Moelis & Co Q1 FY2025 earnings call

• Record new business origination and a strong pipeline were noted at the end of the first quarter.
• Post-April 2nd volatility in capital markets has slowed M&A transaction activity, but it's considered temporary.
• Continued investment in the private funds advisory business, with a robust pipeline of senior talent expected in the coming weeks.
• Hired a technology-focused managing director in Europe and one focused on business services in Europe.
• Maintains a strong balance sheet with no funded debt.

Moelis & Company achieved revenues of $307 million in the first quarter, representing a 41% increase compared to the prior year period. This growth was driven by M&A and capital markets. The first quarter compensation expense ratio was 69%, and the non-compensation ratio was 19%. The year-over-year growth in non-compensation dollars was primarily due to increased costs from client conferences, with an anticipated full-year growth of approximately 15% for non-compensation expenses.

• The full-year growth of non-compensation expense is anticipated to be approximately 15%.
• Ken Moelis believes M&A activity will return very rapidly once the policy situation is resolved, as people have growth plans and strategic initiatives they want to execute.

• Volatility in the capital markets post-April 2nd has slowed M&A transaction activity.
• Uncertainty around policy-related factors (like tariffs) affecting supply chains and transactions, which could lead to transactions being pushed out or shelved.
• Potential for second and third derivative effects of policy volatility on business and transactions.

Q: What's the status of backlogs with the recent volatility?

A: Some backlogs have been lost, with strategics and sponsors putting transactions on hold or pushing them back, but the majority are in pushback or time frame delay.

Q: Thoughts on restructuring business?

A: First quarter restructuring was flat, with more conversation around financing options related to tariffs rather than immediate restructuring.

Q: How long until CEOs engage in M&A again after exogenous shock?

A: Ken believes M&A would return very rapidly if policy is settled, as people have growth plans and are ready to execute once the situation is over.

Q: Split of revenue across segments?

A: Approximately two-thirds M&A and one-third cap markets and restructuring, with them being blendable items.

Q: Recruiting environment and talent?

A: Talent will likely leave leveraged institutions, and Moelis is positioned to benefit, with continued focus on private capital advisory and other strategic hires.

Q: Views on 2Q relative to 1Q?

A: Deals are being pushed out, some delayed, but not disastrous, with things announced in 1Q closing in 2Q but many being pushed out.

Q: Protecting margins and retaining talent?

A: Will look at all options, continue investing in private capital business, and fight to keep good talent, with confidence in the long-term potential once policy is resolved.

Q: Comp ratio and revenue growth?

A: 69% comp ratio in Q1 is best estimate given current factors, with revenue growth and hiring trajectory affecting it.

Q: Impact of tariff-related turmoil on talent and margins?

A: If recovery is slow, will look at all options to protect margins, retain talent, and build private capital business.

Q: Dollar impact of accelerated vesting on comp expense?

A: Q1 has higher fixed comp ratio due to accelerated vesting, about double normal quarter expense, with balance over the year.