Moelis & Company (NYSE:MC) Q4 2023 Earnings Call Transcript February 7, 2024
Moelis & Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon and welcome to the Moelis & Company Earnings Conference Call for the Fourth Quarter in 2023. To begin, I’d like to turn the call over to Matt Tsukroff
Matt Tsukroff: Good afternoon, and thank you for joining us for Moelis & Company’s fourth quarter and full year 2023 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.
Joe Simon: 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 $215 million of revenues in the fourth quarter, an increase of 6% versus the prior year period. For the full year, our adjusted revenues of $860 million were down 11%. The revenue declines were driven by a decrease in fees earned from M&A, partially offset by an increase in restructuring and capital markets fees. Regarding expenses, our full year compensation expense ratio is a little less than 83%. As a reminder, our first quarter compensation ratio will likely be elevated as a result of retirement eligible awards, which are expensed at the time of grant. For the full year, we reported a non-compensation ratio of approximately 21%.
As a result of our MD headcount expansion, underlying non-comp expenses will be in the $45 million to $46 million range, beginning in the first quarter, excluding transaction-related expenses. As many of the annual vesting of RSUs will occur later this month. For purposes of quantifying the excess tax benefit, we expect the impact to EPS to be approximately $0.01 for each $1 difference between the vesting price and adjusted grant price of $39 a share. Regarding capital allocation, the Board declared a regular quarterly dividend of 60 cents per share, consistent with the prior period. And lastly, we continue to maintain a strong balance sheet with $349 million of cash and no debt. I’ll now turn the call over to Ken.
Ken Moelis: Thanks, Joe. Good afternoon, everyone. While 2023 was a challenging year, we played strong offense and aggressively expanded our business. During the year, we hired 24 and promoted eight managing directors. Many of these new MDs are focused on the most significant global fee pools, including technology, industrials, and our clean technology group. While we expanded our new MD population by approximately 20% during the year, our total employee headcount grew just under 5% as we actively managed our headcount. In early 2024, we promoted seven bankers to MD and have hired three. One hire enhances the firm’s coverage of credit funds, and two managing directors we’ll join in the coming weeks are focused on upstream energy.
While we will selectively add talent in areas where we see meaningful fee pool opportunities, this year we expect to be primarily focused on delivering our expanded expertise to our clients. It’s difficult to predict when the M&A environment will fully rebound. However, the Fed’s messaging has eliminated the tail risk of future rate hikes and brought into view a high probability of rate cuts in the coming year, which I believe will give rise to an increase in M&A activity. We’re seeing early signs of an improvement in sentiment as expressed in our pipeline, which is near record levels at the beginning of the year. Barring unforeseen events, I’m confident that we have seen the bottom of this M&A cycle and that we have positioned the firm well for the coming uplift.
With that, I’ll open it up for questions.
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