Participants

Matthew Tsukroff; Investor Relations; Moelis & Co

Christopher Callesano; Chief Financial Officer; Moelis & Co

Kenneth Moelis; Chairman of the Board, Chief Executive Officer; Moelis & Co

Devin Ryan; Analyst; Citizens JMP

Ken Worthington; Analyst; JP Morgan

James Yaro; Analyst; Goldman Sachs & Co

Brendan O'Brien; Analyst; Wolfe Research, LLC

Mike Brown; Analyst; Wells Fargo

Ryan Kenny; Analyst; Morgan Stanley

Ben Rubin; Analyst; UBS Securities LLC

Presentation

Operator

Good afternoon and welcome to the Moelis & Company Earnings Conference call for the first quarter of 2025. To begin, I'll turn the call over to Mr. Matt Sucroft.

Matthew Tsukroff

Good afternoon and thank you for joining us from Moelis & Company's first quarter 2025 financial results conference call. On the phone today are Ken Moelis, Chairman and CEO; and Chris Callesano, 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 & 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, 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.
I will now send the call over to Chris, to discuss our results.

Christopher Callesano

Thanks, Matt. Good afternoon, everyone. On today's call, I will go through our financial results, and then Ken will comment further on the business. We achieved revenues of $307 million in the first quarter, representing an increase of 41% over the prior year period. The revenue increase is attributable to growth in M&A and capital markets versus the prior year period.
Moving to expenses, our first quarter compensation expense ratio was 69%. As the year progresses, our compensation ratio will depend on the trajectory of revenues and the pace and magnitude of hiring throughout the year. Our first quarter non-com ratio was 19%. The quarterly year-over-year growth in non-compensation dollars is primarily attributable to increased costs associated with our investment in client conferences, many of which occurred during the first quarter.
As indicated previously, we currently anticipate the full year growth of non-compensation expense to be approximately 15%. Moving to taxes. Our underlying corporate tax rate was 29.5% for the quarter before the discrete tax benefit related to the vesting of equity awards. Adding in this discrete benefit resulted in an overall net tax benefit for the quarter. Regarding capital allocation, the board declared a regular quarterly dividend of $0.65 per share. And lastly, we continue to maintain a strong balance sheet with no funded debt.
I will now turn the call over to Ken.

Kenneth Moelis

Thanks, Chris, and welcome to your first earnings call as CEO, CFO, sorry, not CEO. As we finished the first quarter, we had record new business origination and a record pipeline. Our go to market, including the maturation of our investments in tech and energy, are extremely strong, and we finished the quarter with a very bullish point of view for 2025.
However, the new wave of volatility introduced into the capital markets post April 2nd has definitely slowed M&A transaction activity. Although the scale and time frame is hard to predict, we believe this is a temporary phenomenon, and we are planning our business accordingly. The silver lining is that no matter the outcome, our clients will need strategic advice, and we turn to our team to help them better understand their capital needs and how they can adapt or transform their business models.
We continue to invest in the growth of our private funds advisory business. Following the announcement earlier this year of a senior banker to lead the team, we have a robust pipeline of additional senior talent and expect to have more news on that in the coming weeks. Private capital solutions and continuation vehicles will continue to be an important liquidity tool for sponsors, and our goal is to be the market leader in the space.
We also remain focused on adding talent to fill other areas of strategic importance to the firm. Technology focused managing director based in Europe recently joined the firm and one focused on business services in Europe will also join shortly. We're optimistic about the road ahead and are well positioned. Remember, there are no tariffs on relationships and the world class advice we deliver to our clients every day. We have no debt and a strong cash position. And our talent, breadth of experience, and culture of collaboration are stronger than ever before.
And with that, I'll open it up for questions.

Question and Answer Session

Operator

(Operator Instructions) Devin Ryan, Citizens JMP.

Devin Ryan

First question, Ken, great to hear about obviously the backlogs where they are right now and appreciate we're in a pretty uncertain moment here. So I guess there's still a little bit of TBD on the year. But I'm curious, just with the backlog, at what point do they get canceled versus just pushed out? And I guess I'm just trying to think through, there's a lot of competing forces here. Sponsors have a lot of pressure on them to do something with kind of the long duration of their portfolio today.
So it feels like there's a lot of pressure there. At the same time, volatile asset prices make it challenging. So I just love to get a sense of how the backlogs kind of move from here and what potentially would cancel them, if at all?

Kenneth Moelis

It's a tough question to answer. It's a very specific policy dynamic that's going on right now. The reason I believe it's temporary because it's in the control. I'm not saying it might not work out to be exactly what the markets want, but it is in the control of the administration. Whereas I look back to prior problems like COVID and even the GFC back in 08, they seem to be outside the control of an individual, COVID definitely was.
We didn't know what was going to happen, and it was very hard to know when the end would come. We've lost some from the quarter end backlog that I talked about, we have lost some. Strategic are -- might be quicker to put down their pencils on supply chain affected transactions. Sponsors will put things on hold. I think the go to market on sponsors that need liquidity are probably timing.
Those -- you can't hold them forever. The sponsor liquidity backlog has been there for a while, and people are going to have to push the market. So I'd say the majority of those, I think, are on delay and pushback just because they have to be. But there are some transactions that have gotten shelved. And we do -- we no longer have them in backlog.
So our backlog is down from 331 as a result of it, and it's really hard to say what the effect of the day-to-day volatility. You have two things, the policy volatility and in the market volatility in pricing, interest rate volatility. So that's all taking a toll on it. But for now, we've lost some, but I would say the vast majority are in pushback, I think, or time frame pushback.

Devin Ryan

Yes. Got it. Okay. Thanks Ken, really helpful. And then just a follow-up on the restructuring business. Just great to get a little bit of a maybe flavor for what you guys are seeing there, kind of whether there's been any tone shift just with some of the uncertainty in the markets. Anything around tariffs? I'm not sure if anything has changed there. And just the trajectory of kind of new mandates coming in, in that business as well. .

Kenneth Moelis

I think, again, the first quarter, it's a tail. Remember, the tariff thing was April 2. So you sort of have a first quarter in which you were going along in a different world than the next two or three weeks before this call. So I'd say the first quarter restructuring was kind of flat. It was what we were expecting, which was there's a good economy, the strong consumer, interest rates seem to be coming down.
So we weren't expecting a big year out of restructuring. Now you're talking about a two-to-three-week period since then in which, yes, there are lots of conversations starting to develop about things that might happen but haven't happened but could happen. So that conversation is picking up. Have there been a substantial increase in mandates due to events around April 2? I'd say no, I'd call it an increase of significant conversation.
More so, I think it's in the capital market side where people are, -- companies are trying to figure out if they've got to fund inventory purchases, supply chain transactions that have tariffs associated with them. So working capital financing has gone up. They have to actually finance the acquisition of supply chain goods that might have gone up a significant amount due to tariffs, et cetera.
I think there's almost been more conversation around financing options than this idea of going straight to restructuring. And that's why we kind of combine the two when we talk about it, because they kind of subsume each other. And that's where we are, I think, where financing is probably the primary thing being talked about, not quite yet to restructuring.

Operator

Kenneth Worthington, JP Morgan.

Ken Worthington

Hey, great. Good afternoon. Thanks for taking the questions. Ken, I would love to hear your thoughts when thinking about the volatility and the impact, looking at things three ways. One is sort of geographic, US versus Europe and Asia. Any sort of differences that the volatility has sort of brought out? I know it's really recent, but thus far, sponsor versus non-sponsor and then big versus small, what your guess is.
What's sort of more resilient, what's more vulnerable? What are your thoughts? And to the extent you've heard, what have you heard?

Kenneth Moelis

And Ken, I think what you're asking me is post April 2, right? Because they're two different environments.

Ken Worthington

Post April 2, yes.

Kenneth Moelis

So look, I actually think -- again, I always say the US is the most dynamic market, but I think Europe is an interesting market post April 2. They've been less effective. They're trading better. They don't have some of the supply chain issues. So I think transactions in Europe haven't hiccupped as much. There are obviously less transactions to begin with, but they're not directly in the line of fire right now.
And there have been some indications that the economies in Europe are going to spend some capital and take some actions that I think could be actually positive for Europe. So I'll say that. That's a three-week read. Remember, I'm reading the tea leaves while they're still falling off the tree, I would say. Asia, I haven't seen. Obviously, China, Asia is going to be very different.
And I don't know that I have enough an update to tell you what happens to Hong Kong, Asia. Japan, Asia, by the way, seems pretty -- there's a lot of optimism around Japan as a market. But again, we're early on, and I assume China is going to be -- there's going to be -- without resolution, there will be a lot of difficulties out of China. I know you said big versus small. What was the second...

Ken Worthington

Sponsor versus non-sponsor.

Kenneth Moelis

I think if you're, -- it depends on the sector, right? If you're American based, if you're not a supply chain-oriented transaction. A lot of that's going forward. There is a lot of financing available. The private credit is out there looking to put capital to work. The bank market, little more difficult, but private credit is out there. And if you have a health care business in the United States, it's not affected by supply chain, you're probably going to get your transactions done, and that's both strategic and sponsor.
I would actually think that it's more of what sector you're talking about than strategic versus sponsor? Are you affected? And when I say affected, I think there are people now trying to figure out kind of third derivatives. If there's no containers shipped for another month, because of the tariffs, you're starting to think of second and third derivatives.
So I think the effects might get more widespread than people think. But right now, I don't see a big difference in those so long as you're talking about the effect of the supply chain. And I would say that kind of goes to your big versus small, which it's very hard to have. You don't have a lot of big companies that don't have a supply chain that is complicated.
But just by the characterization of being large companies, they have a very good chance of encountering a supply chain issue that would cause a transaction to go on hold. And I think it's because it's such a digital outcome on the policy that it's very hard to underwrite. People companies and sponsors can underwrite uncertainty, but not when it's digital and in the total outcome of the administration, I think.
So yes, a lot of those are going to go on hold. And it's going to it really starts with easier supply chain effect -- are you affected by the supply chain? I think that's where it breaks.

Ken Worthington

Okay, great. I feel like that was three questions. So I won't be take. I'll be queue. I appreciate it.

Kenneth Moelis

Thanks.

Operator

James Yaro, Goldman Sachs.

James Yaro

Hey, good afternoon. Thanks for taking the questions. So I just wanted to touch again quickly on CEO confidence. Ken, you've been through plenty of cycles and so you've seen various exogenous shocks. Maybe you could just help us think about how long it has taken on average perhaps in historic episodes that you think are most similar to this with the sort of [exogenous] shock before CEOs come back to the table and engaging M&A transactions.

Kenneth Moelis

Well, I'm trying to -- I'm now trying to think of a good analogy. You're supposed to have a 40-year history and come up with a great analogy. And I don't have a great one because the last two or three I remember or COVID, regional banking, even the Fed hiking interest rates at the GFC before that. And you can even go back to some of -- let's say, I remember when the Iraq war shut down it. People were out on roadshows and you kind of blew a whistle and said, everybody come back home.
This was not, by the way, this was the first Iraq war, and you just signal out, everybody come home. There's nothing to do until we figure out what's going to happen here. But that was a more complicated decision. I really believe this -- my gut on this is it will be short, sharp because there will be a policy outcome. That policy outcome could be very negative, or it could move on very quickly.
And I think it's in control, right? We're not waiting to see, is COVID a disease that will rampage throughout the plan and have no solution. We're -- we sort of have people could call it off tomorrow if they wanted to, right? You go back almost with some shocks to the system. So it is a directed policy decision. My belief is that if you tell me somebody stopped their fingers and all of the policy was settled, I believe M&A would return very rapidly, very rapidly.
People have growth plans. They have strategic things they want to affect, even what I just talked about, about our own firm. I mean, we have a deal slowdown and yet we are very actively hiring in private capital advisory. We are hiring into our -- we are hiring into a world that is going to be very active in M&A. And I think that tells you what I think about the world.
Don't look what I say, look what I do. And I am going to continue to put together a team that is ready to advise as soon as this policy situation is over. Because I think it will snap back pretty quickly to an active deal market where people will want to execute on their plans that they've been waiting to execute on and got disrupted. So I think it will be pretty quick is the answer.

James Yaro

Okay. That's super clear. Maybe just another one on restructuring here. So within restructuring, you've seen a lot of the activity over the recent years be driven by liability management. I think a significant portion of that has been refinancing of a sponsor portfolio company debt stacks. So let's just say we do end up with a harder landing. How would you think about the trajectory for restructuring revenue?
Obviously, liability management exercises are shorter in duration, and chapter 11 and traditional bankruptcy are longer, and the fees are back-end weighted. So how would you think about the path for restructuring in a weaker economic scenario, if that's what we end up with?

Kenneth Moelis

Yes. I think a lot of it would be liability management. I believe as opposed to the restructuring environment, let's say, you go back 10-years ago in the GFC and there's so much more equity inside of -- in most sponsored deals now have more than 50% of the purchase price in equity. It just leaves you a lot of value to go to private capital or alternative sources and structure some pretty interesting securities to extend out the runway and try to figure out, is this a temporary shock to the system?
And as I said, everybody would prefer high-cost debt to Chapter 11. There's no choice between those two. And I just think that you don't have an over levered -- when I say you don't have an over levered balance sheet, you might have leverage vis-a-vis the cash flow, but some of these companies were valued at 15 times to 18 times EBITDA. So they may have cash flow difficulties, but the valuation, the amount of equity put in under the value, I think, will be -- make liability management a very interesting part, and that will be where all the activity is, I think.
Unless you have a tremendously unexpected continuation of tariffs that are so difficult that it actually does disrupt the whole global order for a long period of time. That would be the alternative that we really do have a long-term, very punitive tariff system that really -- that is -- really does disrupt American business. I don't expect that.

James Yaro

Okay. Super clear. Just one ticky-tacky one. Do you -- could you give us the split of revenue this quarter, perhaps across M&A, cap markets and restructuring?

Kenneth Moelis

It's about 2/3 M&A and 1/3 cap markets and restructuring. And again, I'm going to combine those 2 because they really are a blindable item.

James Yaro

Thanks so much.

Operator

Brendan O'Brien, Wolfe Research.

Brendan O'Brien

Good afternoon. Thanks for taking my questions. I just want to talk about the recruiting backdrop. I know that recruiting this year was expected to be focused on the build-out of your private capital advisory team, which it sounds like you're off to a good start on. But given activity at the start of the year has been a bit slower. I just want to get a sense as to whether you're seeing any improvement in the recruiting environment and whether you might look to lean in more aggressively than you expected at the start of the year.

Kenneth Moelis

Again, you're talking about a three-week period. And so because the first quarter, I think everybody is pretty bullish. It was going to be a great year for everybody. I haven't seen a dramatic change in the last three weeks. I think it would be too soon for almost for me to see it. But we're seeing good talent. I think, again, one of the things I always talk about is we are an unlevered company with a lot of excess capital.
Most of the big banks are very heavily levered whether, -- they are deposit institutions with 9:1 leverage. And so I do think as -- if the world stays this volatile, I continue to be -- I believe the talent will leave 9:1 levered institutions that have mismatched deposits versus assets and liabilities and are very shaky in a volatile -- I think people have learned that no matter what you're told, those balance sheets are not as clean as they're portrayed in a shaky, volatile world.
As I said, if you were 10:1 levered right now, I don't know any asset that I own that's not down 10% since April 2. So you'd have to wonder about how you can be 10:1 levered and say -- and be confident in your balance sheet. So I think we'll be the beneficiary of that. It's one of the reasons we keep a very strong balance sheet.
We know it's attractive to that banker that is looking where to place their lifetime, their family and their lifetime future career. And I think more and more people look at it and go, yes, that's where I want to be. So we keep -- that's one of the reasons we do keep our balance sheet so strong. And so I don't see a big change right now. We're going to go after the private capital advisory situation very hard.
We'll fill in, but we're always planning on filling in some of our other places, but you'll see us be strong in private capital. And I think we have a good line of sight into some very strategic hires right now that I can't talk about.

Brendan O'Brien

That's great. And then for my follow-up, I just wanted to touch on the comp ratio. I understand there's a lot of unknowns at the moment and the accrual is at a reflection of like the bifurcated potentially outcomes of this year. But I was hoping you could help us or help frame how to think about the level of revenue growth needed to keep your comp ratio flat year-on-year or maybe like what the breakeven point is.

Kenneth Moelis

I'm going to try to stay away from the algorithm. Last year, we were at a point where we had invested a lot in the tech group, and we have made so much investment. We had to give you a road map, and I was very nervous that we've given you the right road map because there's so many movable things. So I want -- I'm not going to try to get back into that because it will, how fast we hire people, how long this stays, how rapidly -- if this is a six-week downturn.
And then it rapidly springs back like I'm saying, I'm going to continue to build pretty significantly for what I think are a strong next 12-months is really what I want to do anyway. I think it's just too volatile, and there are too many moving parts for me to give you an algorithm. But our intention is to get the comp ratio down while building a great business. And that is, -- I just don't want to get caught into some algorithm that doesn't match the opportunity or the volatility inherent in the market.

Operator

Mike Brown, Wells Fargo Securities.

Mike Brown

Hai. Great. Thanks. Good afternoon. Ken, I just wanted to dive into 2Q here. We're just a few weeks into the quarter. Certainly a much more volatile environment. Can you maybe just give us a little bit of views into the quarter relative to 1Q? It's not easy from really anyone's perspective, but maybe you can shine a light on to how to think about the revenue potential just based on either what you can see in terms of the deals that are set to close and which ones you maybe have some greater confidence in, the contribution of non-M&A. Just some color relative to Q2 would be helpful as we think about the near-term. Thank you.

Kenneth Moelis

So things -- we're getting pushed out. Some things are getting delayed that we thought would be in Q2, and we don't think. And then there are some that are dying. Like I said, our pipeline is down, not dramatically, but it's down from March 31. Interestingly, there are some things that were announced and are in the process of closing. So it's not like there's a shutdown on the quarter.
But the quarter we're having trouble getting our hands a lot exactly when things we thought were going to get pushed in the market are going to go to market. It's difficult for us to know that as well. So I would just say it's -- things are being pushed out. It's not -- I don't look at it as, -- it's not horrible. It's not as bad as the volatility of the market, which would imply in terms of just how difficult it is for people to understand what's going on.
Because again, things that were announced during the first quarter, we'll close in the second. But there's many things getting pushed out. So I'm going to leave it at that, which is I don't think it's disastrous, but it's not as good as I was hoping it was going to be.

Mike Brown

Okay. Yes, that's fair. Wanted to maybe follow up on the talent question. So with this M&A upswing being pushed out, perhaps this tariff related turmoil is quick. But if it's not, and the eventual recovery is kind of slower with more fits and starts and maybe just a bit weaker overall or more spread out. What I'm interested to hear about is how do you think about protecting the margins, investing in the talent, building out the private capital business?
What do you do in terms of retaining talent? Do you take a closer look at the mix of talent that you currently have and what the opportunities are? And do you kind of reassess or maybe do some rightsizing? Just maybe talk through that a little bit for us. Thank you.

Kenneth Moelis

We would look at all the above, which we do look at every year. We do believe that the private capital, -- by the way, I think we're transitioning the name. So it's private funds advisory. We're thinking of transitioning the names. These names get confusing, but it is the group that does the secondaries. And I think that's an important part of the world, by the way. So we're not going to slow down.
We think that is key. And maybe even at the M&A environment in the IPO market gets more difficult, like you said, if you think they're going to be in a difficult mode, you want to have that asset, that expertise in go to market. So that's very important. And then we're going to fight to keep all our good talent.
We think in the last couple of years, what we did in technology and energy and then our existing people in -- and by the way, in industrials, we hired some great people, our media, our health care franchises. We're extremely happy with where the fourth quarter came in, where the first quarter was trending to, up 40%. What are we up? 41%, I think, was the number.
Those are not bad numbers. If policy event didn't happen on April 2. And you can't put it on the sidelines and come back and just say, everybody come back. We sent you out for a vacation. We put together an extraordinary go-to-market team, and we're going to protect it unless we see something that is so awful that we think it extends out over a period of time.
And I can't imagine that a policy decision over tariffs is that idle. This is not a world war, maybe a world tariff war, but it's not a -- I believe it is a policy issue that's going on and not a fundamental degradation of business and especially the transaction business.
Okay, great. Thanks for taking my questions, Ken.

Operator

(Operator Instructions) Ryan Kenny, Morgan Stanley.

Ryan Kenny

Hey, good afternoon. Thanks for taking my questions. I want to follow up on the comp ratio discussion earlier. Understand that you're not giving us a formula this year, which makes a lot of sense given the uncertainty. But can you just clarify, was the 69% in the first quarter based on your revenue assumption for the full year as of March 31? Or is that your current expectation? If this environment persists, is it fair to assume that could go up for the rest of the year?

Kenneth Moelis

Yes. So I'll have Chris answer. But my understanding is the requirement is you take your best efforts, guess and that's what that on revenue and estimate for the year. So Chris?

Christopher Callesano

Yes. I mean 69% for the quarter. It's our best estimate for the second quarter and the full year at this time. As Ken said, it's dependent on the trajectory of revenues and the hiring as we make investments in strategic areas like private funds advisory. But yes, it's our best estimate currently at this time.

Ryan Kenny

So it's your best estimate after the tariff announcement, not as of March 31.

Christopher Callesano

Yes.

Kenneth Moelis

Yes. It's our best estimate given everything we know, and it includes even a pretty good hiring. We want to hire into private funds advisory. We know that so we included that in there. And things may change, but that's our best estimate given all the elements that we know and hope to succeed on and the liberation day event.

Ryan Kenny

All right, great. Thank you.

Operator

Ben Rubin, UBS.

Ben Rubin

Hi. Thanks for taking my questions. Last week, you announced another senior hire for your tech franchise over in London. So I'm just curious, what are you seeing from the tech team that you lifted out in 2023? Have they been performing better or worse than your original expectations? And maybe how does their productivity compare to your broader M&A business at large? Thanks.

Kenneth Moelis

Thank you for that question. The tech team has been a stunning success. Now I don't want to tell Jason that it's better than I expected because then he'll think I thought he wasn't a good guy. I thought we hired a great team, and it's been a great team. And I wish we didn't have the April 2nd event because I think it would have shown how successful an operation that was.
And by the way, the same with the energy. I think people -- we quietly have hired a significant energy team that has an incredible backlog and is making real gains there as well. But the technology has been just a phenomenal addition. And what it's done is, again, in the sponsor world, we want to be important to sponsors. We want them to think, okay, is Moelis showing us their best and we've given them enough?
It's kind of a bilateral trade, right, I'll bring the trade agreement into this, with sponsors and advisers. Like are we showing you too much good? I should get Trump in here to negotiate for me. But are we showing you too many good ideas and you're not giving us back enough? And that kind of goes on, it's trade. And what the tech team does has added like 6,000 or 7,000 calls, idea calls where we're in the -- over and above everything we were doing.
So if we were important in the halls of sponsors, prior to that, not only are they producing significant revenue backlog, but they're also improving everybody else's impact at the sponsor level. So it's been phenomenal. So energy is doing the same thing. So it's been, if I had to admit it, it's been even better than we thought when we did it.

Ben Rubin

That's great to hear. I'm not going to ask explicitly about the comp ratio but is there any chance you could share the dollar impact to comp expense in the first quarter from the accelerated vesting of retirement-eligible bankers?

Kenneth Moelis

Maybe, Chris?

Christopher Callesano

Yes. I mean I think you're going to see that in the 10-Q. So the Q1 always has a higher fixed comp ratio due to the retirement-eligible equity hitting all in Q1. I would say it's about double the expense than a normal quarter. And so we also accrue an incentive comp, right? It just means that there's a higher proportion of fixed comp versus variable comp in the first quarter. And we balance it out over the year.

Ben Rubin

Great. Thanks, Chris.

Operator

And there are no further questions at this time. I will now turn the call back over to Ken, for closing remarks.

Kenneth Moelis

Thank you. A pleasure to be with you. It was the first time I think we were first to go. And I think with the everyday you want to be later and later, maybe there'll be a resolution before some other people tell you what's going on in the world in the whole tariff war. But look forward to seeing you, and hopefully, we'll have this all behind us and talking about some brighter future. Thanks.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.