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Edited Transcript of MC earnings conference call or presentation 30-Jul-19 9:00pm GMT

Q2 2019 Moelis & Co Earnings Call

New York Aug 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Moelis & Co earnings conference call or presentation Tuesday, July 30, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joseph Walter Simon

Moelis & Company - CFO

* Kenneth David Moelis

Moelis & Company - Chairman & CEO

* Michele S. Miyakawa

Moelis & Company - MD

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Conference Call Participants

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* Brennan Hawken

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Financials

* Devin Patrick Ryan

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* James Francis Mitchell

The Buckingham Research Group Incorporated - Research Analyst

* Jeffery J. Harte

Sandler O'Neill + Partners, L.P., Research Division - Principal of Equity Research

* Kenneth Brooks Worthington

JP Morgan Chase & Co, Research Division - MD

* Manan Gosalia

Morgan Stanley, Research Division - Equity Analyst

* Michael C. Brown

Keefe, Bruyette, & Woods, Inc., Research Division - Associate

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Presentation

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Operator [1]

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Good day and welcome to the Moelis & Company Second Quarter Earnings Call and Webcast. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Ms. Michele Miyakawa, Head of Investor Relations. Please go ahead.

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Michele S. Miyakawa, Moelis & Company - MD [2]

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Great. Thank you, and good afternoon, everyone. Thank you for joining us for Moelis & Company's second quarter 2019 financial results conference call. On the phone today are Ken Moelis, Chairman and CEO; and Joe Simon, Chief Financial Officer.

Before we begin, I'd like to note that the remarks made on this call may contain certain forward-looking statements, including regarding future performance, which 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. 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 or non-GAAP 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. A reconciliation of these adjusted financial measures with the relevant GAAP financial information and other information required by Reg G is provided in the firm's earnings release, which can be found on our Investor Relations website at investors.moelis.com.

I'll now turn the call over to Joe.

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Joseph Walter Simon, Moelis & Company - CFO [3]

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Thanks, Michele, and good afternoon, everyone. On today's call, I'll go through our financial results, and then Ken will discuss our business further.

We recorded $154 million of revenues in the second quarter, down 30% from the prior year period but up 11% sequentially. This compares with the overall M&A market in which the number of global M&A completions greater than $100 million declined 22% from the prior year. While our M&A-related activity was down for the quarter, our restructuring business continued to be a strong contributor. In the second quarter, Moelis was ranked #1 in global and U.S. restructuring completions by value.

Moving to expenses. Adjusted compensation expense was accrued at 52.4%, and our first half 2019 ratio was 58.3%. Our quarter 2 noncompensation expenses of $35 million were down 4% versus the prior year period. At the current head count levels, we expect our quarterly noncompensation expenses to be near our underlying run rate of $37 million to $38 million next quarter. Going forward and likely starting in the fourth quarter, we expect our underlying noncompensation expenses to increase to $39 million to $40 million per quarter. The increase is the result of taking more space in our New York City headquarters and building it out to support our growth.

Our underlying corporate tax rate is 25.1% before the $8.6 million discrete tax benefit related to our equity compensation award deliveries. Including the excess tax benefit, we reported an effective tax rate of 3.1% for the quarter. As a reminder, our adjusted net income presentation reflects all the firm's income tax at our calculated effective corporate tax rate.

Lastly, regarding capital allocation. Over the last 6 months and including today's declared dividend, we will have distributed over $200 million to shareholders through buybacks and dividends. We repurchased a little more than 350,000 shares during the quarter, which when added to the first quarter activity aggregates to a little more than 970,000 shares bought back this year. This helped contribute to a sequential decline in diluted weighted average share count for the quarter. We ended the quarter with a strong financial position with no debt and $108 million of cash and liquid investments.

I will now turn the call over to Ken.

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [4]

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Thanks, Joe, and good afternoon. Looking ahead, we feel confident about our business given our activity levels across all of our products. As we stated on our last call, we expect our second half performance to be much stronger than the first half of the year. Our strategic dialogue with both middle-market and large-cap companies is robust; and financial sponsor coverage, which has been an important pillar of our business since our foundling, continues to drive M&A, restructuring and capital markets activity. Restructuring continues to be a major contributor, achieving year-over-year growth in the second quarter. For the first 6 months, Moelis was involved in 7 of the top 10 global completed restructuring transactions.

Our outlook is positive on the macroeconomic environment, and the Fed's recent reversal in policy with potential cuts, starting maybe tomorrow, will both extend -- we believe will both extend and amplify the current M&A cycle.

We are well positioned given our ability to collaborate and deliver diverse resources from around the world to our clients. This is a unique differentiator to our platform and combined with the leading restructuring franchise creates a powerful model. We also have a healthy pipeline of talented external bankers to fill a large amount of white space across many of our sectors. Since our last earnings call, we announced the veteran Managing Director hire in the U.S. will enhance our Houston oil and gas expertise. And with talent development a core focus, we also currently have a large internal pipeline of future Managing Directors already excelling on our platform.

In conclusion, we're encouraged by the increased pace of client activity we have experienced in the past several months. By remaining focused on our #1 goal, which is servicing our clients and building long-term relationships, we will continue to execute on our organic growth strategy.

And with that, I'll now welcome any questions you have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Ken Worthington with JPMorgan.

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Kenneth Brooks Worthington, JP Morgan Chase & Co, Research Division - MD [2]

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Two questions for me. I'd say, first, given the industry has seen weaker activity in the first half, does that, in any way, make it easier to hire experienced talent? Or because of deferred comp, et cetera, does it really make no difference at all that the first part of the year was so weak and maybe bonus accruals are down early in the year?

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [3]

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Is that -- I thought you have 2. Should I wait for your second? Or is that both of them?

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Kenneth Brooks Worthington, JP Morgan Chase & Co, Research Division - MD [4]

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That's one, and I got a completely different one for #2, but...

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [5]

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Okay. Let me start with that. So it's a good point, Ken. I think if you go back 9 months ago, we actually expected a slightly different world than we're facing today. The fourth quarter was sharply down in the stock market, and the Fed was saying they were going to raise rates. And we probably felt like we would see a -- an opportunistic time to hire. I think the -- I've been in the business 40 years, I'm not sure I've ever seen the Fed change direction 180 degrees as fast as they have. So I think the -- there was a weak beginning, but I think there's a lot of optimism going forward. And so we are we seeing it kind of balance out that -- look, it's probably why we got off to a bit of a slow start because -- on hiring externally. We thought we might have, with the Fed raising, a chance to hire a lot as an opportunistic time. That has changed and I think it's -- we're kind of balanced. I believe there are some companies having issues making people available, and -- but the general industry, I think, is looking forward and seeing a pretty optimistic M&A market.

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Kenneth Brooks Worthington, JP Morgan Chase & Co, Research Division - MD [6]

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Okay. Okay. Fair enough. And then -- and I'm sorry, this is sort of a sell side-ish question, so hopefully you can adapt to it. The first half of the year is weaker in terms of activity levels relative to prior years for you, industry, et cetera. To what extent are the deals in business that didn't happen in the first half of the year? Are those actually recoverable in the second half of the year? So if the first half of the year was weaker, does the second half of the year, which is seasonally stronger anyway, become even stronger than it would normally be just because there's some like pent-up demand for M&A and deal activity? In other words, do you think you can make up what you've not had in the first half of the year by seeing those transactions kind of come to market in the second half of the year? Do that sort of makes sense? I'm sure you don't think about it that way, but we modelers I think do.

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [7]

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Okay. So there's a couple answers. There are some specific deals you can't make up. They either went a different direction, or on a specific thing, it's deal by deal. I do think that in a better environment things accelerate faster than you think. It's -- when people see the downside and you're looking at stock markets off 20% or 15% in the first -- fourth quarter and the Fed raising, I would say this, people who are in the middle of a deal. There's always a bump in the road in a middle of the deal, right? There's never a deal that goes completely smoothly at that. When things are kind of negative, that pebble becomes a boulder; and when people are optimistic, boulders become pebbles. And people just go through them and find ways. And I find right now you are -- we are finding deals that when they hit their bump right now, people want to get around it. They have optimism. And I don't know if that answers your question, but I do think you can see an acceleration. But that doesn't mean an individual deal that didn't happen comes -- have to come back. It's just that, in the aggregate, I think you'll see more transactions reach the finish line, and it could accelerate. I'm starting to feel that with, again, with the indications by the Fed, stock market where it is, I think you could see an acceleration of that part of the market.

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Operator [8]

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Your next question comes from Michael Brown with KBW.

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Michael C. Brown, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [9]

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So I just wanted to dive in a little bit deeper to kind of your expectations for kind of the back half. So I understand the results are idiosyncratic, but we've heard some commentary from peers that July has been off to a strong start. We've also heard from some management teams that they're expecting a stronger fourth quarter. So could you kind of give us a rough guide as to how you think about the difference between the third quarter and the fourth quarter? And I'm sympathetic, obviously, there's deal closing dates that can shift, but any color there would be helpful.

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [10]

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Look, that's really hard to do. And always -- the third quarter, if I have more visibility, even the fourth quarter, but the world's getting better. It seems like animal spirits in the world, and the desire for people to do transactions is improving weekly I'd say or marginally every week. So I could see the fourth quarter being stronger. We see a very strong second half, but dividing it up into quarters is such a tough -- it's just a -- it's a game I don't want to play because it's almost impossible to get it right.

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Michael C. Brown, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [11]

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Appreciate that. And then in the press release, there was a reference to a clawback benefit this quarter. Could you just share a little bit more color about that transaction? And is that something that was just a one-off. I'm just trying to understand that a little bit better.

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [12]

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Joe? I'll turn that over to Joe.

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Joseph Walter Simon, Moelis & Company - CFO [13]

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Sure. So this just goes back to our clawback policy for Managing Directors who go to compete. So we have one Managing Director who left. The clawback amounts come back, some in the form of income, some in the form of forfeiture. But in the case of a clawback, those economics for our adjusted GAAP are basically reclassed from the other income line to a comp because the whole point of the policy is to recapture comp to hire a replacement.

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Operator [14]

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Your next question comes from Brennan Hawken with UBS.

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Brennan Hawken, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Financials [15]

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Ken, I think in your prepared remarks, you had indicated that you think a Fed cut would amplify the M&A cycle. So just kind of curious to get a little bit more color on that comment. It seems like most short-term rates such as LIBOR have already dropped. So simplistically, we think the impact of lower rates is already clear in the market, right, and wouldn't be a cut by a central bank run a risk of even weighing on some of the confidence that you see rebuilding. Can you maybe help me understand that comment a little better?

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [16]

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Well, I think going into the fourth quarter last year where we're seeing markets respond to a prediction of kind of 4 hikes, and you just saw everybody -- people worried about the economy. They were worried about relations. They worried about everything. The Fed reversal of, first, we're not going to raise anymore and then move into cuts, I think, has changed dramatically, valuations, confidence.

And you're right. A lot of that might be in there, so I might be stating the obvious that if they don't cut, you might undercut all the built-up confidence that they're going to try. As you said, it might be in the market, but by the way, there's been about a 20% rise in the S&P since the beginning of the year. Rates are lower. Capital is highly available. And Brennan, I agree with you that the rate cut might indicate that the economy is slowing. That might be true. But I will tell you that I think the underlying economy might be slowing generating that, but that means you still see companies trying to get larger takeout costs, executing on digitizing their processes and making the investments. And it doesn't hurt when the S&P is at 3,000 to get that done and rates are low. So yes, it might have been priced over the last 1.5 months, but that doesn't mean if the Fed doesn't do it, it might take priced out. So that's probably what I'm pointing at, is they're going to cut, which will confirm what the markets have been, I think, trying to discount, and that is good for M&A.

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Brennan Hawken, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Financials [17]

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Yes. No, that's really fair, Ken. Do you think that some of -- given the importance of rates such as LIBOR and some of the short-term rates that have kind of moved in anticipation of a more dovish central bank, do you think that, that might have -- has that contributed to some of the improvement that you've seen and you referenced that you're seeing week to week? Or is it a combination of financing markets and financing rates plus the animal spirits and the positivity from the market? Is it just a mix of these things? Or does one factor drive more than the other?

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [18]

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It's really nothing -- it's like you said, the level of rates isn't the key. I mean it's not that rates needed to go down 50 to make things work. It is -- and I think I said this on one of the calls 9 months ago or a while back. For the first time, we started to see about some time in the fourth quarter, let's say, financial sponsors putting in recession years into their models, which changes valuation pretty significantly. If you put 1 year, pick 1, that would be a recession. And all of a sudden, you can have bid/ask differentials.

I think a lot of people are starting to get the confidence that we may not have one. Maybe the Fed will aggressively lower rates instead of raise and cause one. Availability of capital when you raise rates will happen. The dollar might not -- the strength in the dollar has been a problem from -- for global companies and emerging markets. And I think all that plays in effect. The only one that I wouldn't say is, well, no, I mean I don't think people -- it's not the lowering of a coupon that makes the difference. It's the buoying of a market and maybe the Fed will get in front of a 2020 recession.

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Brennan Hawken, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Financials [19]

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Okay. Thanks for humoring the macro-oriented questions there. A quick one on the balance sheet. You guys have, as you referenced, a strong balance sheet. You got cash that's built from last quarter. But at this point, you guys have, I think, it's $108 million in cash in short-term investments, which versus the last 3 years is on the low end for how you normally have been running by 2Q. Is -- how should we think about the cash build in the year-end? And how do you guys think about the dividend, the regular dividend that you've set? It's at a decently high level versus earnings at -- and really, we've hit a soft patch, but it's still at an okay market cycle here. So how should we think about those things as both as we come in the year-end and maybe a little bit longer term, too? Should we think maybe the dividend is going to grow a little more slowly going forward?

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [20]

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Well, first of all, we're probably slightly low on cash. As I said, our first half hasn't been our best first half. We expect to have a very good second half, so we've not changed anything in response to a 3-month period and -- or short periods. We're not managing the company that way and -- but it does affect the timing of your buildup in cash. So we're expecting a strong second half.

On dividend, we feel very comfortable obviously. We've been doing specials. And I think we get $1.25 a special in the first 4, 5 months ago. So we've given back $200 million of our cash in the last 6 months. But let me be clear on this. We will not -- we do not want to leverage the balance sheet. We want to run with excess capital. We believe that opportunities present themselves very unpredictably in financial markets. We think those are unique opportunities, and we want to be able to grow and pounce on them and not be in a bad situation. So we will maintain a completely pristine balance sheet, and I think the cash will build quicker in the back half to the opposite of building slower in the first half.

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Operator [21]

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Your next question comes from Manan Gosalia with Morgan Stanley.

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Manan Gosalia, Morgan Stanley, Research Division - Equity Analyst [22]

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Sorry if I missed this. But do you still expect your comp ratio to be between 57% to 58% for the full year?

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [23]

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Yes, that's our target. We think we'll be able to -- we think, given a strong back half, we'll be able to maintain that.

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Manan Gosalia, Morgan Stanley, Research Division - Equity Analyst [24]

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Sure. So does that depend on revenues improving materially from here? Or would that be just a little bit of an improvement in the back half of the year?

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [25]

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Well, we think we have a strong back half of the year, so we're not worried about it. But that's our target, and we intend to keep it. And I can't do hypotheticals on every possible outcome, but we intend to keep it. I think it's -- and we think we can and we think we have a strong enough view on the back half to continue to target that.

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Manan Gosalia, Morgan Stanley, Research Division - Equity Analyst [26]

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Got it. And secondly, I know you mentioned there was a good quarter for restructuring and revenues were up year-on-year. I know you don't give a dollar number, but maybe you can talk about a range of what percentage of revenues came from restructuring in the first half of this year, and whether you're on track for it to be, I guess, another record year given that 2018 was a record year and revenues were up year-on-year.

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [27]

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They continue to be. I think we've given the percentages 20% to 25%, depending on specific quarters, et cetera. But it's -- figure it to be 20% to 25% of our revenue. And I think -- yes, I think this could be an exceptional year. I don't know if it'll be a record. But it's trending well, and I think it's in good shape to have a very good year.

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Operator [28]

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Your next question comes from Jim Mitchell with Buckingham Research.

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James Francis Mitchell, The Buckingham Research Group Incorporated - Research Analyst [29]

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Maybe a question on just dividend versus buyback philosophy at these levels. Is it -- is the focus here, with the stock where it is, more on the buyback as cash builds after the first quarter? Do we see that buyback pick up a little bit? How do we think about the pace from here?

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [30]

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As of right now, we have obviously, if you look at the structure of what we've done, we started to buy back and use our capital to do stock buybacks more aggressively than we've ever done. I mean we haven't really done them. We were doing specials. I think it'll be a blend, Jim, as to where the value and what we could do with the stock, what price and how quickly we build cash. But we'll make those decisions. But look, our goal is to return 100% of our excess capital and do it in a manner that we think is most efficient and not leverage the balance sheet, not get anybody -- make sure we're 100% able to take advantage of markets when they give us an opportunity. And that's as important as anything.

I think having been in this business for 40 years, markets show up and give you opportunities with no warning, and it pays to be liquid and able to take care of that and -- because they don't come again. As I said, we took advantage of the crisis to grow pretty quickly 10 years ago. I thought we haven't really had an opportunity like that in a while, and my gut tells me one might come. So we're going to stay pretty pristine.

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James Francis Mitchell, The Buckingham Research Group Incorporated - Research Analyst [31]

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Right. Fair enough. And maybe just sort of a big picture -- well, a bigger than bread box question around -- I'll try again what some others have tried. As we think about back half revenues, is there a shot -- I think most people are thinking it's -- you still have pretty tough comps year-over-year. Is there a possibility that it could be up on a year-over-year basis? Would you expect it to be down? Obviously, it's a little hard to tell as you get through the -- closer to fourth quarter, but just trying to think if there's any kind of how you're thinking about it, how we should think about the potential on the back half.

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [32]

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It's early to make that assessment, so I don't want to get -- look, that would be -- given the start, it would be quite an achievement. But look, we have a lot of good things going on here. And I don't want to discount it, but I also don't want to get everybody focused that, that's -- that would be a big, healthy climb given where we are, I'd say, to have it up year-on-year.

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James Francis Mitchell, The Buckingham Research Group Incorporated - Research Analyst [33]

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No, not for full year. I was just talking about second half, but right.

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [34]

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Oh, oh, oh, I thought you were saying for the full year.

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James Francis Mitchell, The Buckingham Research Group Incorporated - Research Analyst [35]

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No, no.

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [36]

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Yes, all right. Okay. Look, I want to stay away from that. That's -- look, let's just put it this way. We feel like we have a strong second half, and I think you're looking at year-on-year could we -- as I said, not just steep climb. Yes, that's -- but we feel very good about where -- our year. It's strong, and I don't want to get into it. We don't run the business on a 3-month basis, and it's too far out for me to project markets and all kinds of things. But look, we have a lot of activity, and I think we're back on stride to where we feel very confident we're going to be -- have a good year -- good second half of the year.

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Operator [37]

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The next question comes from Devin Ryan with JMP Securities.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [38]

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I hopped on a moment late here, so I apologize if this was covered. But just on the restructuring business, which continues to be a strong contributor, if the Fed were to cut 3 to 4 times as the forward curve is suggesting, would that relieve notable stress out there? Or the situations that you're seeing in restructuring right now not really being driven by the rate as much as maybe more structural business issues, so a little bit lower rates wouldn't probably change your outlook there too much.

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [39]

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Look, I'm not a macroeconomist, but I did stay at a Holiday Inn last night, so I'll try to answer your question. I think the forward curve is actually like 50 basis points, 2 cuts over the next year, not 3 to 4. But interestingly, I do have my own theory that if the Fed did cut 3 to 4 times, there will probably be a response to a much weaker economy than is being handicapped right now. And that much weaker economy tends to be in kind of the middle market, the Russell, where high-yield bonds are. And so it's an interesting world out there. I could see the Fed cut 3 to 4 times and have the S&P 500 respond pretty positively on just valuation to a very low 1% interest rate world. I don't -- I'm not sure you see the big caps respond poorly to that. But you might see a lot of stress in jump on land and middle-market companies that just don't have the same opportunities as, look, these large -- the large tech companies right now go from strength to strength every day, but I'm not sure if you're 5x levered. Looking forward, it's saying the Fed's going to cut rates 3 to 4 times, that's an economy that might not do great for you. So I think you could see both happen, a restructuring cycle in middle-market high-yield land and -- but not a bad reaction in S&P 500 bigger cap valuation world. So again, I think that's my guess. Take that for what it's worth. I'm not a macroeconomist.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [40]

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Yes. Well, it was a good macro answer, so appreciate it and obviously, a lot of experience in the business as well. So I guess the follow-up here would be just on sort of the ancillary advisory capabilities you've added in recent years kind of beyond M&A and restructuring. Obviously, there's been a big build-out. And just let me get a little bit more flavor for whether it'd be shareholder activism or some of the newer areas like data analytics, how those are driving business either directly or you feel like when you go in for a pitch, you're able to differentiate the firm. Any anecdotes or just thoughts there because, obviously, there's a whole slew of kind of newer capabilities, so just trying to think about how additive those are to the platform today.

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [41]

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Look, I think activism has become a cornerstone, and I call it the tip of the spear in a lot of places right now, which is a leading edge into the corporate Boards, and that's been very important. And we're spending a lot of time on it as a -- as that, which is, hey, it's what people become worried about 1.5 years before an M&A transaction happens or something happens and is often an introduction of the firm. I still think the thing we do best on this is deliver 4 or 5 Managing Directors because we're not on -- this runs 1 bonus pool structure. And I do think the complex, large cross-border transactions, when people get to see and we get to introduce the whole team, I think we stand out. And that's really where we're trying to do whether it be capital markets advisory, IPO advisory, then put somebody in from activism, fill our companies with divisions that we're working on, where we're doing transactions with parents, with divisions and restructuring. So we're doing M&A restructuring -- and the teams work together, and they work as one team. And people like that. They don't like the competition within silos at firms.

So look, that's where I think data analytics is early. We are starting to put together processes and ways to look at data that we think will help us be at the forefront of calling on clients and giving them information. But I'd say that's early. I mean we really just started that at the beginning of the year and more to be -- more for me to even discover on that as we go forward.

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Operator [42]

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(Operator Instructions) Your next question comes from Jeffery Harte with Sandler O'Neill.

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Jeffery J. Harte, Sandler O'Neill + Partners, L.P., Research Division - Principal of Equity Research [43]

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Just a couple of cleanups from me. Have you said or will you say what the current MD count is?

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [44]

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I think it's 129. 129.

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Jeffery J. Harte, Sandler O'Neill + Partners, L.P., Research Division - Principal of Equity Research [45]

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Okay. And you mentioned earlier about a tougher, maybe hiring environment with the forward optimism, and only announcing 2 hires year-to-date is historically slow for you guys. As we look forward, when you talk just a little bit about hiring appetite and the talent availability and I guess relative to at some point in time, are we looking at promotions becoming the main MD growth driver?

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [46]

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Well, first of all, let me clarify. I don't -- I didn't want to say it's tougher to hire MDs. I just said I thought there might have been an opportunity from the fourth quarter into the first that it would become a better opportunity, that there might have been a real opportunistic thing for an unlevered liquid company to step into the fray. I think the Fed put us back on same level, all right? It did not get higher. It just -- I thought there might have been an opportunity to -- again, to use our liquidity and the strength of our balance sheet if the world continued like it did in the -- looked like in the fourth quarter and the Fed raised rates into a week cycle. That didn't happen. I think we're at about the same as we were 12 months ago in terms of attracting people. We might have been weak in the first 3 or 4 months because of my view, look, I'll blame myself, that if the Fed continued to raise rates, we should probably wait and be more opportunistic. So I blame myself on that.

Right now we have a -- we've changed that over the last 3, 4 months. I mean we've gotten the message that the Fed's going to aggressively support the economy here, and we've got a pretty good backlog now. So no, the answer is there are that are people hireable. There are firms having issues, especially some of the multi -- the bigger financials who have issues and us -- European firms, et cetera. There is a lot -- there's availability. We are talking to them. And if anything, the slow start, I'll take the blame for it just for being a little conservative in the fourth quarter and the first quarter.

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Jeffery J. Harte, Sandler O'Neill + Partners, L.P., Research Division - Principal of Equity Research [47]

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Okay. Just expense outlook-wise, you mentioned the noncomp rate kind of ramping its way out toward maybe $40 million a quarter. How quickly should we expect that to happen? Is that going to be a step function in the fourth quarter or over multiple quarters?

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [48]

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I'll give Joe. Joe, would you take that?

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Joseph Walter Simon, Moelis & Company - CFO [49]

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Yes. So it's -- we expect it to happen in the fourth quarter because we expect to take possession of the space early in the fourth quarter, so that should be a step function, in your words. I think the important thing is, as you know, noncomp costs are driven primarily by head count. And I think the progress that we've made, if you look at last year, the first half, our quarterly cost per head was about $48,000 to $49,000. The average quarterly cost for the first half of this year is about $43,000. And going into this whole taking on additional space, it should come back to about $44,000 to $45,000. So we're getting pretty good leverage on our noncomp cost as we scale. And I thought it was important to -- and I think we are also quite competitive with some of our larger peers. Hope that helps.

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Operator [50]

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Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Moelis for any closing remarks.

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Kenneth David Moelis, Moelis & Company - Chairman & CEO [51]

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Thank you for joining us and look forward to talking next quarter. Thank you.

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Operator [52]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.