Q2 2025 Moelis & Co Earnings Call
Good afternoon and welcome to the moelis & Company earnings conference call. For the second quarter of 2025 to begin. I'll turn the call over to Mr. Matt sucrose, please go ahead sir, good afternoon and thank you for joining us for moles and companies. Second quarter 20125 Financial results conference call on the phone today our Ken Mullis chairman CEO Navin, mabu zadegan, co-founder and co-president and Chris coloso 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 and the risk factor section of moles and companies 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. 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.com moles.com. I'll now turn the call over to Chris to discuss our results.
Thanks, Matt and good afternoon everyone on today's call, I will go through our financial results, Ken will comment further on the business and Naveed will provide a few remarks before we open the call for Q&A.
We reported 365 million of revenues in the second quarter and increase of 38% versus the prior year period and our highest second quarter revenues on record. Our first half revenues of 672 million were up 39% from the prior year period, the year-over-year increase in revenues in both the second quarter and first half of the year is primarily attributable to growth in m&a and capital markets moving to expenses. Our second quarter compensation, expense ratio is accured at 69% consistent with last quarter,
Our second quarter non-compensation, expense ratio is 14.4%. We continue to anticipate the full year growth of non-compensation expense to be approximately, 15% compared with the prior year.
Moving to taxes. Our corporate tax rate was acred at 29.5% consistent with the underlying tax rate in q1, prior to the discrete tax benefit related to the vesting of equity Awards.
Ken Mullis: Regarding Capital, allocation the board, declared a regular quarterly dividend of 65 cents per share, consistent with the prior period. And lastly, we continue to maintain a strong balance sheet with cash and liquid Investments, of 475 million and no debt. I will now turn the call over to Ken
Ken Mullis: Thanks Chris, good afternoon everyone. Our revenues in the second quarter and first half of the Year, reflect the Investments, we've made over the last few years, our globally, integrated platform, and our team's Relentless focus on executing for our clients.
Ken Mullis: We enter the second half of the year in a significantly improved transaction environment. Since we last spoke in April, which was right in the heart of the post Liberation day Market, chaos.
In retrospect Liberation day did cost a temporary disruption activity however our new business origination remained healthy and our pipeline currently sits near record levels.
Ken Mullis: Both our strategic and sponsored clients are moving forward with transactions driven by technology, disruption, and the need for sponsors to recycle capital.
Ken Mullis: The Investments we've made in capital markets, have continued to pay off as well as our team, achieve achieved record rate of venues in the first half of the year.
Ken Mullis: The team enters the second half of the year with strong momentum as investor investor risk. Appetite grows and capital is generally available
Ken Mullis: during the second quarter 3 of our of the leading private Capital advisory Bankers. Joined our firm underscoring. Our ambition to build the premier platform in secondary and primary Capital Solutions for sponsors.
We continue to believe there is a significant opportunity for us to grow this franchise and we plan to aggressively scale into a market leader.
Ken Mullis: Finally, our capital structure advisory team continues to work on a steady amount of liability management engagements across a range of Industries and our investments in our creditor side. Franchise are beginning to show results.
Ken Mullis: In addition to our hiring and PCA we welcome 1 technology focused and 1 Business Services. MD both based in Europe during the second quarter.
Ken Mullis: In summary, we entered the back half of the year with momentum across the business and I'm confident in our team's ability to execute for our clients.
Speaker Change: Before I pass it to Navid, I'd like to make a few remarks about our upcoming CEO transition with the firm in such a strong position, financially strategically and culturally the board. And I determined, this was the right time to elevate our next generation of leadership.
Speaker Change: Driver of our most impactful growth initiative and was 1 of the best, strategic advisors I've ever worked with making him. Well, positioned to lead us through the next phase of growth as CEO.
Speaker Change: In my role. As executive chairman, I'll spend even more time with clients and in boardrooms around the world advising on critical strategic decisions, while also remaining involved in the firm's long-term strategy. And although, I am excited to spend more time with our clients. I'll certainly miss my time with you on these quarterly earnings calls. I know you've been hearing my voice for a long time. I know you'll be in good hands with Navid when he gets the mic at our quarter 3 earnings call. So with that, I'll pass it to Navid for a few more remarks. Thanks so much Ken. I'm honored to step into the role of CEO at a firm that have had the privilege of building and helping to build from the very beginning. Uh, as CEO, I will continue to focus on the principles that have been Key to Our Success over the past 18 years.
Speaker Change: And 10 focus on clients.
Speaker Change: Investing in our firm's Talent.
Fostering Innovation through the adoption of new ideas and Technologies and of course, driving returns for our shareholders.
Speaker Change: We head into the next phase of growth with the highest quality talent and most expensive capabilities for clients in our history. I'm extremely excited about the opportunities ahead and look forward to working with more with all of you in my new role.
Speaker Change: Uh, operator. I think you can now it open it up for questions.
Speaker Change: Thank you, and ladies and gentlemen, if you have a question, please press star 1 on your telephone keypad. It's also star 1. If you would like to remove yourself from the queue, we'll take our first question today from Devin Ryan citizens, JMP.
Devin Ryan: Oh, uh, thanks.
Speaker Change: Microsoft, welcome and congratulations.
Speaker Change: On uh the new role and and to you as well Ken um always uh enjoy the calls but looking forward to Navid being on as well.
Speaker Change: Thank you. Um,
Speaker Change: I guess maybe just first place want to start is on sponsors re-engaging and um, heard some of the prepared remarks but just love to get a little more flavor around. Um, like the progression of re-engagement and just maybe even from a sector perspective or are you seeing it across kind of all sectors? Uh, you know, obviously areas like technology are still dealing with higher prior round. So uh are there certain sectors that maybe aren't coming back as fast. Just love to get a little bit of a flavor for kind of the level of re-engagement and then what that looks like in in different Industries as well. Thanks.
Speaker Change: Okay. So first, let's start with the uh, macro, which was, I think last time we did our phone call, we were in the middle of a pretty significant Market downturn.
Speaker Change: and,
Speaker Change: You know, it wasn't just the market. You had uh,
Speaker Change: Real concerns about tariffs and how they would affect industry. You know, sometimes it's just valuation markets and interest rates, but that also had operational uh issues involved with what was going to happen.
Speaker Change: We probably reached our.
Speaker Change: Our highest point of backlog on March 31st and then April 2nd happened. And what I'd say happened is um deals that were in Pipeline and in progress, kept going, but I think from about April 2nd.
Speaker Change: Uh, to 5 or 6 weeks later. Middle of May.
There were a lot of people sitting on their hands. Uh, transactions were getting done but not a lot of things got started.
Speaker Change: Then it started back gradually, um, but I'd say it's really accelerated in the past 5 or 6 weeks. I think we've seen a better Market every week.
Speaker Change: Starting 4 or 5 weeks ago and I would say we're kind of back as of now very close to the level of enthusiasm that was prior to uh, April 2nd, you know, March 31st. Um, now it's it's building back. You know, you, you did have a few weeks there so the pipeline is, not at all-time Highs, but it feels like the energy is there.
Speaker Change: On the sectors. I, I think it's pretty much across the board. I mean, there may be 1 or 2 um,
Speaker Change: you know, again I don't see every
Uh, transaction, every industry across the board. So I'm I'm talking about our subset but I'd say we're pretty strong across sectors. Yeah, Devon. I think there's still some sectors that are, you know, right in The Sweet Spot of some of the trade uncertainty, you know, maybe some of the, you know, parts of consumer, you know, parts of Industrials manufacturing. But as Ken said, you know, I think the strength we're seeing is, um, you know, more broad than narrow.
Speaker Change: You think that specific businesses? I know it's important for just the, The Firm level, but just how you think about the adjustable Market, uh, how big of a business, could this be for moelis? It's pretty big at some of your peers but is this a couple hundred million dollar Revenue opportunity? And then just how, how many more resources do you need to put there to get this business to where you think the potential is, you know, do do you have now what you need or or should we expect to see a lot more additions kind of follow after some, of these senior hires, thanks.
Speaker Change: Well, I agree with you. We we see it as a uh in the in a leadership position. It's a couple of hundred million dollar or more more than a couple of hundred million we think, um, in the leadership positions.
We think we've hired the leadership.
Speaker Change: That we feel very comfortable will will get us to that position.
Speaker Change: We have more to higher throughout the system, um and we're going to be aggressive on it. We have uh gone uh aggressively and we didn't hire just 1 of the top players in the industry. We hired 3
Speaker Change: We think this is uh, could be very strong, by the way. It's a couple of hundred million dollars.
Speaker Change: To the top of the market right now in ter or more than as I said, it might be uh, more than that. I think it is more than that and I think we're in the early stages of of it being a growth market. So, uh, we're pretty bullish on it. We think of it as a, you know, you could think of it as a third or fourth leg on the firm. In terms of the where we think the size of that market could be
Speaker Change: And, and it's also a, I should have said, it's also in addition to just the direct Revenue opportunity that can outline, its, you know, having that capability. Um, and secondaries continuation. Vehicles is just, it's just very strategic for our, uh, dialogues with private Equity firms. And, you know, ability to provide, you know, Holistic Solutions. Um, you know, for those firms. It, it it not only creates a revenue opportunity, but it also helps our m&a business. And so, um, it's just, it's just a capability. It's just critical for us to scale and, you know, be very, very strong at which we're well on the way to doing, we think
Speaker Change: Yep. I appreciate that. Yeah, it seems very complimentary uh, but thanks for taking my questions.
Ken Worthington: Thanks. Next up is Ken Worthington from JP Morgan.
Ken Worthington: Hi, good afternoon. Um,
Ken Worthington: Navid, uh, thank you for your comments on, on your priorities um Ken mentioned that, you know, you're here to kind of Usher in the next phase of growth uh for moelis.
Speaker Change: what is this next phase of growth look like
Speaker Change: What would you see your focus? Um, really being? Um, where are you paying attention? Uh, you know, most thoughtfully to and what areas do you feel like you want to amplify? As you think about this next uh, phase of growth?
Speaker Change: Sure, well look I think I think the first you know, comment is you know the strategy that we've been playing for the last couple years very much is, you know, the strategy that we've we've all been developing together that I expect to continue to carry on. Uh, so what are the elements of that? You know? First let's make sure that our investments are made in the highest Tams. The biggest Tams where we have the most opportunity to really Drive
Speaker Change: Uh, you know, Revenue growth. Um, that's why we did things like invest heavily in Technology Group oil and gas. And now, PCA and before that Capital markets, um, so we're going to continue to look for those big opportunities. Second, uh, want to make sure that we're uh, attracting when we do lateral hiring, you know, what I call difference makers, you know, elite elite players, uh, who really moved the needle with clients, who bring franchises that, we think are really a creative to our firm and to our, you know, Global Network and, you know, making sure we're doing that and executing that at the really highest levels is, you know, going to be critical to um, you know, our success and then third, you know, which is a really important pillar. You know that helped build this firm is, you know, making sure that you know we continue to have the best culture uh 1 where everyone's collaborating and kind of bringing the best of themselves to our clients. Uh, and then making sure that this internal Tech
Speaker Change: ENT development engine that we're really proud of. You know, we're 40% of our MDS are internally promoted MDS including some of our highest producers. You know, that that engine continues to operate at a very high level.
Speaker Change: Or is it really about kind of leveraging the elevated pace of Investments that you've really been, uh, you know, focused on over the last 2 years and sort of letting things kind of play out like which, which sort of scenario is more likely uh, for you to pursue over the next 1 to 2 years.
Speaker Change: You know.
Speaker Change: I think overall it might feel about the same space, we're going to accelerate into things like PCA, so you're going to see us be very aggressive in the private Capital Advisory Group.
Speaker Change: But I, you know, Navid I'll say this Navid was but the major force behind the uh Tech group.
Speaker Change: Higher.
Speaker Change: and that's been nothing, but
Speaker Change: Extremely uh successful. I'll just leave it at that.
Speaker Change: Uh the Energy Group we hired down in uh Houston has been a spectacular success. We've um Industrials.
Speaker Change: So I think you'll see it about the same level. It'll it'll be very aggressive in certain areas like as we go to finish out our private Capital uh group.
and you'll continue to see
Speaker Change: The same Pace I think of managing directors in whitespaces.
Speaker Change: around the organization but it it'll probably it might feel
Speaker Change: pretty aggressive, just because of what we're going to do in PCA, I think
Speaker Change: yeah, I think the only thing I would add to that is look um,
Speaker Change: You know, we we we're not growing for the sake of just growing and adding headcount. We we want to make sure we're hiring the best people in the world to help us build these franchises. Um and you know sometimes that's not Market specific. It can happen in a down Market where there's those people become available like with technology and it could happen in an up market. And I think, what we've done is, make sure we have the, the financial resources, clean, balance sheet. Um, you know, to make sure we can do it under all environments, right? And so, I think we want to lean into growth, as I said, big Tams, great people, um, and sometimes that'll happen in in up markets and sometimes it'll happen when the markets don't feel great and that's why we keep the flexibility to do that.
Speaker Change: Great. Thank you.
The next question today comes from James yarrow, Goldman Sachs.
Speaker Change: Uh, thanks for taking, uh, the questions. Um, I guess this is a question for both of you, um, but uh, there's a lot of focus I'd say, on the market in the market around this, I don't know what you want to call it, a big bang and of of m&a, and, and IPO activity that could occur post Labor Day. Uh, what, what do you make of that, uh, of the post Labor day outlook? And do you really think things could come back? Uh, that quickly in a big way?
Things are definitely coming back. I mean, um,
Speaker Change: It was it was interesting. The early part of June. Remember, a lot of deals.
Speaker Change: There were no deals. Really started between April 2nd and a certain day. There was, you know, a lot of people sitting on their hands.
So when you look at your new business activity and I apologize for the uh buyer engine going right by the window.
um,
But so then you saw you know those were the deals that would have started in April.
You know, that would have registered in our new business activity. Sometime in late May early June but what we're seeing is every week within June just gets stronger and stronger and stronger as you get further and further away from Liberation day. So look
Speaker Change: The S&P 500 is getting close to 6400. I mean that's that's not just a rebound from Liberation day. That is a significant uptick.
Speaker Change: Um we haven't seen rates come down yet. I don't we're not. I'm not predicting a big bang.
Speaker Change: But I am predicting that if if there's not an external event from here on in the market is improving almost daily, um, and the activity level and the amount of transactions people want to do is is definitely improving and you can see it almost daily. So I
Speaker Change: Again, I I, I don't see a big bang, but I see a really, uh, steadily improving Market.
Ken Worthington: Ken, you know, I I will say that 1 of the reasons, I know, you're, you're an excellent Banker. Is that even though there's that loud firetruck there, you were still able to, to, you know, to fill in those comments. So, so we appreciate that. And obviously, um, we we'll miss you on the call. Um, I was just making sure it wasn't an ambulance coming. For me, that was the only thing that would have Disturbed the whole thing.
Speaker Change: around the build out as we head towards the environment that's uh potentially, you know, more characterized by regular way m&a and IPO which I could imagine uh could at least slow the growth rate in secondaries
Speaker Change: well, I think the guard rails is we we're very excited and we've now, gotten to spend on the ground time with the 3, most senior leadership team, um,
Speaker Change: And we we like them, we think they're uh, real business. Builders
Speaker Change: And remember, we're not sitting with 200 people in the space yet we we have a desire to get there. If the, if the market is as good as we think there is, we have a desire to have a large team and be a dominant player, but I think they're they're we'll all be watching that.
Speaker Change: I think it's
Speaker Change: it's a it's a product that will find a way to be relevant and is not have said and I think you have to show up when talking about the assets that are in private equity and in sponsor ownership you have to be able to offer a series of different Alternatives and that in many of the spots that will be an alternative that will be relevant. It may not be the 1 pict.
Speaker Change: But it's it's important that you be able to execute it in order to outline the people what their options are and effectively position it.
So, um, I think we will follow their lead.
And right now we're not over capitalized or over peopled in that space at all. So I'm not worried about it getting slower. I'm I'm worried about us getting up to speed as my main worry, right? Now that we that we hire the people and the team to execute and um
Again, I'm I'm an optimist on this. I think that product will be large.
Speaker Change: And, you know, and will be bigger over the years. Yes,
Ken Worthington: Great. All right. Well, thanks so much Ken. It's been uh a great uh working with you and and thank you so much for the insights and enough it looking forward to working with you.
Speaker Change: Same here.
Speaker Change: Your next question today is from Brendan O'Brien from Wolfe research.
Speaker Change: Now you mentioned, you know, the strengths and capital markets and advisory driving, you know, the growth year to date. All right, I just wanted to drill down a bit on restructuring activity and just say a sense as to how that is trended since April 2nd and what your expectations are for that part of the business, um, from here,
Speaker Change: It's, you know, for this year it's trended flattish to slightly down. Um
Speaker Change: My guess. Is it continues to trend?
Speaker Change: Slightly down.
And I think part of it, by the way, is you're seeing the, um, the other side of that and the benefits in our Capital markets and our m&a. So what happens in a really good Market when the, uh, S&P 500, you know, gets to 63 6400.
Speaker Change: And private Capital has um just a Title Wave of liquidity, coming into private credit.
Is that the marginal?
Company that would go through a liability management or a restructuring, gets purchased in an m&a deal or refinanced.
Speaker Change: so, I think
Speaker Change: We've always tried to put our Capital markets kind of together with our, uh, restructuring business in the numbers because I do think, uh, you know, the it's sort of a choice. Um, and I always say this almost every CEO everybody. I uh every CFO I know would rather do a financing than a restructuring and so given the opportunity and the availability of capital. I think some of it that marginal amount that in a bad Market would be reported as a restructuring or liability management revenues now now, moving into Capital markets or even m&a
Speaker Change: Helpful color. And then I guess for my follow-up, I just wanted to touch on a comp ratio. You know, you've had a really strong first half, and it sounds like momentum should build from here. However, as we mentioned, you've been aggressively and will continue to aggressively lean into recruiting as you build out the PCA business, and your Deferred Comp amortization was up over 40% year-on-year, in 1 Q. Oh, well, I understand the investment will pay off over time. I just wanted to get a sense as to how we should think about your ability to flex your comp ratio as the revenue backdrop begins to improve.
Speaker Change: I I think we're going to have the flexibility and it's all Topline driven and um as I said our the growth that I think we have embedded in The Firm through all those Investments we made I is pretty substantial.
Speaker Change: Trying to change it on. Uh, you know, on a moment by moment basis, I think you get caught sort of uh jumping around a little too much. So we decided to leave the comp ratio where it is. We are hoping that the year continues to build out the way it is. We've got a lot of time left, we just didn't think the evidence of a quarter was enough to really
Speaker Change: Try to fine-tune it right now. We'll we'll we'll do that in the back half of the year.
Speaker Change: That's helpful. Thank you for taking my questions and it's novice on the new role and can uh, congrats on
Speaker Change: the new role as well. Uh, you'll be missed.
Ryan Kenny: Thanks, your next question. Today comes from Ryan. Kenny from Morgan Stanley.
Ryan Kenny: Great question.
Is there a formula? We should think about for the rest of the year. I know last year we had a formula and it was unclear. Whether that still applies for this year, any update there,
Ryan Kenny: No Joe's left. And I'm no longer stuck with Joe's formula. I'm kidding, the formula worked beautifully last year because we were coming off of a very different, uh, environment. And um, this year, there's no formula. I, you know, I think it's going to be driven by Topline. We have these Investments, we have a great set of people on the ground and I, I think it's going to be a derivative of how how much we're able to drive on the top line.
Ryan Kenny: All right. Thank you.
The next question is from Alex bond from KBW.
Alex Bond: Hey, good afternoon everyone. Thank you for taking, uh, my questions. Um, firstly, I always talked, um, or, or you've talked today on the call, you know, extensively about the build out on the, uh, the PCA team, but just curious, um, if there are any other or, you know, what other areas, um, outside of their, where you are, um, particularly focused on um, hiring currently.
Alex Bond: Look we um there, there are other, you know, spaces and sectors, where I think we could, you know, add great talent. Uh I I I don't know that I want to be super specific uh you know, on this call. But I would say we we do have an active, you know, set of dialogues with candidates. Um, you know that we think could be great on the platform and, you know, I do think um, you know, 1 of the things we want to do is continue to, you know, build those pipelines. And, you know, that's a, that's a full, you know, year-round effort in in making sure we're having the right dialogues with the right people around other other spaces, there's still, You know, despite our growth. And despite an Investments we made there's still lots of areas and lots of companies. We're not covering and lots of spaces where, you know, we have um, franchises that can be built. And so you know as I said we want to focus on the great people and want to focus on the biggest opportunities and that that's that's where we're constantly having dialogue with with people who can potentially
Speaker Change: Joined the firm.
Speaker Change: Got it. That makes sense and then apologies. If I missed this earlier but um what was the breakout between advisory revenues and um or sorry non m&a at revenues versus m&a revenues. This quarter was it consistent with the um I think 2/3 m&a and 1/3 m&a split last quarter, pretty pretty pretty red dead on very close today. Yes might be you know a percentage point or higher on m&a but not not much. It's right around there.
Speaker Change: Got it. Okay, great. Thank you for uh thank you for taking the questions.
Mitchell: Mitchell from Seaport Global Security.
Speaker Change: Sorry, sorry, I was on mute. Uh, hey, good afternoon. Hey uh, can I find it hard to believe? You're going to miss these conference calls but uh, appreciate the sentiments. Um but um I just want to have, I had a follow up on PCA. Um,
Speaker Change: When you think about that business, the nature of the business, as well as Moses historically, strong relationships with sponsors, would you expect the new hires in that business to ramp up more quickly than your typical m&a? Banker, just just trying to think through the payback time on the PCA investment.
Speaker Change: The answer is yes. And first of all, I think, um,
Speaker Change: we're now interacting with them for 6 7 or 8 weeks together and I think they've been surprised or a positively surprised at how strong our dialogue is with their core customer. And so, we're very often. Both of us are finding it. Like the match has been what we hoped it would be. And the answer is yes. Because what's happening is there may be a sector Banker. That was uh, going in to talk about an asset that a client had
You know, next week and and we can walk right in and push the PCA expertise right into the pitch and talk about it as a as part of the dialogue.
A new sector Banker.
Speaker Change: They sort of have to go uh, reestablish communication with the client, uh, land of transactions. So I think I do think they can be productive quicker because they are, they are being asked to show up.
Ken Worthington: In dialogue, we're having with sponsors that have been going ongoing real time before they hit the ground, they're just being slotted right in and providing new expertise uh and new options. So yeah, it can be just just elaborate a little further, the the 3, senior Bankers that we hired really focus on, you know, continuation, vehicles and secondaries. And as Ken said, you know, that's a much quicker m&a like, um, kind of, you know, you know, time to Market, um, the primary business, which, you know, is another part of the PCA business that will hope to build over time, you know, as a much longer lead time, kind of business, but the, the businesses we're focusing on focused on first a, I think are the biggest Market opportunities for us and be, uh, to your question I think are, um, you know, their ability to make an impact more quickly. I think is, um, you know, much more, much more realistic
Speaker Change: Right. Okay. Yeah, that's very helpful and then maybe a pivot to, to balance sheet and cash, you know. I don't want to put the car before the horse but I think cash and liquid Investments doubled from a year ago and the highest second quarter I think on record. So if the environment is getting better from here, are you getting close any closer to starting to return any of that excess cash to shareholders? And how do you think about deploying it? If we are getting close,
Speaker Change: Yes, I I think we are, we we recognize, uh, that we are probably have more excess Capital than we want or need. And we're in discussions with the board on that, and it'll be a variety of ways. Um, but you know, I do think, uh, stock repurchase will probably pay more prominently in that than it has in the past.
Speaker Change: Where we were concerned about shrinking our, you know our float. We're not that concerned about that anymore. So let's just put it. We're, we're looking at a variety of ways and we want to get Capital back and we realize we probably have more Capital than we need.
Okay, great. Thank you.
Speaker Change: And at this time, there are no further questions that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect
Speaker Change: Thank you.