Moelis & Company (MC) 8 Feb 232022 Q4 Earnings call transcript

Good afternoon and welcome to the Moelis & Company Earnings Conference Call for the Fourth Quarter of 2022. To begin, I will turn the call over to Mr. Matt Tsukroff.

Good afternoon and thank you for joining us for Moelis & Company’s fourth quarter 2022 financial results conference call.

On the phone today are Ken Moelis, Chairman and CEO and Joe Simon, Chief Financial Officer.

and would call note statements Risk may subject various I made the that Factors begin, identified SEC. to this those & on contain risks with section we of like in Company’s that to remarks are from Moelis Before time-to-time including filings the the uncertainties, certain forward-looking anticipated. results differ Actual could materially from those currently to The any forward-looking no obligation update undertakes firm statements.

certain The comparable Our information when adjusted earnings can measures, be reconciliation relevant include other comments to financial measures, required investors the by with references believe and Relations with to found to results on presented We Reg release, useful which operating our provided better financial at of together firm’s these Investor investors.moelis.com. our understand across G measures the GAAP and periods measures. are GAAP these compare our today financial website information to results. several is adjusted in

our Joe turn now will I discuss the over to to results. call

Thanks, results and On Matt. financial the will further comment through Ken business. today’s will on go Good call, then our I afternoon, everyone.

First, we of achieved the revenues $XXX fourth quarter. in million adjusted

record revenues year. the from year, XX% million the For were full down $XXX of adjusted our prior

ratio is expenses, full compensation year Regarding our XX%. expense

non-compensation the largely year expenses. The non-compensation travel For due of ratio expenses to reported year, full increase we related a and is XX.X%. of in full a normalization

episodic expect we costs. quarter, $XX to excluding be range, expenses first non-compensation the to Looking transaction-related the million in

margin pre-tax year full Our XX.X%. is

excess related tax recognize RSUs of first to quarter year annual XXXX in the tax month. approximately quarter was of of difference rate delivery of is primarily equity-based taxes, the in The compensation corporate XXXX. Regarding for benefit this tax to and vesting XX% approximately We the our normalized benefits effective our rate by related was tax may XX%. later the driven first a the

and benefit, each excess breakeven impact difference between we of expect $X.XX vesting for to the purposes $XX per $X.XX be share. to tax approximately quantifying the price the of For EPS

allocation, XXX% Regarding committed to excess capital. capital returning remain we of our

$X.XX share a declared dividend. Board Our per

have XXXX includes $XXX to declared $XXX we to will fortress with and returned year, no which and lastly, dividend. investments to continue of liquid And million shareholders with sheet cash the balance We this million maintain funded approximately respect debt. a performance

now will call turn Ken. the I to over

Joe. Thanks,

completing Before begin, and our our want challenge. financing and on for are entire clients focus M&A difficulties to for just I the in and of complete excellence year new the commitment business their origination I has remained to to what activities bankers Despite markets. lubricant capital thank their in transactions, the a been has markets The our the a M&A challenging financing been organization strong.

are access volumes However, is as robust. capital long to likely limited, as transaction to be less M&A

And we We have lower. also based which at services are been primarily values, transaction in the inflation our same time, our costs, experiencing on price compensation.

this environment, sheet it reason Restructuring be the change is unlevered longer develop. but have The cycle founding. our to that we current when business however, ready will environment will activity is since fully an our and is be to for does. This it increasing, goal maintained balance

rates. the more now and XXXX and However, period XXXX debt took see longer – to debt their sustainable it of might be advantage impact markets beginning higher of also time. over are attractive between of higher the to refinance Companies a just interest

AUM the than over capitalization and private equity tripled past market more since doubled has XX years. global Again, has XXXX

to and focused bankers This the transactions As to increased the comprehensive directors we platform, follow managing ability build opportunity invest organization, why within clients, the reason are execute year. for I is advice. remain in markets X delivering in promoted new beginning demand employees a and the be since confident we operating X will the to our expand, pursuing hired of there By shareholders. for continue We and long-term. for our high-caliber and the continuing

for that, up open it And will I with questions.

is question of with first line The Instructions] from Devin the [Operator Ryan JMP Securities.

Your now line open. is

Thanks. This for is Devin. Brian McKenna

I to in trended XXXX. far have through And the signs with in thus of So to been in XXXX starting months then toward formal relative you couple curious seeing sponsors last Has pickup process dialogues dialogues any are of the any am early how conversations? there move announcements?

There in it’s significantly is financing Yes. think I markets. start the as been the pretty volatile. an fairly has And improving I’d of of dialogue opening the the sponsor say year.

think remains are recap have I think seen significantly September or the in party of shutdown it Hole. these has Last optimistic, to But me which We at is the market taken lot the Powell mean really significant market. I beginning But get week as a Chairman year, in volatile. very the deteriorated the it of pretty part to Jackson to volatile on actually least the started fairly dividend as remains I speech of effectively community the better. Terms market deal, a markets, pretty in event. market sponsor and at it a said

all an the level market I so, the for to healthy. We we not might is active X good individual that we statements a done over hadn’t maybe but indication probably It’s activity prior to hold or weeks X markets not a single indication. the waiting so, in enough long weeks say least years said, last But for some that. will these. even of than to the characterize are I that see As before if that is more indication around have significantly the again, conversation, would at complete X significantly me and is getting X I

up this in comp should Thanks. if comp a then then the in is into the still we slow assuming throughout of of we that somewhat normalize zip steady true year, just XQ ratio of as code year? the XXXX in should similar and and back the somewhat of back ratio, year a kind XQ question start to half be expect will you great. or on and the first accrual first of revenues to And the then half half a the Okay, expect the half

over quarter, turn some to differential for quarter Joe events do because it to am I the always in in a first have first timing. the to that we have us cause going

belief firm where of on did should comp fall is ratio the ratio Our market the very based fell the our to Again, difficult desire X revenues culture on between that hold year years. together. and depending over it our a team general X comp the last increase and last or because

we for quarter… revenue, So want year. turn Joe, some But again, the entire to I over to have I first think depending the on viewing are because range the we that’s it

Yes.

the first first couple We of be our the three. weeks, equity that expense a in quarter quarter, eligible the expense we in – retirement the comp So pre-bonus will is Accordingly, in partners next to than at all of to grant. the be likely larger granting time granted much equity.

settle environment, revenue we I challenging would experiencing, the a than probably comp to within what think target likely the to we you that X So expect describing, pick of, first up. were But ratio. ratio just which year would still whatever, we And ratio is higher the revenues imagine it’s are the be probably that quarter. assuming again, back, will in X-point full the again, spike

guys. you, Thank

your from question for Goldman line with The James question. of is the Sachs. Yaro next Thank you

Your line is now open.

down Ken, just middle Ken to precipitously. back might is, slowing to the in expectations come and terms in you guess the previous I for side middle-market December your maybe return made, wanted which compare that Good larger question you how versus around the dialogue your afternoon, across exactly markets would I not And comments M&A first? on quite to language. of Joe. and But the contrast and firms that’s transacting

When larger community? sponsor the say and about talking you middle, you’re

that and both I to mean, from I would interesting perspective. strategic guess it be hear sponsor

Okay.

investment access they start when availability basis strategic found dialogue. them. points, have to in – to about markets. They talk financing want time have a they do markets have moved They to active. The grade not pretty they don’t a with time. and strategics be in will have I – the it’s for most achieve. So it has of good goals been good It’s financial you strategics it’s the I –

transactions. been So they significant a have discussing amount of actively and

some also negative, there of is but by of do that think regulatory there. Some the – lot dialogue the that the environment to of a is impacting I way,

the there sponsor to huge within pent-up sure that it’s out and community, Sponsors an cost not in. invest makes am is for I believe a them because I sense different still. On both economy a demand. of middle-market to cannot that large figure sit capital and trying are

more improving. pockets they areas other definitely, But preferreds, they nature. some think focus and to alternative maybe just I things providing the larger might capital, maybe active more deploy providing their of sorts can of – switched capital their of also have more get easily is and So other have dialogue be ones capital because solutions, in of say, the I’d that

December a October, were November, I you had they interest They knew in middle rate of a of think raises. cycle the that wait-and-see really attitude.

think near a possibly the end. see that are you’re I now to people we starting view take

raises. markets moving soon levels two but what I of start feel one to them makes done, at want of financing out Some I new aggressive markets. part And it’s think on I prices, having you think that’s say or think the market on. most as like people to the more see that’s be accessing as time really figuring I and that, But are some

helpful. incredibly that’s Okay,

follow-up, perform sponsor the more expect capital be and think somewhat for about your do my the fundraising putting what you those M&A you about aside a over businesses, you when course think backdrop? in – sort advisory to of Just appears of restructuring, the of XXXX how businesses, challenged fundraising some what – do to that and particular,

a the last unique There the talks committed problem. year, year, year was capital numerator-denominator lot year. think then of everybody a about last was into going I Well,

all You had ability assets of ran therefore, And in assets out total a denominator, as to commit. shrunk. management shrinkage under people the

hold. the in starts slate holds – denominator will public again, if we that think I markets that January. it have and depend markets And clean Now

return of really over of continuation will part little more we’re into And private So funds, active. And equity value-add think much to the of I secondaries, that more positive the primary that focused the a is And fundraising on that building part year do course a be I higher think than more that we process. market. fundraising. what services we’re might

you. That’s Thank incredibly clear.

question with next Worthington the question. is you your The line Thank JPMorgan. Ken of from for

line now Your open. is

Cho Hello. your my to Ken. business. restructuring on Good evening. This – just Thanks can I hoping was I just Joe, Michael I question. wanted taking for for touch is Ken, active just we And have can kind been recently? or that there get commentary on geographies of others particular sequentially? more industries trended if is how mandates have than some updated any

pretty much the than What crisis to real people a maturity I – But is, is ahead people a it we’ve I manage the the of large and this markets said see of liabilities. I ‘XX on mean similar in same Europe there wall get into discern is to you COVID. to was the difference. whether was again, are cycle going and So was the discussion are and going cycle even geographies, interesting can’t where issues, ‘XX, facing a the wall force slower ‘XX, markets that the think and I way, the they U.S. if a there always their ‘XX idea in main maturity restructuring want think.

that I of much people motivating I thinking. are wall maturity as a think not be as think – force do will

think to up, every of capital. people just market opening the improving, the I why enter the markets – the today, funds than that of it’s restructure is is a innovative do are was we’re that leverage one to about restructuring. but around focused actually keeps not people it beefed but just previous have not having active of think were restructuring market be bank from up the companies markets Again, itself. I it group large financings to more that private on. around all And think that activity financing lot our just capital to where stays there major firms access way, the of group leverage last to I think By questions a take seeing least advisory portfolio, with marginal one you reasons turn be was a a private and actually market. think we our might stress. defaults. in that that wall I We lending order they companies And and but And the no If have are are in of no the solutions private financing distress said at the that finding back, if – one performing. because of equity group, sudden, solve of of will care the access we come the leaders is there’ll of turn

and lot of speech. market a of are the say, they trending accessible. could though as financing being that for the in Now Powell change I what now, in ifs But Jay a that’s direction

great. in seen in terms guess just That’s for well? behind color. some, And on of of today I growth for your the that. pretty to I business or for trends to guess, mandate just I those it comments, relating mean, you’ve the Thanks is terms And I deceleration quarter say strong follow-up of to the as the guess, fair restructuring,

getting having building wall, good They everybody distress going there late getting I looking when vogue economy, what so a toward is in have in was or was of in always of somewhere that half been – of of – a get – I restructuring part X% in X% to there were ahead say of are think accelerating access, be and the front they even a would be needs that on which companies again, it the immediately. was idea ‘XX it. last year the addressed no ‘XX, But in everybody,

way and companies or going see again regular open financing whether not them you’re finance. the I a chance delay and give think might markets to think about to

So increasing. yes, our backlog is

M&A Our people ‘XX, wave ‘XX the their restructuring to significantly was year-over-year, that but volume cause liabilities. the our would of to maturities plan up their accelerate address idea –

think a slowing little down bit. I it’s

to might refinancing. the is people open a there regular access a capital and a think way belief I give and hope markets that

And the around and Thank Great, of to clear could M&A continuing you. think if think of caution environment. mean, guess environment, and just Okay. is for near-term? the just invest you’ve about retaining around more a on well. kind other to looking continues statement there business around this given in I when I squeeze we of near-term, type side count kind made culture the one I headcount it great. MD number you the the stabilized or in ahead mean, as deal just your develop MD of environment I do normalized the

environment living type weather referring seems are to? New this like – of Hampshire. in The Which and it’s you environment you’re

door, transact. hire aren’t in company the CFO to apples for tree, things challenges X those one an the labor who’s hard and a transaction long of people and build now about CEO you just who’s but develop we to get as to we and and lastly, year we which have go we in fought with around is said, space front months, sponsors, want when go pent-up do to awarded and clients can we the talk but sponsor through lot I dark that look, the our to every And – right not we set forward. to months to we quality. that relations to. continue we build a it’s right, As – the build sponsors. is we are behind back look on there large will point, to proactively And our going we strategics do is like company which going managing who’s and expertise to goal we both these is a want address not I can and it so actual demand But of not What white the every the a system our then in out them address know who hope to force back. skill can’t who not clients, is get team your it some transact X,XXX you I well. and say, believe around figure create next soon, is and off move people have At and team for

So footprint, that carefully we environment think in we I to that we diligent that we that – bottom think of sure we continue we’re quickly should. but think be making very the we will careful, on does and focusing analyzing be will continue moving as to the and in grow a especially very make not also it couple percentile as bad as we’re

color, Thank all great. Ken. for you That’s the

Thank your with Brennan next is you question. line for from the The UBS. Hawken question of

now Your line is open.

wanted that Ken. on Hey, are How follow-up and Just a afternoon, to maybe little good clarify. you, bit Joe?

includes of like release, I promotions but some four or going maybe through not think that like the on or started the I’m the some when and review year-end the work seems set and you number. and at the already talent has have the there the the bankers it parsing that external got and So eight XXX, maybe and – was backing suggest look was whether through everybody’s workforce in hires right skill the you year-end it’s not into around MDs that already right XXX because

year-end has begun headcount? the was review what And already? So process that MD

that first happens year. review Well, of all, every

job, look, do all gets the stay And of and go during headcount. end And is end might to the X%, it sometimes the might – year, our you answer I’d what year to your XXX, the we workforce was. you the every of the year. when Joe of headcount if the year X% shown But bar just system. that’s that And say tough, me that of has on to top it. manage is

at not Brennan. a looking change, it We’re as

do it way. We’re something at midyear. it all do by year. we looking as it We every We year, the do

conversations. year. it these ongoing. don’t always We a But have do wait that’s and once We

continuous. is And has it’s so that that, begun to yes, you the process because answer

hygiene. A good it. enough. I get Fair

to expect color a ratio near-term will to will expectations you as comp that here some love ratio like seem we the I’d ramps. clarify, comp – the the come of sounds It revenue So see whatnot. down gave guys and on you and little noise

of an maybe ratio environment more So so uncertain, like output. this seems maybe in the

how way question side? be cost. know a what is expense on in think, And we based think spoke comment think about maybe ask you we banker should that to recruiting? to comp. might spoke the the XXXX Is So – I inflation And you Or continued about about you base in that fixed Ken, on much growing should fixed that fixed today? how expense another

we down fixed all, in-line managing – have Well, expense side pool firm if – we don’t the director first with revenues. that is Yes. significantly of you a very keep of the

fought director and you. think What we can firm have – fought number. I You as it is definitely the the years that. very keep the outcome of light was the our was stream. workforce to for get to partners view significant are their very mixed managing a on I your get all very boutiques, think equity what the firms, XXXX especially up. don’t probably my exact But year I which talent. of very the the difficult we But can deal I hard a in happens pool, all maintain XXXX, down.

say – in been must line. just it to to when is of about I equity. director expense compensation we happened quality first level partners charge I not outcome is And our their and on much I not in comp this inflationary then is be be understand, revenue. expect as equity non-managing softening, some for one-time we would awards quarter. worked that keep happens do with that you really it the period on and is we ratio – in are So were our on of people. what XXXX clear but hit retirement-eligible It’s the from quarter. managing significant – it’s get I keep just to want wanted in is talking and we that that hit directors. solely And There to workforce dependent ratio, a think retirement-eligible It what the the them. what people impact much. just is promoted firm And We equity the it who there in time call stickier go than comp in to back comp sort is the in everybody The hard

have that it’s of that that comp the past. We with will disclose earlier. challenging about potentially it to revenue Right. And competitors ratio the But talked more issue I to we in a used rise – do. fixed, described we combined none but give our

start detail. don’t a We disadvantage we are We really competitive that to and don’t want sharing disclose it. at

it cadence growth pattern? I you could seasonal was rate I get dynamic is how why of from ask when it, at at That’s least so to that proportionally a it quarterly number. to the rather it. was similar we Yes. absolute used than to trying least for about an disclose And the think

I as embed be I a But think sure are probably would would extrapolate probably difficult. that you I some full maybe basis. that able on that think to have in you that not you am inflation would be – to year again, well.

based will XXXX is on grow it’s little cautious, or what you make expectations you can guys are, recognized challenges today Alright. because to over – want to stage? here, comments, fair. Ken, pretty What what trying significant hard here, think of but year where the Shifting the that run, with Pat-a-Cake I you that’s play are don’t at somewhat a to stop you a your short-term do gears me. – think this around bit optimistic poke I it’s that you environment you revenue, can long are think you kind the be and call see do will your and

it’s is. But it impossible. hope almost I

that’s the sitting – call economy. or to an this wondering, point. meeting I intonations And think at the Chair at I what his next I way, Chairman’s anybody will had by be. have Fed somewhere unhealthy my think, there in making remembering view brain the will Fed We would is that never that’s don’t this smile be commentary. the sitting

years, a company. For the first X public were we

CEOs today there a a are there the you economy economy a do they great And and dynamic capital have happens on. to and it’s guys where is a for average to that are XX demand to managing years, there would have a years how transactions things. I those experience most equity own XX – just because at we when quickly people was talking we of I There lot six at is a directors in the room. because pent-up say of a – my or have the is to That together the I the I to optimistic client, sentences also The And think So, were private mind, each across that’s again, I little relationship, want partners. knowledgeable out need be lot comes finish am such other’s about deep In we of to client happens and accomplish. being But some the value of of control. culture that point. want know They my realize firm being – it companies. and what to that able other and each worth keeping. pitch be and

extent the of to with – for of up minutes, that’s give ability a to a culture and to XX other. want when can’t decision knowledge be an asset, each of that you a couple bad years really of asset smaller the You you communicate

I the I because has a really fairly know. But a uncoiled or you that dramatic. that when a stops, think people Fed and the think answer feel stopped, I am I get will feeling be spring pretty when the that optimistic that’s long economy don’t it again, So, will see markets

Okay.

date… don’t just know I what that

Thanks the enough. it. color. for Appreciate Fair Sure.

next of is KBW. from with your you Matt the Thank for question. question The Moon line

open. now Your line is

Hi, good afternoon.

afternoon. Good

afternoon. Good

upper is your commentary given in see kind to it the of of XX% just questions talked given and as quarter range the of in where clarifying just that of that for of in kind of fourth the near-term? the contribution possible revenues, between bound kind you have XX% Previously, of kind than the of the from about a trend restructuring to stood higher to kind me. that Just backdrop kind of anywhere curious being couple environment,

Yes.

restructuring, XX%. the that’s in think think XX% for that’s you. totally, again, I that – the fourth I to than gave hard full it’s we probably think but year And break out I quarter to the was or So, closer us it XX%

it the But a fourth that And feeling the Look, this might showing was financing bit XX% Sorry, an coming, not full bad up blue company little little wave year yet. bit. and there markets quarter that of possible. immediate are results sky. be a for are the is the

to we lot conversations have in. at that of And a are so they again, negotiate about problems to talking to are continue how us firms

to financing Some refinance interest debt be results good are of good. markets those That’s because just new might a not the open rate. their enough up some the at point, and at

a of private equity return you and the not rather they rate equity. that’s which perfect smart. firm, But it what your will look, restructure, If are is refinance for on is is it than

So, another This market downturn to happening feel goes. the if significant to become think the as right kick-up all X%, be a of the go doesn’t rather restructuring And we it want I X% where of market will do see to will a short-term. point, that’s we like – and to market now. you in your Fed see that has has just yes, serious if all can or in that are big force. wrong the clear and I But instead

you comp points. percentage gears, one-time of then to year XXXX step-up Is X% about to the comp point the that of we after figure? ratio, number, to think excluding curious full that of Joe, X X% And first Understood. last or was related the once expectation Makes quarter for received shifting then that that off the we at of kind the sense. And it the is just first quarter when full to to just ratio the on comments year? year first the as couple just to well, fair just quarter related in that X a get

Yes.

say back spike. get low which course the to the expect, And revenue of is base X% And base? question year, it’s what’s X% is the of on the XX% to the then I mid-XX. the kind over the of So, year, to would first we would would end the take the dependent I again, to

then And one… last

For the year. full

Yes. one then to in is minimal the seemed Understood. last pretty quarter. the And related just buybacks. It

be in if the buyback on little a that for assume just for should curious, next quarters. cautious kind given couple strong should of we year terms of environmental least at of the after So, front activity that more a just bit comments

the environment, say have event I would quarter that’s the embedded know. I next the and of event in given predict vesting I this but can’t would we don’t I a current February, have be that. for of the of quarters, But a vesting part buyback we course, is next couple cautious.

in. factored So, that’s already kind of

Understood. Thank questions. you for taking my

Sure.

Thank the line question you question. The Wolfe for Chubak with your from of Research. is next Steven

line Your is open. now

O’Brien is filling Brendan evening. Good in for Steven. This

I came this than guess lighter I expecting start, quarter. guidance, you based It sequentially sounds in meaningful step-up So, on what to pretty But expense. we to the wanted here. the like are non-comp were ask a on it anticipating

was what increase could in of is the sequential the non-comps I for that about thinking we trajectory you remainder should year? hoping So, driving unpack be how the and

Yes.

episodically. I run but fourth would have And that I the to in been much – a I that as think what math-wise, communicating that. a happened or increase rate. as quarter kind guiding not XX the XX meaningful underlying I run consider XX, counting sequential would rate small of – is see to change basically mean So, series I happen our that benefits any the of I charges of to don’t not fairly to again, non-recurring added change. transaction-related But prior be it’s up that a just still was a on. that is same It’s XX, something

it activity would greater Ken, of for path I you Thanks that the quarter And was that you believe rates. indicated believe certainty once color. accelerate it. was around interest there then I Got last that guess,

or hiking the to or Given to cycle, serve I end sense to getting we still Fed closer potentially, will get through the whether economy comfortable as feel before toes play the and expect a the out sponsors the a to like dipping we catalyst you you need feel environment strategics impacts kind as pause are in? see rate of of back will want do the their how macro

on was No, get today, breaking – I you if it’s newsflash Fed if think Fed paused if look, CNN, the done. a announces there

in which started I are activity at would though, really rip. that. September, are is keep October. fourth now, is you you quarter, earth that best think – I I what probably seeing transactions believe our and we announcing today, their see Remember,

is October September, a deals, quarter ago. activity first the some maybe as and could November year you the of had as reflection The back conversations on it probably in go or strategic a far in

I It to takes So, history. to of we when line. that on the to activity say almost announced revenue quarter, long are our we ancient the just need get reporting

December that So, bigger don’t quarter people. going you reflect November, said, that was if is announced – told we boat. the me need done, enough you a that. like to would today some the if you Fed I December, first say We could If November, or – as October, have point

it very I move think would rapidly.

I expecting but asked not Now, you am question. the that,

color again. it. Got the Thanks for

you your time. further There are Thank this There question. for are registered. questions waiting at no Instructions] questions no additional currently [Operator

Ken pass any back will to So, the I conference remarks. Moelis for closing

quarter. we you appreciate talk and I to after everybody’s time Thank will the Alright. first you.

That concludes call. your participation. for conference Thank the you

You may now disconnect your lines.