Q2 2020 Moelis & Co Earnings Call

All participants will be in listen only mode.

Do you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then too.

Please note this event is being recorded.

Now, let's turn the conference over to check Mendell, Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us for Molson Company's second quarter 2020 financial results Conference call.

The only today or Ken Moelis, <unk>, Chairman and CEO and Joe Simon Chief Financial Officer before we begin I'd like to note that the remarks made on this call may contain certain forward looking statements, which are subject to various risks and uncertainties, including those identified from time to time and the risk factor section most accompanying filings with the S. You see an in network.

Earnings release.

Actual results could differ materially from those currently anticipated from undertakes no obligation to update any forward looking statement.

Our comments today include references to certain adjusted financial measures. We believe these measures when presented together with comparable GAAP measures are useful to investors to compare our results across several periods to better understand our operating results.

The reconciliation of these adjusted financial measures, what the relevant GAAP financial information and other information required by Reg is provided in the firm's earnings release, which can be found on our investor relations website at investors that Moelis Dot com I'll now turn the call over to cancer discuss our results can.

Thanks, Chad good afternoon, everyone.

We are following the same strategy today that we did during the financial crisis, that's investing in the business at a time of disruption and positioning ourselves for future growth.

Our strong balance sheet with no debt liquid financial position.

Collaborative culture has allowed us to attract and retain exceptional talent throughout this dislocation.

We have long discussed a few key areas that we believed would be important drivers of activity.

Earlier this year, we strengthened our client coverage in the oil and gas sector has deepened dark financial sponsor relationship coverage and increased our capabilities in advising corporates on activist strategy.

More recently, we announced the hiring of three additional managing directors and one senior advisor.

Well not did your director based in Europe. The buys is quite human health care sector, which we expect to be an area of innovation and transformation.

Due to cope with ideal them following.

We expanded the firm's capital markets capabilities, what you're managing directors based in the U.S. will be vital in growing that product offering.

Lastly, one senior advisors joined to provide access it advice to companies in the media and telecom sector, an already strong power alley for the problem.

So far in 2020, we've got a 12 managing directors to our platform to external hires and internal promotions and we will continue to be aggressive in recruiting the best talent for our platform.

I know that we have the right talent strategy capital structure and management team to navigate the current uncertain environment.

Very active in the short term, but also build earnings power over the long term I'll now pass it to Joe walking through our financial results and then I'll conclude with a few final thoughts on the environment and the business Joe.

Thanks, Ken we aren't second quarter revenues of 160 million up 4% from the prior year period.

We're able to shift resources quickly to meet the demands of our clients during the quarter extraordinary flexibility of our model as highlighted by the fact that all that over one third of our revenues were awarded an executed during the second core. These revenues primarily came from a strong increase in our capital markets activity and a meaningful uptick.

And retainer fees, primarily related to restructuring mandates.

Moving to expenses, our first half 2020 comp ratio was accrued at 78%.

We're managing the business for the long term I believe that we have the right global footprint in place and as Ken mentioned, we're adding exceptional talent, so that we maximize corn opportunities.

Supposition to quickly strike when broader activity rebalanced, our non compensation ratio was 17% for the second quarter of 2020 versus 23 in the prior year pure absolute Noncomp expenses declined 22% versus the prior year, largely driven by a significant reduction in travel and other business development related.

As long as general travel limitations remain in place Noncompensation expenses should remain at or below 30 million for core.

Moving to taxes, our normalized corporate tax rate was approximately 25% to support our taxes reflect the benefit from the current quarters operating result, and a discrete benefit primarily related to the cares.

Regarding capital allocation board of directors declared a regular quarterly dividend of 25, and a half sounds per share we remain committed to returning all of our excess capital to shareholders. Most importantly, we continue to maintain a fortress balance sheet with substantial liquidity and no debt. We ended the quarter with 194 million of cash.

On liquid investments and an undrawn revolver I'll now hand, the call back to <unk>.

Thanks, Joe.

Emanates picking up and there is a tremendous amount of pent up demand for high quality assets across both corporate clients and sponsors.

Corporates are reevaluating their business models and I think we can see waves of significant strategic consolidation activity coming.

Sponsors have substantial funds to deploy.

Well as assets they need to monetize and what the continued stability at markets they will be active.

For some highly leveraged companies the recent liquidity issues morphine do solvency crisis. In these cases are leading restructuring franchise will continue to win new assignments and be a strong contributor revenues over the long term.

Perhaps most interestingly during the quarter Moelis <unk> company advise 14 capital raising transactions, placing the only 14 billion in capital across both equity and debt.

We achieved this without the overhead of sales research and trading platform.

And it's a disruptive environment like the one we are in today, we see leak opportunity for our firm as companies favor the speed and discretion about asset light independent model.

In conclusion modes. The company has responded even better than we could have imagined during the early days of the pandemic. Our bankers are very busy and in fact, we've seen an increase in new business activity versus this time last year as a result, I'm confident about the firm's future growth outlet outlook and with that let's open it up to questions.

We will now begin the question answer session.

To ask a question you May press Star then one on your telephone keypad. If you were using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Ken Worthington with JP Morgan. Please go ahead.

Hi, good afternoon.

Ted just following up on your your comments just just now.

Yes, well restructuring is picked up based on what you're seeing now and based on your knowledge of your pipeline.

Right is it fair to say that maybe to Q is the bottom for Moelis revenue.

Could it be Threeq cutest weakness expense for Q. What are you seeing is sort of the outlook here for for revenue versus that Twoq that we just saw and what are the factors that are going to determine if earnings further softening from twoq levels or rebounded in the course.

It was ahead.

Thanks, Ken So look you know we tried in the most stable of markets I have tried and it's exceeded I hope you're not giving guidance by the quarter. It's really just to talk like I said, a third of our revenue.

Last quarter was awarded an executed within the quarter. So we don't.

These are volatile volatile times.

I'm going to give you this though Ken my sense is that the in activity in the M&A market has definitely Bob I mean.

I I sense are very strong.

Desire to to participate in M&A, especially for high quality assets and that may start to get driven a lot by financial sponsor activity, but I thought it really started six seven weeks ago, and then went on.

Why pause as we had another.

Spiking, cobot cases, which sort of made people I'd say started a little bit.

But as of today.

I see a tremendous interest people are saying look we need to buy quality assets, we are going to buy them and that we have to over over equitize for a while we don't mind doing that we want to own for 10 years, we think the current environment is temporary.

I'm, sorry, I'm pretty bullish on the amount of activity that we have and that we are accumulating a backlog. It's it's just too fragile environment or things that like I said. This started six seven weeks ago, and then a spike in cases in the south itself in a and west.

Which came out of the blue or let's put it. This way you know was not easy to yeah. So I'm just not going to go quarters can because I think there's some.

Also a an election going on so there's lots of things I have no control over but I do want to say.

I feel strongly that people are getting back to business.

Okay. That's fair enough and then maybe as a follow up how do you see the money center banks as competitors for fees, how should we look forward and M&A and somewhat suggest the banks have strengthened their relationships with their corporate clients, a with loans and other banking services lifelines in some cases and that this role.

As a result in more allocations.

The M&A few wall it to the bigger banks.

Do you think moelis or the boutiques broadly.

Well have to share more and M&A fees with the banks going forward over the next I don't know you're a couple of years or is this sort of a thesis just complete garbage.

[laughter] I haven't heard pieces, but I don't I don't buy it number one early on in this crisis.

There were some severe trench and actually I wouldn't call them a friendly.

There were really severe attention we had a couple of clients, but just couldn't believe what happened in there and I'm talking about.

You know very early March April kill the fed opened up the spigot, but I can tell you that some oh you know once you see.

Good friend to your show their teeth to you I think you know they have teams forever and that tone change after the fed came around and all the sudden money was valuable.

So number one.

Are there maybe some truly a rescue financings that are on the hook, but those are few and far between I think when the fed opens the spigot.

And there is just tremendous access to the bond market and finance.

It's your privileged to lend to the company not because your company real it's about the all nine crisis, where people are desperate to get money, they're getting it and they're getting it in the public markets.

Some of the biggest loans right now are being made by what we call you know the shot on market, which has gotten fairly large some of the sponsors are actively competing on some fairly significant direct lending.

And I continue to believe by the way that the middle market.

Well run into significant trouble European bags in there in their credit quality their capital ratios. This is not over this is just starting I think in the real economy.

Forget the S&P 500, new than the Russell, there's 10 million small.

Mom and pop companies in the United States. They are not thriving and they don't have access to this money.

So the loan books against those assets I think we'll continue to cause difficulties for some of the large banks now I mean, that's a long answer do I really don't believe it.

Oh, we raised $14 billion some of it in common equity.

For some pretty significant companies. The fact is I think we just for media Disintermediated somebody the large companies on some of their products and we weren't really that wasn't a strategic Ah.

I wasn't a strategic decision by if we just have to be sitting there and could execute it. So it did may become a strategic initiative as we go forward.

Great. Thank you very much.

The next question is from Devin Ryan with JMP Securities. Please go ahead.

Great I cannot Joe.

Adam.

First question here I'm, just love to get a little more perspective on the compensation strategy. This year, obviously big uptick in the second quarter on the comp ratio and you just like to think about whether you know something changed during the full year view competitively year or just on the revenue outlook. In you know I also appreciate your the back.

Half environment is pretty uncertain at this moment, but are there any parameters for us at least think about the relationship between revenues and compensation and some different scenarios.

Yes, that's a fair question.

When we last spoke to you I think with the second week of April and I truly had no clue I think if you go back in play the tape I think I've said, we truly have no clue what is going to happen next.

And it seemed pretty like there could be a dire outcome.

So we didnt, we didn't accrue much bonus because we didnt know, whether we whether it'd be a you know how what did it'd be a business I mean, I I seem to be a business, but I've been a healthy business.

The second quarter in this quarter, we feel pretty optimistic this is and I want to make sure. This accrual for the first half for the year, what we now see if the run rate. We it's almost it's really a bullish statement then hey, we we do think that will isn't money and we're gonna have to pay a bonus pool in the first quarter.

We we weren't sure.

As to what the run rate of the businesses would be in an environment, where everybody was locked in their homes.

It's almost a you know what is the catch up the second quarter is a catch up.

Puts us on a run rate for the first half which reflects the first half what we see for the first half.

I'm going to try because I I'm feeling 10 people ask me. This question someone to try to lay this out.

We don't see this year as a year of ratios so I'm not going to answer this year, it's a cold mid year. This is a.

This is a year I want to get to December 31st whenever bonus payment date is and what I want to have.

It's a strong balance sheet.

Great clients yet.

I want to retain our talent and I want to grow.

I want to grow and as you noticed we have been hiring people and I don't think that the revenue run rate has anything to do with ratios. It's just the you know this is a a black Swan event that is happening and we're gonna we're not gonna.

We're not going to live by a ratio to set ourselves up for 10 years ago.

This happened to us we happen to be private and blast crisis. When I started by saying that we took advantage of it because there's a private company. We did we didn't have to think about that and then we set ourselves up for 10 years of spectacular value creation from 2009 to 2019.

That's what I see happening.

And so I want to divided into that period.

You're paying attention to my core the ratios this year.

I'm really not I'm paying attention to quality of the franchise quality of the client base quality of the balance sheet.

Then we'll have 10 years and then after that I.

I do think we have a moment here Dab in where we can a step function grow the company again I I continue to believe.

It likely will be difficult for people who have.

I'll, let you know bad balance sheets and by the way to Ken's question No matter no matter. How strong you say you are if your major financial your Levered tend to one we are leveraged zero.

I still think we can take advantage of that and higher and significantly expand our footprint in what I think we'll continue to be a difficult environment. So we may run into an elevated comp ratio even post this year.

But then after that we will we will settle back in and I think we can run the business as we did for the five to six years post.

Post that extension period of all nine which was you know the old the old comp ratio sub 60, and get back to that model, but do it in a format that I hope is twice the size of the franchise that we had coming into this crisis.

Great I appreciate all the perspective, there can and maybe a follow up just on your from your commentary on M&A recovering recently, I guess I'm, just trying to dig a little bit more there and I guess, whether you've been surprised by the resumption and activity in engagement.

And I'm really just to use this normal kind of course of conversation, where you know buyers and sellers are are starting to to kind of reengage and move forward on an actual transaction, where there's are reasonable probability of getting to an announcement or is this kind of like the stage before.

Before.

Yeah, actually or kind of doing the work, meaning that the backdrop still pretty fragile and so you know there needs to be a broader economic reopening and more confidence for Jim Prime many of these deals actually get to an announcement I'm just trying to think about what it means that.

You know engagements I'm kind of even ahead of where it was last year.

I think people are ready to transact that's a I think they got stepped back a little bit they.

You know there's a lot when we're at a good part of this market I think we're in the high quality a lot of.

A lot of our flow businesses in high quality, a sizable assets and in sponsor Lam.

Drives a lot of our middle market business.

And they're higher quality.

And we've had calls where people were looking at them in March and then we went on hold and people calling up. So you know we thought about it we have to own that asset. It's it's a good asset.

We're going to underwriter and we want to bid on it and we're starting to see that.

Yeah, there was a pause in March and April, but it's coming back and I think they're ready you know it's not everything.

But on quality assets that you want to hold for 10 years.

There are financial institutions, especially and by the way we're seeing sporadic.

Corporate strategic I think on the corporate strategic what's happened is.

People really get off to take care of certain things like their own people. There. There was a lot of distraction you know I mean I.

I should call distraction I should call focus.

On on the health that other people work from home there were higher priorities, then strategic M&A, but in the financial sponsor World. You know that is their basic business buying and selling companies and they're ready to go and I believe that we will start to see high quality assets execute and fairly.

Rapidly as people get concerned that they're missing the opportunity to have gotten the assets. They wanted.

Yeah, and just to put a finer point on that just to kind of conclude the the question you were hearing different answers I think from companies on earnings calls this earning season around kind of their views of the outlook and if so we're talking about green shoots some expected could remain.

Slow throughout the remainder of the year and I'm, assuming it kinda depends on where your focus for the M&A markets not obviously, one thing and there's a lot of nuance to a different parts of the market geography is a customer base et cetera. If I could you just mentioned so is that kind of the right way to think about it that there are pockets of.

Yeah, very active I'm kind of buyers and sellers and there's areas that are you're probably going to remain slower for an extended period of time is that right Reid.

Yeah, I think it's gonna be different I think.

Right now what we see is kind of.

Sizeable.

Hi quality assets.

In industries that are not you know directly coded related like travel and leisure.

Our <unk>.

People will find a way up how do you do due diligence well if you can buy a billion EUR 2 billion dollar asset you think that asset is extraordinary I've noticed people find a way, it's an entrepreneurial world not everybody shut down people want to make money and they and they will find a way to get the diligence done and those transactions are both large enough to attract a the banking mark.

And there are large enough to attract financial institutions that have.

You know funds to put to work and they are going to do and I I would think.

That's a good point Devin might be the me to the market might be in that.

Very high quality.

Sponsor market right, now, but I think corporates or or are starting to ramp up and come back into it.

Well I I think that's probably where it to be additive it'll be different industries and different size and and right now it's being led by quality quality assets, where people are almost.

Paul and it's up and saying remember the quality asset I want to bid on that I want <unk> I'd like that process to start again and I'm willing to go back to where I was.

In terms, okay, great I'll leave it great I'll leave it there thanks, a lot count.

Yes.

The next question is from a non to sale it with Morgan Stanley. Please go ahead.

Hi, good out.

And maybe a yes, if you can speak up at about a restructuring Guy and I think you said before then restructuring activity can easily double from where it was pretty call. It Uh huh.

About how the environment and maybe your thinking has evolved out to the at the fed actions Oh here. This year. Our Aftab. Yeah. Do you think that set of activities come out for could or has this just added or leverage and assistant that.

You know maybe expanded the way the restructuring that you could have over the next couple of yes.

Well, that's why we never break it out in a line item because it does diverge. So a lot of the capital market stuff not all of it by the way, but some of it was started out as restructuring and went to capital markets and I talked about.

I do think it's in restructuring will continue the.

The there is additional leverage in the system I believe that most people when they think of a recovery here think of going back to.

You know maybe revenues across.

Our down 5% I think a lot of people like right now I would been happy with that offer what I thought was going on.

But remember a system that is levered to EBITDA, if revenues go down five or 10%. Most companies were built to grow revenues not to even have flat revenues.

And if your revenues are down 5% that might mean, you're operating income is down 20%.

And if if you elaborate on that.

And if you've levered that you're going to go into a restructuring one day and the fact that you were able to obtain liquidity to get yourself through coded buys you time, but it's the ultimate run rate of revenues down 578%.

Because the economy is suffering a you'll end up in restructuring with more debt. Just later on so I'm very bullish that we could actually see.

I I think we could see both of these I've never had it in 40 years I've always it's always been talked about like could you have both businesses go at the same time.

In 2008, now I know there was no M&A all restructuring and then M&A came back and then in 10 11, I think M&A is going to come back 100% feel that.

And I don't see how we don't have a very long and protracted restructuring cycle as well so I'm bullish I think both could hit.

Got it and then I guess I was wondering if there's any update on how you're thinking about the dividend side. I mean, you sound a lot <unk> I stick on the M&A side and <unk>.

Yeah. If restructuring continues for you know maybe want to me I said it looks like you have a better line of sight into 2021 show or is there an update on how you're thinking about dividends is it still more conservative to take it out quarter by quarter basis or.

Do you think you can up the level of dividend, maybe in a quarter or too.

But if there's one thing I hope I have good record others given back money as quick as possible, we don't need it we don't we don't want to waste your money.

I being very conservative because I still don't believe Ike I singularly control the future mold not me, but our management team I believe this externalities out there right now that I don't I don't understand I'm, not a doctor knob epidemiologist.

So, we're just being conservative and as soon as we can.

Well give <unk>, we want to give you all the money back and I'm just want to make sure that there's a really strong.

Company and that we take advantage of it and we don't have to do something silly because we get tried to give the money back two quick so yes. It did we think about it yes, do we think because it is clear no.

Got it thank you.

Your next question is from Michael Brown with KBW. Please go ahead.

Hi, Thanks.

Yeah. So can I just wanted to start with question on the on the comp I. Appreciate all the color that you gave there, but I guess cobot environment or not and I, just like to try and put a finer point on the trajectory of the comp expense not a set of the ratio here.

No. We don't know how the back half will play out, but I'd say, it's probably fair to expect that this year could be a softer revenue environment. So that intuitively could imply lower comp dollar for the full year.

So relative to last years 470 million dollar number is it.

Fair to expect that it could be lower or what are some of the puts and takes that I'm not really considering there. Thanks.

Well, yes. The answer is I have no idea and the puts and takes you're missing is.

I don't I can't tell you plus or minus a big number what our revenue will be.

And it's not just because of our backlog of good backlog I don't know what will happen at all it what happens with the election would have a fad what happens with the virus and and I saw being conservative on it and the answer is yes, I do think it could be less.

And that's why in the first quarter.

I reflected that in our in our crew I just felt like Hey, I was a you know I didn't know where the business was going and we were prepared to pay less.

I think you should take it by our accrual on this quarter.

Yeah, I actually think we are very confident in our business model and so we see.

<unk> the probability that we're going to pay a bonus pool and we're going to pay people could be here at because.

And this is the last point I know somebody asked this question privately you know who comes first of all employees or the stockholders. The stockholders come first every decision we make is for the stockholders, but you would not like Moelis <unk> company without its employees.

And without its talent and without people are working hard and knowing that they're motivated. So we've kept a great set of talent, we have hired tremendous people in the downturn.

We are continue we want to do that want to be even more aggressive I've.

This this crisis has not made as much talent available because it didnt hit the financial institutions first.

The other way crisis first hit financials, and secondarily hit mom and pop.

<unk>.

Enterprises My feeling is this first hitting.

Smaller enterprises will hit big financials over time.

And so we've got to be a patient, but we we think there's going to be an opportunity to significantly expand our talent base at the right time in the cycle and are excited by that opportunity. So I don't know if that answers your question, but the best thing I can say is if this year's comp ratio is there.

He is in your owning our stock that's a bad reason to own.

Okay, I'm actually I just wanted to follow up on the hiring side since you brought that up.

It sounds like tend to drive their growth you're going to really need to increase your hiring activity, but you know really with the big banks. This time around they're not really the problem and then they're actually putting up some impressive result on the institutional side. So.

Where you know I guess, where are you expecting to get a lot of your hiring from and what's gonna be kind of the the pushing this time to help you helping drive some of that and hiring to support the growth that you're on how you're expecting from this cycle.

I think the banks put up great numbers because of volatility in there in the trading markets in the second quarter was a great place to be in the trading markets.

And that might cover you for a while I'm not even sure its maintaining that level or not I'm not I don't do it for a day, but I do think.

Loan books will deteriorate, our restructuring backlog is there a future reserves.

And if I I think you've heard from all the boutiques. They think they're restructuring cycles gonna be large that comes out of somebody's a lending book.

And I think that's that is an opportunity and it will be there.

And then I think <unk>, yeah, there's been a lot of expansion where people decided that they would venture out into.

It's starting to do their own boutiques doctor on boutiques, you know, it's gonna be hard I think that if you started in Europe.

What used to be called the kiosk your small player and you have 10.

10 people in your employee.

I think it's gonna be it's going to get tiresome to maintain that payroll. If your specialty is M&A and there is no M&A. So.

I look I think they'll be opportunity. This is this is the first four months of a crisis in which there is now 30 million unemployment I don't think it's over financially.

Okay. Thank again.

Your next question is from Brennan Hawken would you be S. Please go ahead.

Yeah. Good afternoon, Ken how you doing.

Have you been.

Good. Thanks, just wanted to dig in a little bit on the deals that were both started and completed this quarter could you maybe help out with the composition of those they're not typical for for your company.

Sure they haven't sometimes but but not often where they all capital markets, where there may be some restructuring deals that you were able to get completed quickly you know even if not you know quantitatively maybe give us a qualitative description of some of that.

I think what I meant to describe I might ask Joe if he knows if there's a restructuring I think there were mostly capital markets. They were hey.

We need money I think was capital markets, which moved quickly Joe do you know if there any yeah, it's primarily capital markets, but we also had an enormous uptick and restructuring and therefore the out retainers. It's not a question of completion, but it ultimately count it fits and starts to develop retainer fees.

Which ultimately enhance the revenue picture for the quarter.

Right, sorry, but we try to get weaker I think I think right. I think we included monthly revenue that started and because we get paid on a month its executed by the month. So we probably included us.

Got it okay.

Makes sense.

And then understanding this is not a year of ratios as you said so that's that's very clear and so we've got 2020, and 2021, where comp ratio is going to be elevated it seems to be the message.

That I heard it but.

And I get it that you are not interested in trying to understand and the middle of the year, what's going to school look like at the end, that's very loud and clear so.

But but we're still stuck trying to model you and finish here I'm just trying to understand what would the operating leverage is going to work like you know when we come out of this and so.

It is the best way to think about it it sounds like what you're saying is is this quarter wasn't really about this quarter, but about the first half and you wanted to try to accrue based upon your sense of what you would think an incentive pool would look like for the first half of revenues I just want to confirm that that I'm hearing that exactly and then.

Yeah, Okay, and I was just stop and say you heard that exactly correctly and the reason on the first quarter was I I really was concern that the run rate on revenues could be way lower than what it appears to be now and so we didn't accrue because we weren't sure. We you know we.

We weren't sure what are what the world would look like in a cold and world. So go ahead.

The end of March was very different felt very very different than today. So yes no.

Totally fair so is there so.

It's a good way to think about it you can.

Trying to think about your fixed comp expense base think about what the revenue you produce thinking about what that proportion would look like on the additional accrual and use that as sort of a framework for how to think about.

<unk> expenses as we make our way through the year.

I don't know I I really don't know how to project this year I I'm not trying to be difficult.

I don't know how to project this year.

Other than we're going to me, we're gonna do everything we can to maximize the value for our shareholders. This franchise and.

I don't know exactly.

What the your looks like and then you talked about 2021 I want to say this I expect elevated 2021, because I expect us to hire more people.

Then we have since you know I'm not going to pick a date, but since the tail end of the last crises.

I want to be I wouldn't want to prepare people, we'd like to Oh, we don't we don't want to do it through M&A, which we get to put an asset on the balance sheet, we do it transparent and clean and we do it as hires and it goes through our income statement.

I know we have to answer for that.

But that's the way we've done it by the way we've done all of our personnel management, including reducing personnel when we do it without special charges, we do it just do it right through the.

Income statement on a clear transparent way.

So when you say elevated 2021 will probably be able to tell that by our hiring if we continue to grow a it'll be elevated because we're going to try to make an abnormal.

We're going to try to grow abnormally fast, we're hoping to do that.

Over the long haul if you want to model the business on a long haul basis I do think that when we get like like last crisis. When we got to 20, we ran them the model it high Fiftys comp ratio.

Pretty.

Pretty consistently every single year from 2014 2018, right to the into 2019 and I think we can get back to that once we level off from what I hope and what I I think will be a unique opportunity.

To double the size of the franchise and that's the goal and we're going to try to execute on that business plan.

Okay.

Are you.

Does anything does your experience through 2019 here so far in 2020 does it inform maybe how you might approach.

The.

Managed to fixed comp expense base.

Just given the potential volatility of the revenues you know maybe address the size of the deferrals maybe change around some of the composition or is that two to dramatically changed for for to be considered at this point.

[music].

Fundamentally I don't know that will change I like their comp model attune to some of to some people. The deferred comp is a is a liability to up to me. It's a phenomenal asset we've retained our workforce.

There is significant hooks into the from from our workforce I can plan on our team being here.

It's very valuable they become owners or the company and I like it and and I and I think it aligns our interest and the length of service or are linked the service I think is exceptionally low low volatility turnover.

So yeah, what would I mean, well adjusted on the margin and we're always a you know talking about our headcount and keeping on top of that but.

Look we you know last year and for the first we went public in a 14, we had one year of difficult revenue and it led to a.

And as an elevated comp ratio by the way to comp ratio was elevated but not even above I think what some of our peers run a day in day out.

So I you know I <unk> that was I think we can get back grow the company.

Accelerate our growth in the short term and then get back to what we did for five straight years, which was pretty effective and it was in at work.

Okay. Thanks for taking my questions can appreciate the color.

Yes.

Your next question is from Jeff Harte with Piper Sandler. Please go ahead.

Good evening guys.

Oh, probably left for me.

One when we look at the capital markets kind of activity strength from a quarter and you've you've touched on some can you put it into some kind of historical context, what kind of how this quarter was kinda compared to quarters, you've seen before and I guess, maybe to follow up on that would be is it reasonable for us somebody outside to look at kind of industry underwriting revenues as a.

Kind of what's the best leading indicator of how that business is doing in the future.

You know I don't think so because we're we're so idiosyncratic that it's it's a but.

You should note that we hired two very senior capital markets people to join.

A one joined already and I think ones on the way.

Because we continue to believe so I think to stop because it let me say that's just stop me if I'm wrong I think our quarter.

Capital markets revenue was larger than all of last year.

Yeah I was about the same size if not larger yeah.

So that kind of size is how ah.

You know what happened in capital markets.

And it I think it demonstrated to us that there's a lot going on in capital markets around disintermediation of the markets I think rise of us back market I think is a real threat.

Through the Oligopolies of IPO market I think that the stock market is the the world rebelling against the or what I'd call. The oligopolistic, a high expense difficult Miss of going public through the.

Seven or eight majors that take the vast majority people public.

And so I think I think the capital markets are ready.

Like we're all zooming from home I think the capital markets might be ready to go to a different model.

Go to more entrepreneurial.

Oh capital investment and trading was et cetera, and and I think and I and we want to be at the forefront of helping to disrupt that.

Okay, and Dod kind of housekeeping question counting second consecutive corridor with some cures act tax benefit in there how should we looked at the back half a year I mean, just 25% just kind of the right way to think are we going to see more cures act kind of related benefits potentially in the back half.

Here as well.

Yeah, no and Don it depends on you know, where where revenues land and where our income labs, but there are some substantial benefits that are coming as a result, so some tax timing differences that create taxable losses subject to the carry back so it's not necessarily visible to you.

But my expectation is that they'll that that will likely persist into the out at the back half of the year.

Okay. Thank you.

This concludes our question and answer session I would like to turn the conference back over to Ken Moelis for any closing remarks.

Thank you everybody I appreciate you spending the time and ER.

And try not least parse through it it's been a very difficult time, and very volatile and I hope you get something out of these calls and I look forward to hopefully talking about how cold. It is behind us on the next call. So that would be exciting. Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[music].

[noise] [noise].

[noise].