Moelis & Co Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Devin Ryan - Citizens JMP - Analyst : First question, just on comp ratio kind of near term and intermediate term. Revenue is up 18% year-to-date. I think comp expense is up about 7%. So you're already seeing some leverage there, but obviously, backlogs appear to be building. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 9:00PM, MC.N - Q3 2024 Moelis & Co Earnings Call So just love to get some sense around whether you feel like there might be some positive leverage in the fourth quarter off of the 75% level and then how we should think about that relationship into 2025. Should we still think about kind of that guide that you guys have been previously given every -- I think, $100 million or so is 4 to 5 points. Just how we should think about that, that connection as we look into 2025 and beyond?

Question: Devin Ryan - Citizens JMP - Analyst : Okay. Great. That's helpful. And then just a follow-up, Ken, just on the interplay M&A with interest rates. So obviously, we've been talking about rates coming down as a catalyst, but we just had one move, right, and it was recent, and we're still pretty far away from, I think, what many people consider a neutral rate. So in terms of sponsor reengagement, do you think we need to kind of see where rates settle out to really see reacceleration? Or is this just the rates coming down, people see the writing and so they're starting to try to progress things with the expectation that by the time you're actually getting to closing a deal, rates will maybe be closer to that neutral rate. I'm just curious kind of how that interplay is working out based on the first move we've seen.

Question: Kenneth Worthington - J.P. Morgan - Analyst : This is sort of a pie in the sky question as well. If we go back to the beginning of the year, Ken, you were optimistic about the outlook for M&A. You're still optimistic about the outlook for M&A. At the beginning of the year, you mentioned that Moelis' pipeline was at in a record levels. We're still at record levels. The S&P is at sort of record highs. But M&A, the recovery has been fine so far. You called it gradual. If there are no surprises, so nothing out of left field, so to speak, could 2025 just be another kind of so-so year, better than '24, but maybe disappointing relative to high expectations. And if we have our chat a year from now and activity with so-so rather than great, what are the likely drivers of expectations that -- a reality that falls short of expectations next year? Is it just rates? You mentioned that a lot of things are working together. What else sort of comes to mind on what could drive a mediocre rather than like a really healthy recovery in activity levels next year?

Question: Brennan Hawken - UBS - Analyst : So it's a bit of unusual environment for sure. But as we're thinking about the coming quarter, do you expect that we'll be seeing the typical seasonality and a stronger fourth quarter than what we've been seeing year-to-date. Is the seasonality you think still something we can count on? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 9:00PM, MC.N - Q3 2024 Moelis & Co Earnings Call

Question: Brennan Hawken - UBS - Analyst : Okay. Yeah, I wasn't trying to fish for a number, but thanks for the high-level commentary. So if we end up seeing some seasonality then and the leverage as Joe just endorsed earlier on the call, and we have a decent fourth quarter here, it sounds as though you're implying that the 75% comp ratio that we saw in the first 9 months, that's not necessarily the way we're going to shake out for the year, and we have to see how solid the fourth quarter can end up being before we can make that call. Is that fair?

Question: Brendan O'Brien - Wolfe Research - Analyst : I guess to start, I just wanted to talk about head count. While your MD count is down slightly year-on-year, your employee count is up nearly 20%, with a fairly significant increase quarter-on-quarter in 3Q. I just wanted to get a sense as to what drove the big step up in head count, is it simply because you need to fill out some of the teams after the significant recruiting done over the past few years or something else?

Question: Brendan O'Brien - Wolfe Research - Analyst : I was looking at year-on-year, Joe. Because I wasn't sure if there's some seasonality in terms of like summer hiring and the like, but Yeah. No, that all makes sense, Ken. I guess for my follow-up, I just wanted to touch on capital allocation. And specifically, whether you would consider doing an acquisition to accelerate growth. I know it's something that you've not been interested in previously, but given where you and your peers are trading today, it feels like there could be some interesting opportunities out there to leverage your multiple to do some accretive acquisitions and accelerate growth. So just want to get a sense as to how your thinking has evolved here, if at all.

Question: Mike Brown - Wells Fargo - Analyst : Ken, I just want to maybe follow up on the comp ratio discussion. How is the competitive landscape in terms of hiring? Are you finding that the fight for talent is getting tougher and resulting in the need to pay up? And are you also finding a need to pay up to retain your talent? I guess I'm just trying to figure out if there's potentially some more structural pressure on the comp cost as we start to think more about 2025. And of course, I appreciate the comp ratio algorithm that you guys have laid out, but just trying to think about that dynamic right now.

Question: Mike Brown - Wells Fargo - Analyst : Okay. Great. Just change gears and talk about restructuring. How has activity been holding up there? And when we think about the next 18 months, how do you expect restructuring activity to progress? And what will be kind of the interplay between, call it, traditional restructuring and liability management?

Question: Aidan Hall - KBW - Analyst : Ken, maybe just a follow-up on your M&A comments or large team lift-outs. Curious how you would characterize appetite for not just like traditional M&A bankers, but maybe some of the non-M&A capabilities, obviously, private capital advisory, primary fundraising as well are areas that come to mind that some of your competitors have been a little more aggressive in kind of growing. So any appetite there? Do you guys have ambitions to grow in those verticals?

Question: Aidan Hall - KBW - Analyst : Got it. I appreciate the color there. And maybe just a follow up on Brendan's question about kind of head count more on a sequential basis. It looks like the MD head count decreased by five quarter-over-quarter. Anything to call out there? It just seems pretty elevated, but I know there can be some noise here and clarifications. So I just want to clarify.

Question: Ryan Kenny - Morgan Stanley - Analyst : Just on the comments around longer lag to complete transactions. Can you just give us an update on what's still driving that? Is it all regulatory driven? Is it just a longer vetting process? And do you expect that lag to normalize as the cycle picks up and sponsors start coming back and forth?

Question: Ryan Kenny - Morgan Stanley - Analyst : All right. Helpful. And then one technical question. On the $7 million gain on Moelis Australia shares, was that a one-off? And any update on how Australia fits into your strategy from here?

Question: James Yaro - Goldman Sachs & Co. - Analyst : I think we've seen a couple of recent successful sponsor IPOs. Is that something that's starting to come up in your dialogues with private equity and do you think that's something that could lead to more activity either in ECM or M&A in that part of the market?

Question: James Yaro - Goldman Sachs & Co. - Analyst : Okay. Just a quick one here. Maybe any way you could just size the percentage contribution to revenue this quarter from restructuring and capital markets versus M&A?