Moelis & Co(MC)Q2 2026 法說會逐字稿

Good afternoon, and welcome to the Moelis and Company Earnings Conference Call for the Second Quarter of 26. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. To begin, I turn the call over to Mr. Matthew Tsukroff. Please go ahead.

Afternoon, and thank you for joining us for Moelis and Company second quarter 26 financial results conference call. On the phone today are Navid Mahmoodzadegan, CEO and Co-Founder, and Christopher 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 and 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 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 Regulation G is provided in the firm's earnings release which can be found on our Investor Relations website at investors.moelis.com. Now I will turn the call over to Navid.

Thank you, Matthew, and good afternoon, everyone. Appreciate your being with us today. The second quarter was another strong period for our firm. We reported revenues of $409 million, up 12% year over year. For the first half of 26, revenues were $729 million, an increase of 9% from the prior year period. These results represent record revenues for both the quarter and the first half, driven by higher average fees per completed transaction and meaningful contributions from the businesses we have built and expanded in recent years. Collectively, our non-M&A businesses generated record revenues in the first half led by capital markets and the growing contribution from private capital advisory. Since our last earnings call, we have advised on a number of notable transactions. These include Taylor Morrison's $8.5 billion sale to Berkshire Hathaway, Magnolia Oil and Gas' $4.1 billion acquisition of Wildfire Energy, IQVIA's $3.8 billion sale to Eli Lilly, and Bridgepoint's acquisition of Kate Anderson Real Estate. Beyond M&A, we advised Office Properties Income Trust on a $2.4 billion restructuring, Carlyle on its continuation vehicle for content partners, and we served as active bookrunner and lead placement agent on a $1.1 billion IPO and concurrent private placement. Despite market volatility driven by the war in the Middle East, concerns about private credit redemptions, and the evolving impact of AI, client engagement and transaction activity has remained strong. At the end of the second quarter, our announced pipeline had increased over 80% versus the prior year period. In addition, new business origination accelerated in the second quarter and we entered the back half of the year with a record total pipeline. These factors support a strong outlook for the remainder of the year. Now let me turn to each of our businesses. In M&A, market conditions continued to improve in the second quarter. Accessible financing and strong equity market performance are supporting increased transaction activity, while the strategic need for scale and a more constructive regulatory environment are driving greater interest in larger transactions. This is evident in our performance and pipeline, which includes a higher number of opportunities advising larger-cap clients and substantially higher average fee opportunities. While industry-wide sponsor M&A activity has remained modest year to date, our sponsor business continues to perform well. In the first half, announcement activity in our sponsor M&A business grew meaningfully over the prior year period, and our overall sponsor pipeline remains strong. We are encouraged by this and are confident in our ability to support our sponsor clients across a variety of market environments, given our broad capabilities, including continuation vehicles and bespoke private capital raising. In capital markets, our expanded capabilities continue to drive meaningful growth. Our capital markets business achieved record second quarter and first half revenues, driven by constructive market conditions, strong demand for late-stage growth in pre-IPO financings, and healthy IPO activity. We remain active across the public markets with further activity expected later this year. At the same time, demand for hybrid and structured financing solutions is robust. To support this growth, we have continued to invest in our capital markets platform. On our last earnings call, we referenced two managing director hires, who have now joined our team. One brings deep expertise in debt capital markets and private credit. The second will help establish our securitization capabilities, expanding our offering into structured products and enabling us to provide clients with asset-backed financing solutions across the capital structure. Turning to private capital advisory, our PCA franchise was a meaningful contributor to our revenue growth in the first half of the year, and the team has momentum in deal completions and new client mandates. The market for GP-led secondaries remains very active, and its growth is structurally supported by sponsor liquidity needs and institutional investor demand for exposure to seasoned private market assets. To address this opportunity, we have aggressively expanded our GP-led secondaries capabilities, achieving critical mass with seven dedicated managing directors, including one MD who will be joining shortly. The team's early success is a testament to both the quality of talent we have hired and our collaborative model, where our sector bankers work closely with our PCA team to deliver exceptional client solutions. We are now expanding the business into complementary areas and have hired one managing director to launch our LP-led secondaries capability, and another to develop our promoted co-investment expertise. Both of these areas will be important in building a comprehensive platform that serves the full PCA ecosystem. In capital structure advisory, we enter the second half of the year with high levels of engagement. Liability management continues to dominate deal activity. And while well-positioned borrowers can still access capital, increasing lender selectivity is making refinancing more challenging for some highly levered companies. We are beginning to see AI create differentiation among software businesses, and we expect that demand for liability management as well as capital market solutions will pick up for certain companies as the sector continues to evolve. Combined with the strength of our technology franchise, we are well positioned to support our clients as their needs develop. In addition, we are expanding our CSA team with an MD hire who will further enhance sponsor and creditor coverage joining later this year. This brings me to our investment in talent, which continues to be one of our highest strategic priorities. To summarize, since our last earnings call, we have hired four managing directors which include the two PCA hires and one CSA MD already mentioned, and one MD in Europe focused on infrastructure. This brings our total lateral MD hires year to date to 12, in addition to the 13 internal promotions announced at the beginning of the year. Recruiting exceptional bankers is a core priority; we are excited about the quality of senior talent that is joining our firm. Finally, we continue to make meaningful progress deploying AI across the firm. These tools are becoming increasingly embedded in our workflows and are enhancing the quality of our client engagement. We remain optimistic that growing adoption of AI tools will increase the efficiency and productivity of our business. In closing, I am very pleased with the way our firm is performing, and I expect a strong second half of the year. With the best talent and most comprehensive capabilities across products and sectors in our firm's history, we continue to be focused on delivering exceptional outcomes for clients, executing our strategic growth priorities, and creating long-term value for our shareholders. With that, I will pass the call to Christopher to review our financial results in more detail.

Thanks, Navid, and good afternoon, everyone. As Navid noted, second quarter revenues were $409 million, up 12% from the prior year period. First half revenues were $729 million, up 9% year over year. Growth in current year periods was driven primarily by capital markets and private capital advisory, partially offset by declines in capital structure advisory. For the first half of the year, our business mix was approximately two-thirds M&A and one-third non-M&A. Turning to expenses, our adjusted compensation ratio for both the second quarter and first half of 26 was 65.8% compared with 69% in both prior year periods. As we have stated previously, we expect to make continued progress on our compensation ratio this year with the magnitude of improvement depending on full year revenues, senior hiring, and the competitive market for talent. Adjusted non-compensation expenses were $66.5 million in the second quarter, resulting in a 16.2% non-compensation expense ratio. For the first half of the year, our adjusted non-compensation expenses were $134 million, representing a non-compensation expense ratio of 18.3%. The main drivers of the expense growth in both the second quarter and first half of the year are attributable to increased business and client activity, including higher deal-related travel and entertainment, expenses associated with client conferences, and underwriting syndication costs from our expanding public equity capital markets capabilities. Additionally, we continue to invest in technology and data including AI, and increased occupancy to support the growth of the business. We expect our quarterly non-compensation expenses to be in the mid to high $60 million range for the remainder of the year. Our adjusted pretax margin was 18.6% for the second quarter and 17% for the first half of 26, an improvement compared with 17.6% and 16%, respectively, in the prior year periods. Our effective tax rate for the quarter was 29.1%, roughly in line with the second quarter of 25. Turning to capital allocation, the board declared a regular quarterly dividend of $0.65 per share consistent with the prior period. In the second quarter, we repurchased approximately 337 thousand shares on the open market at an average price of $64.43 per share. During the first half of the year, we have repurchased approximately 2.3 million shares through open market repurchases and net share settlements for a total cost of approximately $141 million. Including the dividend declared today, we will have returned approximately $246 million of capital to shareholders with respect to the first half of 26. And finally, we ended the quarter with a strong cash position of $481 million and no debt. With that, we can open the line for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Devin Ryan with Citizens Bank. Your line is open. Please go ahead.

Hey, guys. This is Neil on for Devin. My first question is on Moelis progressing upstream in deal size. So, obviously, you have had some increasing success when your role is on some of the largest strategic transactions, which appears to be becoming a more important part of the franchise. Can you talk a little bit about the key drivers of that progress and where you are focusing your efforts to sustain that?

Sure. Thanks, Neil. As I think most people are aware, the M&A market for the last several quarters has been geared more towards larger transactions. That is where much of the activity is, primarily in the $5 billion plus range. Interestingly, we noticed an upswing in that next tier down, the $1 billion to $5 billion range this quarter, both in market data and within our own practice. We are watching that, and I am optimistic it could signal an expansion of the overall M&A market into more of the middle market. We are more active than we have been historically on larger transactions. Part of that is because that is where market activity is, and part is the investment in talent we have made both laterally and from internal development. A lot of that hiring and the people who have joined our firm are maturing on our platform, creating critical mass in some of our spaces and enhancing and expanding our product capabilities. It is all of that coming together to support larger-cap, bigger-fee opportunities. On top of that, as an institution, I think we are doing a better job of focusing, organizing, and marshaling our resources around bigger-cap opportunities. I think it is a combination of the market, the maturation of the talent we have assembled at the firm, and organizational focus.

And then, for my follow-up, could I ask a question on the rising cost of senior talent? How is the increasingly competitive environment affecting your hiring plan? And what returns do you require when adding senior bankers? Are there particular industries, geographies, or products that you are targeting?

Sure. It is definitely competitive out there. The market for hiring world-class bankers across sectors and products is very competitive, and retaining our talent is also a competitive challenge. We put a lot of care and attention into both retention and recruitment. What we are really looking for and focusing on is best-in-class talent that is consistent with the culture, will add to the culture, and wants to be part of a collaborative firm. If you look at the 12 MDs we have hired laterally this year, about five are in various sectors including energy, industrials, and healthcare, and seven are product bankers across M&A, PCA, and capital markets. We like that balance and mix in our lateral hiring. We also value internal talent development — we promoted about 13 MDs this year. So there is a good balance between internal promotion and lateral hiring, and we will continue to keep both engines humming to develop talent and add to our MD population.

Your next question comes from the line of Mike Brown with UBS. Your line is open. Please go ahead.

Okay. Great. Thanks for taking my questions. Navid, you talked about the fact that the backlog continues to rise. You have a record backlog now. Maybe as we talk about the second half, here, looks like revenue typically will rise about 37% in the second half versus the first half. We look at the last three years. Understandably, you do not have a crystal ball and the market can shift quickly. But assuming the base case plays out here and you look at your backlog, can that seasonal second-half pickup play out this year similar to prior years?

I do not want to make specific predictions around the second half playing out exactly as in prior years. That said, our overall pipeline is at a record level as of the end of the second quarter. Even more importantly, within that overall pipeline — which includes both deals we are working on that have not yet had announcements and deals waiting to close — the announced pipeline is particularly encouraging and gives us visibility. The announced pipeline is up about 80% versus where it was a year ago at the same time. All of that gives us confidence, along with increased new business activity and the general feedback from our bankers who are in the trenches working on deals. The second half of the year is shaping up favorably. We are encouraged, but of course we will see how the market supports it.

Okay. Great. Thanks for those thoughts. Maybe just to double click a little bit on the software space and perhaps some extra focus on the sponsor side there. Sean Gray talked a little bit about what they are seeing in their ecosystem in terms of three different buckets in the AI-disrupted world: companies that are AI unaffected, those where there is more uncertainty, and winners. They talked about activity focused on the first two buckets. Maybe talk a little bit about your observations in terms of businesses that are impacted there, and then how sponsors are approaching the uncertainty. A lot has happened over the last few months. Curious how those conversations have developed. Are there pockets of software that are active, perhaps take-privates or AI winners, and can that offset some of the traditional software LBOs that were common in prior years?

Thanks, Mike. If you go back to our call a quarter ago, we laid out a similar three-bucket construct for how software disruption might play out. We believe the market will show clear differentiation over time — some companies will adopt AI and thrive, enabling them to raise capital and do M&A. On the other end, some companies will be materially disrupted by AI and that will have a real impact on their businesses; some of those companies are in sponsor portfolios and may have significant leverage, which creates need for work on liability management. Our tech and CSA teams are focused on those opportunities. In the middle, there will be companies where it is too early to tell, and those may take advantage of capital markets trades, continuation vehicles, or other solutions as things develop. We have seen software M&A this quarter, including a sizable transaction announced this period, so differentiation is starting to play out.

Your next question comes from the line of James Yarrow with Goldman Sachs. Your line is open. You may now go ahead.

Good afternoon, all. Today, I am here on behalf of James. First question which we had was how would you characterize where we are in the M&A cycle today? And how long can it continue to grow?

I appreciate the question. I still think we are in the early innings of the M&A cycle. The factors promoting M&A — the need for scale, technology disruption, the heavy investment required to stay ahead of technological trends, and the vast number of companies in sponsor portfolios that will need to be sold over time — are still in place. Many sponsor-owned companies have been held for a long time. And for now, the regulatory environment is more constructive. I think the forces promoting M&A will be around for a while. Within this cycle there will be ups and downs in volume, but the structural drivers remain. As a follow-up, let me address structural margin profile over time. I think we have done a good job bringing our compensation ratio more in line with historical levels, while continuing to invest heavily in platform talent on the product and sector side. We remain committed to continuing to invest in talent to serve clients and build a long-term business. At the same time, we appreciate there is room to bring the compensation ratio down over time, and we are committed to creating that balance between reducing comp ratio and continuing to invest in the business. As revenues grow, we will get more leverage over our non-MD cost base and non-comp expenses. Christopher can add to that.

The only thing I would add is that we focus on margins, which include both comp and non-comp, and we target leverage over time. Our pretax margins have improved sequentially and compared with the prior year for both the quarter and year-to-date periods. We have been improving margins over the last several years.

Your next question comes from the line of Brennan Hawken with BMO. Your line is open. Please go ahead.

Thanks for taking my question. You spoke a bit to software and some potential issues around sponsor positions. I am more curious about the sponsor market more broadly. You have done a great job pivoting, and sponsor engagement is really important for your franchise. What have you been waiting for that to improve for quite some time, and no one seems to have good answers as to why it has not. Do you have any theories? What are you watching for to see engagement pick up in that cohort?

Thanks, Brennan. Engagement is very high with sponsors; there is no shortage of intense engagement from our sponsor and sector teams. Sponsors want to talk about deploying capital and monetizing assets. The issue is more around M&A activity, particularly in the middle market. A portion of the companies sponsors bought before COVID and shortly after reopening were purchased in a different rate environment with different growth outlooks, and technology disruption has affected some of those spaces. For a segment of sponsored portfolio companies, it is not yet possible to exit at values that meet sponsors' required returns. It will take more time for some of these companies to grow into valuations that support exits, or sponsors may decide to move assets at lower values. Over time, you should see movement, particularly if activity drifts down into the mid-market. The good news is, even if traditional exits do not happen immediately, we have built sizable capabilities in capital markets and provide bespoke capital-raising solutions to create liquidity for sponsors, including continuation vehicle work.

I would love to drill down on the PCA business. You have added several managing directors recently and it sounds like you have momentum. When thinking about time frames for that business and revenue per MD versus the rest of Moelis, is the expectation it will be in line with firm-wide numbers? How long will it take to get there? Is there a particular level of scale needed in terms of number of MDs?

Generally, that business should be in line with the rest of the firm on revenue per MD. We are now in or soon will be in several components of PCA. Some PCA areas, like GP-led continuation vehicles, can ramp relatively quickly. The collaborative approach where our sector bankers work closely with PCA teams is creating early at-bats and wins for the PCA team, and combined with our deep sponsor relationships, the business is ramping up quickly. Other parts of PCA like primary fundraising take longer to ramp because the cycle for raising new funds is longer. Over the next few years, we expect to have a sizable PCA business across most components, and everything we have seen in about a year into it indicates we are on our way.

Your next question comes from the line of Alexander Bond with KBW. Your line is open. Please go ahead.

Hi, everyone. Natalie on for Alexander Bond. I heard you mention that it was a record second quarter for Capital Markets. Can you talk a little bit more about how this compares relative to the last couple of quarters? Any color on that group's performance and the outlook for the rest of the year would be helpful.

That group is doing an exceptional job. Our capital markets business spans both debt and equity, public and private, and soon securitization. The business is growing and dynamic with great leadership and a strong team. Part of the group's performance is dependent on overall capital market strength, and it's been a favorable environment over the last few quarters. Long term, we see significant opportunity to continue growing the business, and we are expanding capabilities because client demand for objective, aligned advice to navigate these markets — including private credit markets — is high. We see a big opportunity to continue to build that business.

Great. And then maybe one for Christopher. Hoping you can add a little bit more color on the non-comp expense commentary. I appreciate the updated guide. And maybe on AI tech spend in particular: it makes sense to invest there, but when do you expect recent investments to translate into operating leverage?

As I mentioned in the prepared remarks, much of the growth in non-comp is tied to increased business activity. One primary driver of larger than expected growth in non-comp relates to increased underwriter syndication costs associated with our public equity capital markets business. Excluding these distinct transaction-related expenses, the growth in our non-comp would be in line with last year, which was our original forecast. Along with other activity-related increases, we expect our quarterly non-comp expenses to be in the mid to high $60 million range for the remainder of the year. With respect to AI expenses, we monitor AI usage across the firm; currently many of our tools are on fixed contracts without incremental variable costs tied to usage through this year and part of next year. We will continue to monitor usage and costs over time, but for now we are comfortable with our projected AI spend.

And, Natalie, just to add on to that on your question on productivity.

Right now we are still in the phase of testing, adopting, and deploying AI tools in the hands of our bankers. The next phase is getting bankers to incorporate these tools into workflows and to share best practices across the firm. AI adoption will be bottom-up rather than top-down; it must come from bankers in the field and in different disciplines incorporating the tools and spreading that knowledge through the organization. If bankers use AI to create better ideas and provide better advice, it can lead to more transactions and efficiency gains in headcount. That is the goal and what we are striving for, although it's still early days.

Your next question comes from the line of Ryan Kenny with Morgan Stanley. Your line is open. Please go ahead.

Hey. Just want to follow up on the AI conversation. Clearly, there are efficiency opportunities, but how do you think about the risks? How do you think about the idea that the industry evolves, everything gets competed away, pitch decks have to come faster, clients expect more, and so margins do not improve? Are there any other risks as you think about AI?

We spend a lot of time thinking about protecting our information and data. Our competitive moat is the quality of our people, relationships, and proprietary information and data. Our teams — legal, IT, and AI committees — spend time ensuring client information and our data are protected to preserve those moats. In terms of commoditization, many firms will have access to similar tools. How we use, adopt, and incorporate those tools into workflows will be important to improving performance. Historical technological innovations — spreadsheets, improved communication tools — made the industry better even when those tools were widely available. Investment bankers became more efficient and could do more transactions. I think AI can be commoditized and still make all participants better and more efficient. There are, of course, risks to manage around data protection and expectations, but we believe the net effect can be positive if managed correctly.

Shifting gears, I have a question on capital. The cycle seems like it is building and sustainable with tailwinds for M&A. As you create more capital, how do you think about uses — dividend, buybacks? Would you ever be open to being an acquirer?

We tend to be conservative with the balance sheet. We run the business with no debt and a strong cash position. Our priorities are to continue investing in long-term growth and serving clients, and to protect the dividend. Our next priority after that is share repurchases, and we look at repurchases carefully — we have been relatively active over recent quarters. We will continue to mitigate dilution from employee equity issuance. Regarding acquisitions, we are open-minded; the hiring market is competitive and acquisitions can be a way to add talent. For a sizable acquisition we require three criteria: world-class talent that adds to the firm, cultural alignment, and that the people joining are excited about growth opportunities and aligned on deal structure and terms. If an opportunity checks those boxes, we would consider it.

There are no further questions at this time. I will now turn the call back to Mr. Matthew Tsukroff for closing remarks.

Really appreciate everyone joining us today. Enjoy the rest of your summers, and we will talk to you soon. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.