Q4 2023 Moelis & Co Earnings Call

Operator: Going live at Good afternoon, and welcome to the Moelis & Co. Earnings Conference call for the fourth quarter of 2023. To begin, I'd like to turn the call over to Matt Soukup.

Good afternoon, and welcome to the Moelis <unk> Company earnings Conference call for the fourth quarter in 2023 to begin I'd like to turn the call over to Matt to cross.

Matt Soukup: Good afternoon, and thank you for joining us for Moelis & Company's fourth quarter and full year 2023 financial results conference call. On the phone today are Ken Moelis, Chairman and CEO, and Joe Simon, Chief Financial Officer. Before we begin, I would like to note that the remarks made on this call may contain certain forward-looking statements that are subject to various risks and uncertainties, including those identified from time to time in the risk factors section of Moelis & Company's filings with the SEC. However, actual results could differ materially from those currently anticipated. The firm undertakes no obligation to update any forward-looking statements.

Matt: Good afternoon, and thank you for joining us for Moelis <unk> company's fourth quarter and full year 2023 financial results conference call on the phone today are Ken Moelis, Chairman and CEO and Joe Simon Chief Financial Officer before we begin I would like to note that the remarks made on this call may contain certain forward looking statements, which are subject to various risks and.

Matt: Certainties, including those identified from time to time in the risk factors section of Moelis <unk> company's filings with the SEC.

Actual results could differ materially from those currently anticipated the firm undertakes no obligation to update any forward looking statements. 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 and to better understand our operating results.

Matt Soukup: 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 and to better understand our operating results. The reconciliation of these adjusted financial measures with the relevant GAAP financial information and other information required by Reg G is provided in the firm's earnings release, which can be found on our investor relations website at investors.moelis.com.

Matt: A reconciliation of these adjusted financial measures with the relevant GAAP financial information and other information required by Reg G is provided in the firm's earnings release, which can be found on our investor relations website at investors that most dot com I will now turn the call over to Joe to discuss our results.

Joseph Simon: I will now turn the call over to Joe to discuss our results. Thanks, Matt. Good afternoon, everyone.

Joseph Simon: Thanks, Matt and good afternoon, everyone on today's call I'll go through our financial results and then Ken will comment further on the business, we reported $215 million of revenues in the fourth quarter, an increase of 6% versus the prior year period.

Joseph Simon: On today's call, I'll go through our financial results, and then Ken will comment further on the business. We reported $215 million in revenues in the fourth quarter, an increase of 6% versus the prior year period. For the full year, our adjusted revenues of $860 million were down 11%. The revenue declines were driven by a decrease in fees earned from M&A, partially offset by an increase in restructuring and capital markets fees.

Joseph Simon: For the full year, our adjusted revenues of $860 million were down 11%. The revenue declines were driven by a decrease in fees earned from M&A, partially offset by an increase in restructuring and capital markets fees regarding.

Joseph Simon: Regarding expenses, our full-year compensation expense ratio is a little less than 83%. As a reminder, our first quarter compensation ratio will likely be elevated as a result of retirement eligible awards, which are expensed at the time of grant. For the full year, we reported a noncompensation ratio of approximately 21 percent.

Joseph Simon: Expenses, our full year compensation expense ratio is a little less than 83%.

Joseph Simon: As a reminder, our first quarter compensation ratio will likely be elevated as a result of retirement eligible awards, which are expense at the time of grant.

Joseph Simon: For the full year, we reported a non compensation ratio of approximately 21% as a result of our MD head count expansion underlying non comp expenses will be in the $45 million to $46 million range beginning in the first quarter, excluding transaction related expenses as many of you know the annual vesting of <unk> will occur later this month.

Joseph Simon: As a result of our MD headcount expansion, underlying noncomp expenses will be in the 45 to 46 million range beginning in the first quarter, excluding transaction-related expenses. As many of you know, the annual vesting of RSUs will occur later this month. For purposes of quantifying the excess tax benefit, we expect the impact on EPS to be approximately 1 cent for each $1 difference between the vesting price and the adjusted grant price of $39 a share. Regarding capital allocation, the Board declared a regular quarterly dividend of 60 cents per share consistent with the prior period.

Joseph Simon: For purposes of quantifying the excess tax benefit we expect the impact to EPS to be approximately one for each $1 difference between the vesting price and adjusted grant price of $39 a share regarding capital allocation. The board declared a regular quarterly dividend of <unk> 60 per share consistent.

Joseph Simon: The prior period and lastly, we continue to maintain a strong balance sheet with $349 million of cash and no debt I'll now turn the call over to Ken.

Kenneth Moelis: And lastly, we continue to maintain a strong balance sheet with $349 million in cash and no debt. I'll now turn the call over to Ken. Thanks, Joe. Good afternoon, everyone.

Kenneth Moelis: Thanks, Joe Good afternoon, everyone. While 2023 was a challenging year, we played strong offense and aggressively expanded our business during the year, we hired 24 and promoted eight managing directors. Many of these new Mds are focused on the most significant global fee pools, including technology.

Kenneth Moelis: While 2023 was a challenging year, we played strong offense and aggressively expanded our business. During the year, we hired 24 and promoted eight managing directors. Many of these new MDs are focused on the most significant global feed pools, including technology, industrials, and our clean technology group. While we expanded our new MD population by approximately 20% during the year, our total employee headcount grew just under 5% as we actively managed our headcount. In early 2024, we promoted seven bankers to MD and have hired three. OneHire enhances the firm's coverage of credit funds, and two managing directors we'll join in the coming weeks are focused on upstream energy. While we will selectively add talent in areas where we see meaningful human resources opportunities, this year, we expect to be primarily focused on delivering our expanded expertise to our clients.

Kenneth Moelis: <unk> and our clean technology group.

Kenneth Moelis: While we expanded our new MD population by approximately 20% during the year. Our total employee head count grew just under 5% as we actively managed our head count.

Kenneth Moelis: In early 2024, we promoted seven bankers to M D and have hired three.

Kenneth Moelis: One higher enhances the firm's coverage of credit funds and two managing directors will join in the coming weeks are focused on upstream energy.

Kenneth Moelis: While we will selectively add talent in areas, where we see meaningful fee pool opportunities. This year, we expect to be primarily focused on delivering our expanded expertise to our clients.

Kenneth Moelis: It's difficult to predict when the M&A environment will fully rebound. However, the Fed's messaging has eliminated the tail risk of future rate hikes and brought into view a high probability of rate cuts in the coming year, which I believe will give rise to an increase in M&A activity. We're seeing early signs of an improvement in sentiment, as expressed in our pipeline, which is near record levels at the beginning of the year.

Kenneth Moelis: It's difficult to predict when the M&A environment will fully rebound. However, the fed's messaging has eliminated the tail risk of future rate hikes and brought into view a high probability of rate cuts in the coming year, which I believe will give rise to an increase in M&A activity. We're seeing early signs of an improvement in sentiment as expressed in a pipe.

Blind, which is near record levels at the beginning of the year.

Operator: Barring unforeseen events, I'm confident that we have seen the bottom of this M&A cycle and that we have positioned the firm well for the coming. With that, I'll open it up to questions. Thank you, Mr. Moelis. Ladies and gentlemen, if you would like to ask a question today, we need to hit the star followed by the number one.

Kenneth Moelis: Foreign unforeseen events I'm confident that we have seen the bottom of this M&A cycle and that we have positioned the firm well for the coming uplift.

Speaker Change: With that I'll open it up for questions.

Kenneth Moelis: Okay.

Speaker Change: Thank you Mr. Moelis, ladies and gentlemen, if you would like to ask a question today.

Speaker Change: You need to hit Star followed by the number one on your Touchtone keypad and we will take your question in the order in which it was received.

Operator: We touched on TPAT, and we'll take your question in the order in which it was received. Our first question is from the line of Devin Ryan with JMP Securities. Your line is live. Good. Good evening, Ken and Joe.

Speaker Change: Our first question is from the line of Devin Ryan with JMP Securities. Your line is license.

Devin Ryan: Great Good evening, Ken and Joe.

Kenneth Moelis: I guess just want to start on the sponsor backdrop. Clearly, a very challenging market in 2023. I think sponsors had their slowest year of announcements since 2013. So, just love to get your thoughts on what you think recovery for sponsors could look like. You know, do you think it's going to be a slow build? Do you see it snapping back?

Devin Ryan: I guess I just want to start on.

Devin Ryan: The sponsor backdrop clearly.

Devin Ryan: Very challenging market in 2023, I think sponsors had their slowest year of announcements since 2013. So just wanted to get your thoughts on what do you think a recovery for sponsors could look like even if you think it's going to be a slow build do you see it snapping back.

Kenneth Moelis: And just really, you know, how you see it developing maybe in the next two years relative to 2023. Can appreciate you're now in some sectors like technology in a bigger way as well. So potentially, get a bigger snapback, but just love to get some thoughts there.

Devin Ryan: And just really.

Devin Ryan: You see it developing maybe in the next two years through 2023, you can appreciate youre now in some sectors like technology in a bigger way as well so it kind of potentially get a bigger snapback, but just love to get some thoughts there. Thank you.

Kenneth Moelis: Thank you. Um, I think it'll be somewhere in between and, depending again, I think rate cuts, when they happen, will trigger a ramp up in whatever speed you're asking me to handicap. And I think the actual event of a rate cut and the beginning of that will provide a tailwind. But again, Devin, I'll take you back.

Devin Ryan: Okay.

Speaker Change: I think it'll be somewhere in between and depending again I think rate cuts when they happen will trigger a ramp up in whatever speed, you're asking me to handicap and I think the actual.

Speaker Change: Debt.

Speaker Change: Of a rate cut in the beginning of that will provide a tailwind, but again you have and I'll take you back you know I think the world changes. So fast these days I think sometimes we forget that within the last four or five months, we literally had.

Kenneth Moelis: You know, I think the world changes so fast these days. I think sometimes we forget that within the last four or five months, we literally had the head CEO of one of the major banks in the country telling the community that nobody's ready for a 7% federal funds rate, and they have to be ready for it. It's a possibility. We had one of the largest and most vocal hedge funds short the 30-year Treasury. This was in October, I think, early October, and he was saying that the theory was Treasury had to print so much paper, and there was no way rates were going the opposite direction. And today, there is none of that conversation. It is all about how quickly and how fast we go in the other direction.

Speaker Change: They had a CEO of one of the major banks in the country, telling the Ah <unk>.

Community that nobody is ready for a 7% federal funds rate and they have to be ready for it it's a possibility.

Speaker Change: We had one of the largest and most vocal hedge funds short the 30 year Treasury. This was you know October.

Speaker Change: I think early October and saying that the CRE was treasury had a print so much paper and there was no way rates will go in the opposite direction and today. There is none of that conversation is all about.

Speaker Change: How low how quickly and how fast we go the other direction almost <unk>.

Kenneth Moelis: Nobody's talking about the tail risk of high rates, and I do think that will promote ideal activity very rapidly. I don't think the difference between a March or a June or a May or when rate cuts actually happen will have less impact than the fact that I believe the vast majority of the community believes they will happen and that what we won't face is a 7% Fed funds rate that could destroy a deal that you entered into in the back half of last year. So I think it'll start. We see it right now. It is building.

Speaker Change: Nobody's talking about the tail risk of high rates.

Speaker Change: And I do think that will promote deal activity very rapidly I don't I don't think the difference between a march or June or may or.

Speaker Change: Win rate cuts actually happen, we will have less impact in the fact that.

Speaker Change: I believe the vast majority of the community believes they will happen and then that what we won't face is 7%.

Speaker Change: Funds rate that could that could destroy a deal that you entered into in the back half of last year. So I think it'll start we see it right now it is building.

Kenneth Moelis: I think most people are trying to use their best judgment as to when exactly to hit this market. And again, the private equity community is much more sensitive to timing their entrance and their exit into M&A than strategics, who are mostly investing for the long-term. So I look, I think, a long answer, but I think we will start to build from here gradually. And then I think it was, I forgot the famous one, said we'll go gradually and then rapidly. I think that was in relation to bankruptcy, but I shouldn't use that analogy. I forgot who said first, "We'll start out gradually, and then we'll move rapidly." Yep, I totally understand. Thank you.

Speaker Change: I think most people are trying to use their best judgment as to when exactly to hit this market and again the private equity community is much more.

Speaker Change: Sensitive to timing their entrance and their exit into M&A, then strategics or who are mostly investing for the long term. So I look I think the long answer, but I think we will start to build from here gradually.

Speaker Change: And then I think it was I forgot the famous when he said will go gradually then and then rapidly I think that was in relation to bankruptcy, but so I shouldn't use that analogy, but I forgot who said first we'll start out gradually and then it'll it'll move rapidly.

Yes.

Speaker Change: Yes.

Kenneth Moelis: And just to follow up on the other business and restructuring, yeah, obviously some optimism around, I think, the resilience and restructuring, hearing that through numerous earnings calls. You guys noted a year-over-year increase in that business in the press release. And so obviously, 2023 had pockets of strength, but it felt like the mandates were building.

Speaker Change: Okay I understand thank you.

Speaker Change: Follow up on the other business and restructuring.

Speaker Change: Yeah, obviously, some optimism around I think the resilience and restructured and carrying that through numerous earnings calls you guys noted at year over year increase in the press release.

Speaker Change: In that business and so.

Speaker Change: Obviously 2023 had pockets of strength, but it felt like the mandates were building and so therefore, there should be some acceleration in revenues in 2024. So I just want to kind of get a sense of how youre thinking about the trajectory of restructuring and then perhaps you heard your comment on M&A as the fed starts cutting.

Kenneth Moelis: And so, therefore, there should be some acceleration in revenues in 2024. So I just, I just want to kind of get a sense of how you're thinking about the trajectory of restructuring. And then perhaps, you know, your comment on M&A, as the Fed starts cutting, how that could accelerate M&A, maybe more than people think. Do you think that the Fed cutting could actually surprise people about the kind of fall off in restructuring, just as conditions loosen and, you know, it's a better environment? Or do you just think that the maturity walls and just high absolute levels are the biggest drivers? I just want to drill in there a little bit.

Speaker Change: How that could accelerate M&A, maybe more than people think do you think that.

Speaker Change: Fed cutting could actually surprised people on how the fall off in restructuring just as kind of conditions.

Speaker Change: Ed.

Ed: Yes, it's a better environment, where do you think that the maturity walls and just a high absolute level of rates and the biggest driver. So just wanted to drill in there a little bit.

Going into the year, we have we think restructure will be up and.

Kenneth Moelis: Thank you. Going into the year, we think restructuring will be up and Because of the size and the scope and how long and, you know, and the impact of interest rates, higher interest rates for a long period of time. But look, if the Fed were to cut and begin to cut aggressively... I do think that that would.

Ed: Because of the size and the scope and how long it is.

And the.

Ed: The impact of interest rates higher interest rates on a long period of time.

Ed: But look if the fed were to cut and begin to cut aggressively I do think that that would be.

Ed: It cuts off a part of the restructuring market look that's why we built up capital markets. So strongly.

Kenneth Moelis: It cuts off a part of the restructuring market. Look, that's why we built up capital markets so strongly. Most restructurings in this market are very close to being financial.

Ed: Most restructurings in this market are very close to being financings.

Ed: As a matter of liquidity in the market terms outlook on financials, but there is nobody who in the market who wouldn't rather do a financing than a liability management exercise of a restructuring.

Kenneth Moelis: It's a matter of liquidity in the market terms, and the outlook on finances, but there is nobody in the market who wouldn't rather do a financing than a liability management exercise or a restructuring. So yes, the speed and the aggressiveness with which the Fed addresses the market would definitely change the outlook for restructuring. I still think it would be – there's a fundamental amount of companies that are under pressure, interest rate pressure, but I think it would do a lot to damage the maturity wall if the Fed actually began a whole series of things like, right now, we have quantitative tightening.

Ed: So yes the speed.

Ed: The speed and the aggressiveness with which the fed addresses the market would definitely change the outlook for restructuring.

Ed: I think it would be there is a fundamental amount of.

Ed: Companies that are under pressure interest rate pressure, but I think it would do a lot to damage the maturity wall if the fed actually began.

Ed: A whole series of things like right.

Ed: Right now we have quantitative tightening so they can do a bunch of things that would just make credit available.

Ed: Push out a lot of that wall.

Kenneth Moelis: So they could do a bunch of things that would just make credit available and push out a lot of that wall. Yeah, understood. Okay, thanks Ken. I'll leave it there. Thanks for your questions. Our next question comes from the line of Ken Worthington with JP Morgan. Your line is live.

Speaker Change: Understood. Okay. Thanks, Ken I'll leave it there.

Speaker Change: Thanks for your questions.

Speaker Change: Our next.

Speaker Change: Question comes from the line of Ken Worthington with JP Morgan Your line is live.

Hi, good afternoon, thanks for taking the question.

Kenneth B. Worthington: For Joe I wanted to dig into the compensation ratio and how we'll assess compensation could react to different environments. So most generated about $860 million of revenue last year, a compensation of 711.

Joseph Simon: Thanks for taking the question. Maybe for Joe, I wanted to dig into the compensation ratio and how Moelis's compensation could react to different environments. So Moelis generated about $860 million in revenue last year at a compensation of $711 million.

Kenneth B. Worthington: Clean is that 711, so you did a lot of hiring throughout the year.

Kenneth B. Worthington: We generated $860 million of revenue again, I guess, maybe first what is comp looked like in that in that environment for 'twenty four.

Kenneth B. Worthington: And if the environment improves and revenue goes higher how much of the incremental revenue actually gets paid out in compensation from here. So if you make another $1 million million dollars of revenue how much goes to employees how much goes to investors.

Joseph Simon: How clean is that $711 million? So you did a lot of hiring throughout the year. If you generated $860 million of revenue again, I guess maybe first, what does comp look like in that environment for 2024? And if the environment improves and revenue goes higher, how much of the incremental revenue actually gets paid out in compensation from here? So if you make another million dollars of revenue, how much goes to employees and how much goes to investors?

Speaker Change: I will start there.

Speaker Change: Thank you.

Speaker Change: <unk> been doing some work around that so I'll, let you go with that yes. So the.

Speaker Change: I think the.

Speaker Change: The best way to think about it is I would say for every $100 million increase in revenue from the 860, starting point, we're looking at kind of four to five points of comp leverage so in other words.

Joseph Simon: Joe, I think you've been doing some work on that, so I'll let you go with that. Yeah. So, I think the best way to think about it is I'd say for every $100 million increase in revenue from the 860 starting point, we're looking at kind of four to five points of comp leverage. In other words, if we go from 860 to 960, I would imagine that 83 would turn into 78 to 79, and that progression would just happen along that route until we got to kind of the 60 area, at which point, you know It doesn't go beyond that.

Speaker Change: If we go from 860 to 90 60, I would imagine that 83 would turn into 78% to 79 and that progression would just happen.

Speaker Change: Along that along that route until we got to kind of 60 area at which point I don't think it goes much.

Speaker Change: It doesn't go beyond that.

Speaker Change: Okay, great perfect. Thank you and then just again another simple one for you Joe.

Speaker Change: On the balance sheet, what was competence that compensation payable at the end of the year and then how much of that payable is satisfied in cash.

Joseph Simon: Okay, great. Perfect. Thank you. And then just again, another simple one for you, Joe. On the balance sheet, what was the compensation payable at the end of the year? And then how much of that was to be satisfied in cash?

Joseph Simon: Well the compensation payable is satisfied in cash.

Speaker Change: I don't have that balance.

Joseph Simon: In my fingertips, but that'll be an into K in the next couple of weeks okay.

Speaker Change: Okay. Okay, great. Thanks, that's all for me now.

Speaker Change: Our next question is from the line of Brennan Hawken with UBS. Your line is life.

Joseph Simon: Well, the compensation payable is satisfied in cash. I don't have that balance at my fingertips, but it'll be in decay in the next couple of weeks. Okay, great. Thanks. That's all for me now. Our next question is from the line of Brennan Hawken with UBS. Your line is live. Hi, good evening.

Brennan Hawken: Hi, good evening, thanks for taking my questions.

Brennan Hawken: Would love to hear you touched on this a little bit in the prepared remarks, and giving a little texture about restructuring, but is it possible to get the breakdown of advisory revenue for 2023 in the fourth quarter as far as restructuring and capital markets and how much that represented.

Kenneth Moelis: Thanks for taking my questions. Um, would love to hear you touched on this a little bit in the prepared marks by giving a little texture about restructuring. But is it possible to get the breakdown of advisory revenue for 2023 and the fourth quarter as far as restructuring and capital markets are concerned and how much that represented? I think if I'm thinking of the full year, I think Brandon that it's been in the mid-third.

Brennan Hawken: Yeah.

Speaker Change: I think if I am thinking that a full year I think Brendan that it's been in the mid third Oh, well, let me say this we tend to think of capital markets and restructuring as a as are we.

Speaker Change: We put a put them together because I think as I said.

Speaker Change: If you can move a restructuring into a capital markets. You haven't failed you've succeeded for your client and that is really the goal just to refinance that and move it out.

Kenneth Moelis: Well, let me say this: we tend to think of capital markets and restructuring as if we put them together, because I think, as I said, you know, if you can move a restructuring into the capital markets, you haven't failed; you've succeeded for your client. And and that is really the goal just to refinance debt and move it out. I think restructuring has been in the mid 20s. And I think combined, they've been in the mid 30s, and I believe that might be an annual number. Yeah, a little higher than the mid-30s. But that's, you know, directionally right on target, the mid-30s in 2023. Yeah, it's all combined.

Speaker Change: I think restructuring has been in the mid twenties and I think combined they've been in the mid Thirty's.

Speaker Change: I believe that might be an annual number though.

Speaker Change: A little higher than the mid Thirty's, but that's <unk>.

Speaker Change: Directionally right.

Speaker Change: Mid <unk> in 2023.

Speaker Change: Yes.

Speaker Change: Those two combined so 25 area for restructuring.

Speaker Change: 10, maybe 12% on the capital market side, combined kind of 35% to 37.

Speaker Change: Got it okay, great. Thanks, so much for that and.

Speaker Change: Joe in your comment on the comp leverage which was which was helpful texture. Thanks for that.

Speaker Change: You indicated that bring it down to 60, and then stay there.

Kenneth Moelis: So, you know, a 25 area for restructuring, you know, 10, maybe 12% on the capital market side combined, kind of 35 to 37. Got it. Okay, great. Thanks so much for that.

Speaker Change: Ken when you went public the general idea was that long term target for comp was 57% to 58 is.

Speaker Change: Now adjusting and now the new general.

Speaker Change: Standard or normalized level is more like a 60 number or is it that in for the next few years given the quantum of recruiting you've done it's just going to be a little more elevated than it might take longer to get down to that.

Kenneth Moelis: And, Joe, in your comment on the comp leverage, helpful texture. Thanks for that. You indicated that you would bring it down to 60 and then stay there. Ken, when you went public, the general idea was that the long-term target for comp was 57 to 58. Is that now adjusting, and now the new general standard or normalized level is more like a 60 number? Or is it that for the next few years, given the quantum of recruiting you've done, it's just going to be a little more elevated, and it might take longer to get down to that? Hi. Now I think what Joe said was our feeling, and we'll see what happens, Brennan. But there's been a fairly large inflation in the non-managing director, you know, Bass. Go to Mark, but Bass runs the company. Vice Presidents and Associates.

Speaker Change: Hi, <unk>.

Speaker Change: No I think what Joe said that it was our feeling and we'll see what happens Brendan but there has been.

Speaker Change: Fairly large inflation in the non managing director.

Speaker Change: Base go to Marc but base run the company.

Vice President's associates.

Speaker Change: I think our view is that might have eaten up a point or two of your overall.

Speaker Change: Ability on comp ratio.

Speaker Change: But again were.

Speaker Change: We still think we manage to a pre tax margin that.

Speaker Change: Is 25% or better that's what we're really aiming for but we will see what the competitive environment is and what's out there, but I will tell you that.

Speaker Change: We there was significant inflation in the in those ranks and inflation is hard to get it doesn't come back quickly.

Kenneth Moelis: So I think our view is that might have eaten up a point or two of your overall ability on the comp ratio. But again, we still think we managed to achieve a pre-tax margin that is 25% or better. That's what we're really aiming for, but we'll see what the competitive environment is like and what's out there. But I will tell you that, you know, there was significant inflation in those ranks. And as you know, inflation is hard to get, it doesn't come back quickly. Yeah, get rid of it. Fair enough. Okay, thanks for the color.

Speaker Change: Yeah got rid of it.

Speaker Change: Alright fair enough okay. Thanks for the color.

Speaker Change: Thanks for your questions, ladies and gentlemen, once again, if you would like to ask a question Tonight. It is star followed by the number one on your on your telephone.

Speaker Change: Our next question is from the line of James <unk> with Goldman Sachs. Your line is live.

James: Good afternoon, Ken and Joe and Thanks for taking my questions, maybe just turning to the senior banker base quickly I think your net MBS were actually down by four sequentially, maybe you could just talk about.

Operator: Thanks for your questions. Ladies and gentlemen, once again, if you would like to ask a question tonight, it is Star followed by the number one on your telephone. Our next question is from the line of James Yarrow with Goldman Sachs. Your line is live. Good afternoon, Ken and Joe, and thanks for taking my questions. Maybe just turning to the senior banker base quickly, I think your net MDs were actually down by four sequentially. Maybe you could just talk about what drove the sequential step down, and then, use the link in the description below. I'm surprised that our net MDs are down. I don't have it right in front of me because I'm not- Well, it's actually, Ken, this is all about, there were a number of folks who were leaving. Some of the actions took place in the first half. They leave in the second half.

James: What drove the sequential step down and then.

James: The three hires year to date.

James: But I think you also commented that it's more about.

James: Yes.

James: <unk>.

Your existing capabilities to clients. So maybe you could just help us understand.

James: What the hiring backdrop is for 'twenty 'twenty four I assume it will be substantially slower than in 2023.

James: Yeah.

James: I thought I am surprised that our net Mds are down.

Speaker Change: I don't have it right in front of me because its actually Ken This is all about.

Speaker Change: There were a number of folks who were leaving.

Speaker Change: Some of the actions took place in the first half they leave in the second half and so the net.

Kenneth Moelis: And so the net change between the third quarter and the fourth quarter was slightly down. Oh, okay. Sorry.

Speaker Change: The net change in that between the third quarter and the fourth quarter was slightly down okay. Sorry, I thought it was I thought you would do a year over year, so quarter over quarter them, sorry, yes that does make sense. So.

Kenneth Moelis: I thought you were doing year over year, sorry, quarter over quarter, sorry. That does make sense. So look, we spent a year, and we did it quietly, but we aggressively hired, and we aggressively managed. I think a lot of people were talking about managing their headcount. We were doing it. I didn't see any reason to be extremely chest-pounding about it.

Speaker Change: Look we spend a year.

Speaker Change: We did it quietly, but we aggressively hired and we aggressively managed I think a lot of people.

Speaker Change: We're talking about managing their head count we were doing it I didn't see any reason to.

Speaker Change: The extremely chest pounding about it we just did it. So we did there was a substantial change.

Kenneth Moelis: We just did it. So we did, there was a substantial change you were talking about. The hires for the new year. 2024. Two of those are upstream oil and gas, which I think will continue to be a significant market, lots of activity. We're very happy about that team, which is a place we have not played in much.

Speaker Change: You were talking about.

Speaker Change: The hires for the new year.

Speaker Change: In 2024.

Speaker Change: Two of those are upstream oil and gas, which I think we will continue to be a.

Speaker Change: Significant market lots of activity, we're very happy about that team, which is a place we have not played much and then this credit fund person again. This goes to the rise of private credit both as a supplier to deals a generator of deals and possibly restructuring in the future. So we.

Kenneth Moelis: And then this credit fund person, again, this goes to the rise of private credit, both as a supplier of deals, a generator of deals, and possibly restructuring in the future. So we thought a dedicated coverage of that environment, given its growth. I think this is the first time we'll actually have a dedicated banking coverage of private credit.

Speaker Change: Thought of dedicated coverage of that environment given its growth.

I think this is the first time, we'll actually have a dedicated banking coverage of private credit.

Kenneth Moelis: For the rest of 2024, we'll be opportunistic. Look, there's always places that we are going to need more. We might have levers, so we might have to respond to that.

Speaker Change: For the rest of 2024 will be opportunistic look there's always places that we are going to be higher.

Speaker Change: Might have lever so we might have to respond to that but there are also places where we would like to expand if the right situation happened, but I do think given what we did in 2023. This is the year, we should deliver this expertise.

Kenneth Moelis: But there are also places where we would like to expand if the right situation happened. But I do think, given what we did in 2023, this is the year we should deliver this expertise and focus on the client and get out there and show you what we've done. I think we've done a great job of expanding the expertise we have. I think we've addressed some markets that we had a difficult time with, like technology, finding the right moment and the right method to build our expertise. And I think this is the year that we're going to focus on that, delivering these services to the client. Okay, that's very clear. Thank you. So you did build another roughly $50 million of cash and short-term investments this quarter.

Speaker Change: And focus on the client and get out there and show you. What we've done I think we've done a great job of expanding the expertise we have I think we've addressed some markets that we had.

A difficult time like technology, finding the right moment and the right method to build our expertise and I think this is the year that we're going to focus on that delivering delivering these services to the client.

Speaker Change: Okay, that's very clear thank you.

Speaker Change: You did build another roughly $50 million of cash and short term investments. This quarter. This quarter. So I'm going to ask a question that's quite different than what you were getting just one or two quarters ago, but what.

Kenneth Moelis: So I'm going to ask you a question that's quite different than what you were getting just one or two quarters ago, but what is the level of earnings or perhaps what you'd need to see in the macro backdrop that would prompt you to consider increasing capital return, especially in terms of the buyback? Thanks. That's the first time I've been asked that question in 24 months.

Speaker Change: What is the level of earnings or perhaps what you'd need to see in the macro backdrop that would prompt you to consider increasing capital return, especially in terms of.

Speaker Change: On the buyback.

Speaker Change: Thank you for that as first time I've been asked that question in 24 months. That's exciting question to be asked so look we again, we haven't spent much time on that given the market. We're in but I think given our history you've seen.

Kenneth Moelis: That's an exciting question to be asked. So look, we, again, we haven't spent much time on that given the market we're in. But I think given our history, you've seen, as soon as we get above a certain level of cash and a market that we're comfortable with, we will return the capital. We've done it aggressively in the past. I don't have an exact number, you know, but I suspect, again, three to five months post the first rate cut is when I think we'll be at a run rate of 25% pre-tax.

Speaker Change: As soon as we get above a certain level of cash and a market that we're comfortable with we will return the capital we've done it aggressively in the past.

Speaker Change: I don't have an exact I suspect again three to five months.

Speaker Change: Host the first.

Speaker Change: Rate cut in my mind is when I think we'll be at a run rate of 25% pre tax I think.

Speaker Change: Again this calendar year is very difficult because you have a tale of two markets you have the market that I was talking about the deals that we're trying to be created into that environment of people, saying that if there is a 7% fed funds possible, but as of now we don't have that.

Kenneth Moelis: I think, Again, this calendar year is very difficult because you have a tale of two markets. You have the market that I was talking about, the deals that were trying to be created in that environment of people saying that there's a 7% Fed funds rate possible. But as of now, we don't have that.

Speaker Change: Then when it kicks in and I think.

Speaker Change: It's a good question, we haven't spent a lot of time worried about how high is up and what we'll do with the capital, but I can guarantee you we'll return it to the shareholders as soon as we're comfortable that it's excess.

Kenneth Moelis: And then when it kicks in, and I think it's a good question, we haven't spent a lot of time worrying about how high it is and what we'll do with the capital. But I can guarantee you, we'll return it to the shareholders as soon as we're comfortable with its exit. Very clear. Thank you so much. Our next question is from the line of Stephen Chewack with Wolf Research. Your line is live. Thanks so much.

Speaker Change: Very clear thank you so much.

Speaker Change: Yeah.

Speaker Change: Our next question is from the line of Steven <unk> with Wolfe Research. Your line is live.

Speaker Change: Yeah.

Steven: Thanks, so much on the.

Steven: Echoing Brian's comments on the comp leverage sensitivity Joe that disclosure is really helpful. One of the pieces I was hoping to unpack is whether we should be contemplating that 400 basis point improvement. If we can underwrite that in a linear fashion, which would suggest the path to low sixties might.

Joseph Simon: I guess echoing Brennan's comments on the comp levered sensitivity, Joe, that disclosure is really helpful. One of the pieces I was hoping to unpack is whether we should be contemplating that 400 basis point improvement if we can underwrite that in a linear fashion, which would suggest the path to the low 60s might require revenue generation across the franchise, somewhere in the range of about $1.3 to $1.4 billion. I think that might be, yeah, that sounds maybe a little high, but reasonable, that you can get there with a lower revenue level. I think we can. I think we'll get there. I think 1.3 is probably reasonable.

Steven: Require revenue generation across the franchise somewhere in the range of about one three to $1 4 billion.

Speaker Change: I think that might be.

Speaker Change: That sounds maybe a little high but reasonable.

Speaker Change: Yeah.

Speaker Change: With a lower revenue level.

Speaker Change: Yeah.

Speaker Change: I think we can I think we can get there.

Speaker Change: Yeah, I don't know three area Thats probably reasonable.

Speaker Change: Yes.

Speaker Change: I think remember some of our some of our compensation does not fluctuate as.

Joseph Simon: I think, remember, some of our compensation does not fluctuate as linearly. So I think you're in the ballpark, but... I thought you were a little high, myself.

Speaker Change: As linearly.

Speaker Change: So I think youre in the ballpark, but.

Speaker Change: I thought you were a little high myself too.

Speaker Change: Okay fair enough.

Kenneth Moelis: Okay, fair enough. The other piece is just on MD productivity normalization. And Ken, in the past, you've talked about various normalized productivity ranges, but just given a different composition of MDs, and the significant hiring you've done this past year, what level of productivity do you believe is sustainable in a more normal operating backdrop? Well, that's, you know, I agree with you. I think we have a better MD, I think we've improved our MD and the pools in which they face. I mean, we were not facing technology in a size that matched every other place that we were facing off against the fee pools. And with the Silicon Valley Bank deal, we changed that pretty dramatically. Same with oil and gas right now, industrials.

Speaker Change: The other piece is just.

Speaker Change: MD productivity normalization and Ken in the past you've talked about various normalized productivity ranges, but just given a different composition of Mds the significant hiring you've done this past year what level of productivity do you believe is sustainable in a more normal operating backdrop.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Well.

Speaker Change: I agree with you I think we are.

Speaker Change: Better.

Speaker Change: Let's just say I think we've improved our R M D and the pools in which they face.

Speaker Change: Had.

Speaker Change: We were not facing technology.

Speaker Change: In a size that was that matched every other place that we were facing off against the fee pools and with the Silicon Valley Bank deal, we changed that pretty dramatically.

Speaker Change: Same with oil and gas right now dust Reals I think we've addressed some of the largest fee pools in the market. So I think we'll be more productive per M. D. And then again, we haven't had a note what you would call a normal year in a long time in M&A and <unk>.

Kenneth Moelis: I think we've addressed some of the largest feed pools in the market, so I think we'll be more productive per MD. And then again, we haven't had what you would call a normal year in a long time in M&A. So again, I just look at the last three years and say, if you kind of average them, we had an incredible spike in 2021, and then we had, I'd say, 22 was less than optimal. And 23 was well below optimal.

Speaker Change: So again I just looked at the I kind of look at the last three years and say if you kind of average then we had an incredible spike in 2021, and then we had I would say 'twenty two was less than optimal in.

Speaker Change: 23 was well below optimal but you ought to put those together and do your average productivity off of that.

Kenneth Moelis: But you have to put those together and do your average productivity off of that. I think we should be above that. And I think, again, we haven't had what I'd call a normal year in three years. So, you know, I don't know exactly what normal will be in productivity. But I would, again, those three years kind of put together, divided by three, might be a good way to...

Speaker Change: I think we should be above that and I think again, we havent had what I'd call a normal year in three years. So I don't know exactly what what normal will be in the productivity.

Speaker Change: I would again those three years kind of put together divided by three might be a good way to.

Speaker Change: Think about it.

Speaker Change: That's helpful context, now I guess, it's time to choose my own adventure, but I appreciate the color. Thank you both.

Speaker Change: Thanks for your question.

Kenneth Moelis: Think about it. You know, it's helpful to contact them out. Time to choose my own adventure, but I appreciate the color.

Speaker Change: Our next question is from the line of Ryan <unk> with Morgan Stanley. Your line is live.

Operator: Thank you both. Thanks for your questions. Our next question is from the line of Ryan Kinney with Morgan Stanley. Your line is live. Hi, good afternoon. This is actually Conal Schmitz filling in for Ryan Kenney.

Speaker Change: Hi, Good afternoon. This is actually Carl Schmitz filling in for Brian Kenny.

Carl Schmitz: First question on the comp leverage just another detail.

Carl Schmitz: There would be.

Joseph Simon: First question on the comp leverage, just another detail there would be... What level of MD hiring and overall headcount are you assuming in that 45% comp leverage per 100 million incremental revenues? Yeah, I mean, it's kind of reverting back to a more normal pace than what we've seen in the last two years on the hiring front. And then as it relates to Civ B, like this quarter in particular, any comments on how that affected the income statement? as it relates to REVS and non-comp, and then we just go forward on non-comp now. Are you asking about Silicon Valley Bank?

Carl Schmitz: What level of MD hiring and overall head count are you assuming in that 4% to 5% comp leverage per 100 million incremental revenues.

Carl Schmitz: Yes.

Speaker Change: It's kind of reverting back to us.

Speaker Change: A more normal pace than what we've seen in the last two years on the on the hiring front.

Speaker Change: Got it and then as it relates to sort of be.

Speaker Change: Like this quarter in particular.

Speaker Change: Any comments on how that affected the income statement.

Speaker Change: Really it's the rather than non comp and then we can go forward on non comp.

Speaker Change: Are you asking about Silicon Valley bank, because that would yes.

Unnamed Speaker: Yeah. Yeah, we don't break any of that. Yeah, I'm not going to break it out.

Speaker Change: Yes, yes.

Speaker Change: Yes, we don't break out any of that yes, im not going to break it out I would just say that.

Kenneth Moelis: I'll just say that it's been, you know, we think it's been very successful, and the group has gotten off the ground. And the fact that it was a group, the fact that there wasn't a lot of downtime, they weren't on the beach for a long time.

It's been a success.

Speaker Change: I think it's been very successful.

Speaker Change: And the group has gotten off the ground and the fact that it was a group. The fact that there wasn't a lot of.

Speaker Change: Downtime they weren't on the beach for a long time.

Speaker Change: Again, it was not a great year in the fourth quarter wasn't the you want to hold people to the fourth quarter, but we felt very good about the group.

Kenneth Moelis: Again, it was not a great year, and the fourth quarter wasn't the, you know, you don't want to hold people to the fourth quarter, but we felt very good about the group and and and their ability to produce. I guess, said another way, should we expect an incremental drop off in non comp as the transaction sharing agreement rolls off? Well, again, what I described as pre-transaction was like the 45 area, and that would exclude anything under the SVB fee arrangement.

Speaker Change: And there.

Speaker Change: And their ability to produce.

Speaker Change: Said another way should we expect an incremental drop off in non comp as the transaction sharing.

Speaker Change: Sharon your agreement Rolls off.

Speaker Change: Well again, what I described as pre transaction was like the 45 area.

Speaker Change: And that would exclude anything on the SBB.

Speaker Change: Fee arrangement.

Sharon: That ends this quarter, so it shouldnt be it shouldnt be material beyond this quarter.

Joseph Simon: That ends this quarter, so it shouldn't be material beyond this quarter, if it's even material this quarter, actually. Okay, that's helpful. All right. Thank you. Thanks for your questions. We have a final question for today, a follow-up call from the line of Brennan Hawken with UBS. Brennan, your line is open. Thanks for taking my follow-up call. I just wanted to try to drill down a little bit on the MD count because there are a few numbers out there, and it's a little confusing.

Sharon: If it's even material this quarter actually.

Speaker Change: Okay. That's helpful. Thank you.

Sharon: Yeah.

Speaker Change: Thanks for your question, we have a final question for today.

Speaker Change: A follow up call from the line of Brennan Hawken with UBS Brendan Your line is less.

Brennan Hawken: Thanks for taking my follow up.

Brennan Hawken: Just wanted to try to drill down a little bit on the MD count because theres a few numbers around and it's a little confusing you touched on it some degree before in prior question, but so the investor presentation as of year end <unk> of $1 57.

Joseph Simon: You touched on it to some degree before in prior questions. So the investor presentation says year-end MDs of 157. Um, per the press, uh, release, we've added 10 MDs, 7 promotions, and then the press release also shows a hundred and six... So, as of now, does the 160 include the two that have committed during the coming weeks? And, Was there, in addition to there being some folks departing right around year-end, were there also some folks... Parting early in the year, or was that? And so, it's 160 today; that excludes the two that haven't arrived yet, and 157 refers to it as of year end.

Brennan Hawken: Per the press release, you've added 10, MD seven promotions.

Brennan Hawken: And then the press release also shows 160, so as of now so does the 160 <unk> include the two that have committed to join in the coming weeks and.

Brennan Hawken: Was there in addition to there being some folks departing right around year end, where there are also some folks departing early in the year or was that something else.

Brennan Hawken: And so.

Brennan Hawken: It's 160 today that excludes the two that haven't arrived yet and.

Brennan Hawken: And $1 57 refers to as of year end.

Joseph Simon: And as far as, you know, if you need like a whole reconciliation, let's do that offline. I appreciate you taking the fall. Absolutely. We actually do have one final question that just came in. This is coming from the line of Mike Brown from KBW. Your line is live.

Speaker Change: And as far as like if you need like a whole reconciliation, let's do that offline.

Joseph Simon: Sounds good Joe.

Joseph Simon: I appreciate you taking the follow up.

Joseph Simon: Absolutely. Thank you.

Joseph Simon: We actually do have one final question that just came in this is coming from the line of Mike Brown from K B W.

Michael Brown: Your line is life.

Operator: Great. Thanks for taking my question here. Most have been asked, but I guess just wanted to maybe get a little bit more color on the kind of shadow bank backlog or, you know, your pipeline, you know, the visibility that you guys have.

Michael Brown: Great. Thanks for taking my question here.

Michael Brown: <unk> been asked but I guess, just wanted to maybe get a little bit more color on the kind of shadow backlog or your.

Michael Brown: Pipeline the visibility that you guys had so can I understand that it sounds like it will take a little time for the broad based recovery in M&A too.

Kenneth Moelis: So, kind of understanding that sounds like it's, you know, it will take a little time for the broad-based recovery in M&A to take form, but can you just maybe give us a quick update on what you are seeing behind the scenes? I think you sounded quite bullish two months ago or so when you characterized that pipeline. So, just interested to hear how that has evolved since.

Michael Brown: Can take form but can you just maybe give us a quick update on what you are seeing behind the scenes I. Thank you.

Sounds good.

Michael Brown: Quite bullish two months ago or so.

Speaker Change: We characterize that pipeline. So just interested to hear how that has evolved.

Kenneth Moelis: Yeah, I said early on the call that our actual pipeline is right near all-time highs. And what's really interesting, again, I, at the end of last year, between when the Fed was in late November, kind of put out this idea that you could take rate hikes off the table and just start guessing when rate cuts will begin. I think that was why I was bullish. I just felt like that's a statement that is very valuable to anybody in the deal business, that you can eliminate the tail risk of a raise. Um, but you know, you go into the Christmas season. I feel like when we got back to work in January, our new business review, which is where we actually determine whether we're going to take on business almost pre-pipe, has been extremely active.

Speaker Change: Yes, what.

Speaker Change: I said early on in the call that our actual pipeline is right near all time highs and what's really again I.

Speaker Change: The end of the year last year between.

Speaker Change: When the fed was late November kind of put out the <unk>.

Speaker Change: This idea that you could take rate hikes off the table and just start guessing when rate cuts will begin I think that was why I was bullish I just felt like that's a statement that is very valuable to anybody in the deal business that you can eliminate the tail risk of arrays.

Speaker Change: But you do go into Christmas season, I feel like when we've gotten back to work in January our new business review.

Speaker Change: Which is where we actually determined whether or not we're going to take on business almost pre pipe has been extremely active so.

Kenneth Moelis: So, um, the pipe is high, new business has been quality and busy, quality deals, uh, feels like much, uh, realer, https://www.kenhub.com, So I think it's happening right in front of us now. I think the buildup in M&A is beginning. What I do think you're gonna see here a little bit is private equity; they're very sensitive to when they enter and when they exit and try to maximize much more than a strategic will be. So I do think you're gonna find a little bit of... The Constitution is trying to attempt to time this thing exactly right, but it feels like everybody's not everybody. A lot of a lot of people are stepping up to the starting line and getting ready to move.

Speaker Change: <unk> has high new business review has been quality and busy quality deals feels like much realer.

Speaker Change: Uh huh.

Speaker Change: So I think it's happening right right in front of US now I think the buildup in M&A is beginning what I do think youre going to see here a little bit is.

Speaker Change: Private equity that it's very they're very sensitive to when they enter in when they exit and try to maximize much more than a strategic will be so I do think youre going to find a little bit of.

Speaker Change: Institutions trying to attempt to time this thing exactly right.

Speaker Change: But it feels like everybody not everybody has a lot of a lot of people are stepping up to the two.

Speaker Change: To the starting line and getting ready to move that's the way. It feels right now there is a large amount of transactions that are getting positioned to move and since I don't think the next move is a rate hike I just think that that means it's a question of when they move and not not if they move.

Kenneth Moelis: That's the way it feels right now. There are a large number of transactions that are getting positioned to move. And since I don't think the next move is a rate hike, I just think that that means it's a question of when they move and not if they move.

Kenneth Moelis: Yeah, okay. Okay, great. That makes sense.

Speaker Change: Yeah, Okay, Okay, great that makes sense. Thanks John.

Operator: Thank you. Thank you. Thank you for your question. Ladies and gentlemen, that will close our Q&A session here for today. Mr. Moelis, I'd like to turn it back over to you with any closing comments. Well, I appreciate everybody's time.

Speaker Change: Thanks. Thanks for your thanks for your question, ladies and gentlemen that that will close our Q&A session here for today, Mr. Melissa I'd like to turn it back over to you with any closing comments.

Melissa: Well I appreciate everybody's time, and we'll see you on the next call. Thank you. Thank you.

Speaker Change: Ladies and gentlemen, this will conclude today's Moelis <unk> Company conference call.

Kenneth Moelis: We'll see you on the next call. Thank you. Thank you. Ladies and gentlemen, this will conclude today's Moelis & Company conference call. Have a great day. We'll see you next time.

Speaker Change: Have a great day, we'll see you next time.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Okay.