Q2 2024 Moelis & Co Earnings Call
Good afternoon and welcome to the Moelis & Company's earnings conference call for the second quarter of 2024. I'll begin the call by turning the call over to Mr. Matt Terskroff. Please go ahead.
Operator: conference call for the second quarter of 2020-2024. I'll begin the call by turning the call over to Mr. Matt Terskroff. Please go ahead.
Matthew Tsukroff: Good afternoon, and thank you for joining us for Moelis & Company's second quarter 2024 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.
Matthew Tsukroff: Good afternoon, and thank you for joining us for Moelis & Co.'s second quarter 2024 financial results conference call.
Matthew Tsukroff: 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 uncertainties, including those identified from time to time in the Risk Factors section of Moelis & Co.'s filings with the SEC.
Matthew Tsukroff: Actual results could differ materially from those currently anticipated.
Matthew Tsukroff: Our comments today include references to certain adjusted financial measures. We believe these measures, when presented together with comparable gap 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 gap financial information and other information required by Reg G is provided in the firm's release, which can be found on our investor relations website at investors.moelis.com. I'll now turn the call over to Joe to discuss our results.
Matthew Tsukroff: 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.
Joe: 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. I'll now turn the call over to Joe to discuss our results.
Joseph Walter Simon: Thanks, Matt. Good afternoon, everyone.
Joe: Thanks, Matt. Good afternoon, everyone. On today's call, I'll go through our financial results and then Ken will comment further on the business.
Joseph Walter Simon: On today's call, I'll go through our financial results and then Ken will comment further on the business. We reported $265 million in revenues in the second quarter, an increase of 45% versus the prior year period. Our first half revenues of $482 million were up 31% from the prior year. The year-over-year increase in revenues for both periods is attributable to growth across all major product areas.
Joe: We reported $265 million of revenues in the second quarter, an increase of 45% versus the prior year period. Our first half revenues of $482 million were up 31% from the prior year.
Ken: The year-over-year increase in revenues for both periods is attributable to growth across all major product areas.
Joseph Walter Simon: Moving to expenses, our compensation expense was accrued at 75%, consistent with last quarter. Our second quarter non-compensation expenses were $46.6 million, in line with expectations. Moving to taxes, our underlying corporate tax rate was 34%, also consistent with the first quarter. And regarding capital allocation, the board declared a regular quarterly dividend of $0.60 per share, also consistent with the prior period. Lastly, we continue to maintain a strong balance sheet with $191.3 million of cash and no debt. And I'll now turn the call over to Ken.
Ken: Moving to expenses. Our compensation expense was accrued at 75% consistent with last quarter. Our second quarter non-compensation expenses were $46.6 million in line with expectations.
Ken: Moving to taxes, our underlying corporate tax rate was 34%, also consistent with the first quarter. And regarding capital allocation, the board declared a regular quarterly dividend of $0.60 per share, consistent with the prior period.
Ken: Lastly, we continue to maintain a strong balance sheet with $191.3 million of cash and no debt. And I'll now turn the call over to Ken.
Kenneth David Moelis: Thanks, Joe. Good afternoon, everyone.
Ken: Thanks, Joe. Good afternoon, everyone. Our results this quarter reflect improved performance across each of our major product areas.
Kenneth David Moelis: Our results this quarter reflect improved performance across each of our major product areas. The M&A market continues to recover, and our public company's strategic transaction activity has been a significant contributor to our top line this quarter. At the same time, sponsor sentiment and activity is improving. Our restructuring team continues to engage with the steady flow of companies impacted by higher interest rates and looming maturities or structural disruption. Our capital markets business had its best quarter since the first quarter of 2022, and the momentum is strong as hybrid capital is in high demand, and the new provision by private credit providers eager to put money to work is a phenomenal opportunity for us to provide independent advice and access to that money.
Ken: The M&A market continues to recover and our public company's strategic transaction activity has been a significant contributor to our top line this quarter. At the same time, sponsor sentiment and activity is improving.
Ken: Our restructuring team continues to engage with the steady flow of companies impacted by higher interest rates and looming maturities or structural disruption.
Ken: Our Capital Markets business had its best quarter since the first quarter of 2022.
Ken: And the momentum is strong as hybrid capital is in high demand.
Ken: And the new provision of private credit providers eager to put money to work is a phenomenal opportunity for us to provide independent advice and access to that money.
Kenneth David Moelis: Turning to talent, since our last earnings call, we added three managing directors focused on technology, industrials, and capital structure advisors. And finally, our backlog across all major products is healthy, and we remain focused on execution as the deal environment improves. And with that, I'll open it up for questions.
Ken: Turning to talent, since our last earnings call, we added three managing directors focused on technology, industrials, and capital structure advisory.
Ken: And finally, our backlog across all major products is healthy and we remain focused on execution as the deal environment improves.
Operator: If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. And if you would like to withdraw that question, again press star 1. Your first question comes from the line of Devin Ryan with Citizens JMP. Please go ahead.
Ken: And with that, I'll open it up for questions.
Speaker Change: If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. And if you would like to withdraw that question, again press star 1. Your first question comes from the line of Devin Ryan with Citizens JMP. Please go ahead.
Devin Patrick Ryan: Hey, thanks so much. Hi, Ken. Hi, Joe. How are you?
Devin Patrick Ryan: Hey, thanks so much. Hi, Ken. Hi, Joe. How are you? Good. Good.
Kenneth David Moelis: Good. Good. Good.
Devin Patrick Ryan: Good. Just a question on the backlog. So, we can see, at least from the public data, I know it's not perfect, but we can see kind of an improvement occurring in that data as well. And that's just something we've been talking about for, you know, at least several quarters now. It's just the conversion of, I think, the pre-backlog and actually
Devin Patrick Ryan: Just a question on the backlog. So, we can see, at least from the public data, I know it's not perfect, but we can see kind of an improvement occurring in that data as well. And that's just something we've been talking about for, you know, at least several quarters now. It's just the conversion of, I think, the pre-backlog and actually announced backlog and then into kind of realized revenue. So, can you give any sense of, like, how the timelines are evolving?
Speaker Change: And now it's backlogged and then into kind of realized revenue. So can you give any sense of like how the timelines are evolving or is there any improvement in speed of
Devin Patrick Ryan: Is there any improvement in the speed of things kind of moving through the process of maybe deals that you were previously mandated on or even deals that you're starting to work on? Just love some flavor there. And then, if there's any difference between corporates and sponsors, because, you mentioned, corporates are a little bit more active, but sponsors have really yet to come back from a revenue perspective?
Speaker Change: things kind of moving through the process and maybe deals that you were previously mandated on or even deals that you're starting to work on, just love some flavor there. And then if there's any difference between corporates and sponsors, because corporates you mentioned are a little bit more active, but these sponsors have really yet to come back from a revenue perspective, so just love to get that flavor as well. Thanks.
Kenneth David Moelis: So, I would just love to get that flavor as well. Thanks.
Kenneth David Moelis: Thanks. See, look, the pipeline continues to build. You know, our new business review, the first step of putting something into the pipeline, has had by far its best activity levels, the highest ever. Well, really ever. There was a moment there when we onboarded all the SVB transactions on one day, so that was an unusual moment because it was really an M&A onboarding. Besides that, it's the highest it's ever been, including 2021.
Speaker Change: The pipeline continues to build. Our new business review, the first step of putting something into the pipeline, has had by far its best results.
Speaker Change: activity levels, the highest...
Speaker Change: Well, really ever, you know, there was a moment there when we onboarded all the SVB transactions on one day, so that was an unusual moment because it was really an M&A onboarding.
Speaker Change: Besides that, it's the highest it's ever been, including 2021.
Kenneth David Moelis: In terms of the ability to get through the pipeline, it's still difficult for all deals. It's not, you know, the 2021 environment where deals get to the finish line almost on their own. It's tough every transaction still. It still takes a while, it usually has some complexity. But you can definitely feel the improvement.
Speaker Change: In terms of the ability to get through the pipeline, it's still difficult. All deals, it's not, you know, the 2021 environment where deals get to the finish line on their own almost. It's tough. Every transaction still
Speaker Change: Still takes a while. It usually has some complexity.
Kenneth David Moelis: It is, you know, by the end of this quarter, the second quarter, it was very different than the end of the first quarter. And the conversion ratio, as you talk about, and how fast the backlog is moving, is speeding up. That's what it's happening.
Speaker Change: But you can definitely feel the improvement. By the end of this quarter, the second quarter, it was very different than the end of the first quarter.
Speaker Change: and the conversion ratio, as you talk about, and how fast the backlog is moving.
Kenneth David Moelis: On your point about public to private and strategic versus sponsors, you know, the shape of the business can be a little different. We do a little more by side when it's public and strategic.
Speaker Change: is speeding up. That's happening. On your point about publics to privates, of strategics versus sponsors...
Speaker Change: The shape of the business can be a little different, we do a little more buy side when it's public, strategics.
Kenneth David Moelis: So, the shape of where we get our revenues might be a little different, but I do think the fact that that part of the market in our... The environment has accelerated as well as it can. As it has, while the sponsor community really hasn't come back full speed, it's a pretty good sign because, you know, sponsors are going to have to come to market with their product sooner or later. And it feels like, Finally, I'll say with the rotation going on in valuation.
Speaker Change: So the shape of where we get our revenues might be a little different, but I do think the fact that that part of the market in our
Speaker Change: environment has accelerated as well as it can
Speaker Change: as it has while the sponsor community really hasn't come back full speed is a pretty good sign because you know sponsors are going to have to come to market with their product sooner or later and I it feels like
Speaker Change: Lastly, I'll say, with the rotation going on in valuation...
Kenneth David Moelis: In the public market, the rotation away from all this value, all the gains in public valuation going to really seven or eight large cap stocks. And really, in the last two or three weeks, you've seen a tremendous rotation into... you know, the Russell 2000 in the middle market, that's much more of a comp for sponsor valuations. As I said, very few of our companies, sponsor companies, compete with the Mag 7. They mostly compete with other $5-10 billion companies in the market. And as that value parameter swings, and it's one that has swung a lot in the last two or three weeks, I think that's a very good sign for activity and sponsorship.
Speaker Change: In the public market, the rotation away from all this value, all the gains in public valuation going to really seven or eight large cap stocks, and really in the last two or three weeks you've seen a tremendous rotation into
Speaker Change: You know, the Russell 2000 in the middle market, that's much more of a comp for sponsor valuations. As I said, very few of our companies, sponsor companies,
Speaker Change: comp to the Mag 7. They mostly comp to other $5-10 billion companies in the market. And as that value parameter swings, and it swung a lot in the last two or three weeks, I think that's a very good sign for activity in sponsor land.
Devin Patrick Ryan: Okay, great caller, Ken. Thanks. Just a quick one for Joe on the cop ratio, for the near-term question, but, you know, comp ratio obviously flat with the first quarter. I appreciate it might be a little bit early to have a perfect full-year view, so I guess what should we read into about kind of where it was for the second quarter being flat, how much of that is just kind of a placeholder, and then what the puts and takes would be to kind of move off of the 75% level, and I appreciate, you know, we're not talking about a normalized level at 75, but just trying to think about how you guys are framing the full-year thing. Yeah.
Speaker Change: Okay, great caller, Ken, thanks. Just a quick one for Joe on the cop ratio.
Robert Muir: and Robert Muir.
Joe: Question, but you know, comp ratio obviously flat with the first quarter.
Speaker Change: Appreciate, it might be a little bit early to have a perfect
Speaker Change: So, I guess, what should we read into about kind of where it was for the second quarter being flat? How much of that is just kind of a placeholder? And then what the put and takes?
Speaker Change: And then the last thing is would be to kind of move off of the 75 percent level. And I appreciate you know, we're not talking about a normalized level at 75, but just trying to think about how you guys are framing the full year. Thanks.
Joseph Walter Simon: Yeah, so I think I'd first say that the algorithm we discussed in February still persists and is relevant. I would say that, you know, in terms of clarity and visibility, we'll have much greater visibility on the full year next quarter. And so I think, you know, the way we've been thinking about it is that we'll probably be in a much better position to adjust the ratio at that point. Right now, there are certainly good positive trends, but visibility is still, you know, it's not as solid as it will be next quarter.
Speaker Change: Yeah, so I think I'd first say that the algorithm we
Speaker Change: We discussed in February , still persists and is relevant.
Speaker Change: I'd say that, you know, in terms of...
Speaker Change: clarity, visibility, we'll have much greater visibility on the full year next quarter. And so I think, you know, that the way we've been thinking about it is
Speaker Change: that will probably be in a much better position to adjust the ratio at that point. Right now there's certainly good positive trends, but visibility is still, you know, it's not as solid as it will be next quarter.
Devin Patrick Ryan: Okay, I appreciate that. All right, thanks. That's it for me.
Speaker Change: Okay, I appreciate that. All right, thanks. That's it for me.
Operator: Your next question comes from the line of Ken Worthington with J.P. Morgan. Please go ahead.
Speaker Change: Your next question comes from the line of Ken Worthington with J.P. Morgan. Please go ahead.
Kenneth Brooks Worthington: Hi, good afternoon. Thanks for taking the time to ask the question. As we think about election season and the impact that might have, what impact do you think a new administration and a more benign FTC, or a more deal-friendly FTC, might have on U.S. M&A activity? So, there are a couple parts here. One, how impactful do you think the current FTC philosophy has been on getting deals done? And then second, to what extent might there be a pipeline of either deals rejected, withdrawn, or never even proposed that seems primed to come to market if we had a more friendly FTC, all things being equal? And I know it's sort of maybe impossible to answer, but do you think it's enough to move the needle? Might it be significant? Like any thoughts you have would be valuable to me?
Kenneth Brooks Worthington: Hi, good afternoon. Thanks for taking the question. As we think about election season and the impact that might have
Kenneth Brooks Worthington: What impact do you think a new administration and a more benign FTC or more deal-friendly FTC might have on USM&A activities? So a couple parts here. One, how impactful do you think the current FTC philosophy is?
Speaker Change: has been on getting deals done.
Speaker Change: And then second, to what extent might there be a pipeline of either deals rejected, withdrawn, or never even proposed that...
Speaker Change: seems prime to come to market if we have a more friendly FTC, all things being equal? And I know it's sort of maybe impossible to answer, but do you think it's enough to move the needle? Might it be significant? Like, any thoughts you have would be valuable to me.
Kenneth David Moelis: Very tough question. I like Joe's answer, which is it'll be more clear next year, next quarter after it happens, and I can look back and tell you what it was. It's easy to be clear after it happens.
Speaker Change: It's a very tough question. I like Joe's answer, which is, it'll be more clear next quarter after it's happened, and I can look back and tell you what it was. It's easy to be clearer after it happened.
Kenneth David Moelis: Look, I do think that if you do have, not just a change of regime but then a change in the FTC, right? You have to assume that if there's a change, it leads to a change in the FTC. I do think it'll open up a lot of deals. You know, looking back, I think the method has been, the government has, I think, instituted these lawsuits. It's almost... [inaudible] So yeah, I think there would be a bunch of things that would move forward.
Speaker Change: Look, I do think that if you do have, not just a change of regime, but then a change at the FTC, right, you have to assume that if there's a change, it leads to a change in the FTC.
Speaker Change: I do think it will open up a lot of deals. You know, looking back, I think the method has been, the government has, I think, instituted these lawsuits. It's almost...
Speaker Change: to scare people from attempting them. People go, well, they, you know, that you win it, you win in trial after two years. So why does it, you know, why does that matter? And to your point, it matters because the idea was to get people not to attempt things, I think.
Speaker Change: So, yeah, I think there'd be a bunch of things that would move forward.
Kenneth David Moelis: And it's hard to know all of them, right? I see a small aperture in the market, but, you know, I know of a few that I think would move in a new environment, so that means there must be a multiple of them, you know other people's backlog as well, so I do think it would have... (inaudible) They don't, and the market matters more. But I think a dramatically different tax rate for corporations, I think, could have...
Speaker Change: And it's hard to know all of them, right? I see a small aperture of the market. But, you know, I know of a few that I think would would move in a new environment. So that means there must be a multiple of them.
Speaker Change: in other people's backlog as well. So I do think it would have
Speaker Change: significant effect. And then and then the only other difference would be as we get clarity on what the two regimes tax rate corporate tax rate would be. I do think, you know, people say these elections matter. And I sort of think
Speaker Change: They don't, and the market matters more, but I...
Speaker Change: A dramatically different tax rate for corporations, I think, could affect people's risk-taking capacity.
Speaker Change: Okay, thank you. It's great to hear your views. I'm going to extend the same concept to outside the U.S. As we think about geopolitical actions outside the U.S., again, sort of election seasons in many different parts of the world, but we also have
Kenneth David Moelis: The U.S. As we think about geopolitical actions outside the U.S., again, sort of election seasons in many different parts of the world, but we also have sort of tensions boiling in Asia. Anything top of mind to you, either as a catalyst to promote or detract from cross-border international M&A that might result from, you know, again, anything sort of top of mind geopolitically going on outside the U.S
Speaker Change: sort of tensions seething in Asia. Anything top of mind to you, either as a catalyst to promote or detract from cross-border or international M&A that might result of
Speaker Change: You know, again, anything sort of top of mind geopolitically going on outside the U.S.
Kenneth David Moelis: Outside of China, by the way, which is, you know, its own specific case. I don't see that. We're actually, you know, our European business is very strong, and so is our Asian business. Each holds our Middle East business. The answer is I don't see it, and we're being pretty aggressive and expanding in all those areas. So outside of the usual geopolitical concerns about China.
Speaker Change: Outside of China, by the way, which is its own specific case.
Speaker Change: I don't see that. We're actually, you know, our European business is very strong.
Speaker Change: And so is our Asian business, and so is our Middle East business. So, the answer is I don't see it, and we're being pretty aggressive in expanding in all those areas. So, outside of the usual geopolitical concerns about China, I don't see it.
Kenneth David Moelis: I don't see it. Awesome. Great. Thank you
Kenneth Brooks Worthington: Awesome. Great. Thank you so much for taking the time to answer the question.
Speaker Change: Awesome, great. Thank you so much for taking the questions.
Operator: Your next question comes from the line of Brennan Hawken with UBS. Please go ahead.
Speaker Change: Your next question comes from the line of Brennan Hawken with UBS. Please go ahead.
Brennan Hawken: Good afternoon. Thanks for taking my questions.
Brennan Hawken: Good afternoon. Thanks for taking my questions. I hope you guys are well.
Brennan Hawken: I hope you guys are well. Um, Ken, curious, you know... We hear from a few market participants that sponsors have begun to reengage in a far more meaningful way, and certainly when we take a look at the announced activity in the second quarter, it would suggest that. We're also hearing more optimism about the back half, so I'm curious to hear your perspective on this. We've heard optimism before, but it's gotten delayed or failed to deliver.
Kenneth Brooks Worthington: Ken, curious, you know...
Speaker Change: We hear from a few market participants that sponsors have begun to re-engage in a far more meaningful way. And certainly when we take a look at the announced activity in the second quarter, it would suggest that.
Kenneth David Moelis: So, we're also hearing more optimism about the back half. So, I'm curious to hear your perspective on this.
Speaker Change: We've heard optimism before and then it's gotten delayed or failed to deliver. So, you know, what sort of quantum of improvement do you think is reasonable to expect from the sponsor community? And, you know, can you give some color and texture on, you know, what do you think might be driving this optimism and how real you think it is?
Brennan Hawken: So, you know, what sort of quantum of improvement do you think is reasonable to expect from the sponsor community? And, you know, can you give some color and texture on what you think might be driving this optimism and how real you think it is?
Kenneth David Moelis: So, at the risk of, uh...
Kenneth David Moelis: Of having it put back in my face in six months, it feels... You know, we've always talked about, I think there have been two years of people talking about, you know, the spring is being compressed, and it will come. It feels like it's in motion. It really does feel different, Brennan.
Speaker Change: of having it put back in my face in six months, it feels...
Speaker Change: You know, we've always talked about, I think there's been two years about people talking about, you know, the spring is being compressed and it will come.
Speaker Change: It feels like it's in motion. It really does feel different, Brennan. The reason you people are saying it is activity levels are high. And
Kenneth David Moelis: The reason you people are saying it is because activity levels are high. And they're real. Transactions are happening. People are preparing to go to the market. Sponsors are moving back to the forefront, pictures are real, they might not be preparing to go out on Labor Day, post-Labor Day, some of them are, by the way, but... At the worst, there are people thinking of going out between now and the first half of 2025, and it's real, it's very active. The amount of transactions we're vetting, the amount of pressure on teams, the workload is high. And so I think the momentum's there, and it's real, and it's not projecting. Does it, you know, accelerate?
Brennan: And they're real. Transactions are happening. People are preparing to go to market. Sponsors are moving back to the front.
Brennan: Pitches are real. They might, you know, they may not be...
Brennan: Preparing to go out on Labor Day, post-Labor Day. Some of them are, by the way, but...
Brennan: At the worst, there are people thinking of going out.
Brennan: Between now and the first half of 2025 and it's it's real. It's very active
Speaker Change: The amount of transactions we're vetting, the amount of pressure on teams, workload is high, and so I think the momentum's there, and it's real. It's not projecting, it's
Speaker Change: It's now does the market, it's how fast does it...
Speaker Change: Does it, you know, does it accelerate?
Kenneth David Moelis: Does something happen to, you know, to disintermediate it, and how long and how strong it is? But it's happening, if that answers your question.
Speaker Change: Does something happen to, you know, to disintermediate it, and how long and how strong it is? But it's happening.
Brennan Hawken: Are there any historical periods that you think are particularly apt or make sense to draw a parallel to?
Speaker Change: if that answers your question.
Speaker Change: Are there any historical periods that you think are particularly apt or make sense to draw a parallel?
Kenneth David Moelis: There's no easy one. But, you know, it's almost a little bit like after the 2008 crisis, when there was a real low, and nobody felt like the market was going to come back. There was a restructuring boom. Between 09 and 10, I think there was sort of a year that nothing happened because the restructurings were fixed. Now that's because, remember, the OA crisis: everything had to get fixed; there was no extension. I think this restructuring pipeline, by the way, is, like I think everybody's been saying; it feels extended.
Speaker Change: Well, it's...
Speaker Change: You know, there's no easy one, but you know, it's almost a little bit like after the the o8 crisis There was a real low and nobody nobody wrecked. Nobody felt like the market was going to come back. There was a restructuring boom
Speaker Change: Between 09 and 10?
Speaker Change: I think there was sort of a year that nothing happened because restructurings were fixed. Now that's because, remember, the OA crisis, everything had to get fixed. There was no extension. I think this restructuring pipeline, by the way, is like I think everybody's been saying, it feels extended.
Kenneth David Moelis: It feels like there's just so much paper out there that a two or three percent default rate is a lot of business. And a 3 and 4% default rate is, you know, it's not a minor move to go from 2% to 4%.
Speaker Change: It feels like there's just so much paper out there that 2 or 3% default rate...
Speaker Change: is a lot of business.
Speaker Change: And a 3 and 4% default rate is, you know, it's not a minor move to go from 2% to 4% default rate type of situation.
Kenneth David Moelis: But then what happened is the market valuations, while nobody was looking at market valuations, came back, and people got their energy back, something around 2012 or 13 and 14, and it just started to accelerate, and I think we've just gone through a very... uh... a two-year period. It wasn't a very short period, you know, but when you look back on it, it'll feel short for all of us on this phone But all that's building up, and I think we're on. It's almost like we talked about restructuring a few years ago.
Speaker Change: But then what happened is the market valuations, well nobody looked at market valuations, came back and...
Speaker Change: And people got their energy back in something around 2012, 13, and 14, and it just started to accelerate. And I think we're, we just went through a very...
Speaker Change: A two-year period, I mean, it wasn't a very short period. When you look back on it, it'll feel short for all of us on this phone call.
Speaker Change: It felt like a very long period.
Speaker Change: But all that's building up and I think we're on, it's almost like we talked about restructuring a few years ago. I think this will be a long, steady process.
Kenneth David Moelis: I think this will be a long, steady..., not violent, uh, turn. Remember everybody used to say, is this a K recovery, a U recovery, a V recovery? Remember all those recovery, um..., mechanisms people are trying to figure out what the recovery looks like. And this one, you know, won't be a V-shape, but I think it's going to be steady, long, and pretty exciting
Speaker Change: not violent Turn remember everybody people used to say is this a K recovery a you recovery of the room remember all those recovery
Speaker Change: mechanisms people are trying to figure out what the recovery looks like.
Speaker Change: And this one, you know, won't be a V-shape, but I think it's going to be steady, long, and pretty exciting.
Joseph Walter Simon: And then maybe just a couple of sort of housekeeping items, likely for Joe. Joe, was there any pull forward in the quarter? And could you remind me, or has it changed the sort of state of share creep, where if just buybacks are on hold, what happens to the share count over time?
Speaker Change: Got it.
Joe: That's helpful. And then maybe just a couple sort of housekeeping items likely for Joe. Joe, was there any pull forward in the quarter and could you remind or has it changed the sort of state of share creep where if just buybacks are on hold, what happens to the share count over time?
Joseph Walter Simon: Yeah, so on the share count, you know, the kind of unaffected amortization is probably around $900,000 per quarter. So obviously that's, you know, it would be affected by average share price or by buybacks, but that's, that's the underlying. And then your first question was about Pull forward, which was between $6 and $7 million for the quarter.
Joe: Yeah, so on the share count, you know, the kind of unaffected amortization is probably around 900,000 per quarter
Joe: So obviously that's, you know, it would be affected by average share price or by buybacks, but that's the underlying. And then your first question was about?
Speaker Change: Pull forward? Pull forward was, I think, between $6 and $7 million for the quarter.
Brennan Hawken: Great. Thanks for taking my questions. Sure.
Operator: Your next question comes from the line of James Yaro with Goldman Sachs. Please go ahead.
Speaker Change: Thanks for taking my questions. Sure.
Speaker Change: Your next question comes from the line of James Yaro with Goldman Sachs. Please go ahead.
James Edwin Yaro: Good afternoon, Ken and Joe, and thanks for taking my questions. Maybe just on restructuring, I think you were clear that activities remain fairly strong. Maybe you could just give us your outlook on restructuring in the second half of this year and maybe into 2025. Given your constructive tone on M&A, should we expect restructuring to start to fall off in 2025, or is that further out?
James Edwin Yaro: Good afternoon, Ken and Joe, and thanks for taking my questions. Maybe just on restructuring, I think you were clear that activities remain fairly strong. Maybe you could just give us your outlook on restructuring in the second half of this year and maybe into 2025. Given your constructive tone on M&A, should we expect restructuring to start to fall off in 2025, or is that further out?
Kenneth David Moelis: So if you put them together, and I appreciate you putting them together because we kind of think about that, the restructuring capital markets were probably around 30%. And it's probably been, for the first half, maybe a little north of that.
Speaker Change: So, if you put them together, and I appreciate you putting them together because we kind of think about that, restructuring in capital markets was probably around 30%. And it's probably been, for the first half, maybe a little north of that. By the way, because our capital markets business...
Kenneth David Moelis: By the way, because our capital markets business... has had a very good quarter as well, and the backlog there is building. This whole advent of shopping for financing from a variety of private credit sources is very good for our business. Remember, we're not a bank.
Speaker Change: has had a very good quarter as well, and the backlog there is building. This whole advent of shopping...
Speaker Change: for financing from a variety of private credit sources is very good for our business. Remember, we're not a bank.
Kenneth David Moelis: And if people want to go shopping and talk to several different people, like they talk to private equity, and they want to... [inaudible] Watch Kinect. What's bullish about that is I think the M&A business is going to take off at a faster rate than it has in a while. And I still think capital markets and restructuring will maintain their percentage, as a combined business, uh... if you combine the two, and really as restructuring tails off if the mark gets better, that marginal company will probably look to access capital, and probably capital that's, you know, cuspy capital or complex capital. And it might move from restructuring revenue into capital markets revenue for us. So I think combining them is a good way to think about it.
Speaker Change: And if people want to go shopping and talk to several different, like they talked to private equity and they wanted...
Speaker Change: be, uh, you know, have independent advice on which...
Speaker Change: Capital private capital source to use that's a very good business for us, and I think that will continue to accelerate And I think those will stay the same and the interesting part is
Speaker Change: What's bullish about that is I think the M&A business is going to take off at a faster, is going at a faster growth rate than it has in a while.
Speaker Change: And I still think capital markets and restructuring will maintain its percentage as a combined business.
Speaker Change: If you combine the two, and really as restructuring tails off, if the economy gets better,
Speaker Change: That marginal company will probably look to access capital, and probably capital that's, you know, cuspy capital or complex capital, and it might move from restructuring revenue into capital markets revenue for us. So I think combining them is a good way to think about it.
James Edwin Yaro: Okay, that's very clear. Maybe just turning to the senior banker base, I think the net MDs fell by two quarter on quarter. Any comments on what drove the decline and then maybe the outlook for hiring going forward and how this has evolved?
Speaker Change: Okay, that's very clear. Maybe just turning to the senior banker base, I think the NetMD's fell by two quarter on quarter. Any comments on what drove the decline and then maybe the outlook for hiring going forward and how this has evolved?
Kenneth David Moelis: I don't know if it was, I have it by year end and today, so I had it, if you have it at 161, I don't have the last quarter, I have the year end, but maybe you're right. I think we've had a couple of leavers. And possibly not a lot of starters just in this period, but we've, I think we've hired more than have left. It's just a matter of when they hit the starting gate after their guard and leave and all that. That's the only thing I can think of. We've had a couple of... We have had a couple of
Speaker Change: I don't know if I have it by year-end and today, so if you have it at 161, I don't have last quarter, I have year-end, but maybe you're right.
Speaker Change: Bye.
Speaker Change: I think we've had a couple of leavers and possibly not a lot of starters just in this period, but we've
Speaker Change: I think we've hired more than have left, it's just a matter of when they hit the starting gate after their garden leave and all that. That's the only thing I can think of. We've had a couple of, we have had a couple of leavers.
James Edwin Yaro: Okay, very clear. Thanks a lot.
Speaker Change: Okay, very clear. Thanks a lot.
Operator: Your next question comes from the line of Brandon O'Brien with Wolf Research. Please go ahead.
Speaker Change: Your next question comes from the line of Brandon O'Brien with Wolfe Research. Please go ahead.
Brandon O'Brien: Good afternoon. Thanks for taking my question. I guess to just follow up on some of the sponsor questions earlier. The commentary has been very constructive, and it confirms what we've been seeing in the public data. I just want to get a sense as to what could be the catalyst or that last push to really start getting things going among sponsors. And, you know, obviously, a lot of uncertainty, but when, in your view, do you feel like your revenues will start to be on a normalized basis at, you know, a quarterly level? Or what do you think you can return to that level as revenues come through?
Brandon O'Brien: Hi, good afternoon. Thanks for taking my question. I guess to just follow up on some of the sponsor questions earlier.
Brandon O'Brien: You know, the commentary has been very constructive and it confirms what we've been seeing in the public data.
Speaker Change: I just wanted to get a sense as to what could be, you know, the catalyst or that last push to really start, you know, getting things going among sponsors and, you know,
Speaker Change: Obviously a lot of uncertainty, but when, in your view, do you feel like your revenues will be at a normalized basis on a quarterly level? Or when do you think you can return to that level as revenues come through?
Kenneth David Moelis: I think there are two catalysts that could help. Obviously, rate cuts and cheaper capital. Leverage capital is still a big part of the ability of private equity to move.
Speaker Change: I think there's two catalysts that could help, obviously rate cuts, cheaper capital.
Speaker Change: Leverage capital is still a big part of the ability for private equity to move.
Kenneth David Moelis: So I think that would be, if that were to happen, that would be very helpful. I also think this rotation in valuation parameters is very constructive for companies that make up a lot of private equity land. If you think about it, really, it's been two or three weeks now.
Speaker Change: So I think that would be, if that were to happen, that would be very helpful. I also, I think this rotation in valuation parameters
Speaker Change: is very constructive for companies that
Kenneth David Moelis: And I think we're getting close to like a 2000 basis point move, you know, in large cap value versus, let's say, the Russell. So it could also be, hey, the company you thought was worth X is actually coming at 20% higher in the market today, and you could access that value in multiple different ways. I think that might change people's desire to take their asset to market. And I think those those two and, if the two happen to coincide, that would be a, you know, That would be a very, When do I think we get to, uh...
Speaker Change: make up a lot of private equity land. If you think about, really it's been two or three weeks now and I think we're getting close to like a 2,000 basis point move.
Speaker Change: in large-cap value versus, let's say, the Russell 2000.
Speaker Change: So it could also be hey the company you thought was worth X is actually comping at 20% higher
Speaker Change: in the market today, and you can access that value in multiple different ways.
Speaker Change: I think that might change people's desire to take their asset to market.
Speaker Change: And I think those two, and if the two happen to coincide, that would be a very big push.
Kenneth David Moelis: I think without those events even happening, it feels like to me that, you know, six months down the road, we should be back in an environment that feels much closer to, It's happening. I want to say I think it's happening, and the revenues from what is starting to be kicked into gear, I'm hoping, will start to be seen in the next six months. You'll start to see it.
Speaker Change: When do I think we get to, uh, I think without those...
Speaker Change: Two events even happening, it feels like to me...
Speaker Change: That, you know, six months down the road, we should be back in an environment that feels much closer to...
Speaker Change: It's happening. I think it's happening, and the revenues from what is starting to be kicked into gear, I'm hoping, start to be seen in the next six months. You start to see it.
Brandon O'Brien: Right, and I guess for my follow-up question, you talked about the velocity or the conversion of transactions improving. I just want to get a sense as to what will drive the velocity of transactions maybe a bit higher and maybe create that impetus to buy? Is it just deals; we get more deals, and it's as simple as that, or is there anything else that we should be paying attention to?
Speaker Change: Right, and I guess for my follow-up, you know, you talked about the velocity or the conversion of transactions improving. I just wanted to get a sense just to, I guess it's a similar question and they're related, but...
Speaker Change: What will drive the velocity of transactions maybe a bit higher and maybe create that impetus to buy? Is it just deals to get more deals and it's as simple as that or is there anything else that we should be paying attention to?
Kenneth David Moelis: I think it's a reflection of what we were talking about. Deals close quickly when money is available easily and without, you know... Look, you go back to 2021. Money was readily available, from multiple sources at extremely low rates, so that didn't take any time. And everybody felt valuations were all going in one direction. And so if you didn't close on Monday, you, it might get more expensive on Tuesday. So, you know, the whole animal spirits of, let's get this done, and there are a lot of reasons to get moving on a transaction, also to raise your next fund if we get Fund 8 invested.
Speaker Change: I think it's a reflection on what we were talking about. Deals close quickly when money is available easily and without, you know...
Speaker Change: Look, you go back to 2021. Money was readily available, multiple sources at extremely low rates, so that didn't take any time.
Speaker Change: and everybody felt valuations were all going one direction and so if you didn't close on Monday you it might get more expensive on Tuesday. So you know the whole animal spirits of let's get this done
Speaker Change: tends to just accelerate deal tracking. Nobody wants to wait and see if their deal gets...
Speaker Change: sidetracked because they're excited and optimistic about where the markets are going and and that there's a lot of reasons to to get to get moving on a Transaction also to raise your next fund. Let's get
Kenneth David Moelis: Our investors are ready to fund Fund 9, and that is the business of private equity, by the way, getting Fund 8 invested and getting Fund 9 up and running. The last two years, you've been very reticent.
Speaker Change: You know, if we get Fund 8 invested, our investors are ready to fund Fund 9, and that is the business of private equity, by the way, is getting Fund 8 invested and getting Fund 9 up and running.
Speaker Change: up and going. The last two years you've been very reticent.
Kenneth David Moelis: Invest the last dollars of Fund 8 because you didn't want to go into this market and see if there was a Fund 9. That's another thing that would very much add a tailwind to this market, the reliquification of the LP. [inaudible] They'll be much more attuned to putting out the money that they have.
Speaker Change: to invest the last dollars of Fund 8 because you didn't want to go into this market and see if there was a Fund 9.
Speaker Change: That's another thing that would very much add a tailwind to this market is the reliquification of the LP.
Speaker Change: a side of the equation from exits, and then as the private equity and the sponsor starts to see that they can go back out in the market and reload.
Speaker Change: they'll be much more attuned to putting out the money that they have.
Brandon O'Brien: Great. Thanks for taking my questions.
Speaker Change: Great. Thanks for taking my questions.
Operator: Your next question comes from the line of Ryan Kenney with Morgan Stanley. Please go ahead.
Speaker Change: Your next question comes from the line of Ryan Kenny with Morgan Stanley . Please go ahead.
Connell J. Schmitz: Hi, this is Connell Schmitz on behalf of Ryan Kenney. I'm just considering your comments earlier on the breakdown of M&A versus restructuring for this quarter. There's still a significant multiple to geologic, and I know geologic doesn't, you know, exactly have. I don't have precise data, but there have been reports on, you know, potential changes and pushes for changes to transaction fee structures, for example, like fairness opinions and termination fees. Is this something you guys are pushing for and are seeing across the industry?
Speaker Change: Hi, this is Connell Schmitz on behalf of Ryan Kenney.
Connell J. Schmitz: Just considering your comments earlier on the breakdown of M&A versus restructuring for this quarter
Speaker Change: There's still a significant multiple to geologic, and I know geologic doesn't, you know, exactly have.
Speaker Change: precise data, but there have been reports on, you know, potential changes and pushes for changes to transaction fee structures, for example, like fairness opinions and termination fees. Is this something you guys are, you know, pushing for and are seeing across the industry?
Kenneth David Moelis: I know, look, I saw something actually very recently that transactions are reverse termination fees because of the risk. And I'm not talking about the banker side of it, but reverse transaction fees on the deal side because of the risk of running into the DOJ have gotten larger. But I don't know on the banking side.
Speaker Change: I know, look, I saw something actually very recently that transactions are reverse termination fees because of the risk.
Speaker Change: And I'm not talking about the banker side of it, but reverse transaction fees on the deal side, because of the risk of running into the DOJ.
Kenneth David Moelis: I haven't seen a lot of responses to that. I don't know what you're seeing. It might be, I don't know. What are you seeing?
Speaker Change: have gotten larger.
Speaker Change: But I don't know on the banking side, I haven't seen a lot of responses to that. I don't know what you're seeing. It might be...
Connell J. Schmitz: Because on the special committee, we've been... I do think there are people who don't price their special committee work correctly, but I don't know if that pricing is changing. We've always priced our special committee work fairly rigorously because we understand that it's a long-tail business and we own the tail, but maybe you could tell me what you're referring to. [inaudible]
Speaker Change: I don't know, what are you seeing, because on special committee we've been...
Speaker Change: I do think there are people who don't price their special committee work correctly, but I don't know if that pricing is changing. We've always priced our special committee work.
Speaker Change: Fairly rigorously, because we understand that it's a long-tail business and we own the tail. But maybe you could tell me what you're referring to and I can...
Connell J. Schmitz: This is an article from Reuters, but I was just more curious about the go-forward as to, you know, if there are any pushes given the conversation around deals still remaining elongated around potential scrutiny and, like, Yeah.
Speaker Change: This is an article out of Reuters, but I was just more curious on the go-forward as to, you know, if there's pushes given the conversation around deals still remaining elongated around potential scrutiny, and like,
Speaker Change: Yeah.
Speaker Change: Scrutiny of our pipeline?
Kenneth David Moelis: Yeah, but I guess it relates more to antitrust, which... Oh, okay. So, what you're, look, what you may be asking is, and I have seen a little of this, and especially in highly regulated industries, but it's always been a little like that where you tend to get more of your fee on announcements. You might even get more of your fee in a progress payment because it's a lot of work and then to wait..., a year and a half. [inaudible] Thanks. That's a good caller. Just one follow-up on the rate cut discussion, like how does the potential rate cut affect your restructuring outlook?
Speaker Change: Yeah, but I guess it relates more to antitrust, which...
Speaker Change: Okay, so what you may be asking is, and I have seen a little of this, and especially in highly regulated industries, but it's always been a little that way where you tend to get more of your fee on announcement.
Speaker Change: You might even get more your fee on a progress payment because it's a lot of work and then to wait
Speaker Change: A year and a half.
Speaker Change: to get the fee. It's difficult, you know, because the banker has done work two years ago. Yes, on some of those, but that's always happened in regulated M&A, especially public company regulated M&A has tended to front end some fees more than normal M&A.
Speaker Change: Thanks, that's a good caller. Just one follow-up on the rate cut discussion. How does a potential rate cut affect your restructuring outlook?
Kenneth David Moelis: I don't, I think the companies that are marginally, uh, over-leveraged and they can't make it. Very, very few of them are going to be... [inaudible] Refinancing that. So if you think about it if you're marginally overleveraged, and then rates change enough that you went from actually restructuring to refinancing. You're probably not, you know, an investment-grade credit. You're probably a highly structured, private credit. [inaudible] opportunity for us to go talk to some pretty aggressive money that will be on the margin.
Speaker Change: I don't, I think the companies that are marginally, uh, over, that are over levered and they can't make it.
Speaker Change: Very, very few of them are going to be...
Speaker Change: bailed out by, you know, even a hundred, 150.
Speaker Change: basis point rate cut. They're just over-levered.
Speaker Change: It's the principle and the maturities that are going to hurt them.
Speaker Change: If, if, and maybe it's 5% of the restructuring backlog could be bailed out by a 150 basis point drop, that's where I said I think you can make quicker
Speaker Change: You might be able to make as much, have a better client, and do it even more quickly by refinancing that. So if you think about it, if you're...
Speaker Change: Marginally over levered and then rates change enough that you went from actually restructuring to refinancing. You're probably not, you know, an investment grade credit. You're probably a highly structured private credit
Speaker Change: opportunity for us
Speaker Change: To go talk to some pretty aggressive money that will on the margin
Kenneth David Moelis: And so I do think I think a lot of that will move from talking to our restructuring team, and we do integrate these people together right now, into talking to our private capital markets and funding that way. So I don't I don't think we'll lose a lot of that business if they marginally are benefitted by you know a hundred or two hundred point rate.
Speaker Change: I think a lot of that will move from talking to our restructuring team, and we do integrate these people together right now, into talking to our private capital markets and funding that way. So I don't think we'll lose a lot of that business.
Speaker Change: if they marginally are benefited by a 100 or 200 point rate cut.
Connell J. Schmitz: Great. Thanks for taking my questions.
Speaker Change: Alright, thanks for taking my questions.
Operator: Your next question comes from the line of Aiden Hall with KBW. Please go ahead. Great, thanks for taking my question.
Speaker Change: Your next question comes from the line of Aiden Hall with KBW. Please go ahead.
Aiden Hall: Great, thanks for taking my question. Most have been asked, but I guess just on the commentary about sponsor activity and it seems really good engagement there, any way to kind of characterize maybe trends in like the small cap, mid cap, and large cap space as it relates to kind of sponsor activity?
Kenneth David Moelis: [inaudible]
Aiden Hall: Great, thanks for taking my question. Most have been asked, but I guess just on the commentary about sponsor activity and seeing some really good
Aiden Hall: engagement there. Any way to kind of characterize maybe trends for in like the small-cap, mid-cap, and large-cap space as it relates to kind of the sponsor activity?
Aiden Hall: [inaudible]
Kenneth David Moelis: Spend enough, if small, you're talking about small beyond where we call it. I probably don't know enough about it.
Speaker Change: I probably don't.
Speaker Change: Spend enough... If small, you're talking about small beyond where we call.
Kenneth David Moelis: I would sense, though, my sense, because we're seeing it across the board. You know, we're not seeing it in the size that we cover, from the bottom end to what we cover to the top, a big difference. Other than, I think there are some buyouts that were done at the top end of the range, you know, the very large ones that have been successful, so they're even larger. I do think some of that will go into the IPO market.
Speaker Change: I probably don't know enough about it. I would sense though, my sense, because we're seeing it across the board.
Kenneth David Moelis: That's a whole different event. And I do think that, while you're watching those exits, you might want to watch the IPO market because I think that's where some of the very large buyouts have to get their liquidity. But everywhere else in the M&A side of exit. Capability for sponsors, I don't I don't see a real difference between the size at the bottom end of what we call on and the top, But I can't speak to, you know, kind of it, maybe that... Please see the video description for a link to the author's email.
Speaker Change: You know, we're not seeing it in the size that we cover, you know, from the bottom end to what we cover to the top a big difference.
Speaker Change: Other than I think there are there are some buyouts that were done at the top end of the range You know the very large ones that have been successful, so they're even larger
Speaker Change: I do think some of that will exit into the IPO market. That's a whole different event, and I do think that watching those exits, you might want to watch the IPO market because I think that's where some of the very large buyouts have to get their liquidity.
Speaker Change: but everywhere else in the M&A side of Exit.
Speaker Change: Capability for Sponsors
Speaker Change: I don't see a real difference between the size at the bottom end of what we call on and the top end.
Speaker Change: But I can't speak to, you know, kind of, maybe the size below where we call on might be different.
Kenneth David Moelis: And that concludes our question and answer session. I will now turn the call back over to Ken Moelis for closing comments.
Kenneth David Moelis: And that concludes our question and answer session. I will now turn the call back over to Ken Moelis for closing comments.
Kenneth David Moelis: Thank you for joining us. I hope you have a good rest of the summer and we'll see you on the third quarter call.
Kenneth David Moelis: Thank you for joining us. I hope you have a good rest of the summer and we'll see you on the third quarter call. Thank you.
Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.