Good afternoon and welcome to the Moelis & Company Earnings Conference Call for the Third Quarter of 2025. To begin, I'll turn the call over to Mr. Matt Tsukroff.

Good afternoon and thank you for joining us for Moelis & Company's Third Quarter 2025 Financial Results Conference Call. On the phone today are Navid Mahmoodzadegan, CEO and Co-Founder; and Chris Callesano, Chief Financial Officer. Before we begin, I would like to note that the remarks made on this call may contain certain forward-looking statements, which are subject to various risks and uncertainties, including those identified from time to time in the Risk Factors section of Moelis & 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. 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 will now turn the call over to Navid.

Thank you, Matt. It's great to be with all of you for my first earnings call as CEO. The firm had a very strong third quarter. We achieved adjusted revenue of $376 million for the quarter and $1.05 billion for the first 9 months of 2025, representing increases of 34% and 37%, respectively, versus prior year periods. Our level of client engagement and new business origination continue to be robust, and our pipeline remains near all-time highs. To give you a sense of the firm's momentum, in just the past week, we advised clients on several significant transactions, including Essential Utilities on one of the largest U.S. utility mergers in history, the Delaware Attorney General on OpenAI's recapitalization, and the New York Giants on the landmark sale of a minority stake in the historic NFL franchise. We remain active on the hiring front and finished the quarter with 170 managing directors. Year-to-date, we've hired 10 managing directors, including 5 since our last earnings call. These MDs will enhance our expertise and global reach in key sectors and products, including technology, industrials, private capital advisory, capital markets, and M&A. Now let me discuss each of our businesses, beginning with M&A. Our business this quarter benefited from both an increase in larger strategic M&A and sponsor transactions, resulting in a meaningful increase in our average M&A fee. On the strategic side, we are seeing corporates lean into transformative deals to achieve scale and navigate rapid technological change. This activity is supported by improved clarity around trade policy and tariffs and a more accommodative regulatory environment. On the sponsor side, the significant pent-up need for sponsors to return capital to LPs and a robust financing environment have accelerated sponsor activity. These dynamics set the stage for what we believe will be a steadily improving multiyear M&A cycle. In Capital Structure Advisory, our team continues to be engaged on a healthy level of liability management assignments. While ample liquidity and access to diverse pools of capital are resulting in fewer traditional restructurings, our team is a leader in delivering out-of-court solutions for clients. Additionally, our recent investments in enhanced credit-side coverage have diversified this business and position us well for future opportunities. Turning to Capital Markets. Our Capital Markets business has been a standout performer with year-to-date revenues more than double the same period last year. We're on pace for a record year as our enhanced capabilities in public and private capital markets have positioned us to take advantage of a risk-on environment to raise capital around growth companies and emerging technologies. We believe the massive expansion in private credit has also created a significant opportunity to help clients access this important asset class. And finally, as we look at Private Capital Advisory, we expect this business to be a key engine of growth, becoming a meaningful fourth pillar of our business and complementing our leading sponsor franchise. On our Q2 earnings call, we highlighted 3 significant hires, including our new Global Head of PCA. Since their joining, we have had seamless integration with our sector and sponsor coverage teams and seen substantial growth in active mandates focused on GP-led secondaries. We are very excited about our team's early momentum and expect PCA to become a significant contributor to our firm. We are continuing to hire talent at all levels and plan to build this business into a market leader. Looking ahead, we are optimistic about the continued improvement in the transaction environment. In the very near term, the U.S. government shutdown, depending upon how long it goes, could slow the pace of regulatory reviews potentially affecting deal closing timelines. However, from where we sit today, this is not impacting our clients' appetite for strategic transactions, and we expect continued acceleration in deal activity. I'll now pass the call to Chris to discuss our financial results before I wrap up with a few closing remarks. Chris, over to you.

Thanks, Navid, and good afternoon, everyone. As Navid mentioned, we generated adjusted revenues of $376 million for the third quarter of 2025, an increase of 34% from the prior year period. For the first 9 months of 2025, we generated adjusted revenues of $1.05 billion, representing an increase of 37% from the prior year period. The increase during the quarter and the first 9 months of the year were driven by significant growth in our M&A and Capital Markets businesses, partially offset by a decline in Capital Structure Advisory. Our business mix for the third quarter and first 9 months of 2025 was approximately 2/3 M&A and 1/3 non-M&A. Turning to expenses. Our adjusted compensation expense ratio for the third quarter was 66.2%, bringing our year-to-date ratio to 68%, down from 69% in the first half of 2025. Adjusted non-compensation expenses were $53 million for the third quarter, resulting in a 14% non-compensation expense ratio. Our adjusted non-compensation expenses for the first 9 months of 2025 were $163 million, resulting in a non-compensation expense ratio of 15.6%. The main drivers of the expense growth during the first 9 months of the year were increased deal-related travel and entertainment and client conferences, continued investments in technology and data, including AI, and higher occupancy costs as a result of headcount growth. Our adjusted pre-tax margin was 22.2% for the third quarter, bringing our adjusted pre-tax margin to 18.2% for the first 9 months of the year, a significant improvement compared to the same 3- and 9-month periods in the prior year. Our tax rate for the third quarter was 29.5%, consistent with the prior quarter. Turning to capital return. The Board declared a regular quarterly dividend of $0.65 per share, consistent with the prior quarter. And during the third quarter, we repurchased approximately 206,000 shares of our common stock on the open market for a total cost of $14.5 million. Finally, we continue to maintain a strong balance sheet with approximately $620 million of cash and liquid investments and no debt. I will now pass the call back to Navid.

Thank you, Chris. I wanted to briefly touch on the three areas that I am intensely focused on in my new role: clients, culture, and growth. First, clients. Clients will continue to remain at the center of everything we do. Our success flows directly from the success of our clients. Second, culture; maintaining and protecting our collaborative team-based culture enables us to provide the highest quality advice to clients and attract and retain the best talent in the world. Finally, growth. We have a tremendous opportunity to hire and develop difference-makers to fill white space and further build leading centers of excellence throughout our firm. As we think about the opportunities ahead, we've never felt better about the quality and capabilities of our franchise and how well we are positioned to advise our clients in a more active market environment. With that, let's open the line up for questions.

Your first question comes from the line of Ken Worthington with JPMorgan.

A little esoteric here. Maybe first on restructuring. One of the narratives in the market is the disruptive nature of AI, particularly in parts of the tech sector. Are you seeing this risk start to pop up in your dialogue with your clients on the restructuring side? And is AI a theme that you think might be meaningful to restructuring as we look out over the next 1 to 2 years?

Yes. Thanks for the question, Ken. Look, I think AI is going to have a profound impact on our economy and sectors of our economy and companies in particular. It's obviously early days there in terms of the direct disruptive impact AI is going to have. But I do think, to your point, while it's still early days, I do think that disruption is going to create opportunities for us on the restructuring side as the rollout of AI and the impact on AI becomes apparent to corporate P&Ls. And so early days, I don't know that we've seen sort of a direct set of mandates that have come from that, but I think that's on the horizon.

Okay. Great. Sort of in the same vein, different topic, private credit. There seems to be differing perspectives between the banks and the alternative asset managers in terms of the state of the private credit markets. So for you guys as a third party in the market, are the recent higher profile defaults that we're seeing a concern to you? And do you see risk to M&A if we start to see 'more cockroaches' emerge in private credit?

Sure. We've observed significant growth in private credit as an asset class, which positively impacts our business by providing us with more opportunities to assist clients in entering this market. Private credit operates outside the traditional banking system, and we appreciate its expansion. We have strong relationships with sponsors and maintain ongoing discussions to connect our clients with alternative capital sources. Overall, this trend is beneficial for us, as noted in our remarks. Our Capital Markets division is taking advantage of this growth. While some recent high-profile situations involved banks, I don't view them as entirely linked to private credit. Given the influx of capital into various companies, there will inevitably be some errors and unique situations that arise. However, I don't see a systemic issue within private credit. I believe it will continue to expand, as companies increasingly find this capital source appealing. This trend is likely to persist and is advantageous for our business.

Your next question comes from the line of Devin Ryan with Citizens JMP.

I want to start with just a kind of broad M&A question. Obviously, tracking some of the headline numbers, the recovery started kind of earlier in the summer and it seemingly continued, but a lot of that activity was driven by kind of larger deals, and so that helped the headline, but it wasn't as broad of a recovery. So I'd love to get a sense of how you're seeing kind of the breadth in the market today, whether that's smaller deals or sponsor deals, how the pace of those transactions are trending? And if it is really reaccelerating there and broadening, kind of when did that pick up? And any other framing around that would be helpful.

Thank you for your question, Devin. You're correct that the market currently is more focused on larger transaction-driven activities. We observe this trend on both the strategic and sponsor sides. There's a clear preference for larger, higher-quality transactions in today's environment. We are beginning to see a broadening of the market, particularly in the sponsor sector, where we have noticed a lack of robust middle-market transactions under $1 billion. However, there are signs that this segment is starting to expand. In the third quarter, we observed an increase not only in the size and dollar volume of deals but also in the total number of transactions. We believe that we are on the verge of a more extensive flow of middle-market sponsor transactions as we move towards 2026. The trend towards larger and higher-quality transactions has indeed been a significant factor driving our business and the industry over the past few quarters.

Yes. Great color. And then a follow-up here just on compensation. So revenues up really strong year-to-date, with a 37% increase, while compensation expense is up 24%. So nice to see some leverage there. Obviously, we don't know the full year revenues, but it would be good just to get a sense of how you would frame the 68% comp ratio year-to-date. Like is that a good number on the year? Or is there potentially -- is that one step toward potentially additional leverage as we get better visibility on the full year? And that's one part of the question. The second part is just based on where we are in this kind of M&A recovery that you talked about, still seems like a fair amount of revenue upside for Moelis as conditions normalize. And so just trying to think about how much more comp leverage there may be in that scenario to the extent the 37% year-to-date is just the beginning of potentially much more revenue upside from here.

Thanks, Devin. Let me try to tackle that question. So I think we kind of look back historically at this time last year. I think our year-to-date comp ratio was 75%. We ended the year at 69% when you factored in the fourth quarter. And now year-to-date, we're at 68%. So I think we are making progress towards a more normalized comp ratio. And I think we've committed that as the market improves, as we realize a return on many of these investments, we've been making great investments in very, very talented people in big TAMs that as we see a return in that, as the market improves, depending upon market conditions and what the competitive environment looks like for talent, we want to bring that comp ratio down further. We'll see what that means for the fourth quarter. Right now, 68% is our best guess. But last year, we were at 75%, and we ended up at 69% depending upon the fourth quarter. So we appreciate very much the flexibility our investors and the confidence our investors have shown in us to exceed normal ratios for a period of time here. That's enabled us and given us flexibility to do great things that we're really excited about in terms of continuing to build the firm. But these kinds of ratios aren't where we want to be. We want to be at more normalized ratios, and we're committed to getting there over time.

Your next question comes from the line of James Yaro with Goldman Sachs.

So we're 9, 10 months into the second Trump administration. Companies do appear more comfortable with the regulatory backdrop. Maybe you could just talk about the antitrust dialogues that you're having within the boardroom. And then maybe you could also just talk about the broader deregulatory impacts and whether that's driving deal activity as well.

Sure. Well, look, as I noted in our remarks, clearly, the more accommodative regulatory outlook, the perception that the government is going to be more accommodating on improving transactions. Clearly, in the last administration, there was a view that bigger is worse. And I think as we look at the landscape, I don't think that's the view of the current administration. And so that is allowing for companies to think big and pursue larger transactions, which may have been more difficult in the prior administration. So that's driving the ambition and a lot of the transactional activity we're seeing today. And unless and until the administration acts in ways that are unforeseen, I think that trend will continue. And it's not just the types of deals that are going to be allowed. It's the types of flexibility around remedies and being more accommodative towards solutions to potential problems. And again, this is in the U.S. So we'll see what happens outside the United States, a different regulatory scheme. But clearly, in the U.S., it feels like everyone in the ecosystem is assuming that many things are now possible that weren't possible before. In terms of deregulation generally, I think that has added to the risk-on environment and the feeling that our economy is going to continue to grow and there is a premium for growth and people need to invest in growth and future opportunities. And I think that's sort of adding a little bit of fuel to the fire, both in terms of where the stock market is, which obviously helps dealmaking activity, where the financing markets are. All of those corroborate enhanced deal making.

Yes. Okay. That makes sense. So you're obviously investing in building out the secondaries business. So you clearly have a view on the importance of this offering. But just I'd love to get your perspective on how you think about the right mix of secondaries versus regular way in terms of historical context, sponsor exits, i.e., IPOs and M&A in a more normal backdrop for sponsor activity that at some point will be here?

I believe that GP-led secondaries and continuation vehicles, which are the initial part of our PCA business investments, are going to be a long-lasting product. Regardless of whether the M&A or IPO markets are active, certain companies and sponsors will decide to continue managing their businesses as they see more potential for growth. While they may need to provide liquidity to some investors, they're not ready to sell or go public yet. Therefore, we see a permanent niche for the CV product that isn't solely dependent on the health of the M&A or IPO markets. In the past couple of years, there were transactions driven by the inability to sell or go public, which necessitated liquidity. However, I believe a much wider range of situations will persist for a long time, which is why we're investing significantly in this product. Regarding the IPO market, I appreciate a healthy IPO environment as it positively impacts the M&A market. Returns for sponsors, whether through M&A or IPOs, foster good deal-making and bolster confidence in investing and acquiring companies. These markets complement each other and contribute to a positive capital cycle.

Your next question comes from the line of Ryan Kenny with Morgan Stanley.

I wanted to follow up on the regulation comment. So clearly, it's a more supportive environment. And my question is, when you talk to your corporate clients, are they hearing and feeling that message similarly? And is there any nuance in regulation that we should think about in certain industries like technology? Do you need to see a few deals in each industry get approved first before others get comfortable moving? Any thoughts there, maybe industry by industry would be helpful.

Yes, I believe you're correct in noting that the current more favorable antitrust and regulatory environment presents some complexities, particularly concerning certain types of cross-border transactions and companies that face security concerns. We’re witnessing some challenges surrounding specific media companies and the approval process. There are unique characteristics within certain sectors. Overall, though, aside from those specific nuances, the general direction is indeed more accommodating. However, it's important to acknowledge that certain elements in various sectors, influenced by the political landscape, introduce additional complexity.

And then just a follow-up separately. In the quarter, there was the $19.1 million benefit to revenues from the gain on Moelis Australia. Can you just unpack what drove that? And should we expect more share sales ahead?

Yes. We booked a gain of $19 million as a result of, like you said, selling the shares in MA Financial Group. That was our Australian JV when they went public on ASX back in 2017. So we were thinking owning the shares or equity in MA Financial is not a strategic investment for us. However, maintaining that partnership and alliance with them is what's strategic. So as a result, from time to time, we sell down a portion of those shares and as we've done historically, we reclassified that gain from other income to revenues. And the rationale for that is many of our investment bankers, Moelis bankers worked on helping build this business over the years. And as a result, we consider these gains equivalent to revenues. So we do still have some investment, and it is possible from time to time periodically. Last time we did it was a year ago at this time, we will sell some additional shares down. But again, the important thing is we continue with that strategic alliance with MA Financial.

Your next question comes from the line of Brennan Hawken with BMO Capital Markets.

I'd like to follow up on that Moelis Australia question. So you said that you had reclassified the revenue from other income to adjusted revenue and that, that movement was EPS neutral. That EPS neutral clause, does that just apply to the reclassification of revenue, not the impact of the gain, right?

Yes. We reclassify it. So the gain is $19 million. It's booked in other income, and we reclassify it to revenues. That's right.

Got it. Got it. Okay. Were there any expenses tied to that gain? Like did that impact the comp ratio? Should we back that out of the adjusted revenue to think about what a sort of core comp ratio is? Can you maybe help us understand how that gain might impact the expenses?

Yes. I mean, I think, again, like I said, our rationale is bankers do work on this, right? So we've built this business over the years. And for the evaluation of comp purposes, we do reward people for their contribution to this value creation. So we don't book. They're an equity method investment, right? So we just pick up below the line any of their P&L, and we don't receive that portion or a portion of their revenue. So as a result, we just wait until we have a realized gain and we take that realized gain and we book it to revenues.

Understood. The MD count appears to have decreased by 3 from the previous quarter. There was a $6.5 million benefit due to compensation forfeiture. I know a senior individual left during the restructuring, but was there increased turnover this quarter that contributed to this change? Or was it simply an isolated case? Have you been more proactive in managing or reshaping the talent pool? Any insights on this would be appreciated.

Yes. Year-over-year, our MD count has increased from 157 last year to 170 today. This increase is split roughly evenly between internal promotions and external hires. Various factors contributed to this, resulting in a net addition of about 13 MDs over the past year. As mentioned, it is a mix of internal promotions and external hiring that accounts for this change.

Yes. And those forfeitures, right, of compensation. So it really depends, right? So it is ex-employees. It could be competing or other reasons. Sometimes they're booked to other income for GAAP purposes. Sometimes they're not. Sometimes they're just credited directly to compensation. So we just reclassify it to compensation. That's where we think it belongs, and that's where the expense was originally booked. So that's why we do that reclassification. It really just depends on how GAAP books it.

Okay. So it's not necessarily an indication that anything was elevated here this quarter?

Your next question comes from the line of Brendan O'Brien with Wolfe Advisors.

To start, I just wanted to follow up on Ken's first question on the restructuring outlook earlier and maybe drill down more specifically to your business. You did a good job outlining some of the bigger concerns on the credit side, but at the same time, the Fed lowering rates should help to alleviate some of the stresses put on corporate balance sheets. And so just given these puts and takes, I just wanted to get a sense as to how you're thinking about the outlook for this business, both in 4Q and into 2026.

Sure. As you all know, we have an excellent practice in CSA and restructuring, with a great team that has been successful for a long time and continues to be successful. We are observing a more subdued level of activity in the capital markets and economy. There is less new business origination compared to a year ago. It's important to remember that last year was a record year for our CSA business, up 30% from the previous year. Therefore, we anticipated that this business would not be flat this year and would likely see a slight decline. This is influenced by the market environment and a difficult comparison to last year's numbers.

That's helpful color. And then just drilling down a bit more on the sponsor side and specifically exits. Obviously, that's been a big area of focus over the past few years. But with the IPO market reopening, one of your peers citing a notable uptick in bake-offs and the secondary market already eclipsing last year's record level. It feels like exit activity has really taken a step function higher. Just want to get a sense as to what you're seeing or hearing from sponsors on the outlook for exits and if you're seeing any signs of activity on the exit side, in particular, broadening out beyond the highest quality assets.

Yes, we mentioned this in our earlier remarks and in response to another question. We are definitely observing a broadening trend. What has been lacking is a substantial volume of middle market activity, but we believe that is on the horizon. We are already noticing signs of this. Our level of engagement, dialogue, and pitch activity within our sponsor universe is quite high. Therefore, our outlook for that business is positive and improving. As we move forward into 2026, we anticipate further enhancements in the overall level of sponsor activity. This is being supported by ample financing, pent-up demand, and the necessity for sponsors to obtain liquidity. Additionally, having a more active strategic environment is beneficial since some businesses are sold to strategics rather than sponsors. We have witnessed an increase in take-private transactions, including several large-scale deals recently. There is heightened take-private activity as sponsors target companies that are better suited for private markets. We are also witnessing activity in holdco financings and continuation vehicles. Overall, there is significant activity surrounding sponsors, and we are well positioned to take advantage of this, as it has been a fundamental and important aspect of our business since the inception of Moelis & Company.

Your next question comes from the line of Alex Bond with KBW.

Now that we're a decent way through the fourth quarter, just wondering if you could share how you're starting to think about the pace of your hiring activity in 2026 relative to this year. Maybe assuming we continue to see a gradual improvement in M&A volume, should we expect hiring to be at a similar level next year relative to this year? And then also just maybe how you're thinking about the hiring trajectory specifically for the PCA business?

Thank you for the question. We hired five managing directors this quarter and ten this year. We are in several active discussions that we hope to finalize soon. Recruiting is a year-round effort, and our priority is to fully develop the PCA team, as we see a significant opportunity there. We're also focusing on other large markets where we can improve coverage and pursue substantial opportunities. Hiring remains a top priority, and we are having great conversations aimed at bringing new team members on board. Over the past few years, our hiring activity has been impressive, and the success we've experienced in Capital Markets, oil and gas, and tech, along with early signs in PCA, boosts our confidence in continuing to pursue hiring opportunities and grow our business. We aim to approach this in a careful manner that aligns with our culture, ensuring we attract individuals who can excel as partners within the firm.

Your next question comes from the line of Nathan Stein with Deutsche Bank.

I wanted to ask a broader question. The market experienced a sell-off this afternoon following the Fed's comments. How do you perceive the potential changes in the marketplace in light of the Fed's statements today?

As I mentioned, market activity can be influenced by perceptions of interest rates, but that's not the sole factor affecting transactions. The need for strategic buyers to achieve scale, improve efficiencies, and adapt to technological changes is significant. Additionally, sponsors require a steady return on capital to maintain their deployment cycles, all of which are key drivers in the M&A market. While the cost of money plays a role, with low interest rates and available credit benefiting the market, it's not the only consideration. I don't see the Fed's comments as fundamentally altering our business outlook. We'll see how things develop, but I believe the overall demand for transactions will remain consistent.

Great. Could you provide a follow-up on pipelines in general across different sectors? You have made significant advancements in your tech offerings over the last few years. Could you discuss your M&A deal pipelines within tech and any other sectors you want to highlight?

I was sitting down to look through our different sectors to get ready for this call and anticipating someone would ask the question of what sectors are hot and what aren't. And what I saw in our activity levels and our pipelines was pretty good broad-based strength across most, if not all, of our sectors. Certainly, tech is at the top of the list in terms of where we're seeing a lot of activity. But we're also seeing a lot of activity in parts of health care and industrials and in sports media and entertainment and the world of data centers and AI and digital infrastructure. And we're seeing it, I'll say, pretty much across the board in terms of industries where we're seeing activity, M&A pipeline building, et cetera, et cetera. So I wouldn't want to suggest it's narrow. It's pretty broad-based. Is there a follow-up?

That concludes our question-and-answer session. I will now turn the call back over to Navid for closing remarks.

Great. Well, thanks, everybody. Really appreciate your time today, and we look forward to seeing you all again soon. Thanks so much.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.