Good afternoon, and thank you for joining us for Moelis & Company's second quarter 2024 financial results conference call. On the phone today are Ken Moelis, Chairman and CEO; and Joe Simon, 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 & 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 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 to discuss our results.

Thanks, Matt. Good afternoon, everyone. On today's call, I'll go through our financial results, and then Ken will comment further on the business. We reported $265 million of revenues in the second quarter, an increase of 45% versus the prior year period. Our first half revenues of $482 million were up 31% from the prior year. The year-over-year increase in revenues for both periods is attributable to growth across all major product areas. Moving to expenses. Our compensation expense was accrued at 75%, consistent with last quarter. Our second quarter non-compensation expenses were $46.6 million, in line with expectations. Moving to taxes. Our underlying corporate tax rate was 34%, also consistent with the first quarter. And regarding capital allocation, the Board declared a regular quarterly dividend of $0.60 per share, consistent with the prior period. Lastly, we continue to maintain a strong balance sheet with $191.3 million of cash and no debt. And I'll now turn the call over to Ken.

Thanks, Joe, and good afternoon, everyone. Our results this quarter reflect improved performance across each of our major product areas. The M&A market continues to recover, and our public company strategic transaction activity has been a significant contributor to our top line this quarter. At the same time, sponsor sentiment and activity are improving. Our restructuring team continues to engage with a steady flow of companies impacted by higher interest rates and moving maturities or structural disruption. Our capital markets business had its best quarter since the first quarter of 2022, and the momentum is strong as hybrid capital is in high demand and the new provision of private credit providers eager to put money to work is a phenomenal opportunity for us to provide independent advice and access to that money. Turning to talent. Since our last earnings call, we added three managing directors focused on technology, industrials and capital structure advisory. And finally, our backlog across all major products is healthy, and we remain focused on execution as the deal environment improves. And with that, I'll open it up for questions.

Thanks so much. Hi, Ken. Hi, Joe. How are you?

Good.

Good. Just a question on the backlog. So we can see at least from the public data. I know it's not perfect, but we can see kind of an improvement occurring in that data as well. And that's something we've been talking about for at least several quarters now is just the conversion of the pre-backlog and actually announced backlog and then into kind of realized revenue. So can you give any sense of like how the timelines are evolving? Is there any improvement in the speed of things kind of moving through the process of maybe deals that you were previously mandated on or even deals that you're starting to work on just love some flavor there. And then if there's any difference between corporates and sponsors, because corporates you mentioned are a little bit more active, but the sponsors have really yet to come back from a revenue perspective. So I just love to get that flavor as well. Thanks.

Thanks. The pipeline is continuing to grow, and our new business review shows that the initial stage of adding to the pipeline has seen unprecedented activity levels. At one point, we onboarded all the SVB transactions in a single day, which was an extraordinary event since it involved M&A onboarding. Overall, this is the highest activity we've seen, even surpassing 2021. However, navigating through the pipeline remains challenging. Unlike in 2021, deals aren’t progressing to completion as smoothly. Each transaction typically involves more complexities, but we're definitely noticing improvements. By the end of the second quarter, the situation was markedly different from the end of the first quarter, with an increased conversion ratio and a faster-moving backlog. Regarding your question about public to private partnerships versus sponsors, the dynamics of the business can vary. We engage in more buy-side activities with public strategics, which affects our revenue sources. Nevertheless, the acceleration in activity within that segment of the market is promising. On the other hand, the sponsor community has not yet returned to full pace, but they will eventually need to bring their products to market. Additionally, there's been a notable shift in public market valuations, with recent trends indicating a move away from concentrated gains among a few large-cap stocks to a renewed interest in the Russell 2000 and the middle market. This latter group tends to align better with sponsor valuations. Most of our portfolio companies don’t compare to the largest seven but rather to other mid-sized firms in the market. As this valuation shift continues, particularly in the past couple of weeks, it bodes well for increased activity among sponsors.

Okay. Great color, Ken. Thanks. Just a quick one for Joe on the comp ratio or near question, but comp ratio obviously flat with the first quarter. I appreciate it might be a little bit early to have a perfect full year view. So I guess what should we read into about kind of where it was for the second quarter being flat? How much of that is just kind of a placeholder? And then what the puts and takes would be to kind of move off of the 75% level. And I appreciate we're not talking about a normalized level at 75%. But just trying to think about how you guys are framing the full year? Thanks.

Yes. So I think I'd first say that the algorithm we discussed in February still persists and is relevant. I'd say that in terms of clarity, visibility, we'll have much greater visibility on the full year next quarter. And so I think that the way we've been thinking about it is that we'll probably be in a much better position to adjust the ratio at that point. Right now, there's certainly good positive trends, but visibility is still not as solid as it will be next quarter.

Okay, appreciate that. All right, thanks. That's it for me.

Hi, good afternoon. Thanks for taking the question. As we think about election season and the impact that might have, what impact do you think a new administration and a more benign FTC or more deal-friendly FTC might have on U.S. M&A activities. So a couple of parts here. One, how impactful do you think the current FTC philosophy has been on getting deals done? And then second, to what extent might there be a pipeline of either deals rejected, withdrawn or never even proposed that seems prime to come to market if we have a more friendly FTC, all things being equal? And I know it's sort of maybe impossible to answer, but do you think it's enough to move the needle? Might it be significant? Like any thoughts you have would be valuable to me.

That's a challenging question. I appreciate Joe's response, which suggests that clarity will come next year, specifically next quarter, once we can look back and assess the situation. It's always easier to understand things in hindsight. If there is not only a change in administration but also a shift at the FTC, one would have to expect that these changes will pave the way for more deals. Historically, the government has initiated lawsuits that seem intended to deter people from pursuing certain actions. Some may wonder what the point is in winning a trial after two years. It does matter because the goal seemed to be to prevent people from taking risks. I believe there will be several opportunities that can progress, although I don't have a complete view of the market. However, I am aware of a few potential advancements that could occur in a different environment, which implies that others likely have similar opportunities in their pipelines. I anticipate that this could have a substantial impact. Additionally, as we gain clarity on the tax rate under the two administrations, I think the perception will be that elections carry importance, whereas I believe the market has a greater influence. Nonetheless, a significantly different corporate tax rate could indeed influence people's willingness to take risks.

Okay. Thank you. It's great to hear your views. I'm going to extend like the same concept to outside the U.S. As we think about geopolitical actions outside the U.S., again, sort of election seasons in many different parts of the world, but we also have sort of tensions seething in Asia. Anything top of mind to you either as a catalyst to promote or to track from cross-border international M&A that might result of, again, anything sort of top of mind, geopolitically going on outside the U.S.

Beyond the general situation, excluding China, I don't perceive any major issues. Our business in Europe, as well as in Asia and the Middle East, is performing very well. Therefore, my response is that I don't see any significant problems, and we are actively looking to expand in those regions. Aside from the typical geopolitical concerns related to China, I don't see any other significant issues.

Awesome. Great. Thank you so much for taking the questions.

Good afternoon. Thank you for taking my questions. I hope everyone is doing well. Ken, I've heard from several market participants that sponsors are beginning to engage again in a more significant way. Looking at the announced activity in the second quarter, it seems to support that notion. We're also hearing more optimism for the latter half of the year. I'm eager to hear your thoughts on this. We've seen optimism before that has either been delayed or didn't materialize. What level of improvement do you believe is reasonable to anticipate from the sponsor community? Can you provide some insights into what might be fueling this optimism and how genuine you think it is?

It feels like there is real momentum building, even though we've talked about this for the past two years. Activity levels are high, and transactions are occurring. People are preparing to enter the market, and sponsors are becoming more active with genuine pitches. While some may not be ready to go out immediately, there are definitely plans in place for both now and up until the first half of 2025. The volume of transactions we're evaluating is significant, and the workload for our teams is high. The momentum is tangible, and it’s not just a projection; it’s happening. The real question is how quickly this will accelerate and whether anything could disrupt it, but the activity is definitely underway.

Sure. Are there any historical periods that you think would be particularly relevant to draw a parallel?

It's difficult to draw a direct comparison, but it reminds me a bit of the aftermath of the 2008 crisis when the market was at a low point and many doubted it would recover. There was a surge in restructurings between 2009 and 2010, followed by a year where not much occurred because those restructurings had been addressed. During the 2008 crisis, everything required fixing with no extensions. Currently, the restructuring pipeline feels quite extensive, with a 2% to 3% default rate indicating a significant amount of business. Transitioning from a 2% to a 4% default rate is a notable shift. Yet, market valuations rebounded even while few were paying attention, and around 2012, 2013, and 2014, people seemed to regain their enthusiasm, which led to acceleration. We have just experienced a lengthy two-year phase that felt extended, but in hindsight, it may seem short. All of this is building momentum. We're on a path that is reminiscent of discussions around restructuring from a few years back. It appears this won't be a quick recovery, but rather a gradual and steady progression, which many have compared to various recovery shapes. This time, it won’t resemble a V-shape, but I believe it will be long-term, steady, and quite promising.

Got it. That's helpful. And then maybe just a couple sort of housekeeping items likely for Joe. Joe, was there any pull forward in the quarter? And could you remind or has it changed the sort of state of share creep where if just buybacks are on hold, what happens to the share count over time?

Yes. So the unaffected amortization for the share count is likely around $900,000 per quarter. This amount will obviously be influenced by the average share price or by buybacks, but that's the baseline. And then your first question was about...

Pull forward?

Pull forward was, I think, between $6 million and $7 million for the quarter.

Great. Thanks for taking my questions.

Good afternoon, Ken and Joe, and thanks for taking my questions. Maybe just on restructuring. I think you were clear that activities remained fairly strong. Maybe you could just give us your outlook on restructuring in the second half of this year and maybe into 2025, given your constructive tone on M&A, should we expect restructuring to start to fall off in 2025? Or is that further out? And then maybe if you would be able to just size the contribution to revenue this quarter from restructuring and capital markets as a percentage of revenue if possible.

If we look at restructuring and capital markets together, I appreciate your analysis. We estimate that restructuring and capital markets contributed around 30%, possibly slightly more in the first half of the year. Our capital markets business had a strong quarter, and we see a growing backlog. The trend of seeking financing from various private credit sources is beneficial for us. We are not a bank. If clients want to explore options and seek independent advice on which private capital source to choose, that plays to our strengths. I believe this trend will continue to grow. I also expect the M&A business to accelerate at a much quicker rate than it has recently. I think that capital markets and restructuring will maintain their combined percentage. As restructuring activities decrease with an improving economy, companies in the marginal segment may seek to access capital, shifting from restructuring revenue to capital markets revenue for us. Therefore, thinking of them together is a useful perspective.

Okay. That's very clear. Maybe just turning to the senior banker base. I think the net MDs fell by 2 quarter-on-quarter. Any comments on what drove the decline? And then maybe the outlook for hiring going forward and how this has evolved.

I'm not sure if I have the numbers for year-end or today. If you're seeing it at 161, I don't have last quarter's data, just year-end figures, but you might be correct. We experienced a few changes and possibly not many new hires during this time, but I believe we've recruited more people than have left. It’s just a question of when they'll start after their notice periods and such. That's all I can think of. We have made a few changes.

Okay. Very clear. Thanks a lot.

Hey, good afternoon. Thanks for taking my question. I guess to just follow up on some of the sponsor questions earlier. The commentary has been very constructive and it confirms what we've been seeing in the public data. But I just want to get a sense as to what could be the catalyst or that last push to really start getting things going among sponsors and obviously a lot of uncertainty. But when, in your view, do you feel like your revenues will start be at a normalized basis on a quarterly level? Or when do you think you can return to that level as revenues come through?

I believe there are two key factors that could drive positive change. First, rate cuts and cheaper capital would significantly enhance the ability of private equity to operate. If that occurs, it would be very beneficial. Second, the ongoing shift in valuation metrics is favorable for many companies in the private equity space. Over the past few weeks, we have seen a substantial move in large-cap value compared to the Russell 2000. This suggests that a company previously valued at a certain level may actually be worth 20% more in the current market, and there are various ways to tap into that increased value. This realization could influence investors’ willingness to sell their assets. If both of these factors align, it would provide a significant boost. Even without these developments, I feel that in about six months, we could return to an environment that is much closer to normalcy. I believe we are on the verge of seeing revenue growth in the next six months as things start to gain momentum.

Great. And I guess for my follow-up, you talked about the velocity or the conversion of transactions improving. I just want to get a sense as to, I guess, a similar question and they're related, but what will drive the velocity of transactions may be a bit higher and maybe create that impetus to buy? Is it just deals to get more deals? And it's as simple as that? Or is there anything else that we should be paying attention to?

I believe this reflects our earlier discussion. Deals tend to close quickly when capital is easily accessible. Looking back to 2021, funding was abundant from various sources at very low rates, which led to swift transactions. There was a general belief that valuations were rising, creating a sense of urgency to finalize deals quickly, as waiting could mean higher costs. This optimism drives the desire to complete transactions promptly, especially as firms aim to raise their next round of funding. If we can fully invest Fund VIII, our investors will be ready to support Fund IX, which is fundamental in private equity. The past two years saw hesitance in investing the last portion of Fund VIII due to concerns about entering the market before establishing Fund IX. Another positive factor in this market would be the reactivation of the limited partners through exits. As private equity firms recognize the opportunity to re-engage with the market, they will likely become more willing to deploy their capital.

Great. Thanks for taking my questions.

Hi. This is Connell Schmitz on behalf of Ryan Kenny. Just considering your comments earlier on the breakdown of M&A versus restructuring for this quarter, there's still a significant multiple to Dealogic. And I know Dealogic doesn't exactly have precise data, but there have been reports on potential changes and pushes for changes to transaction fee structures, for example, like fairness opinions and termination fees. Is this something you guys are pushing for and are seeing across the industry?

I recently noticed that reverse termination fees are increasing due to risk factors, particularly in relation to the Department of Justice. I'm not focused on the banking aspect, but I've seen these fees on the deal side grow. I'm curious about what you’re observing in this area because, from our standpoint, there's been limited feedback on that side. We’ve always been specific about how we price our work with special committees because we recognize the long-term nature of this business. However, I'm not sure if there’s a shift in pricing that you’re aware of. If you could provide more details, I would appreciate it.

This is an article out of Reuters, but I was just more curious on the go forward as to if there's pushes given the conversation around deal still remaining elongated around potential scrutiny and like...

Okay. What you might be asking is something I've noticed, particularly in highly regulated industries. It has always been the case that you tend to receive a larger portion of your fee upon announcement. You may also get more of your fee with progress payments due to the significant amount of work involved. However, waiting 1.5 years to receive the fee can be challenging because the banker completed some of that work two years ago. This situation has always been the norm in regulated mergers and acquisitions, especially those involving public companies, where it is common to receive some fees earlier than in typical M&A transactions.

That's good color. Just one follow-up on the rate cut discussion. Like how does the potential rate cut affects your restructuring outlook?

I think companies that are slightly over-leveraged are unlikely to survive, as they won't be saved by even a significant rate cut. The main issue for them lies in their principal and maturities, which will be detrimental. It's possible that only about 5% of the restructuring backlog could benefit from a significant rate drop. In that case, I believe it might be quicker and more effective to refinance rather than restructure. If you're slightly over-leveraged and rates change enough to transition from restructuring to refinancing, you're probably not an investment-grade credit but rather a highly structured private credit opportunity. Therefore, a lot of those discussions will shift from our restructuring team to our private capital markets. I don't anticipate losing much of that business if they experience some benefit from a rate cut.

Thanks for taking my questions.

Great. Thanks for taking my question. Most have been asked, but I guess just on the commentary about sponsor activity, and it seems really getting engagement there. Any way to kind of characterize maybe trends in like the small cap, mid-cap and large-cap space as it relates to kind of the sponsor activity?

I probably don't have enough knowledge about smaller deals, but my sense is that we're seeing a notable difference in the sizes we typically cover. The largest transactions have seen some successful buyouts at the top end, which could lead to even larger entities. Some of these may transition into the IPO market, which is a separate consideration. As we observe these exits, it will be important to monitor the IPO market since that's where some of the larger buyouts may seek liquidity. However, in terms of exit potential for sponsors across M&A, I don't notice a significant difference between the smaller and larger deals we usually discuss. I can't really assess the dynamics below the smaller deals we typically consider.

And that concludes our question-and-answer session. I will now turn the call back over to Ken Moelis for closing comments.

Thank you for joining us. I hope you have a good rest of the summer, and we'll see you on the third quarter call. Thank you.

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