Moelis & Company Q1 FY2026 earnings call

Good afternoon and welcome to the call. There has been an active start to the year with record first quarter revenues, announced transaction activity, and senior hiring momentum. The firm has advised on notable M&A transactions, private capital advisory, and an IPO. Entered 2026 with high levels of new business origination and a constructive outlook. While facing headwinds from the war in the Middle East, disruptions in private credit, and the impact of AI on certain sectors, there are also opportunities. An overview of product areas is provided, including M&A, private capital advisory, capital markets, and capital structure advisory. The firm has hired eight managing directors year-to-date, invested in talent across industries, repurchased 1.9 million shares, maintains a strong balance sheet with cash and no debt, and is actively testing and deploying AI tools.

Record first quarter revenues of $320 million, a 4% increase versus the prior year period. Revenue growth was driven by year-over-year increases in M&A and private capital advisory, partially offset by declines in capital structure advisory and capital markets. The business mix for the first quarter was approximately two-thirds M&A and one-third non-M&A. Adjusted compensation expense ratio was 65.8% in the first quarter of 2026, down from 69% in the first quarter of 2025. Adjusted non-compensation expenses were $67 million for the first quarter, resulting in a 21% non-compensation expense ratio. In M&A, corporates continue to seek scale, large-cap transactions drive volumes, and take-private transactions are driven by public equity market dislocation, with M&A revenues from sponsors growing double digits during the quarter. In private capital advisory, the market for GP-led secondaries is at record levels, the team is executing mandates and building a significant pipeline, and senior bankers are being added. In capital markets, demand for growth capital is driving activity, IPO issuance is strong, and the firm is investing to meet opportunities. In capital structure advisory, liability management is active, the pipeline is meaningfully above last year's levels, and technological disruption and commodity price volatility create opportunities.

Currently, the firm anticipates that its full-year 2026 non-compensation expenses will grow at a similar rate to 2025 due to ongoing investments in technology (including AI), increased deal-related travel expenses, and growth in headcount. The board declared a regular quarterly dividend of $0.65 per share, and the firm repurchased 1.9 million shares during the quarter.

The war in the Middle East, disruptions in private credit, and the impact of AI on certain sectors create near-term headwinds in the transactional environment. Geopolitical uncertainty, widening of spreads in certain sectors, and private credit dynamics affect sponsor exit activity. Volatility in raw material prices, input prices, tax disruption, and AI disruption create stress for companies with levered balance sheets.

Q: Big picture on the software sector, activity evolution, forced consolidation, take privates; A: Software stocks were repriced in the public markets due to fears about AI's impact on business models. There will likely be companies that adapt and prosper, some that are significantly disrupted, and others that need time to figure out the impact of AI. The firm is well positioned to service these different categories of software companies.

Q: What brings sponsors back and macro conditions; A: There is significant demand from sponsors to transact with their portfolio companies, but it depends on lining up that demand with favorable market conditions. Geopolitical uncertainty and private credit spreads have caused near-term headwinds, but sponsor activity is expected to pick up as conditions settle.

Q: Restructuring revenues decline, magnitude, drivers; A: The decline in restructuring revenues is due to timing, as transactions close in different quarters. Volatility in raw material prices, input prices, geopolitical factors, tax disruption, and AI disruption create near-term headwinds, but also opportunities for liability management.

Q: PCA revenues progression, competitive landscape; A: The PCA team is being built aggressively, with seven managing directors to be added soon. The thesis for PCA is on track, clients want to support the firm, and the team is winning mandates and executing them.

Q: U.S. vs Europe vs Asia M&A outlook; A: The U.S. is ahead of Europe in the M&A market. Europe lags due to different relationships, regulatory environments, entrepreneurialism, and capital formation. Asia has pockets of activity.

Q: Restructuring backdrop, mix of M&A vs non-M&A revenue; A: There are significant maturity walls in the leverage loan and high yield market. Tech, AI, and geopolitical events create stress for levered companies, providing liability management opportunities. The mix is two-thirds M&A and one-third non-M&A.

Q: Sponsor M&A growth, outperforming broader market; A: Sponsors are part of the firm's DNA, with dedicated coverage teams. The market for sponsor activity is not fully open yet, but the firm is well positioned to benefit when it does.

Q: Creditor community expansion in CSA; A: The firm hired senior professionals to focus on the creditor side, as the creditor community has evolved. Balancing company and creditor side activities is important, and the investment in this area has paid off with growth expected.

Q: Comp expense floor, optimism on revenues; A: The Q1 comp ratio is down, with equity comp higher due to accelerated equity awards. The firm projects a 65.8% comp ratio for the year and will evaluate and adjust as revenues develop.

Q: Success with strategic clients, sustainability; A: The firm has an intentional focus on strategic clients, with a strong platform, talented bankers, and hiring efforts. This is expected to lead to sustainable share gains as sponsor activity recovers.

Q: Pipeline, impact of market uncertainty; A: The pipeline is at all-time highs, but market uncertainty may elongate deal closings. The firm is optimistic about the business, with teams working hard to drive growth.

Q: Comp ratio with revenue growth, flattish REVs; A: The firm does not provide specific algorithms, but if revenue increases, the comp ratio will be revisited. If revenues are flattish, adjustments may be considered but are not expected at this time.

Q: Core middle market strategic deals pickup; A: Stability is needed for middle market strategic deals to pick up. Sponsors are waiting for optimal market conditions, but these assets will come to market over time.

Q: Competitive dynamics in hiring, bulge brackets; A: Hiring great talent is highly competitive, with the firm competing against bulge bracket firms and others. The firm focuses on finding difference makers who fit in a collaborative environment and is successful in hiring.

Q: Non-compensation expense, step up; A: Other expenses include various items that fluctuate from quarter to quarter, but the firm anticipates full-year non-compensation expenses to grow at a similar rate to 2025.