crisis
have made it easier for boutiques like Moelis to hire bankers from larger banking
competitors. Bulge bracket firms face heightened operational and regulatory
challenges that have resulted in lower compensation. Larger capital requirements and
resulting profitability challenges in non-banking businesses have made larger banks
more reliant on growing profits in their advisory revenues to offset rising capital
costs elsewhere, and lower compensation has become an industry-wide phenomenon.
10

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

With banker compensation impacted by the successes and failures of other


departments within larger, diversified financial organizations, and with pressure to
cross-sell financial products, Moelis has had an easier time recruiting and retaining
MDs.

Moelis Growing Fast Within the Boutique Segment


Moelis has experienced robust revenue growth over the last six years, driven by a
very strong restructuring franchise and a growing M&A business. Moelis has
generated a revenue CAGR of 45%, bringing on a healthy mix of new M&A and
restructuring mandates by increasing headcount and expanding its advisory practice
internationally.
When comparing Moeliss activity levels to those of other boutiques, we see the
company has been winning market share, having grown to ~5% of the advisory
market at the end of 2013. Below, in Figure 9, we show Moeliss mix of Advisory
and Restructuring revenue. It is apparent here that Moelis has a meaningful franchise
in both disciplines.
Figure 9: Strategic Advisory Has Shown Higher Revenue Distribution Over the Last Three Years,
Whereas Restructuring (more cyclical businesses) Was Greater in 2009 -2010
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
2008

2009

2010
Strategic Advisory

2011
Restructuring

2012

2013

Source: Company data.

In Figure 10, we show Moeliss growth as a function of the increase in its MD


headcount.
Figure 10: US and International MD Headcount Has Increased Every Year Since 2008; Larger
Growth Has Occurred in R.O.W. Over the Last 3 Years, Where MD Headcount Grew to 23 in 2013
100
90
80
70
60
50
40
30
20
10
0

22

22

54

58

23

13
6
1
18

34

2008

2009

45

2010
US Advisory MDs

2011
2012
ROW Advisory MDs

63

2013

Source: Company data.


11

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

In Figure 11, which follows, we see that Moelis is adding MDs (now largely through
internal promotions) at a more rapid pace than at its leading boutique competitors.
We believe Moelis is well positioned to grow more quickly than other boutique peers
given its smaller size and its more rapidly expanding base of producing MDs. Here,
we note that Moelis has been growing MDs at a 35% CAGR compared with peer
growth between 0% and 15% annually
Figure 11: Moelis Is Showing Robust MD/SMD Headcount Growth Compared to Peers over 5 Yrs
160

151 151

140
120
100

86

80

66

60
40
20
0

70
52

34
19

Moelis MD
Headcount 5 Yr CGAR: 35%

Evercore SMD
Headcount 5-Yr
CAGR: 14%

2008

Greenhill MD
Headcount (5Yr CAGR: 6%)

Lazard MD
Headcount (5Yr CAGR: 0%)

2013

Source: Company data.

Geographic Expansion Helps Drive Earnings Growth


Moelis has shown particular strength in multiple sectors (particularly in TMT and
FIG), and that has enabled the company to compete for some of the most prestigious
advisory mandates. Although the company provides banking services in the major
industrial sectors, it has significant room to further build out its banking base by
expanding into new areas.
One of the leading sectors for Moelis is Tech, Media and Telecom, where it
generated 28% of its deal value vs. the industry average of 18%. Other big sectors for
Moelis include Healthcare, FIG and Industrials, in which it has an above-industryaverage presence.
Moelis believes the greatest opportunities lie in the energy sector, where it has a
smaller presence at just 4% of deal value vs. the industry average of 18%. To drive
an increased presence in Energy, Moelis has expanded into Brazil, has a number of
initiatives in Asia and has an Australian JV that should all help drive a bigger
presence for Moelis. Other areas of growth potential include the Canadian
energy/materials markets as well as the industrials market in Germany.

12

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

Figure 12: Moeliss Sector Diversification

Figure 13: Industry Diversification by Sector


Consumer, Retail &
Restaurants

Consumer, Retail &


Restaurants

6%
4%

Financial Insitutions and


Gov't

12% 11%

9%
9%

Industrials

18%
28%

21%

Industrials

15%

Tech, Media and Telecom

Tech, Media and Telecom

19%

Energy & Power

19%
18%

Healthcare
RE, Gaming, Lodging &
Leisure

Source: Company data.

Financial Insitutions and


Gov't

12%

Energy & Power


Healthcare
RE, Gaming, Lodging &
Leisure

Source: Company data.

Interestingly, Moelis has indicated that other banks have pulled back resources
overseas, leaving more opportunities for Moelis to win market share abroad. There
have been press reports about some of the larger banks like Barclays and RBS taking
steps over the last 18 months to further cut and/or scale back their global banking
operations. The sovereign debt crisis in Europe, along with political tensions in
EMEA, have forced the European banking sector to downsize operations in order to
rein in costs and increase capital buffers. The impacts of the latter provides smaller
firms like Moelis an opportunity to further penetrate and acquire greater share of the
European advisory market.

Moelis Business Model Designed for Sustainable Growth


We believe Moeliss operating positioning and strategy can allow for sustainable
growth. Many other boutiques are challenged to grow beyond a certain size, with the
limiting factor usually revolving around the capacity of the founder/producer.
However, we see Moelis having built an advisory business that is developing its
growth internally and is aggressively using compensation to drive the right incentives
and structure to sustain such growth. Furthermore, as the companys more newly
promoted and hired bankers season, we expect to see more meaningful revenue
growth. Longer term, we see the potential for Moelis to grow a business that has
elements of meaningful breadth by both region and by sector.
Moeliss Flat Hierarchy Creates the Building Blocks for Sustainable Growth
Moelis operates on the premise of a flat corporate structure that integrates the full
suite of advisory capabilities across its 15 office locations around the world. From
senior MDs down to junior bankers, Moeilss employees success is a product of low
information barriers, knowledge sharing, and implementation of best practices. These
instances promote partnership, passion, and hard work that enable Moelis to deliver
innovative solutions that help the company differentiate itself from its competitors.
A Strategy to Develop Bankers Rather than Hire from the Outside
Moelis has created a culture that develops its personnel, with the intention of
growing more from within over time rather hiring existing prominent senior bankers.
Successful development of banking talent is a function of senior bankers willing to
spend time and resources to share ideas and contacts to help develop the more junior
13

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

bankers. An example is Moeliss mentorship program, designed to give junior


bankers an opportunity to receive coaching (formal and informal) from their senior
counterparts. This type of an investment in intellectual capital is an invaluable
measuring stick for the young talent employed at Moelis. The company firmly
believes this practice will harvest new talent and help the firm grow organically.
Bankers with a Variety of Skills Improves the Chances to Win Deals, but also
Improves Efficiency
The flat corporate structure also complements the fluid nature of Moeliss
business. Moeliss flat structure enables it to bring together different parts of the
organization to deliver different services to its advisory customers. Its bankers are
cross-trained in mergers and restructuring and are thus able to better interpret and
offer more complete advice. While other firms have dedicated restructuring efforts
that can bring their expertise to advisory client both on demand and proactively,
Moeliss bankers can provide advice in an integrated manner with advisory services,
offering the potential for additional business wins.
The most relevant recent example of success here is the December 2013 Chapter 11
reorganization of American Airlines and its subsequent merger with US Airways.
Here, the bankers were able both to effectively navigate the bankruptcy and
reorganization process, which flowed into a merger with US Air. While this
transaction could have been advised by any number of firms with both strong
advisory and restructuring capabilities, Moelis was able to effectively advise
American in part because of the restructuring experience of its advisory bankers.
The cross-expertise of Moeliss bankers in both advisory and restructuring leads, we
believe, to a more efficient and resilient business model across the cycle. Directly,
having more expertise in restructuring leads to greater counter-cyclicality of
earnings, with more resources involved in advisory during stronger economic cycles
and restructuring during the weaker parts of the cycle. Indirectly, there is a greater
chance Moelis can retain its people through the banking boom and bust cycles with
greater banker productivity. Such efficiency has been seen for years amongst the
junior banking ranks with flexibility across sectors, but the ability for senior bankers
to provide advisory work across mergers and restructuring in a broad base is
differentiated.
Growth by Expanding its Producing Base of Banking Managing Directors
Moelis has been driving revenue growth and growth potential by building its base of
Managing Directors. While we see more of the growth over time coming from its
development of banking talent internally, as the firm has grown, it has both hired
from the outside and developed from within. As these MDs further season, there is
meaningful upside for productivity improvements, potentially driving solid earnings
growth.

14

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

Figure 14: Moeliss MD Headcount Has a 6-yr CAGR of 28%


100
90
80
70
60
50
40
30
20
10
0

76

80

86

58
40
19

2008

2009

2010
2011
Total MDs

2012

2013

Source: Company data.

Moelis Embraces Growth by Heavily Investing in Intellectual Capital


Moelis has aggressively expanded its base of Managing Directors over the last five
years, as it has broadened its business both within and outside the US. The expansion
has come in the form of external hires as well in internal promotions.
Through 2013, Moelis has generated 22 MD-level internal promotions, which
represents about 25% of its current MD base and growing. While there are benefits
of using a binary approach in growing the MD base promoting from within and
hiring externally management recognizes that developing internally is far less
costly over time than hiring top-notch talent, which often absorbs disproportional
deal economics. The push to promote from within is supported by the companys
innovative compensation structure that incentivizes the development and retention of
bankers. It also is pushing compensation that tops what many of its peers are paying
for the top performers. The company has made serious on-campus investments by
targeting undergraduate and graduate students. Moeliss recruiting pitch is focused
around a generalist approach, where new joiners are given the opportunity to
obtain a high level of experience with a degree of flexibility in terms of sector
coverage. Since 2007, Moelis has hired over 200 junior bankers/analysts from
campuses, demonstrating that its brand has quickly gained recognition and that
young talent is being drawn in.
Hiring Experienced Bankers Represents the Majority of MD Pool Getting the Best
Fit for Future Moelis Growth
Moelis has built its base of bankers by hiring those with the desire to work in a
smaller firm with fewer conflicts of interest and less variability than has become
inherent within a bigger organization. Compensation helps, with higher
compensation levels for the biggest producers that are ultimately more directly tied to
the performance of the banker than with other areas of a larger financial institution
such as the trading or sales arms of large banks.
Moelis had been particularly active hiring from UBS (particularly in its earlier days),
where most of its senior management team had once worked. The advantage of
hiring seasoned bankers is their ability to leverage relationships to become
meaningful producers relatively quickly. Using the latter in conjunction with
growing talent internally has maximized Moeliss current opportunities and also
planted essential seeds for future growth.

15

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

Revenue Growth Opportunities Grow as Younger Producers Season


We believe there is earnings upside as banker productivity improves. Moeliss MDs
generated on average $5.0mn of revenue in 2013, up from $4mn in 2011. This is a
meaningful improvement but is still well short of peers such as Evercore and Lazard,
whose MDs are generating $8mn-$12mn per MD.
As Moeliss bankers season, their productivity should improve. We estimate that
revenue per managing director has nearly doubled from their first year after joining
Moelis to their third year. As more bankers season and productivity rises, revenue
should also experience solid growth. In Figure 15 below, we see the increase in MD
productivity since 2011, rising from $4mn per MD to what we expect will be $5.5mn
in 2014.
Figure 15: Moelis Revenue per MD, Increasing Since 2011; Productivity per MD Is on the Rise with
4-Year CAGR of 12%
$
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$2011

2012
2013
Moelis Revenue per MD

2014E

Source: J.P. Morgan estimates, Company data.

In Figures 17 and 18, below, we show productivity per MD at other boutique


investment banks. We believe it is challenging to compare MD production at
different firms given the differing views on what characterizes a Managing Director,
but it does show that the productivity is high at both Lazard and Evercore. It also
shows that there is the potential for meaningful upside at Moelis as its senior
producers season. Were Moeliss existing bankers able to generate the same
productivity as Evercore bankers, we estimate Moelis would generate incremental
EPS of $1.10 and nearly $3.00 in 2015.

16

North America Equity Research


12 May 2014

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

Figure 17: Lazard Revenue per MD

Figure 18: Evercore Revenue per SMD

000s

000s
$14,000

$10,000
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0

$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
2005

2006

2007

2008

2009

2010

Lazard Revenue per MD


Source: J.P. Morgan estimates, Company data.

2011

2012

2013

2005

2006

2007

2008

2009

2010

2011

2012

2013

Evercore Revenue per SMD

Source: J.P. Morgan estimates, Company data.

International Expansion Moelis Has Been Successful, but Opportunities


Remain Robust for Further Expansion
Management recognizes that a strong international presence offers important
advantages for the company and its global M&A brand. Having a presence within a
particular international market enables the firm to generate new business and quickly
respond to the changes in advisory demand in the nearby or surrounding markets.
Fewer banks have effective cross-border capabilities, allowing Moelis to better
differentiate itself.
Moeliss international expansion began in 2008 with the opening of its London
office, which was followed by an office opening in Sydney in 2009, Dubai in 2010,
Hong Kong and Beijing in 2011, Frankfurt, Paris and Mumbai in 2012 and Brazil in
2014. In this relatively short time, Moelis was able to lay the ground work and
establish hubs for its advisory operations in many of the major cities around the
world. In light of the geographic expansion, Moelis has targeted highly productive
and accretive MDs to head its international offices, with the goal of building out
sector teams then going after new business.
Selective expansion into new markets is an ongoing process that is continuously
evaluated and assessed by management. Some of the regions where Moelis has
expressed near-term expansion interest include Canada, where theres a large mining
and energy sector an area in which Moelis has expertise and desire to further
expand. Expansion into South America, and into Brazil in particular (just
announced), provides a strategic footprint in the Latam markets, where Moelis hopes
to further its infrastructure and energy sector expertise. Lastly, the company sees
Germany as an attractive area for industrials a growing sector in Europe that would
help the company expand its M&A offering across the greater European Union and
EMEA markets.
Moeliss Compensation Structure Key to Affecting Banker Behavior and
Longer-Term Growth
Moelis employs a unique discretionary compensation model that we believe is one of
the differentiating factors leading to the past successes of the firm and what will
ultimately drive the company to outperform peers. Moeliss compensation structure
17

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

utilizes a global rather than regional revenue pool for compensation distribution,
which enables Moelis to pay not only on banker production, but also on other criteria
to which management attributes high value. These attributes include collaboration,
global partnerships and training, which we feel translates into higher retention rates,
broader-based employee productivity and greater earnings growth over time.
Moelis Compensation System The Structure
Moelis employs a discretionary payout model driven by various performance/
evaluation criteria. The compensation process entails frequent sit-downs (typically
every six months) with management. These reviews drive transparency, which
management feels is an effective way to manage banker expectations and banker
behavior.
The compensation structure is formulated off equity and cash payouts no different
than most investment banks. However, what is different is that there is a material
clawback for cash compensation. Here, any cash bonus paid to an MD who ends up
leaving within a 12-month period is required to be paid back in full to Moelis, with
clawback step-downs occurring as the vesting process continues over the subsequent
12 months. The clawback is based on non-compete clauses in MD contracts that are
triggered when Moelis employees leave for competitors. Other compensation awards
are largely RSUs that are designed to reward and retain talented employees, which
Moelis believes are essential to the companys long-term growth and overall success.
Moelis has built in some flexibility in its comp structure by providing a mix of equity
and cash bonuses. The proportion varies from banker to banker depending on
milestones, goals as well as the circumstances of each individual employee. Equity
payouts are one of the compensation features that enable Moelis to incentivize its
employees and align banker interests with the equity holders.
Table 2: Moeliss Cash Bonus Vesting Schedule
%

Departure Timeline (from % of Annual Cash Bonus


start date)
Required to be Repaid
<12mo
100%
12mo-15mo
75%
15mo-18mo
50%
18mo-21mo
25%
Source:, Company data.

Moelis Compensation Structure Developing and Promoting Internal Talent


Moelis has instituted an approach to employee development and a complementary
compensation structure geared towards not only attracting talented bankers from
outside of Moelis, but also fostering/incentivizing promotions from within to further
employee continuity (lowering attrition rates). This model has enabled Moelis to
grow organically and expand its advisory expertise internationally.
Moeliss Employee Development program is built on a partnership premise that is
designed to build and foster talent from within through informal and formal
mentorships as well as firm-supported collaboration across industry sectors and
geographies irrespective of titles and rank.
18

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

For this development program to work, it needs buy-in from the senior bankers in the
firm to share their contacts, promote junior banker relationships and forest junior
banker growth. These are sometimes low priority for senior bankers, but given the
discretion and leverage Ken Moelis and management have in determining
compensation, they influence behavior by rewarding those who contribute to
building the culture and developing junior bankers. Given the clawback on cash
earnings, the possibility of having compensation withheld for 1-2 years while the
past bonus vests becomes a very powerful motivator.
A flatter compensation structure ties production more to pay across the pool of
bankers, allowing Moelis to retain and develop internal talent more successfully.
This is in contrast to larger firms with contracts for most of the senior bankers,
resulting in less compensation for the juniors. Moeliss compensation structure
increases the chances that not only do more junior bankers grow to become senior
bankers over time, but also that both the junior and senior bankers are retained,
allowing Moelis to get a better return on its banker investment.
Moelis Compensation Structure Promoting the Fluid Business Model
We believe Moelis is well positioned to execute on multiple fronts within its
flourishing advisory business. Were branding this as the Fluid Business Model,
which we think ultimately allows for greater efficiency from both a personnel
perspective as well as from a client-service perspective. Ultimately, it would appear
that the Fluid Business Model drives more business for Moelis.
By implementing a fluid business model, Moeliss bankers are able to more easily
cross over from different advisory projects that could range from traditional M&A to
more specialized risk solutions or restructurings. With advisory projects cyclical, the
cross-training of bankers in both advisory and restructuring, for example, allows
broader servicing of the customer. Furthermore, it allows for greater efficiency for
the investment bank, with bankers better able to toggle between various services
rather than succumbing to the boom and bust cycles of the advisory business.
Management expects that it has a more collaborative culture, given the more
distributive revenue structure across bankers, sectors and geographies. Overall,
Moelis prides itself on the fact that its senior bankers (i.e., MDs) are multifaceted
professionals who are capable of executing on technical matters as well as
strategically engaging clients and bringing in new business. Management estimates
that out of roughly 80+ global MDs, nearly all are providing both advisory and
restructuring services to their clients.
Moeliss Compensation Structure Retaining the Banker, and Getting Compensation
When They Leave
From managements point of view, one of the most appealing features of the
compensation structure is that it essentially discourages bankers from leaving before
they are fully vested. Employee contracts contain clauses that permit management to
defer large portions of awarded compensation, which makes it financially difficult
for bankers to pursue external opportunities. The fact that competitors would have to
make up the unvested portion of the bonus makes Moeliss employees more
expensive to hire than their counterparts at other banks. This structure helps Moelis
combat poaching and permits the company to make greater investments in its people
without worrying about recouping losses related to the exodus of intellectual capital.
19

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

But when they do leave, Moelis gets a big check, helping to ease the loss of high
producing bankers.

Financial Outlook
We are modeling EPS of $1.56 in 2013, $1.77 in 2014 and $1.88 in 2015. Our
revenue is generated on a production level per banking MD, which we have rising
from $5.0mn/MD in 2013 to $5.7mn in 2014, $6.1mn in 2015, and $6.4mn in 2016.
We have the base of MDs growing from 86 in 2013 to 89 in 2014, 93 in 2015 and 97
in 2016. We expect margins to remain ~28%, and model a corporate tax rate of 40%.
We model shares outstanding of 55.3mn shares.

Valuation
As a new publicly traded company, we feel Moelis we believe investors are valuing
MC at a discount to peers while they determine the aggressiveness/conservativeness
of revenue/expense guidance. If we are right that the compensation structure can
drive higher and more effective growth over the intermediate term, and allow the
firm to grow through the levels at which other boutiques over time have gotten
capped, then we think Moelis could go from trading at a discount to trading at a
premium to peers. Moelis trades at 15.6x our 2015 EPS estimate of $1.77, a ~3x
discount to peers. While growth projections are lower for Moelis than for peers, we
think conservative Moelis guidance is the root cause. If the M&A environment
continues to improve, then Moelis could exceed estimates at a time when its
valuation could rise, offering investors a much higher stock price. We value Moelis
at 17.5x our 2015 EPS estimate, a slight discount to where the peer group is trading
due to lower projected growth based on what we view as conservative expectations.
This brings us to a December 2014 price target of $31, representing upside of
~12.5% from its current stock price.
Table 3: Comparables for Evercore, Greenhill and Lazard
Price
Company Name

JPM

Ticker 5/9/14 Rating

Market

EPS Estimate

Price to EPS:

Cap.

FY2012 FY2013 FY2014E FY2015E

FY2013 FY2014E FY2015E

Moelis & Co.

MC

$26.73

OW

$1,496

$0.42

$0.80

$1.56

$1.77

34.4x

17.7x

15.6x

Everc ore Partners Inc.

EVR

$55.38

NA

$2,215

$1.78

$2.25

$2.44

$3.13

24.4x

22.5x

17.6x

Greenhill

GHL

$51.07

NA

$1,424

$1.38

$1.55

$1.60

$2.25

32.5x

31.5x

22.4x

Lazard

LAZ

$49.36

NA

$6,329

$1.44

$2.01

$2.76

$3.24

24.3x

17.7x

15.1x

27.1x

23.9x

18.4x

Average

Source: J.P. Morgan estimates for Moelis, Bloomberg for all other estimates.

20

North America Equity Research


12 May 2014

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

Models
Table 44: Moelis & Co.s Earnings Model
Adj. Diluted EPS

2012

2013

0.42 $

0.80 $

2014E
1.56 $

2015E
1.77 $

2016E
1.88 $

1Q12
(0.01) $

2Q12
0.06 $

3Q12
0.06 $

4Q12
0.31 $

1Q13
0.01 $

2Q13
0.24 $

3Q13
0.17 $

4Q13
0.39 $

1Q14
0.37 $

2Q14E
0.26 $

3Q14E
0.37 $

4Q14E
0.56 $

1Q15E
0.38 $

2Q15E
0.30 $

3Q15E
0.40 $

4Q15E
0.68 $

1Q16E
0.40 $

2Q16E
0.30 $

3Q16E
0.43 $

4Q16E
0.74

Revenues
Revenue

385,900

411,300

496,167

556,737

610,215

65,700

93,800

100,100

126,300

59,800

98,500

98,700

154,300

114,517

92,400

122,375

166,875

125,006

104,052

137,765

189,914

137,122

114,084

150,977

208,033

Total Revenue

385,900

411,300

496,167

556,737

610,215

65,700

93,800

100,100

126,300

59,800

98,500

98,700

154,300

114,517

92,400

122,375

166,875

125,006

104,052

137,765

189,914

137,122

114,084

150,977

208,033

105,663

71,622
13,225
84,847

95,531
23,691
119,222

99,085
25,972
125,057

23,562
4,158
27,720

23,863
4,895
28,758

24,197
4,172
28,369

23,751
8,750
32,501

23,932
4,682
28,614

24,109
5,511
29,619

23,739
4,748
28,487

24,682
9,599
34,281

24,528
5,134
29,662

24,911
6,039
30,950

24,964
5,201
30,165

159,281

100,888
47,692
(29,325)
119,255

138,478
72,376
(24,720)
186,133

154,140
79,328
(13,320)
220,148

14,784
15,708
(9,775)
20,717

30,986
15,297
(9,775)
36,508

55,117
16,688
(9,775)
62,030

28,751
16,251
(6,180)
38,822

22,892
13,527
(6,180)
30,238

36,508
17,909
(6,180)
48,237

50,327
24,689
(6,180)
68,836

31,538
17,826
(3,330)
46,034

25,669
14,831
(3,330)
37,170

40,764
19,627
(3,330)
57,061

56,169
27,044
(3,330)
79,883

Expenses
Compensation Expense
Salary
Benefits, Payroll Tax
Salary, Benefits, Payroll Tax

Cash Incentive Expense Accrual


Incentive Equity Expense (Excluding Acceleration)
Adjustment for 2014 Acceleration Expense
Incentive Expense (Pre- Acceleration and Pre IPO Grants)

Pre-IPO Equity Expense

11,825

8,285

8,285

7,400

2,225

2,200

2,071

2,071

2,071

2,071

2,071

2,071

2,071

2,071

GAAP Total Compensation Expense


% of Revenue

275,000
71.3%

265,000
64.4%

276,019
56%

313,641
56%

353,490
58%

49,600
75.5%

70,800
75.5%

75,600
75.5%

79,000
62.5%

43,600
72.9%

58,400
59.3%

65,000
65.9%

98,000
63.5%

60,092
52%

55,837
60%

67,491
55%

92,599
55%

73,395
59%

60,924
59%

79,928
58%

99,394
52%

82,386
60%

68,903
60%

90,082
60%

112,119
54%

Pre-IPO Backout
Adjusted Compensation Expense
% of Revenue

275,000
71.3%

265,000
64.4%

11,825
264,194
53%

8,285
305,356
55%

8,285
345,205
57%

49,600
75.5%

70,800
75.5%

75,600
75.5%

79,000
62.5%

43,600
72.9%

58,400
59.3%

65,000
65.9%

98,000
63.5%

60,092
52%

7,400
48,437
52%

2,225
65,266
53%

2,200
90,399
54%

2,071
71,323
57%

2,071
58,853
57%

2,071
77,856
57%

2,071
97,323
51%

2,071
80,314
59%

2,071
66,832
59%

2,071
88,011
58%

2,071
110,048
53%

Awarded Total Compensation Expense


% of Revenue

269,838
69.9%

257,752
62.7%

292,355
59%

334,042
60%

366,129
60%

59,549
0%

56,364
61%

74,649
61%

101,794
61%

75,003
60%

62,431
60%

82,659
60%

113,948
60%

82,273
60%

68,450
60%

90,586
60%

124,820
60%

Non- Compenation Expense

72,800

76,300

92,106

96,334

102,429

17,000

16,900

17,800

21,100

17,000

17,400

19,200

22,700

20,141

20,790

24,475

26,700

20,001

19,250

24,798

32,285

21,940

21,106

26,098

33,285

347,800

341,300

356,300

401,689

447,633

66,600

87,700

93,400

100,100

60,600

75,800

84,200

120,700

80,233

69,227

89,741

117,099

91,324

78,102

102,654

129,609

102,254

87,937

114,109

143,333

38,100
9.87%

70,000
17.02%

139,867
28.19%

155,047
27.85%

162,582
26.64%

-900
0.00%

6,100
0.00%

6,700
0.00%

26,200
0.00%

(800)
0.00%

22,700
0.00%

14,500
0.00%

33,600
0.00%

34,284
0.00%

23,173
25.08%

32,634
26.67%

49,776
29.83%

33,681
26.94%

25,950
24.94%

35,111
25.49%

60,306
31.75%

34,868
25.43%

26,147
22.92%

36,867
24.42%

64,700
31.10%

(600)
300

3,600
(800)

3,540
19

8,205
-

10,380
-

0
-100

-900
100

-1,200
100

1,500
200

1,400
100

-600
0

1,700
-1,100

1,100
200

(1,220)
19

1,150
-

1,530
-

2,080
-

1,815
-

1,540
-

2,040
-

2,810
-

2,300
-

1,950
-

2,580
-

3,550
-

Adj Income Before Income Taxes


Corporate Tax
Tax Rate %

37,800
(15,120)
40%

72,800
(29,120)
40%

143,426
(57,370)
40%

163,252
(65,301)
40%

172,962
(69,184)
40%

-1,000
400
40.0%

5,300
(2,120)
40.0%

5,600
(2,240)
40.0%

27,900
(11,160)
40.0%

700
(280)
40.0%

22,100
(8,840)
40.0%

15,100
(6,040)
40.0%

34,900
(13,960)
40.0%

33,083
(13,233)
40.0%

24,323
(9,729)
40.0%

34,164
(13,665)
40.0%

51,856
(20,743)
40.0%

35,496
(14,198)
40.0%

27,490
(10,996)
40.0%

37,151
(14,860)
40.0%

63,116
(25,246)
40.0%

37,168
(14,867)
40.0%

28,097
(11,239)
40.0%

39,447
(15,779)
40.0%

68,250
(27,300)
40.0%

Net Income Adj for Corporate Taxes

22,680

43,680

86,056

97,951

103,778

(600)

3,180

3,360

16,740

420

13,260

9,060

20,940

19,850

14,594

20,498

31,114

21,298

16,494

22,290

37,869

22,301

16,858

23,668

40,950

54,366

54,366

55,098

55,341

55,341

54,366

54,366

54,366

54,366

54,366

54,366

54,366

54,366

54,366

55,341

55,341

55,341

55,341

55,341

55,341

55,341

55,341

55,341

55,341

55,341

Total Adj. Operating Expense (adj for IPO Awards)


Income
Adjusted Operating Income (adj for IPO awards)
Adj. Operating Margin (% of Net Revenues)
Income from Australia JV (Income (loss) from equity method invest.)
Other Expenses

Number of Shares (in 000s)


Diluted

Source: Company reports and J.P. Morgan estimates.

21

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

Table 5: Moelis & Co.s Balance Sheet

Balance Sheet
(Dollars in thousands)
Period
Assets
Cash And Cash Equivalents
Investments At Fair Value
Total Cash (Excluding Restricted Cash)
Restricted Cash
Total Cash (Including Restricted Cash)
Receivables:
Accounts Receivable
Interest And Dividends Receivable
Other Receivables
Total Receivables

2012

2013

$26,331 $153,943
139,138
68,141
$165,469 $222,084
160,066
149,873
$325,535 $371,957

$37,541
351
9,299
$47,191

$28,784
39
6,520
$35,343

Deferred Compensation
Investment In Equity-Method
Equipment And Leasehold Improvements
Intangible Assets
Deferred Tax Asset
Prepaid Expenses And Other Assets
Total Assets

$6,314
$3,495
10,371
12,481
5,786
5,156
211
42
1,682
1,315
3,570
13,674
$400,660 $443,463

Liabilities And Capital


Compensation Payable
Accounts Payable And Accrued Expenses
Deferred Revenue
Other Liabilities
Total Liabilities

$120,204 $103,928
8,842
14,262
2,649
6,838
6,045
8,466
$137,740 $133,494

Equity
Total Equity
Total liabilities and equity

$262,920 $309,969
$400,660 $443,463

check

Source: Company reports and J.P. Morgan estimates.

22

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

Moelis: Summary of Financials


Income Statement - Annual
Trading revenues
Total revenue
Compensation
Non-compensation expense
Operating income
Other income / (expense)
Pretax income
Income taxes
Net income - GAAP
Net income - recurring
Diluted shares outstanding
EPS - operating
EPS - GAAP

Balance Sheet and Cash Flow Data

FY13A FY14E FY15E FY16E


(265)
70
(1)
73
(29)
44
44
54
0.80
0.80

(276)
140
0
143
(57)
86
86
55
1.56
1.56

(314)
155
0
163
(65)
98
98
55
1.77
1.77

(353)
163
0
173
(69)
104
104
55
1.88
1.88

FY13A FY14E FY15E FY16E

Cash and cash equivalents


Current assets
Total assets

154
407
443

Total debt
Total liabilities
Preferred stockholders' equity
Common stockholders' equity

133
310

Net income
D&A
Capex
Free cash flow
FCF / share

Income Statement - Quarterly


Trading revenues
Total revenue
Compensation
Non-compensation expense
Operating income
Other income / (expense)
Pretax income
Income taxes
Net income - GAAP
Net income - recurring
Diluted shares outstanding
EPS - operating
EPS - GAAP

1Q14A

2Q14E 3Q14E 4Q14E

(60)A
34A
0A
33A
(13)A
20A
20A
54A
0.37A
0.37A

(56)
23
0
24
(10)
15
15
55
0.26
0.26

(67)
33
0
34
(14)
20
20
55
0.37
0.37

(93)
50
0
52
(21)
31
31
55
0.56
0.56

Ratio Analysis

FY13A

FY14E

FY15E

FY16E

Revenue growth
EPS growth

92.6%

94.4%

13.3%

5.9%

Tax rate
Net income margin

40.0%
-

40.0%
-

40.0%
-

40.0%
-

Return on equity (ROE)


Dividends
Dividend payout ratio

15.2%
-

55.5%
-

Source: Company reports and J.P. Morgan estimates.


Note: $ in millions (except per-share data).Fiscal year ends Dec

23

North America Equity Research


12 May 2014

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research
analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document
individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views
expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of
any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per
KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or
intervention.

Important Disclosures

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Moelis within
the past 12 months.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Moelis.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Moelis.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment
banking clients: Moelis.
Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking
services in the next three months from Moelis.
Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan
covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing
research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams may
screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail
research.disclosure.inquiries@jpmorgan.com.
Moelis (MC, MC US) Price Chart

42

35

28
Price($)
21

14

0
Apr
14

Apr
14

Apr
14

May
14

May
14

May
14

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire
period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if
24

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy
reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is
compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear
in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research
website, www.jpmorganmarkets.com.
Coverage Universe: Worthington, Kenneth B: Apollo Global Management (APO), BM&F Bovespa (BVMF3.SA), BlackRock (BLK),
CBOE Holdings (CBOE), CME Group Inc. (CME), Charles Schwab (SCHW), Eaton Vance Corp (EV), Evercore Partners Inc. (EVR),
FXCM (FXCM), Federated Investors, Inc. (FII), Franklin Resources (BEN), Invesco Ltd. (IVZ), Investment Technology Group (ITG),
Janus Capital Group (JNS), KCG Holdings (KCG), LPL Financial Holdings Inc. (LPLA), Manning & Napier (MN), Nasdaq OMX
(NDAQ), Oaktree Capital Group, LLC (OAK), Och-Ziff Capital Management (OZM), Pzena Investment Management (PZN), T. Rowe
Price Group, Inc (TROW), The Carlyle Group (CG), The Intercontinental Exchange (ICE)
J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2014

J.P. Morgan Global Equity Research Coverage


IB clients*
JPMS Equity Research Coverage
IB clients*

Overweight
(buy)
44%
58%
45%
78%

Neutral
(hold)
44%
49%
48%
67%

Underweight
(sell)
11%
40%
7%
60%

*Percentage of investment banking clients in each rating category.


For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table
above.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered
companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst
or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com.
Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based
upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.

Other Disclosures
J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing
name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries.
All research reports made available to clients are simultaneously available on our client website, J.P. Morgan Markets. Not all research content is
redistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your sales
representative.
Options related research: If the information contained herein regards options related research, such information is available only to persons who have
received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options,
please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf
Legal Entities Disclosures
U.S.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC. U.K.: JPMorgan Chase N.A., London
Branch, is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and to limited regulation by
the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from J.P. Morgan on
request. J.P. Morgan Securities plc (JPMS plc) is a member of the London Stock Exchange and is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England & Wales No. 2711006. Registered Office 25
Bank Street, London, E14 5JP. South Africa: J.P. Morgan Equities South Africa Proprietary Limited is a member of the Johannesburg Securities
Exchange and is regulated by the Financial Services Board. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated
by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong and/or J.P. Morgan Broking (Hong Kong) Limited (CE
number AAB027) is regulated by the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is
regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (JPMAL) (ABN 52 002 888 011/AFS Licence No:
238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated by
ASIC and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant
of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited,
having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz East, Mumbai - 400098, is a member of the National Stock
Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/INE 230675231) and Bombay Stock Exchange Limited (SEBI
Registration Number - INB 010675237/INF 010675237) and is regulated by Securities and Exchange Board of India. For non local research reports, this
material is not distributed in India by J.P. Morgan India Private Limited. Thailand: This material is issued and distributed in Thailand by JPMorgan
25

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

Securities (Thailand) Ltd., which is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and
Exchange Commission and its registered address is 3rd Floor, 20 North Sathorn Road, Silom, Bangrak, Bangkok 10500. Indonesia: PT J.P. Morgan
Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the OJK a.k.a. BAPEPAM LK. Philippines: J.P. Morgan Securities
Philippines Inc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities Clearing Corporation of the Philippines and the
Securities Investor Protection Fund. It is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the
Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo
Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange
Commission. Singapore: This material is issued and distributed in Singapore by or through J.P. Morgan Securities Singapore Private Limited (JPMSS)
[MCI (P) 199/03/2014 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the
Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. This
material is provided in Singapore only to accredited investors, expert investors and institutional investors, as defined in Section 4A of the Securities and
Futures Act, Cap. 289. Recipients of this document are to contact JPMSS or JPMCB Singapore in respect of any matters arising from, or in connection
with, the document. Japan: JPMorgan Securities Japan Co., Ltd. is regulated by the Financial Services Agency in Japan. Malaysia: This material is issued
and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a
holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a
member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia
Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and
custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad
Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial
Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.
Country and Region Specific Disclosures
U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMS plc.
Investment research issued by JPMS plc has been prepared in accordance with JPMS plc's policies for managing conflicts of interest arising as a result of
publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This
report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons
who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be
engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in
their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. This material does not take
into account the specific investment objectives, financial situation or particular needs of the recipient. The recipient of this material must not distribute it to
any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the term "wholesale client" has the
meaning given in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities plc, Frankfurt
Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht. Hong Kong: The
1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons
Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may
be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative
warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx
website: http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and
that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be
receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually
agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd.,
Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan,
Type II Financial Instruments Firms Association and Japan Investment Advisers Association. Korea: This report may have been edited or contributed to
from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of
the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures
section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued
and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the
purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in
accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand without
the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an
advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any
province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to
file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively,
pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The
information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to
the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the
laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities
commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein
or the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded
as professional clients as defined under the DFSA rules. Brazil: Ombudsman J.P. Morgan: 0800-7700847 / ouvidoria.jp.morgan@jpmorgan.com.
General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co.
or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to
JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the
securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change
without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any
financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not
26

Kenneth B. Worthington, CFA


(1-212) 622-6613
kenneth.b.worthington@jpmorgan.com

North America Equity Research


12 May 2014

intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own
independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S.
affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or
announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P.
Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.
"Other Disclosures" last revised April 5, 2014.

Copyright 2014 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or
redistributed without the written consent of J.P. Morgan. #$J&098$#*P

27