Earnings Call Transcript - MC Q1 2026

Operator, Operator

Good afternoon, and welcome to the Moelis & Company First Quarter 2026 Earnings Conference Call. To begin, I'll turn the call over to Mr. Matt Tsukroff.

Matthew Tsukroff, Head of Investor Relations

Good afternoon, and thank you for joining us for Moelis & Company's First Quarter 2026 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 that 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 to better understand our operating results. The reconciliation of these adjusted financial measures with 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. I will now turn the call over to Navid.

Navid Mahmoodzadegan, CEO and Co-Founder

Thank you, Matt. It's great to be with you all this afternoon. We have had an active start to the year with record first quarter revenues of $320 million, record first quarter levels of announced transaction activity, strong momentum in senior hiring and continued execution of our strategic growth priorities. Since our last earnings call, we advised on a number of notable M&A transactions, including Clear Channel Outdoor's $6.2 billion sale to Mubadala Capital and TWG Global, Tri Pointe Homes' $4.5 billion sale to Sumitomo Forestry and Kennedy Wilson's $9.5 billion take private. Beyond M&A, we advised TowerBrook on its $1.2 billion continuation vehicle for EisnerAmper, and most recently, we acted as an active book runner on X-energy's $1.2 billion IPO. We entered 2026 with high levels of new business origination and a constructive outlook. While the war in the Middle East, disruptions in private credit and the impact of AI on certain sectors have created some near-term headwinds in parts of the transactional environment, the same forces create new opportunities for our firm. We remain confident about the trajectory of our business, supported by our pipeline near all-time highs and the fundamental drivers of transaction activity firmly in place. Let me briefly take you through an overview of what we're seeing in each of our major product areas. In M&A, corporates continue to seek scale to strengthen their strategic positioning especially amid rapid technological disruption. This dynamic is most pronounced in large-cap transactions, which continue to drive M&A volumes and is further supported by a more accommodative U.S. regulatory backdrop. Dislocation in various parts of the public equity markets is also driving take-private transactions, an area where our board and special committee advisory practice is strong. In addition, our business continues to benefit from financial sponsors' need to monetize an extensive backlog of investments. While the market is not yet seeing a broad-based increase in sponsor exit activity, our M&A revenues from sponsors grew double digits during the quarter. In private capital advisory, the market for GP-led secondaries continues to hit record levels, driven by sustained demand for liquidity solutions, increased adoption of continuation vehicles and a growing base of institutional investors seeking exposure to seasoned assets with more predictable return profiles. Our thesis for PCA is playing out as expected with the team executing a number of live mandates and rapidly building a significant pipeline. With the recent addition of a Managing Director focused on private credit secondaries and another joining later this year, we will have seven senior bankers dedicated to GP-led secondaries, further strengthening our position in this important market for our sponsor clients. Turning to capital markets: demand for growth capital from high-quality issuers is driving activity in our business, particularly in late-stage growth and pre-IPO issuance for AI, digital infrastructure and aerospace and defense-oriented business models, to name a few. IPO issuance is also strong with our team involved in a number of transactions coming to market in the near term. In addition, technology disruption is creating a more dynamic financing environment and accelerating opportunities for hybrid and structured solutions. We are further investing to meet the opportunities we see in capital markets. We've recently hired two managing directors in the space, including a Managing Director focused on securitization who will help develop this important growth opportunity for the firm, and a Managing Director that complements our already strong private credit and debt capital markets capabilities. In capital structure advisory, liability management continues to be the most active segment of the market. Increased lender selectivity is widening the gap between companies that can readily refinance and those requiring more complex solutions, which we expect will lead to more traditional restructurings over time. Our CSA pipeline is meaningfully above last year's levels and ongoing technological disruption and volatility in commodity prices are creating new opportunities. Additionally, our growing creditor coverage is diversifying our CSA business, contributing to a larger share of revenue and positioning us well with the creditor community. Turning to talent: we have hired eight MDs year-to-date, two who have already joined and six who will join us over the course of the year. In addition to the PCA and Capital Markets hires previously mentioned, we've also invested across industries where we see attractive long-term opportunities. This includes recent Managing Director hires in key sectors, including energy and healthcare IT. In Europe, we've hired two managing directors to enhance our expertise in chemicals and deepen our sponsor coverage capabilities. We recently relocated to a new and expanded office in London to support our talent, our clients and our continued growth in the region. In general, we remain intensely focused on attracting the best and brightest talent and are excited about our high level of engagement and dialogue with world-class candidates. With respect to capital return during the quarter, we repurchased 1.9 million shares including 895,000 shares in the open market while preserving the strength of our balance sheet with substantial cash and no debt. Finally, we are actively testing and deploying AI tools across our business with broad adoption from our teams. We see AI as a clear productivity lever supporting our bankers and providing the best possible advice to clients and driving greater efficiencies throughout our organization. With a strong pipeline, including high levels of announced transaction activity and the most comprehensive capabilities at any point in our history, we are well positioned to support our clients and deliver long-term value for our shareholders. With that, I'll pass the call to Chris to review our financial results in more detail.

Christopher Callesano, Chief Financial Officer

Thanks, Navid. Good afternoon, everyone. As Navid mentioned, we reported record first quarter revenues of $320 million, an increase of 4% versus the prior year period. Our revenue growth was driven by year-over-year increases in M&A and private capital advisory, partially offset by a decline in capital structure advisory and capital markets. Our business mix for the first quarter was approximately two-thirds M&A and one-third non-M&A. Turning to expenses: our first quarter adjusted compensation expense ratio was 65.8%, down from 69% in the first quarter of 2025 and in line with our full year 2025 adjusted compensation ratio. As the year progresses, our compensation ratio will depend on the trajectory of revenues and the pace and magnitude of hiring throughout the year. Adjusted noncompensation expenses were $67 million for the first quarter, resulting in a 21% noncompensation expense ratio. Main drivers of the expense growth were higher deal-related costs and increased communication and technology expenses. As previously communicated, we currently anticipate our full year 2026 noncompensation expenses will grow at a similar rate to 2025 due to our ongoing investments in technology, including AI, increased deal-related travel expenses and growth in headcount. Our adjusted pretax margin was 15% for the first quarter of 2026 as compared to 14% in the prior year period. Regarding taxes, our underlying corporate tax rate was 29.3% for the quarter before the discrete tax benefit related to the vesting of equity. Turning to capital allocation: we continue to maintain a strong balance sheet ending the quarter with $354 million of cash and no debt, allowing us to continue investing in the business while also returning meaningful capital to shareholders. The Board declared a regular quarterly dividend of $0.65 per share and as Navid said, we repurchased 1.9 million shares during the quarter at an average price of $61.40 per share, including 1 million shares to settle employee tax obligations and 895,000 shares repurchased in the open market. Through the combination of net settlement and open market repurchases, we have offset more than half of our annual equity incentive compensation issuance. Including the dividend declared today, we have returned approximately $171 million of capital to shareholders with respect to the first quarter. With that, we are happy to take your questions.

Operator, Operator

Your first question comes from the line of Devin Ryan with Citizens Bank.

Devin Ryan, Analyst, Citizens Bank

I want to start with a question broadly on the software sector. Obviously, you guys have made some investments there and have scaled nicely. Clearly, it's one area that's seeing some AI-related dislocation. I'm curious what you're seeing play out there relative to what people were expecting heading into the year. I know it's not just one category; there are many subsectors. Where do you see activity evolving? Do we see forced consolidation later this year? Are there take-privates for public companies? Maybe that's a catalyst. I'd love to get a sense of how you see this mapping out and how important that is for the broader M&A recovery, given that it is an important subsector.

Navid Mahmoodzadegan, CEO and Co-Founder

Thanks for the question, Devin. We have a great team in technology at the firm, and within our technology group, software is a very important set of subsectors. This quarter we've seen a repricing of software stocks in the public markets due to concerns about what AI may do to some historically sticky business models. That revaluation in the public markets feeds into the private markets, affecting private M&A and lenders' willingness to finance these companies. It's therefore harder in the near term to navigate traditional software M&A at the same rate as recent years. If you step back, I think this will play out over time and we can think of companies in three broad buckets. In one bucket, the AI threat is misperceived; these companies will adapt, use AI to their advantage, and prosper and grow through the disruption. Those companies will be active in the M&A marketplace, either as consolidators or as sale candidates to strategics or private equity. At the other end, there are companies where the business models will be significantly disrupted. If those companies carry a lot of leverage—due to historical LBOs or sponsor ownership—you're likely to see liability management and other actions to address unsustainable capital structures. In the middle, there are companies that will take time to understand what AI means for them; those companies and their owners will need time to adapt. For those, bespoke capital and hybrid solutions, deleveraging capital structures, and continuation vehicles will be relevant. Across these buckets, we have product expertise to service the companies and leverage deep relationships with corporates and sponsors. We're well positioned to provide advice and help clients navigate AI disruption across software subsectors.

Devin Ryan, Analyst, Citizens Bank

That's terrific color. As a follow-up, I heard the comments on sponsor engagement in the prepared remarks. What do you think will bring sponsors back? This was supposed to be a year of mid-market sponsor exits; the first few months haven't been conducive. Do you still see that as likely if macro conditions settle? What needs to change to unlock a reacceleration in sponsor activity?

Navid Mahmoodzadegan, CEO and Co-Founder

There is significant desire and need among sponsors to transact with their portfolio companies. The demand is there. It's a question of lining up that demand with market conditions that enable transactions to happen. In the near term, geopolitical uncertainty and widening credit spreads in certain sectors because of private credit dynamics are not conducive to a full-scale reopening of the middle market M&A business, where a lot of sponsor activity sits. I think it's coming. As geopolitical headlines subside and some private credit concerns ease, sponsors will take advantage of the need to transact. Our sponsor business is growing and I'm proud of that, but it will take a little more time to get to the breadth of market activity we all anticipate.

Operator, Operator

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

Alexander Bond, Analyst, KBW

I want to start on the restructuring side. You noted in the release that revenues declined there year-over-year in the quarter. Can you help us think about the magnitude of the decline in the quarter? Also, please put some context around the results. Commentary from some peers has been relatively upbeat and you noted the pipeline is up meaningfully year-over-year. Maybe speak to the drivers behind the year-over-year decline—maybe it's just timing—and any other color would be helpful. And on PCA, you noted stronger year-over-year revenues, which makes sense given the build-out of the platform. Help us think about the contribution in the quarter and how that progressed sequentially. Any updated thoughts around where you sit competitively and progress in market share to date would be helpful.

Navid Mahmoodzadegan, CEO and Co-Founder

We're not going to get into specific details of the quarter, but the decline was primarily timing. Revenues in a quarter depend on which transactions closed in that quarter, so there's always quarter-to-quarter variability. Our CSA team is doing a great job and working on a number of significant mandates with strong momentum; their pipelines are up. Many of the same themes causing near-term headwinds in M&A—raw material price volatility, input price instability, geopolitical uncertainty, and AI disruption—are creating opportunities for liability management and other CSA engagements. On PCA, we're building the team aggressively. We'll soon have seven senior managing directors focusing on GP-led secondaries and private credit secondaries. It's still early days, but we're starting to see the fruits of that early build phase. Our sponsor clients want us in this business, and we're getting positive feedback and winning mandates. Both GP-led secondaries and private credit secondaries are growth areas where we have a strong team executing and building pipeline.

Operator, Operator

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

Ryan Kenny, Analyst, Morgan Stanley

On private capital advisory: it sounds like it's starting to contribute to revenues, which is great to hear. Is it accretive yet to pretax income—revenues less expenses? Is that something that can happen this year?

Navid Mahmoodzadegan, CEO and Co-Founder

I don't know. Chris, do you want to take that?

Christopher Callesano, Chief Financial Officer

It's hard to tell during the quarter, but I would say it could be accretive this year. PCA is certainly growing; it's part of our non-M&A mix. As Navid said earlier, roughly two-thirds of our business is M&A and one-third is non-M&A, and PCA is a growing component of that non-M&A mix.

Ryan Kenny, Analyst, Morgan Stanley

As a follow-up on private credit: it came up a couple of times as one of the near-term headwinds. Are you seeing anything under the hood there, or is this mostly headline-driven perceived risk impacting activity?

Christopher Callesano, Chief Financial Officer

I don't think there's systemic risk in the private credit market. Many of the headlines are around direct lending, which is a small part of the overall private credit complex. Most issues today are around direct lending into software and concentration within some portfolios. When valuation shifts occur in software, lenders—especially direct lenders—tend to become more selective and reassess risks. That caution can impact lending in specific areas. Put aside those pockets, many sectors are insulated from technology disruption or are beneficiaries of it, and direct lenders continue to lend into those sectors actively. The point is that some lenders are being more cautious in affected areas, which contributes to the headwinds we referenced.

Operator, Operator

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

Kenneth Worthington, Analyst, JPMorgan Chase

As we think about the business environment for M&A and the puts and takes you highlighted, how does the U.S. compare with Europe and Asia for M&A activity over the next few quarters?

Navid Mahmoodzadegan, CEO and Co-Founder

The U.S. is still ahead of Europe. Europe had a bit of a pop this quarter driven by a few larger-cap transactions, but volumes in Europe are not at the same level as the U.S. We're committed to building in Europe because if you're going to be a world-class global investment bank you must be strong there, but the pace and dynamism of the M&A market are greater in the United States today. In Asia there are pockets of activity, though we see a little less cross-border activity. We have a presence there and it's important, but the U.S. market is leading in terms of momentum.

Kenneth Worthington, Analyst, JPMorgan Chase

Why is Europe not coming together like the U.S.? Is it a financing issue, sentiment, or sector mix?

Navid Mahmoodzadegan, CEO and Co-Founder

There are several factors. Part of it is the different relationship between government and enterprise in some European markets, a more difficult regulatory environment in certain areas, and a different approach to entrepreneurialism compared to the U.S. There's also a different pace to capital formation in parts of Europe. Those structural and cultural differences contribute to why Europe lags the U.S. in the dynamism of M&A markets.

Operator, Operator

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

James Yaro, Analyst, Goldman Sachs

Could you comment on whether restructuring could improve as a result of issues within private credit and the likely cadence for that? Also, could you comment on the mix of M&A versus non-M&A revenue?

Christopher Callesano, Chief Financial Officer

The mix was about two-thirds M&A and one-third non-M&A, split between CSA and capital markets. Generally, those two buckets are in the same neighborhood depending on the quarter. Now we have PCA in that area and it's growing nicely.

Navid Mahmoodzadegan, CEO and Co-Founder

On the outlook for restructuring: there are still significant maturity walls out to around 2028–2030. If you look at the leverage loan and high-yield market, you see roughly $2 trillion of maturities set to hit during those periods. Some maturities were pushed out to 2028–2030 and those companies will need solutions. Some may be able to refinance; others may not. Tech disruption and AI, geopolitical events that affect raw material and fuel prices, and volatility in commodity prices create stress for companies with levered balance sheets. Our restructuring and CSA teams are actively involved in conversations with clients about liability management and other solutions. Over time we expect liability management opportunities to turn into more traditional restructurings. Default rates are still relatively low, but there should be substantial activity in restructuring over a number of years.

James Yaro, Analyst, Goldman Sachs

You mentioned sponsor M&A grew double digits year-over-year. What is driving your business to outperform the broader market on the sponsor side? Are you taking share, or are specific types of sponsors particularly active in terms of geography or deal size?

Navid Mahmoodzadegan, CEO and Co-Founder

To clarify, the double-digit growth was a year-over-year number. Sponsors have been part of our firm's DNA; we cover corporates and sponsors actively and have dedicated sponsor coverage teams. Our firm has been working with sponsors long before sponsor activity was in vogue. I don't want to overstate the market or understate any single quarter's performance, but our teams do a strong job covering sponsors and corporates in a collaborative way. When sponsor activity reaccelerates broadly, we expect to be well positioned to benefit given our deep relationships and focus.

Operator, Operator

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

Brennan Hawken, Analyst, BMO Capital

You spoke about expanding relationships in the creditor community in CSA and restructuring. Which parts of the credit community have you been focused on? Is that shift centered around an opportunity set you expect to become more robust? Also, you mentioned the quarter started a little slower but you had taken up your outlook for the year—do you still expect that business to be flat to up as the year progresses?

Navid Mahmoodzadegan, CEO and Co-Founder

A couple of years ago we hired senior professionals to focus on the creditor side. Over time the creditor community evolved from a hedge-fund-centered marketplace to one where CLOs and other institutional investors are more prominent. To ensure best-in-class coverage of CLOs and other credit constituents, we had to be intentional about building relationships with those players. That means, when pursuing opportunities, deciding to focus on company-side situations or creditor-side opportunities. A healthy balance between those approaches is important to have the largest CSA business possible. Our CSA business is deeply collaborative with our sector teams, and where we have strong company-side relationships and sector knowledge, we consciously align with the right creditors when pursuing creditor assignments. Being intentional and building those creditor relationships has opened up many opportunities and the investment in that side of the business has paid off.

Brennan Hawken, Analyst, BMO Capital

And no change to the outlook, just to confirm?

Navid Mahmoodzadegan, CEO and Co-Founder

Yes. Our pipelines are up meaningfully and we expect growth in our CSA business. We'll see how the year plays out, but the trajectory is positive.

Brennan Hawken, Analyst, BMO Capital

A comp question for Chris: comp expense was $210 million. How close is that to a floor for comp? If the layer above the floor is thinner than normal, is that a statement of optimism around the ability to accrue against more robust revenues as the year progresses?

Christopher Callesano, Chief Financial Officer

Our Q1 comp ratio is down over 300 basis points from this time last year. Q1 also included equity comp due to acceleration of retirement-eligible equity awards, and those awards are fully considered in our 65.8% full-year comp accrual estimate. Right now we are projecting 65.8% as our best estimate for the year. As always, we will evaluate and adjust comp through the year based on revenues, investments in the business and the competitive landscape.

Operator, Operator

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

Brendan O'Brien, Analyst, Wolfe Research

From public data it appears you've had success with strategic clients gaining share relative to historical levels. Is this a concerted effort to focus more on strategics given softer sponsor activity? Do you view these as sustainable share gains you can maintain as sponsor activity recovers?

Navid Mahmoodzadegan, CEO and Co-Founder

That's an accurate observation. Our platform, bankers, and recent lateral hiring have contributed to more traction with strategics, while we maintain historical strength with sponsors. This is intentional. We're hiring sector bankers who know companies deeply, understand the sponsor space, and work collaboratively with product teams. Those are precisely the types of people we look to hire and develop, and they help us pursue the largest opportunities. So yes, it's a concerted effort and a reflection of hiring, talent development and maturation of our plan.

Brendan O'Brien, Analyst, Wolfe Research

Follow-up on the comp ratio: it's difficult to reconcile the record Q1 pipeline and overall optimism with flat comp accruals. How should we think about comp leverage if activity continues to improve?

Navid Mahmoodzadegan, CEO and Co-Founder

On the last call, we noted progress in bringing the comp ratio down and stated we're not finished. Our goal is to continue reducing the comp ratio as investments in people generate revenue and as the market improves. If we see the growth we expect over the next few quarters, we'll revisit the comp ratio in subsequent quarters. The first quarter was up, but not dramatically, and we remain focused on improving our comp ratio over time.

Christopher Callesano, Chief Financial Officer

I agree. It is a bit early to be definitive. Last year we started at 69% and improved the comp ratio over the year as revenues came in and investments matured. We hope to make further improvement this year, though it may not be at the same pace as last year.

Operator, Operator

Your next question comes from the line of Mike Brown with UBS.

Michael Brown, Analyst, UBS

Regarding the pipeline: it appears to be at all-time highs and the public backlog supports a solid second quarter, but market uncertainty could elongate closings and impact the pace of new deals. How do you think the next quarter or two could shape up relative to the prior year? Any color would be helpful given pockets of softness in the market.

Navid Mahmoodzadegan, CEO and Co-Founder

We feel really good about the overall level of our pipeline; we have high levels of announced pipeline deals waiting to close, which is encouraging as we think about the rest of the year. Ultimately, we have to transact against that pipeline. Our teams are working hard to service clients and get deals done, but some outcomes are out of our control. Geopolitical factors and AI-related disruption create near-term headwinds in parts of the market but also open opportunities in other parts of our business. In short, we'll see how the year plays out, but we're optimistic and our teams are working to make this a growth year.

Michael Brown, Analyst, UBS

A follow-up on comp: if the environment improves and revenue growth accelerates, what level of performance could push the comp ratio down 100 basis points from 65.8%? Conversely, if revenues are flat for the year, could you hold comp ratio flat to last year? Trying to think through investments versus fixed comp costs.

Christopher Callesano, Chief Financial Officer

We're not going to provide an algorithm or specific percentages. If the environment improves and revenues reach our expectations, we will see improvement in the comp ratio. We make estimates based on revenues, investments and the competitive landscape and will adjust as the year progresses. If revenues were flat versus last year, given increases in headcount and investments, there could be pressure on the comp ratio, but that's not our current expectation.

Operator, Operator

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

Nathan Stein, Analyst, Deutsche Bank

You said large strategic transactions are driving M&A volumes. What will get the core middle-market strategic deals to pick up speed?

Navid Mahmoodzadegan, CEO and Co-Founder

It comes down to stability. If you're a sponsor waiting to monetize a portfolio company, geopolitical events or widening credit spreads can cause you to wait longer to monetize. High-quality assets have been trading, but many sponsors have been waiting for the optimal price. As geopolitical and private credit headlines subside, and as market conditions stabilize, those assets will come to market. The middle market needs time to open up, but I am confident the assets will move over time.

Operator, Operator

Your next question comes from the line of Daniel Cocchiara with Bank of America.

Daniel Cocchiara, Analyst, Bank of America

On comp and hiring: what competitive dynamics are you seeing on hiring? Are bulge brackets adding pressure to retain talent?

Navid Mahmoodzadegan, CEO and Co-Founder

Hiring difference-makers is very competitive. It's rare to find a great candidate who isn't talking to another firm. We compete with bulge brackets, other independent firms, and firms in other industries. We look for candidates who fit our collaborative culture and who will be accretive. Finding and cultivating those relationships takes time and hand-to-hand effort. We've hired eight MDs this year and are focused on retaining our current bankers and recruiting more top talent. It's my number one focus as CEO to ensure Moelis & Company is the best place for our bankers and to bring in exceptional new hires.

Operator, Operator

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

Devin Ryan, Analyst, Citizens Bank

A quick follow-up on non-compensation expense. You reiterated guidance consistent with prior commentary, but the non-comp line was a bit higher than we modeled and suggests a steadier pace. 'Other' expense jumped meaningfully. I know some items can be lumpy. What drove that step-up and how much of it is core versus transitory or one-off?

Christopher Callesano, Chief Financial Officer

Other expenses include costs that don't warrant a separate category: things like client conferences, certain deal-related capital markets underwriting expenses, insurance, education, business taxes, and a number of other items. Individual non-comp line items fluctuate quarter-to-quarter, but in aggregate they generally balance out. We still anticipate full year non-comp expenses to grow at a rate similar to 2025.

Operator, Operator

I'll now turn the call back over to Navid Mahmoodzadegan for closing remarks.

Navid Mahmoodzadegan, CEO and Co-Founder

Thank you all for joining today. I really appreciate it, and we look forward to speaking with you all soon. Thanks so much.

Operator, Operator

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