Moelis & Co Stock

Good afternoon, and welcome to the Moelis & Company earnings conference call for the third quarter of 2026. [Operator Instructions] To begin, I'll turn the call over to Mr. Matthew Tsukroff. Please go ahead.

Good afternoon, and thank you for joining us for Moelis & Company's Third 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 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 will now turn the call over to Navid.

Thank you, Matt. Great to be with everyone. Certainly an interesting afternoon to be doing an earnings call, but it is great to be with you. So we had another active quarter advising clients and continue to build on the momentum in our business. We reported third quarter revenues of $426 million, up 13% from the prior-year period. Our revenue increase for the quarter was driven by substantial growth in our M&A business and strong performance in capital structure advisory. For the first 9 months of 2026, our revenues of $1.15 billion increased 10% year-over-year and represented a record first 9 months.

Our average fee earned per completed transaction was also a record for both the quarter and first 9 months as we continue to advise clients on larger and more complex assignments. These include a number of notable transactions announced since our last earnings call.

Our leading Special Committee advisory practice has been very active, having recently advised on several assignments, including Meta's establishment of a new class of common stock, Penske Automotive's $16 billion take-private and Surgery Partners' $5.7 billion sale to HealthSpan Partners. We also advised QIAGEN on its EUR 10.8 billion sale to EQT, and Marathon Petroleum on its $4.2 billion divestment of certain assets to CVR Energy.

In Capital Markets, we advised Sequence Holdings and DFO Management in connection with $3.7 billion of financing for the acquisition of The Baldwin Group. And in Capital Structure Advisory, we advised Medical Properties Trust on its $2.4 billion liability management transactions. And finally, in PCA, we advised BlackRock on the capitalization of a private credit continuation vehicle.

Moving to the market. We continue to have a constructive outlook for transaction activity as the underlying fundamentals for M&A remain very much intact. Companies recognize that standing still is not an option. The need to build scale, strengthen market positioning and enhance growth continues to create demand for M&A. While we are mindful of risks such as higher market volatility, geopolitical tensions, higher rates and uncertainty surrounding AI infrastructure financing, our client activity remains strong. As of today, both new business origination and our announced pipeline are up approximately 20% year-over-year, and our total pipeline is at a record high.

Now turning to our product areas. Our M&A business continues to perform very well. Third quarter M&A revenue grew 40% year-over-year, driven by strong growth in strategic M&A. Our investments in talent and expanded capabilities as well as the continued maturation of our platform are translating into a growing number of assignments advising large corporate clients on significant transactions. Additionally, our sponsor M&A business has also performed well this year despite broader sponsor market activity trailing expectations. Notably, the number of sponsor M&A transactions on which we advise increased approximately 30% during the first 9 months of the year, underscoring the strength of our long-standing relationships and continued engagement across this important client base.

Our capital structure advisory business delivered one of its strongest quarters on record with year-to-date revenue growth in line with the broader firm. The current market themes are consistent with what we discussed last quarter. Liability management solutions continue to account for much of the activity, while increased lender selectivity is making refinancing more challenging for lower quality credits. Looking ahead, as lenders become less willing to extend upcoming maturities, we expect traditional restructuring to increase over time.

Additionally, the recent rise in interest rates as well as continued dislocation across a number of industries could further expand the opportunity set for our CSA business.

In capital markets, our third quarter revenues were softer following a record first half, primarily reflecting the impact of increased market volatility and transaction timing. Despite this, our capital markets pipeline continues to grow with both the number of transactions and associated fees at record levels. Underlying client demand remains strong across both public and private markets as unprecedented capital expenditures related to AI and digital infrastructure and other high-growth sectors continue to drive issuance activity. We remain confident in the outlook for the business, although the timing of completions remains dependent on market conditions.

Finally, private capital advisory. The secondaries market continues to experience strong growth, supported by significant pressure to increase DPI across private market portfolios and growing investor demand for established high-quality assets. Our PCA team is very active in this market, winning new mandates and building a significant pipeline. We continue to make substantial progress in expanding our PCA capabilities. All 7 of our managing directors focused on GP-led secondaries are now on our platform and our recently hired LP-led secondaries and promoted co-investment teams are off to a good start. And since our last earnings call, we've hired 3 managing directors focused on primary fundraising who will join us over the coming months.

With the team we are assembling and our deep sponsor relationships, we believe we are well on our way to establishing a best-in-class PCA business that supports clients across the private capital ecosystem. This brings me to our investment in talent. Attracting and promoting top talent remains a key strategic priority. Year-to-date, we've hired 24 managing directors, making this our most active recruiting year on record. 13 MDs have already joined the firm, including 7 since our last earnings call. The remaining 11 are expected to join over the remainder of 2026 and into 2027, strengthening our capabilities in TMT, financial institutions and industrials, all large fee pools where we see attractive long-term growth opportunities as well as in primary fundraising within PCA, as previously mentioned. We remain active in the recruiting market and continue to engage with exceptional bankers who can be difference bankers on our platform.

Before I conclude, I want to highlight the significant progress we're making incorporating AI across our business. I'm particularly excited about the collaboration of our teams as they develop new use cases and incorporate these tools into workflows that can be deployed firm-wide. While we are still in the early stages, we believe AI will significantly enhance productivity, allowing us to generate more ideas, deliver better advice and ultimately create more transaction opportunities for our clients.

In closing, our franchise is performing at a very high level despite a complex market backdrop. We have a strong and diversified pipeline with the best talent serving more clients than at any point in our history. Having a broad set of capabilities enables us to best advise our clients through periods of market volatility. We remain focused on delivering exceptional advice investing in the long-term growth of our business and creating lasting value for our shareholders.

With that, I'll pass the call to Chris to review our financial results in more detail.

Thanks, Navid, and good afternoon, everyone. As Navid noted, third quarter revenues were $426 million, up 13% from the prior year period, with growth driven primarily by M&A and capital structure advisory, partially offset by lower capital markets. Revenues in the first 9 months of the year were a record $1.15 billion, up 10% year-over-year. The year-to-date increase in revenues was primarily attributable to M&A, capital structure advisory and a growing contribution from TCA. For the first 9 months of the year, our business mix was approximately 70% M&A and 30% non-M&A.

Turning to expenses. Our adjusted compensation ratio for both the third quarter and first 9 months of 2026 was 65.8% compared with 66.2% and 68% in the prior year period. As we have stated previously, we expect to reduce our compensation ratio over time with the magnitude of improvement depending on revenues and a competitive market for talent. Adjusted noncompensation expenses were $61.3 million in the third quarter, resulting in a 14.4% noncompensation expense ratio.

For the first 9 months of the year, our adjusted noncompensation expenses were $195 million, an increase of 19% year-over-year, representing a noncompensation expense ratio of 16.9%. The primary drivers of the expense growth in both current year periods are higher occupancy costs associated with our New York and London offices, increased technology and data expenses, including investments in AI and increased business and client activity, including higher deal-related travel and client conferences. For the full year, we expect growth in noncomp expenses to be approximately 19% over last year. Our adjusted pretax margin was 21.4% for the third quarter and 18.6% for the first 9 months of 2026 compared with 22.2% and 18.2%, respectively, in the prior year period. Our effective tax rate for the quarter was 29%, roughly in line with the third quarter of 2025.

Turning to capital allocation. The Board declared a regular quarterly dividend of $0.65 per share, consistent with the prior period. In the third quarter, we repurchased 278,000 shares on the open market net settlement for a total cost of approximately $19 million. During the first 9 months of the year, we have repurchased 2.6 million shares for a total cost of approximately $160 million. Including the dividend declared today, we will have returned approximately $318 million of capital to shareholders with respect to the first 9 months of 2026. And finally, we ended the quarter with a strong cash position of $659 million and no debt.

With that, we can open the line for questions.

[Operator Instructions] Your first question comes from the line of Devin Ryan with Citizens JMP.

I want to ask a question about the pipeline and kind of the connection to revenue conversion. I appreciate some of the color just on the new business origination and announced pipeline being up 20% year-over-year. I think the total pipeline, you said is a record. But you're also doing some larger deals and the market conditions are, as we saw today, pretty complicated. Can you talk about the pace of kind of conversion, how that's been evolving just over the past few months?

And then assuming we are on the other side of the midterm here, having to kind of rethink certain verticals and there's obviously ripples around that, like do these types of events substantially lengthen transaction timing? Or do you think it will really be just sector-specific and deal specific? I'm just curious, you've been through these kind of volatile moments before. So curious kind of what you think will happen.

Sure. Thanks, Devin. I appreciate the question. And I know every firm kind of looks at pipelines differently. I just want to make sure you understand how we think about pipeline. So when new business comes into our firm, and we are actively working on an assignment on a deal, obviously, if we're spending time on it, we think it has a reasonable chance of happening. That's what gets added to our pipeline.

And when I say that -- and obviously, a deal either happens or it dies or it's still in process, and that's what impacts the overall pipeline. And then within the overall pipeline, if we announce a deal, if we announce the world of deals happening, then usually those convert at a very, very high level. So typically, the only thing that will impact that is regulatory, if there's a regulatory problem.

So announced pipeline has very high conversion. And then within our overall pipeline, obviously, there's different conversion metrics that we look at and things like market volatility impact some of those businesses differently than others. So a CSA mandate, for instance, typically has a very, very high conversion because a lot of that business is retainer-based, something will happen. You don't always know the timing of that.

That's kind of maybe on one end of the spectrum, a CSA mandate or even a PCA mandate typically has very, very high conversion on deals in the pipeline. Capital markets may be more at the other end of that because it is market dependent and market volatility could impact that.

And then M&A, depending upon if it's strategic M&A or sponsor M&A somewhere in between, right? But as I said, all of the key metrics, all of the key KPIs that we look at, overall activity, stuff coming into our pipeline. And certainly, announcements are at very, very strong levels. We're obviously processing the events of the last 48 hours. It's been an interesting last 48 hours, and we're still getting our head around that. But look, I do think the one theme here is having a broad-based set of capabilities to be able to pivot depending upon market conditions, to be able to advise our clients and make sure we have the right advice and the right set of capabilities to help them navigate through periods of market volatility is really key, and we're really happy that we're in a position to be able to do that.

Got it. Appreciate it. And a quick follow-up on the private capital advisory platform and kind of the scaling you're seeing there. It sounds like that's just continuing to contribute at an increasing level. Just to put a finer point on it, can you just talk a little bit about how that's, I guess, on its own becoming more impactful to the firm, if there's anything else you can share around the contribution. But then also whether that's driving more opportunities in the M&A side with sponsors? And is that playing a role in doing some of these larger fee deals? Just curious kind of like with the momentum as you've added numerous bankers since 2023, kind of the contribution there and then the network effect across the firm.

Sure. Well, look, the PTA build is still relatively early. Matt Wesley, who runs that business for us, got here earlier last year. So he's been on the platform a little bit over the year. He's been actively building the team. As I said on the prepared remarks, the GP-led secondaries team is the most developed at this point, 7 MDs working on active mandates. Revenues are already seeing the recognition of deal closings and some revenue. It's not meaningful this year or this quarter. But as we look into next year, there's certainly a meaningful pipeline that's building, and we feel awesome about that business.

The 2 other businesses where we have people who've hit the ground are the promoted co-investment business and the LP secondary business, and they're very nascent. So those people are just getting going, but off to a good start so far. And then as I mentioned, the primary fundraising team, which is a little bit of a longer lead time business generally, those teams won't really get here. The senior people of those teams won't get here until next year. And then it will take some time for primary fundraising to get mandates and get capital raised and to see real revenue. So I feel great about the team. I think we've made absolutely the right set of hires. The opportunity is as good as I ever thought it was going to be. So very much on track there.

And I think you're absolutely right. Like we've already seen mandates where we went in both with our M&A team and our PCA team. We weren't really sure -- the sponsor really wasn't really sure whether they're doing M&A or they were going to do a continuation vehicle. If we didn't have that PCA capability, I think there's a chance we may not have had those mandates. And some of those mandates are staying PCA, others are pivoting to M&A. And again, having both of those capabilities, sometimes it doesn't even show up in PCA. It will show up in M&A, but it will have been an opportunity loss if you didn't have the PCA capability. So we're definitely seeing that real time.

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

I was hoping you might be able to comment a little bit further on the restructuring cadence from here. As you think about the outlook from here, is there a handoff between liability management traditional -- to traditional restructuring? Or is that more of a seamless growth trajectory potentially? And then maybe just over what potential that handoff or shift from one type of mandate to another could occur?

So great question, James. So all of that, both liability management, traditional restructuring happen is processed through our CSA capability. It's not a handoff from one part of the firm to another. And one of the things, again, that's really unique about our go-to-market strategy is, there are also sector bankers and sometimes sponsor coverage bankers if it's a sponsor deal, who are all part of those teams.

So we have a very collaborative, very integrated approach, which is very differentiated in the world of CSA. It's pretty unique and one of the things that I think has enabled us to create a top CSA franchise. And whether it's a liability management flavor of transaction or it ends up being a restructuring flavor of transaction, the professionals from the CSA team that are working on that are the same professionals. They're very, very well versed in all the different gradations of CSA transactions.

And so the deal teams don't change. And again, because we typically also have sector teams there, if the pivot is to M&A either as part of that transaction because that sometimes you see that, you see M&A out of restructuring or you see M&A on the back heels of restructuring because we have a collaborative approach to that, those handoffs are super seamless in our firm.

Okay. That makes sense. Maybe just one more on the restructuring side of things. How would you think about the impacts of potential stress on parts of the AI financing complex? And how could this potentially impact your restructuring business or your CSA business, I should say?

So look, if there's stress anywhere in the system, if there's disruption happening in any sector, especially where there's been lots of capital formation, clearly, our CSA team is well positioned to take advantage of that. And yes, AI infrastructure has been an area of massive capital formation. It's really been the dominant theme of the capital markets here for the last few years.

And if some of these situations should tip in or if a broad-based set of these situations should tip in to more liability management restructuring workout, et cetera, certainly, again, the combination of the fact that we have a very strong data center emerging telecom team that has been working and is working on many of these financings and M&A transactions and a strong CSA team, certainly, we'd be well positioned to take advantage of that.

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

I wanted to drill down a little bit more on the sponsor side and the outlook there. So you mentioned the number of sponsor transactions you've advised on year-to-date is up 30%. So if you could maybe speak to where the strength has been coming from there, whether that's contributions from specific sector teams or anything else really? And also how the movement in interest rates has impacted activity levels here more recently and also on your outlook for sponsor volumes to grow from here on out?

So I think the data I cited wasn't just M&A. It was sponsor transactions generally. And so I do think that, again, more of the broad-based nature of our capabilities has really helped us capture more sponsor wallet share. That's been an important part, again, of having capital markets and having PCA to pair with CSA and restructuring and M&A to make sure that we're really front and center in sponsors with sponsors as a solution provider. In this particular year, obviously, sell-side is always a big part of our franchise, but we do from time to time in this year, we have had a fair number of buy-side work with sponsors.

So one of the things I'm really proud of is the more and better sector teams we have focused in more areas, the more capabilities we have to advise sponsors, the more wallet share we're going to take. And we're definitely seeing that in a year like this where generally sponsor activity is a little sluggish, a little muted. It's improving, but it's not where everybody wants it to be. And yet our share of sponsor wallet, we think, is improving.

Got it. That makes sense. And then maybe as a follow-up, I just wanted to ask around comp expectations for 4Q. So just given where the year-to-date revenue numbers stand, can you just maybe speak to how confident you are in being able to drive additional leverage here in the fourth quarter and how we're just thinking about -- how should we be thinking about comp kind of more generally as we think -- start to think about '27 as well? Just any additional color there would be great.

Look, I think we entered the year with the expectation that we would get some comp leverage. We haven't adjusted the comp ratio, as you can see for the first 9 months of the year, but our expectation continues to be that by the time the year finishes up, we will be able to exhibit some comp leverage and a reduction in the comp ratio. So that still continues to be our expectation.

Your next question comes from the line of Steven Chubak with Wolfe Research.

So to start, I wanted to ask on the noncomp outlook beyond this year. You spoke of some of the factors that are driving the growth in noncomps. Just trying to gauge how we should be thinking about the duration of the AI investment cycle given the heavy investments you and some of your peers are making on the technology side and whether you'd be able to bend the cost curve beyond '26 or if that heavy pace of investment is going to need to be sustained just given the duration of this AI cycle?

Yes. Thanks for the question. It's going to be difficult to start by forecasting 2027 at this time. We are currently going through our bottoms-up budgeting process, right? So we closely review what's needed, what opportunities we have for savings. We continue to focus on improving cost savings and pretax margins. I would say, if you're looking in particular on technology, that's a line item that I can imagine continue to grow in 2027, whereas, for instance, other line items that won't grow as much would be real estate. But at this time, I mean, I think we are not going to provide any real direction for 2027, except that we'll be in a position to probably provide more information at our next earnings call.

Let me add something to that. Look, you're right, Steven, there's increased technology spend because of AI and other things. Like everybody else, we're adopting, as I mentioned, adopting AI, experimenting with AI. We're excited about what we think it could do for our business. Those costs will continue to increase. Having said that, we're laser-focused on making sure that we're being most efficient in how we utilize these tools. I think as we move more towards token-based consumption, which is likely around the corner for us and our peers, making sure we're being very, very focused on efficiency and using the right tools for the right task is going to be very, very important.

Secondly, at some point, we're going to have to get efficiencies in our organization and drive efficiencies in our organizational structure and most importantly, in terms of productivity. And so we do believe that there will be a positive return over time on the AI spend. And we're very, very focused on making sure that we can track that and can demonstrate that once we get through this uptake period.

No, that's really helpful color. And for my follow-up, I did want to ask on the 162M tax provision that's expected to go into effect beginning next year. It looks like for you and some of your peers, it could have a pretty material impact on the go-forward tax rate. I was hoping you could speak to at least some of your preliminary findings based on the work that you've done thus far.

Yes. Thanks for that. Yes, we are currently evaluating the impact. There are, as you can imagine, many variables that will affect the rates as we head into year-end. However, for a start, we can imagine adding a few points to our tax rate. We'll be able to again provide more information at our next earnings call and then, of course, the first earnings call when it finalized.

Any guardrails around that?

I think at this point, there's too many variables that are open. So I think we're going to stick with a few points is probably give or take a point or 2 on either side.

Your next question comes from the line of Gabriel Angelini with Bank of America.

Obviously, activity was quite strong this quarter, and I think revenue growth actually accelerated modestly year-over-year compared to the second quarter, which was nice to see. And I appreciate the pipeline is up 20% year-over-year, but I think it's a little lower than the 80% mark you discussed last quarter. So given that, can you talk to us around where you think we are in the current M&A cycle? And is it fair to say that we're no longer in the early innings there?

Yes. Look, I'm not sure those 2 data points have any relevance to the concept of where we are in the M&A cycle. So look, M&A cycles are very, very hard to predict. Everything we see into the foreseeable future is really strong demand for M&A, both from strategics and from financial sponsors. Now in the prepared remarks, we did talk about some of the headwinds that we have to navigate in order to make M&A pipeline turn into M&A completions. And certainly, we don't take any of those things for granted.

Whether it's geopolitical risk or some of the volatility you're seeing in the marketplace, there are factors that could impact the pacing of M&A completions. But the underlying fundamentals, the need for scale, the need for growth the need to deal with technology disruption, the sponsor need to get DPI, all of those things suggest a healthy level of M&A demand for a long period of time. Typically, these cycles, you can only predict in hindsight when an event happens, and that's the end of the cycle. It's very hard to predict those on a go-forward basis.

Got it. That's helpful. And then maybe as a quick follow-up, it sounds like the business mix may have shifted slightly more toward M&A this quarter versus the typical sort of 2/3, 1/3. So just wondering if that was driven by more strength in M&A this quarter. And I understand you don't break out the non-M&A businesses, but maybe any color you could provide there on the relative strength between them would be helpful.

I just think in a business like ours, especially now that we have expanded capabilities, it's hard to extrapolate too much on any 1 quarter or 2. As I said before, I think we have a healthy and vibrant M&A business, demonstrated by the continued growth in that business. CSA has had a good year and a very good past quarter. We had a softer quarter in capital markets despite the fact that they had a record year last year and a record first 6 months of the year.

So I think when you're looking at any specific quarter or 2, there are vagaries of client activity and impact the timing and very client-specific things and sometimes market-specific things that impact some of the composition of the revenue in any one period. And I'm not sure I extrapolate too much on any quarter or 2.

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

So markets sold off today on pretty broad-based AI concerns. And while that's obviously just one day and a singular data point, but I wanted to ask what would a major slowdown or delay in AI-related CapEx or data center build-out mean to your business and pipelines?

Yes. Look, it's a good question. I think, look, we're still processing the events of the last 48 hours. I think coming out of the blue wave of Tuesday, I think the market's interpretation of that yesterday was very different than the market's interpretation of that today despite the fact that there wasn't a lot of news between yesterday and today, right?

And so I think in a sense, you could look at some of the political changes and draw an optimistic picture about the likelihood of continued war in the Middle East and what impact there could be a rollback of tariffs and potentially getting inflation under control and some of the checks and balances that might be super helpful in terms of helping M&A activity and financing activity.

And at the same time, there's certainly increased political risk to the system on the development of data centers and things of that nature and the market was captivated by that today. And look, again, I keep coming back to this theme of having a broad-based business. It's absolutely critical to be able to pivot depending upon market conditions.

A lot of the market for the last year or 2, certainly the financing markets and the public equity markets have been driven by all the capital formation around AI and digital infrastructure, and we've certainly taken advantage of that. And so if there's a shift there, it could hurt parts of our business on financing and M&A in some of those markets, but help other parts of our business.

I do think one of the things that has happened over the last 12 to 18 months is there's so much focus and so much emphasis on the AI trade and capital formation around that, that it's really crowded out capital formation in other areas that where there is growth happening and there is vibrancy, there's been just so much attention going to and so much capital going to the hot sector that it's been a little bit more challenging to raise money for companies that aren't growing at the same magnitude, but still are very healthy companies and very vibrant.

And so one of the silver linings, if there is a blip or a major blip on the AI infrastructure side is there could be a recalibration back to more traditional businesses that are worthy of capital. So we'll see. We're monitoring all this carefully. All of this is real time and -- but it's a very good question.

Appreciate the color there. And then I just want to ask really quickly on the noncomp expense dollars. So back in July, you had talked about the noncomp being in the mid- to high $60 million range in both 3Q and 4Q of this year. So it came in lower than that this quarter, but based on the full year comment, it sounds like 4Q levels will be near the high end of the range. So I wanted to ask, was there a lumpy cost that maybe was taken out or pushed into 4Q? And longer term, is that mid- to high $60 million range a good way to think about noncomp dollars?

Yes. I would say that this quarter, Q3 was a little lighter due to some seasonality, lower travel during the summer months. There also was less underwriting syndication costs associated with capital markets business. However, as you can imagine, cost do shift from one quarter to the next. So it's probably best to look at noncomp on a full year basis. And as I said in the prepared remarks, we expect it to grow approximately 19%. So I think we were pretty consistent from the beginning of the year that we thought it was going to grow in the high teens, and it looks like that's probably where we'll land.

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

I just wanted to ask on the software M&A trends. And I just wanted to touch base on how that is trending this year. Obviously, that was really constrained earlier this year around a lot of the AI uncertainty in the market. Have you started to see more activity coming through in that sector? It seems like we've seen a couple of kind of larger deals, but wondering if that's starting to broaden out and you're seeing any more of that activity start to come through your pipeline.

Sure. Yes. Great question, Mike. So look, I think when the apocalypse kind of happened earlier in the year, I think when we got on that next call, we talked a little bit about how the market had painted a very broad brush on anything that was software related, and we at least felt that, that was an exaggeration that over time, there would really be differentiation between different types of software companies, some of which would adapt and thrive in the AI world and really adopt AI to transform their businesses and be super vibrant and others would struggle and potentially there was impact to their business model and impact to their terminal value.

So I think now that we're a few quarters removed from that, I think we're seeing that. Certainly, in the public markets, some of the cohorts, the software companies in that cohort are notwithstanding the events of the last couple of days, the public market valuations have essentially fully recovered. In the M&A world, we're definitely seeing in certain parts of the software sector, cyber being a good example, both big private activity and private company M&A.

So there is some M&A happening in pockets of the software industry, certainly. It's not broad-based yet. I still think there's a healthy part of the ecosystem where people just aren't sure even though they're not seeing business model impact yet from AI, there's still concerns around terminal value and terminal multiples and things of that nature.

And for a subsegment of those companies that have a heavy amount of leverage, there's certainly dialogue and work that our teams are doing around thinking through opportunistic liability management for some of those companies. So it's keeping our CSA team busy on some of those names. So I think there's some differentiation happening, but it's still early days.

Okay. Great. Maybe just a quick clarification on your last point there. Is the team starting to see some of the software restructuring or liability management exercises coming through at this point? And then if not, what's your view -- best guess on timing? Is that something that's more of a '27 event or later in the second half of '27? Just any views there would be helpful.

We're seeing some, but it's still, I would say, pre liability management work advice and conversations. So I still think it's going to a little bit -- take a little bit more time for some of those conversations to rip in. It's hard to say whether the bulk of that will happen in '27 or '28, although I would note that starting in '28, '29, there's a fair amount of debt maturities that are coming due and software is a very healthy portion of some of those debt maturities. So I think it's -- I think you're likely to see some -- a fair amount of liability management happen over the next 12 to 18 months.

There are no further questions at this time. I will now turn the call back to Navid for closing remarks.

Thank you all for your time this afternoon. We look forward to speaking with you all again soon. Have a great evening.

This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon, and welcome to the Moelis & Company Earnings Conference Call for the Second Quarter of 2026. [Operator Instructions] To begin, I turn the call over to Mr. Matt Tsukroff. Please go ahead.

Good afternoon, and thank you for joining us for Moelis & Company's Second 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, 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 Navid.

Thank you, Matt, and good afternoon, everyone. Appreciate your being with us today. The second quarter was another strong period for our firm. We reported revenues of $409 million, up 12% year-over-year. For the first half of 2026, revenues were $729 million, an increase of 9% from the prior year period. These results represent record revenues for both the quarter and the first half, driven by higher average fees, per completed transaction and meaningful contributions from the businesses we have built and expanded in recent years.

Collectively, our non-M&A businesses generated record revenues in the first half, led by capital markets and the growing contribution from private capital advisory. Since our last earnings call, we've advised on a number of notable transactions.

These include Taylor Morrison's $8.5 billion sale to Berkshire Hathaway, Magnolia Oil & Gas' $4.1 billion acquisition of Wildfire Energy, AtaiBeckley's $3.8 billion sale to Eli Lilly and Bridgepoint's acquisition of Kayne Anderson Real Estate.

Beyond M&A, we advised Office Properties Income Trust on its $2.4 billion restructuring, Carlyle on its continuation vehicle for content partners, and we served as active bookrunner and lead placement agent on Doncasters' $1.1 billion IPO and concurrent private placement.

Despite market volatility driven by the war in the Middle East, concerns about private credit redemptions and the evolving impact of AI, client engagement and transaction activity has remained strong.

At the end of the second quarter, our announced pipeline had increased over 80% versus the prior year period. In addition, new business origination accelerated in the second quarter, and we entered the back half of the year with a record total pipeline. These factors support a strong outlook for the remainder of the year.

Now let me turn to each of our businesses. In M&A, market conditions continued to improve in the second quarter. Accessible financing and strong equity market performance are supporting increased transaction activity, while the strategic need for scale and a more constructive regulatory environment are driving greater interest in larger transactions. This is evident in our performance and pipeline, which includes a higher number of opportunities advising larger cap clients and substantially higher average fee opportunities.

While industry-wide sponsor M&A activity has remained modest year-to-date, our sponsor business continues to perform well. In the first half, announcement activity in our sponsor M&A business grew meaningfully over the prior year period, and our overall sponsor pipeline remains strong. We are encouraged by this and are confident in our ability to support our sponsor clients across a variety of market environments, given our broad capabilities, including continuation vehicles and bespoke private capital raising.

In capital markets, our expanded capabilities continue to drive meaningful growth. Our capital markets business achieved record second quarter and first half revenues, driven by constructive market conditions, strong demand for late-stage growth and pre-IPO financings and healthy IPO activity. We remain active across the public markets with further IPO activity expected later this year. At the same time, demand for hybrid and structured financing solutions is robust. To support this growth, we have continued to invest in our capital markets platform.

On our last earnings call, we referenced two Managing Director hires who have now joined our team. One brings deep expertise in debt capital markets and private credit. The second will help establish our securitization capabilities, expanding our offering into structured products and enabling us to provide clients with asset-backed financing solutions across the capital structure.

Turning to private capital advisory. Our PCA franchise was a meaningful contributor to our revenue growth in the first half of the year, and the team has significant momentum in deal completions and new client mandates. The market for GP-led secondaries remains very active and its growth is structurally supported by sponsor liquidity needs and institutional investor demand for exposure to seasoned private market assets.

To address this opportunity, we have aggressively expanded our GP-led secondaries capabilities, achieving critical mass with seven dedicated managing directors, including one MD who will be joining shortly. The team's early success is a testament to both the quality of talent we have hired and our collaborative model, where our sector bankers work closely with our PCA team to deliver exceptional client solutions.

We are now expanding the business into complementary areas and have hired one Managing Director to launch our LP-led secondaries capability and another to develop our promoted co-investment expertise. Both of these areas will be important in building a comprehensive platform that serves the full PCA ecosystem.

In capital structure advisory, we entered the second half of the year with high levels of engagement. Liability management continues to dominate deal activity. And while well-positioned borrowers can still access capital, increasing lender selectivity is making refinancing more challenging for some highly levered companies. We are beginning to see AI create differentiation among software businesses, and we expect that demand for liability management as well as capital market solutions will pick up for certain companies as the sector continues to evolve.

Combined with the strength of our technology franchise, we are well positioned to support our clients as their needs develop. In addition, we are expanding our CSA team with an MD hire who will further enhance sponsor and creditor coverage when joining later this year. This brings me to our investment in talent, which continues to be one of our highest strategic priorities.

To summarize, since our last earnings call, we have hired four managing directors, which include the two PCA hires and one CSA MD already mentioned and an MD in Europe focused on infrastructure. This brings our total lateral MD hires year-to-date to 12 in addition to the 13 internal promotions announced at the beginning of the year. Recruiting exceptional bankers is a core priority, and we are excited about the quality of senior talent that is joining our firm.

Finally, we continue to make meaningful progress deploying AI across the firm. These tools are becoming increasingly embedded in our workflows and are enhancing the quality of our client engagement. We remain optimistic that growing adoption of AI tools will increase the efficiency and productivity of our business.

In closing, I'm very pleased with the way our firm is performing, and I expect a strong second half of the year. With the best talent and most comprehensive capabilities across products and sectors in our firm's history, we continue to be focused on delivering exceptional outcomes for clients, executing our strategic growth priorities and creating long-term value for our shareholders.

With that, I'll pass the call to Chris to review our financial results in more detail.

Thanks, Navid, and good afternoon, everyone. As Navid noted, second quarter revenues were $409 million, up 12% from the prior year period. First half revenues were $729 million, up 9% year-over-year.

Growth in both current year periods was driven primarily by capital markets and private capital advisory, partially offset by declines in capital structure advisory. For the first half of the year, our business mix was approximately 2/3 M&A and 1/3 non-M&A.

Turning to expenses. Our adjusted compensation ratio for both the second quarter and first half of 2026 was 65.8% compared with 69% in both prior year periods. As we have stated previously, we expect to make continued progress on our compensation ratio this year with the magnitude of improvement depending on full year revenues, senior hiring and the competitive market for talent. Adjusted non-compensation expenses were $66.5 million in the second quarter, resulting in a 16.2% non-compensation expense ratio.

For the first half of the year, our adjusted non-compensation expenses were $134 million, representing a non-compensation expense ratio of 18.3%. The main drivers of the expense growth in both the second quarter and first half of the year are attributable to increased business and client activity, including higher deal-related T&E, expenses associated with client conferences and underwriting syndication costs from our expanding public equity capital markets capabilities.

Additionally, we continue to invest in technology and data, including AI and increased occupancy to support the growth of the business. We expect our quarterly non-comp expenses to be in the mid- to high $60 million range for the remainder of the year.

Our adjusted pretax margin was 18.6% for the second quarter and 17% for the first half of 2026, an improvement compared with 17.6% and 16%, respectively, in the prior year period. Our effective tax rate for the quarter was 29.1%, roughly in line with the second quarter of 2025.

Turning to capital allocation. The Board declared a regular quarterly dividend of $0.65 per share, consistent with the prior period. In the second quarter, we repurchased approximately 337,000 shares on the open market at an average price of $64.43 per share.

During the first half of the year, we have repurchased approximately 2.3 million shares through open market repurchases and net share settlements for a total cost of approximately $141 million. Including the dividend declared today, we will have returned approximately $246 million of capital to shareholders with respect to the first half of 2026. And finally, we ended the quarter with a strong cash position of $481 million and no debt. With that, we can open the line for questions.

[Operator Instructions] Your first question comes from the line of Devin Ryan with Citizens Bank.

This is Neil on for Devin. My first question is on Moelis progressing upstream and deal size. So obviously, you've had some increasing success winning roles on some of the larger strategic transactions, which appears to be becoming a more important part of the franchise. Can you talk a little bit about the key drivers of that progress and where you're focusing your efforts to kind of sustain that?

Sure. Thanks, Neil. So as I think most people are aware, the M&A market, certainly for the last number of quarters has been geared more towards larger transactions. That's where a lot of the activity is primarily until this quarter in kind of the $5 billion-plus range. Interestingly enough, we noticed an upswing in kind of that next tier down, the $1 billion to $5 billion this quarter, both in the market data and in our own practice. And so we're going to watch that, but I'm optimistic that, that could signal an expansion of the overall M&A market into more of the middle market.

But you're right, we're more active than we've been historically on larger transactions. Part of that is because that's where the market activity is. But it's also because the investment in talent we've made, both laterally and with respect to our internal talent development a lot of that hiring and the people who have joined our firm, maturing on our platform, creating critical mass in some of our spaces, enhancing and expanding our product capabilities. It's all of that coming together to really support larger cap, bigger fee opportunities.

And I think on top of that, as an institution, I think we're doing a better job of really focusing and organizing and marshaling our resources around bigger cap opportunities. So I think it's a combination of the market. It's a combination of the maturation of the talent that we've assembled at the firm as well as organizational focus.

Great. And then for my follow-up, could I ask a question on the rising cost of senior talent. So how is the increasingly competitive environment affecting your hiring plans and then the returns you require when adding senior bankers? And then are there any particular industries, geographies or products that you guys are targeting?

Sure. Look, it's definitely competitive out there. The market for hiring world-class talented bankers, both in sectors and products and geographies is certainly very, very competitive and retaining our talent is also a very, very competitive marketplace out there. So we put a lot of care attention and effort on both of those things, retention and recruitment. What we're really looking for and what we're really focusing on is best-in-class talent that's consistent with the culture that's going to add to the culture and wants to be part of a collaborative culture and firm.

We, if you look at the 12 MDs we've hired this year laterally, about 5 of those are in various sectors, including energy and industrials and health care, et cetera. And 7 of those MDs are product bankers sitting across M&A and PCA and capital markets, et cetera. So we like that balance and mix in our lateral hiring. And then we also love the balance and mix of this internal talent development. So we promoted about 13 MDs this year. And so there's a good balance and mix there between internal talent promotion, lateral hiring. And I suspect as we roll forward here, we're going to try to kind of keep both of those engines humming in terms of further developing our talent and adding to our MD population.

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

Navid, so you talked about the fact that the backlog continues to rise. You've got a record backlog now. Maybe as we talk about the, or think about the second half here, it looks like revenue typically will rise about 37% in the second half versus the first half, if we look at the last 3 years. Understandably, you don't have a crystal ball and the market can shift quickly. But assuming the base case kind of plays out here and you look at your backlog, can that seasonal second half pickup play out this year similar to the prior years?

Look, I don't want to make any specific predictions around the second half of this year playing out exactly the way it have played out in future past, I should say, back halves. But look, I will say this, I mentioned our overall pipeline is at a record level as of the end of the second quarter, even more importantly, within that overall pipeline because that overall pipeline is a combination of both things we're working on that haven't yet got to deal announcement and deal announcements that are waiting to close.

So within that overall pipeline, the thing that's very encouraging about our back half and gives us a lot of visibility is the announced pipeline. And that announced pipeline sitting here today is up 80% versus where it was a year ago. at the exact same time of the year. So, all of that gives us confidence in addition to the new business review activity, the general feeling we're getting from our bankers who are in the trenches working on deals that the second half of the year is shaping up to come together quite nicely. So we're encouraged by that. We'll obviously have to see and play it out and see what the market will support, but we feel really good about the overall level of activity.

Okay. Great. Maybe just to double-click a little bit on the kind of software space and maybe a little bit of extra focus on the sponsor side there. Jon Gray talked a little bit about what they're seeing in their ecosystem in terms of kind of three different buckets in the kind of AI disruptive world, and they talked about kind of companies that are beneficiaries of AI, the AI unaffected companies and then those where there's more uncertainty and a lot of activity focused on the first two buckets.

Can you maybe talk a little bit about what your observations are in terms of businesses that are impacted there? And then how are kind of sponsors approaching a lot of the uncertainty at this juncture. Obviously, a lot has kind of happened over the last few months. I'm curious how some of those conversations have developed. And I'm sure there's some pockets of the software space that are active, perhaps things like take privates, some of the AI winners can be more active. But can that offset some of the traditional software LBOs that were so common in the prior few years?

Sure. Great. Thanks for the question, Mike. Well, look, if you go back and listen to our call from a quarter ago, we had a very similar construct that we laid out for how we thought the software disruption would play out, very similar to what you just mentioned, kind of three buckets. We believed at the time that the market was sort of painting a broad brush across all these different software companies and that over time, there'd be clear differentiation and that some of the companies in the software ecosystem would end up being net beneficiaries of AI. They would adopt and adapt to kind of the new world and thrive and a lot of those companies would be able to raise capital and do M&A and participate in growth vectors.

On the other end of the -- and we've seen some of that, and we've actually engaged in software M&A this quarter. We had a recent announcement sizable for this period of time, software M&A transactions. So we're definitely seeing some of that. Folks are starting to differentiate themselves. On the other end of the spectrum, I do think there's going to be some companies who are disruptive and potentially materially disrupted by artificial intelligence and will have a real impact on their businesses. Some of those companies sit within sponsors. Some of those companies have a fair amount of leverage. And our tech and CSA teams are all over those sets of opportunities to do work around balance sheets and liability management, et cetera, et cetera.

Again, the beauty of our model is very, very collaborative. When we identify opportunities and sponsors who need help with those kinds of situations, our sector teams and our product teams work hand in glove to bring those solutions to our sponsor clients. And then I think in the middle, as you pointed out, I think there's going to be a bunch of companies where it's just too early to tell how this is going to play out. And some of those companies over time may take advantage of capital markets trades, continuation vehicles, things of that nature as things develop for those companies. So I agree. I think we're seeing that demarcation start to play out or differentiation start to play out, I should say.

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

Here on behalf of James. First question, which we had was how would you characterize where we are in the M&A cycle today? And how long can it continue to grow?

I appreciate the question. I think when you look at it, I still think we're in early innings of the M&A cycle. When you look at the factors that are promoting M&A, the need for scale, technology disruption, the heavy investment that needs to go into staying out in front of technological trends, the vast number of companies that are still sitting within sponsor portfolios that need to get sold over time, many, many companies that have been in sponsor portfolios for a very long time. And the regulatory, at least for now, the regulatory environment that's more relaxed than it's been. I still think we're early days of a long-ish M&A cycle. And within that cycle, there will be some ups and downs and periods of ups and downs in terms of the volume of activity. But I just think the forces that are promoting M&A are going to be around for a while.

That makes sense. As a follow-up, could you help us think about your structural margin profile over time? When you weigh up a higher comp ratio, but a lower non-comp ratio, how does this shake out and relative to your historic margin profile?

Let me start and Chris can chime in as well. Look, I think you've seen, we've, I think, done a good job of bringing our comp ratio back more into line with what we've traditionally seen. We've been investing very heavily in the platform in terms of world-class bankers, both on the product and sector side. I think we're still committed for sure to continuing to invest in that talent to serve our clients and create a great long-term business servicing those clients.

But we also appreciate that there is more room to kind of bring that comp ratio down over time, and we're committed to doing everything we can to do that to create that balance between bringing that comp ratio down and continuing to invest in our business. And I think as our revenues grow, we'll be able to get more leverage over our non-MD cost base, and I think we'll get more leverage over our non-comp expenses. Chris, do you want to add to that?

Yes. I mean the only thing that I'd add is we do focus on margins, which obviously includes both comp and non-comp, and we target leverage over time. I'd note that our pretax margins have improved sequentially and over the prior year for both the quarter and year-to-date periods. And we've been improving our margins over the last several years.

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

Navid, you spoke a bit to software and some of the potential issues there around some of the sponsor positions. But I'm more curious about the sponsor market more broadly. You guys have done a great job in pivoting and you spoke to that earlier. But sponsor engagement is really important for your franchise. We've been waiting for that to improve for quite some time, and nobody really seems to have good answers as to why it hasn't. Do you have any theories? And what is it you're watching for to see some engagement pick up in that really important cohort?

Thanks for the question, Brennan. Look, engagement is very, very high with sponsors. So there's no shortage of very intense engagement from our sponsor teams, our sector teams. sponsors want to talk about deploying capital into new opportunities, and they absolutely want to talk about solutions to monetization and moving assets in their portfolios. So there's no issue with engagement. The issue is really more around M&A in mostly the middle market. There are a bunch of companies that sponsors bought in kind of that period right before COVID as the market was heating up and then certainly right after the reopening of the economy that were bought in a different rate environment with different growth outlook.

And you've seen disruption from technology in some of those spaces. And so the difficulty is not engagement. The difficulty is for a segment of the universe of sponsor portfolio companies, we're not at the point yet where those companies can be exited at values that correspond with appropriate rates of return that the sponsors are expecting. And so it's going to take more time for some of those companies to kind of grow into valuations that will create that equation, more positive equation for sponsor exits or it's going to take more time for sponsor to decide this is the best it's going to get. I need to move these assets. So I think things will improve over time.

As I said, I think we're starting to see a little bit of improvement in some of the data in the $1 billion to $5 billion range. And I think over time, you'll start to see that drift down more in this heavy portfolio of companies, especially in that mid-market will start to move. The good news is even if that doesn't happen right away, we've built a very sizable capability in capital markets. So there's lots of conversations around bespoke capital raising and creative solutions to get partial liquidity for sponsors on portfolio companies. So we do a lot of that work. Now we have a world-class CV business, and we have lots of conversations and traction on working with sponsors around putting assets into longer-term vehicles.

For my follow-up, I'd actually love to drill down on what you just commented on with the growing PCA business. You guys have added several managing directors here in this business recently. It sounds like you've got some good momentum. The comments in your prepared remarks were constructive, growing contribution. So when you think about time frames for that business and you think about the potential for the revenue per MD in that business versus the rest of Moelis, is the expectation it would be in line with the firm-wide numbers? And how long do you think it will take to get there? And is there a particular level of scale that you would need as far as number of MDs or whatnot?

Yes. I think generally, that business should be in line with the rest of our business on revenue per MD parts of that business. Again, we're now, I would say, in soon to be in kind of 3 of the 5 components of PCA. Some of those PCA businesses like GP-led continuation vehicles, the time to market, the ramp to build some of that activity is pretty quick. One of the things I mentioned in our prepared remarks is this collaborative approach that we have where our sector bankers work closely with our PCA teams is creating a lot of early at and early wins for our PCA team.

You combine that with our deep sponsor relationships, that business is ramping up pretty quickly. Other businesses like primary fundraising, which we're not quite in yet, but I hope to be in soon, will take longer to ramp up because the cycle for raising new funds, getting signed up to raise a fund and actually raising that fund takes a little longer. But look, I think we've said over the next few years, we expect to have a sizable PCA business across hopefully most of the sectors of PCA. Everything we've seen so far about a year into it is we're well on our way to doing that.

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

Natalie on for Alex. I heard you mention that it was a record second quarter for capital markets. Can you talk a little bit more about how this compares relative to the last couple of quarters? And any color on that group's performance and then the outlook for the rest of the year would be helpful.

I appreciate the question. That group is doing an exceptional job. Our business in capital markets really spans both debt and equity, both public and private and soon to be a business in securitization, which I mentioned earlier. So that business is growing and dynamic, great leadership, great team that we've built. Obviously, part of that business is partially dependent on the strength of the capital markets, and it's been a good environment here over the last few quarters.

But I think, as I said, long term, we see significant opportunity to continue to grow that business. And we are continuing to look for ways to kind of expand our capabilities there because we continue to see client demand for objective aligned advice to help navigate these markets, to help navigate the private credit markets, just sit with companies and really help them find the best and cheapest and most aligned source of capital. And we see just a big opportunity to continue to build that business.

Great. And then maybe one for Chris. I'm hoping you can add a little bit more color on the non-comp expense commentary. I appreciate the updated guide. And then maybe on AI tech spend in particular, it makes sense to invest there, but wondering if maybe you can share when you expect to see some of the recent investments translate into operating leverage.

Sure. As I mentioned on the prepared remarks, much of the growth in non-comp is tied to increased business activity. And one of the primary drivers of the larger-than-expected growth in non-comp relates to increased underwriter syndication costs associated with our public equity capital markets business that Navid was just touching on. So I would say, excluding these distinct transaction-related expenses, the growth in our non-comp would be at the same rate as last year, which was our original forecast.

Along with the other activity-related increases that we spoke about, we would expect our quarterly comp or non-comp expenses to be in the mid- to high $60 million range for the remainder of the year. With respect to AI and the expenses, I know we monitor our AI usage across the firm. However, currently, many of our tools are on a fixed contract without any incremental or variable costs for increased tokens through the year and actually into part of next year, of course, we'll continue to monitor that usage and see how those costs develop over time. But for now, we're comfortable with our projected AI spend.

And Natalie, just to add on to that on your question on productivity. I mean, look, right now, we're still in that phase of testing, adopting, deploying, getting these tools out in the hands of our bankers. I think the next phase of that, and that will continue. The next phase of that, which we're well underway is as our bankers adopt these tools and implement them into our workflows, making sure that our bankers are talking to each other, they're spreading those best practices. I'd like to say at the end of the day, AI is going to be bottoms up. It's not going to be top down.

It's going to have to come from our bankers in the field and our different disciplines, incorporating that into their workflows and then kind of spreading that gospel throughout the organization so that we can get the kind of productivity gains that I think will come both in terms of efficiency. But even more importantly, I think the promise of AI, and we're really bullish on it is I think it can make all of us better more effective investment bankers at all different levels. If we can create more ideas, better ideas for our clients, give better advice, use those tools to do that, I think we can create more transactions and be more efficient in terms of our banker headcount. And so that's the goal, and that's what we're striving for. Still early days, though.

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

I just want to follow up on the AI conversation there. So clearly, there's some efficiency opportunities. But how do you think about the risks there? And how do you think about the idea that maybe the industry evolves that all gets competed away, pitch decks have to come faster, clients expect more, and so the margins don't really improve. Are there any other risks as you think about AI?

Yes. Look, we spent a lot of time thinking about protecting our information, protecting our data. At the end of the day, our real competitive moat is the quality of our people, the quality of our relationships and our information and data. And so our teams, our legal teams, our IT teams, the committees that work on AI for us spend a lot of time thinking about the risks and how do we make sure that our client information and our own data is protected, and we preserve those competitive moats.

Look, as I said, in terms of your second part of your question, I do think there's going to be an element of this that's going to be commoditized. We're all going to have access to a lot of the same tools. I think how we use those tools and how we adapt those and how we incorporate those into our workflows is going to be part of what improves the performance of our company and our ability to execute with clients. And if you look at previous technological innovations, spreadsheets, et cetera, the ability to create decks faster, all of the innovation that sort of happened, mobile, all of those things, I think, made the industry better, even though those were commoditized things that everyone had access to. I do think over time, investment bankers became better, more efficient, provided better advice to do more transactions.

There are many more transactions happening today per senior investment banker than you saw 20, 30 years ago. So I think it can both be commoditized, but also make all of us better and more efficient.

And then shifting gears, I have a question on capital, which is cycle seems like it's building, sustainable, a lot of tailwinds ahead for the persistence of M&A. So as you create more capital, how do you think about the uses there on dividend, buyback? And would you ever be open to being an acquirer?

So let me take those questions. So I think as you all know, we tend to be pretty conservative when it comes to the balance sheet. We run the business with no debt and lots of excess cash. Our priorities are to continue to make sure we're investing in the long-term growth of the business and serving our clients.

Second, we want to make sure we kind of protect the dividend. We obviously have a nice healthy dividend and want to make sure that nothing happens to change that. I think our next order of priority after that is share repurchase. We look at that really carefully. As you've seen, we've been pretty aggressive, at least versus historical standards here over the last few quarters. I suspect as we roll forward, we're going to continue to want to make sure we're largely mitigating the dilution that comes from employee comp equity that's issued as part of employee comp. I think that will continue to be kind of the order of priorities as we roll forward in terms of capital.

In terms of acquisitions, I think, look, as the hiring market has continued to be competitive, I do think being open-minded about acquisitions is the right approach, and we are open-minded I do think we do strive to look at every opportunity that's out there. I think for us to actually do a sizable acquisition, I think there's three criteria that have to be part of that.

First is it's got to be world-class talent that would add to our firm. Second, it's got to be consistent with our culture. We're never going to do an acquisition that we think is going to diminish or impair our culture in any way. So cultural alignment is really important. And then we want those people who are going to be joining those firms to be equally excited about the long-term growth opportunity of our firm. And so alignment on deal structure and deal terms is going to be absolutely critical. So really open-minded about acquisition opportunities. And if we find the right situation that checks all three of those boxes, we wouldn't hesitate to do something.

There are no further questions at this time. I will now turn the call back to Mr. Matt Tsukroff for closing remarks.

Really appreciate everyone joining us today. Enjoy the rest of your summers, and we'll talk to you soon. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

All right. Let's get started. So we are pleased to have with us Navid Mahmoodzadegan, CEO and Co-Founder of Moelis. Navid, thanks so much for joining us.

Great to be here.

Always great to have you back. So let's start on strategy. So you're roughly 8 months into the CEO role. It feels like longer. It's been a busy year. So how have these last few months been? And what are the few things that you're most focused on as CEO?

Thanks for the question and wonderful to be here today. So it's gone great. I've really enjoyed being CEO of the firm and leading our great franchise. I think it's been what I thought it would be, which is exhilarating every day to wake up and do everything I can to support our bankers and the work of supporting our clients, growing our firm, which is a really important initiative to continue to expand our capabilities and to make sure our culture is the best it possibly can be. So all of those things are a challenge and taking up a lot of my time.

So on culture, as a co-founder, you've seen Moelis through various cycles. And what parts of the culture are really nonnegotiable to you, especially as the firm expands and navigates different environments?

So culture is, as you say, absolutely critical to everything we do. It's a foundational thing for our firm. And the elements of the culture that I think are most important. First, collaboration. We were founded on the principles of bankers working together in seamless teams to bring the best of our firm to our clients. I think that's been one of the hallmarks of our success. And one of the reasons why even though we're now much larger than we were at the founding, the firm still feels like a family because we are all working together to do everything we can to help our clients.

Second, to be nimble and innovative. I think we do a really good job and our bankers do a really good job of trying to go where the puck is going in terms of new business opportunities, new sectors, new spaces, and there's countless examples of that within the firm of our bankers coming together to attack new spaces.

And I think third, a culture of people who are good people, high integrity, people who really care about the work they're doing, they care about the clients and want to work together to maintain and perpetuate that culture.

Let's shift to the environment. On the M&A side, I really want to start with what are you hearing from clients? And have the conversations with clients changed over the last few months?

So I think it's -- generally, it's an active market. We feel good about the trajectory of the business, the deal volume and deal flows. I think if you look at our business, we've had a great start to the year, both in terms of announcements that we've made as well as the pipeline as it sits today and the overall level of activity, I think, is strong. And I think what's underlying that, back to your question about clients is a real desire to -- on the corporate side for companies to get scale in an environment where the regulatory environment is accommodative of scale and welcoming scale.

I think that's further important in a world where there's a lot of tech disruption and companies are trying to figure out how to win in an AI world and oftentimes getting additional scale to put themselves in the best position to succeed in that world is super important. And on the private equity side, much has been made about the lack of deal flow in the middle market and the volumes there. And there's some reasons why the market hasn't opened up the way we all hoped it would. It's not a terrible market, but it's certainly not as broadly as I think many of us had hoped.

I think the important thing to note there is there's still very, very strong desire from the private equity community to both deploy and more importantly, to monetize their portfolio investments. I think -- and I think that monetization will take many different forms, and it will take some time to work through the system. I don't think we're anticipating you wake up one day and the middle market opens up dramatically. I think it will -- I think we've seen some signs of improvement, and I think it will further gradually improve over time, which I think will happen over a period of months.

So activity remaining strong. And when you think about the areas of strength, you mentioned AI. Is AI a big driver of strategic decisions on the M&A side? Or is it broader than that?

AI is on everybody's minds. It's in every conversation, every meeting we're having with clients. It's the #1 topic that people want to talk about, how is AI going to disrupt the specific industry how should we, as a company best position ourselves to take advantage of that? How does M&A play into that? What should we be doing in terms of acquisitions or divestitures to put ourselves in the best position to win? Those are the flavor of the questions that literally every meeting we go to is on the front and center of every strategic conversation we're happening.

One of the things I think you've seen that has put a little bit of a damper on part of the market is we've seen some disruption in some sectors, software being kind of that first sector that got a lot of attention in terms of people questioning the ultimate value of some of these companies, the terminal value of these companies. And I think, as I said on our earnings call, I think the market has painted a broad brush on a lot of those businesses today. And I think over time, you're going to -- we're going to learn that many of those software companies are, in fact, going to thrive in a post-AI world. Some won't and some -- it will take some time to figure out where they sit in that spectrum. And I think until some of that plays out, it's hard to know what to do with some of those companies.

Software is a manageable percentage of deal flow for you, meaning majority of your deal flow would not be impacted by AI disruption.

Well, look, I think if you just asked the question how big is software? Is -- software is an important space for us, but it's definitely not the majority of our deal flow. It's an important part of an important sector of ours, which is technology. And we have a great tech team and a great tech team covering lots of different software companies, and they're in active dialogue with our clients over the kinds of topics we're talking about.

What about large cap versus middle market? We've seen large-cap strategic decisions really drive activity in the U.S. over the last 12 months, supported by a regulatory backdrop that's more transparent. So what do you think it takes to get that core middle market piece moving in scale?

I think there would be a few things that would be very helpful to get more momentum in that middle market. I think, first, getting the war to a good conclusion, I think, would be super helpful, getting past some of the inflationary pressures in the marketplace. Hopefully, we won't be getting a series of rate cuts that will dramatically impact the cost of capital. I think if we can get kind of kind of stability on the geopolitical front, stability on the rate front and time. I think for a certain segment of these companies, it just takes time for them to grow into valuations that make it compelling for the private equity sponsors to actually come to market. And so I just believe that with some stability in some of those macro factors and some time, things will gradually improve.

And on geopolitics and the themes of deglobalization, supply chain resiliency, how do you compare the level of activity in the boardroom of those themes versus AI? Has AI overtaken everything? Or is it equally meaningful?

I think supply chain and making sure that there are certain industries that are based and certain capabilities that are based in the U.S. is still an important theme. But yes, I agree with the general proposition that AI is the central defining question of our time and how companies take advantage of AI and put themselves in the best position to win is the topic that is most relevant right now in the boardroom.

Let's turn to sponsors. So how has activity changed year-to-date? And how has it changed versus your expectations?

As I said earlier, I think we all hoped that there would be a major uptake in sponsor level activity, I think we've definitely seen continued improvement. It may not be going at the pace that we all hoped, but there's definitely improvement. And I think, again, back to the desire, there is strong desire in the private equity community to transact. The whole essence of a private equity firm is to deploy capital and return capital. And I think there's just tremendous desire to get that flywheel going again in the private equity universe.

And I think that's why it's really important, if you kind of take a step back and look at our firm over the last few years, we've really done a lot to bolster and enhance and create world-class capabilities on our product set. We've always had a great M&A franchise. We've always had a great franchise in capital structure advisory. We now, after a few years of investment in talent and leadership, have a world-class equity capital markets, debt capital markets business. A lot of that business not only works with growth companies, but also works with sponsors to work on custom tailored capital solutions.

And our newest business, private capital advisory is one we're super excited about. That is a business that really is facing the private equity GPs and helping them create CVs and other solutions to help with portfolio optimization and portfolio management. And having that full suite of capabilities puts us in a beautiful position to have really strategic dialogues with our private equity clients beyond just, hey, can we help you sell an individual company here or there.

When we think about getting that flywheel spending for sponsors, one of the changes we've noticed in the last few months is the IPO market is active. The window is opened. Does that change the momentum in the flywheel?

I think it's very healthy. I think an open and active IPO market is good for our business. We participate in some of that. As I mentioned before, we have an active equity capital markets business that is doing IPO advisory and working in IPO underwriting groups with a lot of growth companies. So that's a business we're in. But I think even broader, if you kind of take a step back, I think the ability to create more public companies if the IPO market is open is a healthy thing for the whole ecosystem, and it's something I welcome.

And what about interest rates? So we entered the year expecting some cuts and now there's discussion of maybe pause, maybe hike. How are clients thinking about those various scenarios?

Look, cost of capital is always an important factor in decision-making around transactions. I think the hope would be, again, that we see some of the inflationary pressures subside if we can get past and have a decent settlement to the conflict in the Middle East. And again, my hope is that rates kind of stay within a zone that's conducive to activity. That's something we're monitoring really carefully. It's something our clients are monitoring really carefully.

And if there was a hike, would that put the sponsor return narrative on pause?

I think if there was a meaningful move in longer-term rates, which are really kind of tied to a lot of the financings that drive private equity activity. I think if there was a sustained increase in that cost of debt capital, that could have an impact on the margin, sure.

Got it. So sustained significant move is bad, but maybe one hike is...

Yes. Again, the Fed doesn't set the longer-term rates. The Fed set shorter-term rates and the market will determine longer-term rates. So I think at this point, people are assuming there's going to be a Fed hike towards the end of the year. We'll see what that does to longer-term rates. And we're -- as I said, we're monitoring that pretty carefully.

Great. So let's turn to restructuring. So on the restructuring side, how are companies adapting to a world where refinancing capital is structurally more expensive?

Well, I think when you look at what's happening, we have -- we do have a series of debt maturity walls, really picking up in 2028, 2029, '30, there's something like $2 trillion of maturities that will have to be either refinanced or extended out or something has to happen with the balance sheets of those companies. Some of those maturity walls were really kicked out from a few years ago. And so I do think as we get closer to some of these dates, our teams are active in terms of advising clients on kind of what to do with those maturity walls. And I think the flavor of the day for the last few years has been what we call liability management, which is working with creditors in different ways to extend out maturities and buy companies more time before they have to do something.

But I do think in segments of the market, especially in some of these more disruptive segments, we're likely to see potentially more normal way restructurings, as we like to call them as opposed to liability management exercises. So I think you'll see both liability management and more formal restructuring process with some of those companies.

And are there any specific industries where you're seeing any real signs of stress beneath the surface?

Look, I think a lot has been made about automation and job losses and job cuts. I think -- look, I do think it's easy to say call centers or something like that is kind of the paradigm for a business that really should be automated, that shouldn't exist in a people-based format. We've talked about software and what that means. I think there's many innings to play to figure out what happens to SaaS and software companies. But that's the question right now is what's the next leg of disruption and where does it hit? And how does it impact those companies.

Let's turn to capital markets. So your Capital Markets business is an increasingly visible growth area and you're participating in more IPOs. You've added MDs and securitization and debt capital markets and private credit. Where are you seeing the most demand in that business right now? And how big can the capital markets business become for Moelis?

So we had a record year in capital markets last year, which we're really proud of, and that team is off to another great start in 2026. I think you're right to point out that we've significantly expanded our capabilities, both on the debt side and on the equity side. Our business on the equity side is really more facing growth companies. And so you can imagine the sectors where they're focused on today, space, alternative energy, blockchain and crypto, where there's just a lot of activity both in the public and private markets, digital infrastructure being another good example.

And on the debt side, we have an active business in customized debt solutions. A lot of that interfaces with the private credit markets and private lenders. And securitization is a new business that we believe we could be very active in. So we're building a team to pursue that strategy as well.

And then another growth area is private capital advisory. We talked about it a little bit when we talked about sponsors, but I want to dig in there. So you're investing heavily over the last year. And what are some of the lessons learned in your build-out of PCA? Has demand really met expectations?

We're really excited about the early days of our PCA business. Our assumptions going in were a fewfold. One, that there would continue to be a long runway of these kind of customized GP-led solutions. That's really the first business we're starting with. And that's proven to be true. We think that market is growing and active and is now not just doing CVs in private equity, but also in private credit. And we think those businesses have long runways.

Second, we knew that if we put a world-class team together, which we have that we felt strongly that our private equity clients would want to work with us. And that's proven to be true. That team is off to the races, lots of good early wins, lots of good early executions and a rapidly building pipeline of transactions. So the going-in assumptions, both with respect to strength in the market and our ability to create a great team and our clients' desires to work with us is all proven to be true. And we're adding to the team and building the team. Right now, the biggest bottleneck is continuing to add resources there so we can go after the opportunity set that we think is pretty enormous.

Let's turn to non-comp. So investment banking industry is rapidly adopting AI. And how does Moelis approach AI adoption big picture?

AI, we are spending a lot of time, and I'm personally spending a lot of time thinking about this topic. We have a number of internal working teams with some of our most tech-enabled tech savvy bankers who are spending a lot of time on this topic. I think the Phase 1, which we're right in the middle of is testing and deploying and utilizing a lot of the tools that are available in our industry. So we've put out Rogo and chat enterprise and the note-taking tool. And soon, we'll have in our bankers' hands some very functional tools around modeling and PitchBook creation and some of those things. So that's kind of the basics of kind of Phase 1.

And then I think in the long run, the key is going to be how do we harness 20 years of internal data and kind of plug that into our -- to our internal AI models and create maximum functionality for our bankers. I think AI has enormous potential at all levels of our organization to make us more productive, more efficient, more effective. And I'm very, very excited about the promise of that and what it could do for our business in a positive way. And I think all of that could be done and still have healthy staffing levels and still provide our bankers incredible opportunities to grow within our firm from right out of college all the way to managing directors one day.

And as cost of token having any impact or driving any conversations on the non-comp side?

Not yet, not yet. We are making significant investments in a lot of the technologies I just mentioned earlier. Right now, token usage is not driving a lot of incremental cost yet. We'll monitor that, obviously, as we get these tools in people's hands and as they utilize them to serve clients. But there is, as you point out, there is additional costs in our noncomp expense for the work we're doing to harness AI in the most beneficial way.

And do you see AI longer term changing the fundamentals of the people-driven, relationship-driven model that Moelis has? Or is it more a productivity tool layered on top of the same model?

I think it's more of the latter. I do think AI is an enormously exciting productivity tool, as you put it. At the core of what we do, though, is relationship, judgment, discretion, trust. I think AI helps us put those other skills to the forefront in a more efficient way and a more productive way. But I think the essence of what we do, advising clients, corporate clients, governments, private equity clients, entrepreneurs, et cetera, on their most important transactions is still a very human endeavor, and I think is going to be a human endeavor for a long time.

Great. So thinking about total non-comp, not just AI, how are you thinking about growth for the rest of 2026? Any updates?

Yes. We're going to see -- as I think Chris said on our earnings call, we'll see some growth this year in non-comp. Part of that is AI, but part of it also is we just moved into a beautiful new office space in London. I think that's really been transformative for our business there and morale and our ability to attract great talent there. So there'll be some incremental costs for office moves like that. There's some incremental moves for client events and things that we do as part of our franchise building, and there's some incremental costs for hiring and some of the infrastructure around hiring.

So on the hiring side, Moelis has consistently emphasized hiring difference makers rather than simply adding scale. So is there any change in hiring philosophy? What does that mean difference makers? And how do you view hiring plans for the rest of 2026?

So we're actively engaged in lots of exciting conversations around lateral MD hiring. As you know, lateral MD hiring is not the only way we grow our firm. Internal talent development and promotion is very, very important in what we do as well, but it's augmented by lateral hiring. This year, we will have 9 -- as of today, 9 new MDs joining the firm this year, some of whom have started, some of whom will be joining us later in the year, and we're really excited about that. All of those people fall into the label you mentioned of difference makers, we believe.

And you're right, it really does matter the quality of the person, the quality of their client relationships and dialogue, their ability if they're a product person to really add value to a situation. We've just found over the years that it's better to not have coverage in a space than to have coverage with -- to have average coverage in the space. We'd rather wait, be patient. There's many, many parts of the world that we're covering well and doing an incredible job with difference makers. And there's other parts of the world that we're still developing talent or hiring -- or we're going to be hiring talent to cover those companies. And I'd rather be patient than hire an average player.

The vast majority of the client and transaction activity usually goes to the best bankers in the space. And my goal is to bring as many of those bankers onto the platform as possible, consistent with our culture. And that's what I spend a lot of my time thinking about.

So we're in a cyclical upswing for M&A banking activity, and we're seeing some increased competitive pressure on MD compensation. So how do you think about balancing hiring plans need to grow with efficiency?

So both are important. We are building the franchise for the long term. So all of our decision-making on people and investments are long-term decisions, but we can't be oblivious to the short term as well. So we try to do things in a balanced, measured way. Having said that, you mentioned that it's super competitive for talent. It is. It is very, very competitive. We're not the only ones who believe that difference makers matter, and those people are highly sought after. So we have to work really hard to convince them to join our firm. We have to convince them that a collaborative platform that has many, many growth levers ahead of it is the right place for them to be. We have to be competitive on how we bring them in. And we have to think about being prudent in the short run in terms of how much of that we do, but all consistent with building the very, very best franchise we possibly can.

So putting it all together, hiring plans, revenue growth, that impacts your comp ratio mechanically. So any update on comp ratio expectations for this year?

I don't have an update beyond what we said on our first quarter earnings call. Look, we, I think, have made meaningful progress over the last few years to bring the comp ratio more in line given the market dynamics and given the heavy investments we've made in really upgrading our platform over the last bunch of years. I do believe, as I said in the last earnings call, there's opportunity to move our comp ratio and we intend to bring our comp ratio down further. How much further on what time line, I think a lot of that will depend on the pace of hiring and also on the revenue performance of the firm this year and into the future. But I want all of our investors to know we're very, very focused on trying to do that the right way, again, consistent with the long-term nature of our build.

And on long-term view, is there a comp ratio level that you think would be appropriate?

It's hard to say. I think just so much of that does depend on the competitive nature of what we do. Again, we're in the market for talent, attracting and retaining talent. And we on our own can't determine what our comp ratio should be if the marketplace is in a different spot. That's an input, along with many other inputs in us figuring out what -- where we can get that comp ratio down to. I will tell you again, though, the intent is to bring that ratio down further, again, consistent with continuing to build a vibrant, healthy, great long-term franchise.

All right. Let's turn to capital allocation. So you continue to balance a strong balance sheet, capital return, investment in the platform. So how do you think about capital allocation in the current environment?

We just think about it in terms of orders of priority. I think the first priority, as I mentioned, is using our capital to make smart, great long-term investments in people and in the platform. I think second, maintaining our dividend. We have a, I think, a good healthy dividend, and we don't want to do anything that's going to risk that. I think after that, I do think on balance, as you've seen recently, we've leaned more into share repurchases than we have things like special dividends. And I suspect that will continue to -- that will continue to be the order of priority for a while.

We bought back a fair number of our -- a very good chunk of our annual dilution in the first quarter, which I'm happy about. I think that was the right thing to do. And I think you'll continue to see actions, maybe not at that magnitude every quarter, but we continue to believe that share -- prudent share repurchases are part of a smart capital allocation strategy.

And then some of your peers recently have announced some acquisitions on both the M&A advisory side and the private capital advisory side. So how do you assess inorganic opportunities?

So really, we are very open to doing an acquisition that falls within a certain set of criteria. I think those criteria, I think, are fairly straightforward, which is it's got to be in a space where we want to add talent or bolster our existing capabilities. It has to be with a team of back to the term difference makers who can really elevate our franchise. And third, it's got to be consistent with our culture. And fourth, we have to do a sensible deal. We know that any very high-quality firm, no one is going to be able to do an incredible deal there, but it's got to be sensible and it's got to be aligned, maybe even more than sensible, the word is aligned so that we're in it together to create long-term value.

We have been actively looking at many of the opportunities that are out there, including some of the deals that have been announced by others. We haven't found the right one yet for us. But if that comes across and if we can hit the criteria I talked about with people we want to be in business with and they see the upside in our platform, we wouldn't hesitate to do that.

And it could be in either part of the business?

Yes. It could be sectors. It could be geographies. Could be products, probably less likely to be products, but I think sectors for sure and geographies is a possibility.

So before we wrap, I want to give you opportunity to answer what you think the market most underappreciates about the Moelis story?

Look, I think when you look at our franchise, we're still a very, very young firm. We've been in business for 19 years. The brand is still young relative to a lot of the firms we compete with. If you look at the composition of our bankers, about 1/3 of them have really only been on the platform for a short period of time, 2 or 3 years. And so the maturation of the brand, the maturation of the people on the platform, all the investments we've made to really significantly expand our product capabilities, some of our sectors, the hiring we're doing. I think there's much payoff to come from a lot of that work that we've been doing that we continue to work and can continue to do. And I could not be more optimistic about the future of the firm.

Excellent. Well, Navid, thank you so much for your time and for joining the conference.

Thank you. Great to be here.

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.

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. 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 developing 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 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 that a number of notable M&A transactions, including liter Channel Outdoors $6.2 billion sale to Movado Capital and TWG Global, TriPoint 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. This location 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 left 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 7 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, just 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 2 managing directors in the space, including a Managing Director focused on securitization 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 8 MDs year-to-date, 2 who have already joined and 6 who will join us over the course of the year. In addition, 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 health care IT. In Europe, we've hired 2 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.

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 decline in capital structure advisory capital markets. Our business mix for the first quarter was approximately 2/3 M&A and 1/3 non-M&A.

Turning to expenses. Our first quarter adjusted compensation expense ratio was 65.8% and 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 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. 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 Instructions] Your first question comes from the line of Devin Ryan with Citizens Bank.

Great. Chris, how are you. I want to start with a question, kind of big picture just on the software sector. Obviously, you guys have made some investments there and have scaled nicely. Clearly, kind of 1 area that's getting caught up in some of this AI dislocation. But curious kind of what you're seeing kind of play out there relative to maybe what people were expecting heading into the year? And I know it's not just 1 category. There's a lot of kind of subsectors to it. But kind of where do you see activity there evolving do we see forced consolidation later this year? Are there take private to public companies? Maybe that's a catalyst. Just would love to get some sense of how you see this mapping out and then how important that is for kind of the broader M&A recovery, just given that it is a kind of important subsector?

Sure. Thanks for the question, Devin. So you're right, we have a great, great team in technology at the firm and within our technology group, software is a really important set of subsectors within that group. So the events of this quarter, essentially what you've seen is a repricing of software stocks in the public markets due to years over what AI is going to do to a lot of these historically very sticky business models. That's caused a revaluation in the public markets, that clearly leads over into the private markets, both in terms of the private M&A market and lenders' desire to finance these types of companies. And so it's definitely harder in the near term to navigate traditional software M&A at the same rate as you've seen over the last few years. I think if you take a step back, I think we're likely to see because right now, the market is putting sort of a broad brush on all of these SaaS business models.

And I think what's likely to happen, if you sort of simplistically put all of these companies into 3 buckets, I think, in 1 bucket and time will tell. This will play out over a period of time. There will be companies that -- where the AI threat is misperceived these companies will adapt and use AI to their advantage and prosper and grow through some of this disruption. And I think those companies, you'll see active again in the M&A marketplace either as consolidators or as candidates for sale to other strategic or private equity firms.

On the other end, I do think there's a category of company that the business models are going to be significantly disrupted. And if those companies carry a lot of leverage, either because they're subject of a historical LBO, we're owned by a sponsor, et cetera. I do think you're going to likely see liability management and other actions to deal with those capital structures, which are not sustainable going forward given the disruption from AI.

And I think there's a category in the middle of companies where it's just going to take some time to figure out what AI means for those businesses and those companies will need time and the owners of those companies will need time to adapt to kind of the changing landscape. And I think for those companies, things like bespoke capital hybrid solutions, things that delever the capital structures and give the owners of those businesses more time or continuation vehicles.

You'll notice that in each of these different buckets, we have great product expertise to service those companies to leverage the deep relationships our technology team has with companies and with sponsors and with their deep expertise and knowledge in these spaces. And so I think we're really well positioned as the market evolves and makes sense of AI disruption to these different categories of software companies I think we're really well positioned to be able to provide great service to our clients to help them navigate that.

That's terrific color. And then just as my follow-up, I heard the comments on sponsor engagement in the prepared remarks, but just curious kind of what you think bring sponsors back. I mean, this is supposed to be the year of the mid-market sponsor exit first few months, obviously, not very conducive. But do you still see that as likely if kind of the macro conditions settle down? Or what do you think needs to change to just unlock that reacceleration in sponsor activity?

Look, I can tell you, Devin, there is significant desire and need for these sponsors to transact with these portfolio companies. So the demand is there. It's really a question of lining up that demand with market conditions that enable these transactions to happen. So geopolitical uncertainty a widening out of spreads in certain sectors because some of the dynamics that are playing out in private credit. Those things in the near term aren't conducive to a full-scale reopening of the full breadth of the middle market M&A business, which is where a lot of the sponsor activity is.

I think it's coming. I think as we kind of hopefully get through the geopolitical uncertainty as some of the headlines around private credit subside. I do think sponsors are going to take advantage of the need to transact with these portfolio companies. So you're right, it hasn't happened quite yet. And our sponsor business is growing through that, so I'm really proud of that. But I do think it's going to take a little bit more time to see that full breadth of the market that we all anticipate will appear at some point, hopefully soon.

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

I want to start on the restructuring side. You noted in the release that the revenue decline there year-over-year in the quarter. Can you just help us think about the magnitude of the decline there in the quarter? And then also if you could help put some context around the results here. The commentary from some of your peers has continued to be relatively upbeat and you noted the pipeline here is up meaningfully year-over-year. So maybe if you could just speak to the drivers behind the year-over-year decline and maybe it's just timing. But any other color there would be helpful.

And then additionally, any color around the pipeline would also be helpful.

Yes. Look, we're not going to get into specific details of the quarter. But look, it's really just timing. The transactions -- the revenues in the quarter are a function of which transactions closed in the quarter. And so there's always going to be a little bit of variability depending upon the quarter and the business segment. But as I said, we -- our team is doing a great job. They're working on a number of really important and significant mandates. We got a lot of momentum. Their pipelines are up in a really positive way. And I do think some of the same volatility that we've been talking about in terms of raw material prices, input prices given the geopolitical uncertainty, a disruption, AI disruption, some of those same themes that are potentially causing some near-term headwinds on the M&A side are creating opportunities for liability management and other things that our CSA teams get involved with.

So I feel really good about the trajectory of that business and feel really great about our team.

Okay. Great. And then maybe just on the PCA side, you noted the stronger year-over-year revenues there, which makes sense given the build-out of the platform. But maybe if you could just help us think about the contribution here in the quarter, maybe how that progressed sequentially.

And then also, any updated thoughts around where you sit in the competitive landscape and progress in terms of market share gains to date, that would be helpful as well.

Yes. Look, we're building that team aggressively, as I mentioned. We'll have here soon 7 managing direct senior folks managing directors, building that business for us. We love the team. They're doing a great job getting great reviews from clients who they're going to see, and they're getting hired on and building up their pipeline pretty significantly. So it's still early days. We're starting to see kind of the fruits of that early start-up phase in that business. But I think I said in the prepared remarks, our thesis is spot on its client the sponsor clients, we have these deep relationships with want us to be in that business. They want to support us and hire us. They want us to be involved with their portfolio companies.

And now that we've been able to put in place a world-class team in a really important product, both on the traditional GP-led secondary side and with private credit secondaries, -- both of those are growth areas and I suspect there'll be growth areas for a while, and we've got a great team there that's out there winning mandates and executing that at. So I feel really good about that.

Your next question comes from Fregan Kenny with Morgan Stanley.

So just to follow up on that last question on private capital advisory. So it sounds like it's starting to contribute to revenues, which is great to hear. Is it accretive yet to pretax income, the revenues less expenses? And is that something that can happen this year?

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

Yes. I mean it's hard to tell during the quarter, right? But I would say this year, I think there's sure it could be accretive. Like Navid said, it's certainly growing. It's part of our non-M&A, right? You mentioned that 2/3 of our business is M&A, 1/3 is non-M&A -- that's split between capital market, CSA and now with PCA, that's a growing component of it.

And then as a follow-up on private credit. So it came up a couple of times as 1 of the near-term headwinds. I'm wondering, are you seeing anything under the hood there? Or is this just headline specific with PAUSE perceived risk impacting activity?

Yes. I don't think there's systemic risk in the private credit market and a lot of the headlines you're seeing around direct lending. Direct lending is a small part of the overall private credit complex. And most of the issues right now are around direct lending into software and concentration around some of those portfolios. I do think when things like the sort of revaluation of software companies happens, lenders, direct lenders, folks in the private credit industry tend to get a little more selective. Intend to ask themselves the question of, right, what's next? Are the risks that I haven't seen in other parts of the marketplace. Now put that aside, there's all sorts of other parts of the marketplace, many, many sectors that are really insulated from some of this technology disruption and/or our beneficiaries of the technology disruption.

And so the direct lenders are actively lending -- continue to actively lend into all of those different bases and sectors at a very rapid pace. But I do think it does cause folks to say, are there other spaces right and see risk that were mispriced risk essentially. And so -- and causes them to be a little bit more cautious lending in some of those areas. And so those are -- that's a flavor for some of the headwinds that I was talking.

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

As we think about the business environment for M&A and the puts and takes that you highlighted at the beginning of the call, how does the U.S. compare with Europe and with Asia as we think about the outlook for M&A activity for the next few quarters?

So I think the U.S. is still ahead of Europe. If you look at the announcements this quarter in Europe, there's a little bit of a pop I think that's really due to a few larger cap transactions, but the volumes just aren't there in Europe yet. So Europe is still behind the U.S. in terms of momentum in the M&A market. I think that will change over time. And certainly, we're super committed to our build in Europe. It's a critically important part of the world. if you're going to have a world-class investment bank on a global basis, you have to be strong in Europe, and we're committed to that region. But the pace of the M&A market, the dynamism of the M&A market is still not what we're seeing in the United States. Asia, there is pockets of activity in Asia, a little less on the cross-border side that we're seeing, but there's still activity there, and we have a presence there, and that's obviously as well.

Okay. And maybe just following up on Europe. Why is Europe maybe not coming together like we're seeing in the U.S. M&A market? Is it a financing issue? Is it a sentiment issue? Is it just like a sector mix issue? What would you sort of put your finger on as to why we're not seeing the same level of engagement?

I think that's a -- it's a longer philosophical question that 1 could take a lot of time answering, but let me give you my views. I think, look, part of it is I think a different relationship between government and enterprise in some of those markets. I think there's a different and different more difficult regulatory environment in some of those markets. I think they I think there's a different approach to entrepreneurialism in Europe in some of those markets that you see in the United States. And I think there is a different pace to capital formation in parts of Europe, and you see in the United States. So I think you could talk about it for a long time, but I think some of the pillars of why you see a healthy growing dynamic M&A markets in the United States. Europe is just a little bit behind the United States in some of those areas.

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

I just want to touch a little bit more on the restructuring backdrop in 2026. Could you just comment a little bit on your view as to whether that could improve to a lesser or greater extent as a result of issues within private credit. And maybe if that's true, then the cadence over which that could occur? And then just maybe if you could also comment on the mix of M&A versus non-M&A revenue.

Yes. On that last point, yes, I mean the mix was 2/3 M&A, 1/3 non-M&A split between CSA and capital markets, generally, we don't give a breakdown, but I would say they're in the same ZIP code depending on the quarter. And then again, now we have PCA in that area, and that's growing nicely.

Look, on the outlook for restructuring generally. But there's still significant maturity walls as you kind of look out to the 28 to 29 to 30 time frame. I think something like $2 trillion of maturities that are set to hit the leverage loan in the high-yield market during those time periods. So those maturity walls have to be dealt with -- some of that are prior maturity walls got kicked out to 28, 29 and 30 and some of those companies may or may not be able to continue to refinance and down the road.

I do think some of the tech disruption and the disruption we talked about some of the factors that come out of some of the geopolitical events in terms of raw material prices and fuel prices that are impacting some sectors. All of those things create stress with companies that have levered balance sheets. And all of those are areas that were structuring teams are actively involved in conversations with clients. So I do think we're in for continued liability management opportunities. And we think over time, liability management will turn into more traditional restructuring as well. Default rates are still sort of low, but we do think there's plenty of activity for a number of years on the restructuring side.

Okay. That's super helpful. I just wanted to touch again on the private equity backdrop -- you made the comment that sponsor M&A is growing double digits. I assume that's a year-on-year comment, but correct me if I'm wrong. And then I just wanted to touch on what's driving your business to outperform the broader market on the sponsor side. Is it that you're taking market share? Or are there specific types of sponsors that are particularly strong that you're seeing, whether it's in terms of geography, the size of deals that they're transacting in or something else?

Yes. That -- just to clarify, that is a year-over-year growth number. And look, just like if we don't do well in 1 space in a quarter, I don't want -- you shouldn't make too big a deal but I don't want to make too big of a deal it the other way. When we do well in the space relative to the market either. So look, I think, generally, sponsors has always been very much part of the DNA and fabric of our firm. We cover corporates actively. We cover sponsors actively -- we have dedicated sponsor coverage teams. And really, even before sponsors were invoke, we were doing that from the early days of the firm. So I think we are -- our teams do a great job and are very focused on covering those entities like we cover corporates.

We think that's a very symbiotic thing to do to understand all the players in a particular ecosystem or the corporate and sponsor and so I think really, it's just -- we do a good job of covering them, and it's really an important thing we focus on. So again, I don't want to overstate the market. The market is still not fully open in terms of -- and back to the demand the desire for activity. The level of actual activity is not meeting the demand yet. And I think once that happens, we're going to be particularly well positioned to reap benefit of it.

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

Chris, Excellent. So Navid, you spoke to expanding relationships in the creditor community in the capital structure advisory in the restructuring business. which I thought was kind of interesting. Could you drill down on that a little bit, like which parts of the credit community have you been focused on? Is that shift or expansion in relationships sort of centered around an opportunity set that you believe is likely to become more robust. And I don't think you touched on this before when you were talking about the fact that 1Q started off a little slower, but you had recently taken up your outlook for the year. Do you still expect that business to be flat to up here as we progress through '26?

Sure. Thanks for the question. So yes, look, we -- a couple of years ago, we hired a couple of senior professionals to really focus in on the creditor side of the business. Really, over the last number of years, the creditor side of the business has really evolved. I think post financial crisis and then for a number of years thereafter, a lot of the action in the creditor community really revolved around hedge funds and I think over time, that's really shifted more to CLOs. And in order to make sure that we had best-in-class coverage of CLOs and the other constituents in the credit marketplace. We had to be more intentional about covering those players actively and really making decisions as we were as we were going after corporate opportunities in the restructuring world, making a decision are really going to focus on a company side situation or we're going to focus on a creditor-side situation because a healthy balance, I think, between those 2 businesses is important to have the biggest TSA business you can have.

And I think having a group of people who are really intentional about building relationships to make sure we were well positioned, especially, I think this is really, again, part of the secret sauce of how we go to market. Our CSA business, like all of our sectors, all of our product businesses are deeply collaborative with our sector teams. And so especially where we had a good relationship with the company knowledge in a sector to make sure we were lining up with the right creditors, if we were chasing a creditor assignment and being really intentional about that, it's been really, really important and it's opened up a lot of opportunities for us. So that's -- that's what I was referring to in the comments. And I think the investment in that side of the business being more intentional there has really paid off.

And no change to the outlook, right, just to confirm?

Yes, I think I mentioned in the prepared remarks that our pipelines are up meaningfully and we'll see how the year plays out, but we do expect growth in our CSA business.

Great. Great. The next 1 is a little more ticky-tacky. -- so probably more for Chris accounting-oriented. Comp expense of $210 million. How close is that to a floor for you guys on comp. And if that layer above the floor is a little thinner than normal, is that a statement of optimism around the ability to accrue against more robust revenues as the year progresses?

I mean I'd say a couple of things. Our Q1 comp ratio is down, right, over 300 basis points from this time last year. Q1 had equity comp in there and it's higher, right, due to the acceleration of retirement eligible equity awards. So I think you're aware of that. However, those awards are fully considered in our 65.8% full year estimated comp accrual. So I think right now, we're just -- we are projecting that 65.8% for our best estimate for the year. And as always, we plan to evaluate and adjust the comp in the year to develop titering revenues, investment in the business and the competitive landscape.

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

I guess to start. Just from what we can see in the public data, it seems like you have been having a lot more success with strategic clients in terms of share than what you have historically. I just want to get a sense as to whether this is a concerted effort on your part to focus more of your efforts on strategic clients, just given some of the software activity among sponsors and whether you view this as being more sustainable share gains that you could hold on to as sponsor activity begins to recover?

Yes. Thanks for that observation and for the question. I agree with you. I think our platform and our bankers and the quality of the hiring we've been doing laterally. I think all of that has attributed to a more active transactional activity around strategics to go impair with our always historical strength with sponsors. And so that's very intentional. And I do think from my perspective, our best sector bankers know a lot of companies and transact with a lot of companies. They also understand sponsor space. They also understand our product capabilities and work collaboratively with our product folks and those are the kinds of people we're hiring.

Those are the kinds of people we're developing through our internal development pipeline. And I think really what you're seeing is, yes, intentionality to make sure we're covering corporates the right way. And to think big in terms of larger opportunities, we definitely have a concerted effort at the firm to make sure we're thinking about the largest transactions and are pursuing the largest opportunities but it's also, I think, a testament to our hiring and our talent development and the maturation of our plan.

That's helpful color. And then -- for my follow-up, I just wanted to or drill down a bit more on the comp ratio. I understand there's a lot of uncertainty on the back half of the year at this point. We just struggling to reconcile the record 1Q pipeline commentary and just the overall optimism on activity trends across the business with the flat comp accruals. So I guess it would just be helpful to understand -- and for the remainder of the year in the 1Q accrual and how we could think about comp leverage if activity continues on this positive trend?

So I think on the last call, as we were looking into 2026, even though we had made, I think, meaningful progress over the last couple of years to bring our comp ratio down Yes, I think I was pretty clear that we don't intend to be finished there. And our goal is to continue to work the comp ratio down as the investments that we've made over the last number of years in our people started to show up in terms of increased revenue as the market improved and as our business continues to grow, that's still exactly the plan. And I'm hopeful and optimistic that we'll see that as we roll through the next few quarters and have a great year this year.

The first quarter was up it wasn't up a lot. You can see what percentage was up. And I do think as we roll forward in fact, if we see the kind of growth numbers that I hope we see and I anticipate we'll see we will revisit comp ratio in subsequent quarters.

Yes, I agree. I think it's just a little too early. Just like last year, we started out at 69% and as the year progressed and saw our revenues come in and our investments we were able to lower it over 300 basis points. So we're hopeful -- I'm not sure that it would be the same pace as we did last year, but we're still hopeful to make increases in improvement on our comp ratio this year.

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

Great. Navid and Chris, I wanted to ask you about the pipeline here. So your pipeline that I guess, all-time highs. Public backlog does seem to support a good second quarter here, but it does seem like there's a lot of market uncertainty could certainly elongate some of the deal closings for the industry. maybe impact the pace of new deals. So as you think about the next quarter or 2, can you just maybe give us a view on how you think those could shape up relative to the prior year? Any color there would just be helpful just given kind of 1 of the pockets of softness in the market currently?

Sure. Look, we feel really good about the overall level of our pipeline, as we mentioned in the prepared remarks, and we have a I think the highest at this point in a year, the first quarter in terms of our announced pipeline deals that have been announced that are waiting to close. So I think those are both really good data points as we kind of think about the rest of the year. But you're correct that at the end of the day, we have to transact against that pipeline. Our teams are working extremely hard to service clients and give great advice and try to get transactions done, but some of that is out of our control.

And as I pointed to in the remarks as well, some of the factors in the marketplace coming out of the geopolitical environment, AI disruption, do create some near-term headwinds that we're working through, but they also create some opportunities in other parts of our business. So a long way of saying we'll see how the year plays out, but we're optimistic the business is in a really good spot. And our teams are working exceptionally hard to make this a growth year.

Okay. Great. And I wanted to ask maybe another question on the comp ratio come out of maybe a little bit of a different way. And again, with the theme of kind of wide range of outcomes here. So if we have a better environment here and continues to accelerate and you see revenue growth pick up from here. What would kind of be the level that could actually push that comp ratio down 100 basis points from that 65.8% level?

And then conversely, if revs were to be more flattish for the year, could you hold the comp ratio flat to last year? Just trying to think through as you're investing and then maybe the push and pull on some of your fixed comp costs.

Yes. I don't think we're going to get into any sort of algorithm or percentages. I would say, yes, if the environment improves and ultimately have revenues of what we would expect. We will have an improvement in comp ratio. I'm not going to give you the percentage because, again, we don't know what kind of investments we're making -- we're making all sorts of estimates based on revenues, investments and the competitive landscape at the end of the year. And yes, I think -- sorry, what was your second part of the question?

Just how to think about the comp ratio of revenue was to be more flattish year-over-year?

Yes. I mean, right now, we're not expecting that. But sure, if it was flat versus last year, we had an increase in heads, there's a possibility that you would have to adjust that. We don't expect that at this time.

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

And I wanted to follow up on Devin's question earlier in the call. So you said in your prepared remarks, large strategic transactions have been driving M&A volumes. That's consistent with what we've seen in the data and also the trend last year. I was hoping you could talk about what's going to get that core middle market strategic deals to really pick up speed here?

Look, I think look, some stability, look, as I mentioned earlier, I do think if you're a sponsor and you own a company, you've waited to monetize it because you're holding out for a price if -- and you see war break out of the Middle East, and that reduces the likelihood after waiting this long to monetize that asset that you're going to actually hit the mark. You're waiting for a little bit. right? If you see credit spreads gap out a little bit because there's disruption in the private credit industry, you're waiting a little bit to see that play out. High-quality assets have been trading there is activity in the marketplace. But there's also a bunch of a whole suite of companies, portfolio sitting inside a private equity firms people have been waiting to do something, and they have a price in mind of what they want for the asset, and they're waiting for the optimal moment to go ahead and monetize that asset.

If they haven't done a CV or if they haven't done a refinancing or something like that. And I think it just takes some time. But these assets do have to move. There's no doubt in my mind that these assets have to move, and they will come to market. And it will just take time for that middle market to open up. That's coming.

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

0 Sticking with comp and just hiring. I was wondering if you could talk to us about the competitive dynamics you're seeing on this front -- and whether or not you're seeing any added pressure maybe from like the bulge brackets and their ability to retain talent.

Sure. Look, it's competitive. There's no doubt hiring great people, what I call difference makers. It's super competitive. It's rare that you're talking to somebody who is great in a space where they're not talking to 1 other firm as well. So we have to compete against both bracket firms. We have to compete against other independent firms, and we have to compete against people doing other things and staying at the firms are at -- so what we're looking for, again, are people who want to be part of a collaborative environment will fit in great and be accretive to our culture and who are different spaces. And finding and cultivating those relationships takes time. And it's definitely hand-to-hand combat to get those people here on terms that make sense for us and for them. But yes, hired 8 people this quarter. We're excited about all those hires.

It's my #1 focus as CEO of the company, is not just to make sure our bankers that are here continue to think Moelis & Company is the best place to work with the best culture, but also to recruit other super talented people from all over the world to join us, and we're think we do a great job. Our teams do a great job of identifying those people. And as a senior management team, we spent a lot of time developing those relationships and trying to get those people to yes.

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

Just had a quick follow-up on noncompensation expense. Obviously, you heard the guidance and pretty consistent with what you guys had said previously. It was a little bit higher than we had modeled. I think we were a little bit low and had it building through the year. And I think the guidance implies kind of more of a steadier pace. But -- in the other expense line, obviously, that jumped up pretty meaningfully. I know there could be some kind of lumpy deal costs and things like that. So I'm just curious what drove that kind of step up and how much of that is kind of core versus like transitory or just one-off items?

Yes. I mean -- so I would say that other expenses, this line includes cost that don't warrant their own separate category. So there are things like client conferences are in there, certain deal-related capital markets underwriting expenses, but we have other things like insurance, education, business taxes and just a number of other items. The individual, like you pointed out, individual non-comp line items fluctuate quarter-to-quarter, but in aggregate, they generally balance each other out. And we still anticipate full year non-comp expenses to grow at a similar rate 2025.

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

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

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

Ladies and gentlemen, good afternoon, and welcome to the Moelis & Company Fourth Quarter and Full Year 2025 Earnings Conference Call. To begin, I'll turn the call over to Mr. Matt Tsukroff.

Good afternoon, and thank you for joining us for Moelis & Company's Fourth Quarter and Full Year 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. 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 will now turn the call over to Navid.

Thank you, Matt. It's great to be with you all this afternoon. We closed 2025 with significant momentum and enter 2026 from a position of strength, underscored by elevated levels of client activity, record new business generation and the highest quality talent and breadth of expertise we've ever had. We earned record fourth quarter revenues of $488 million. And for the full year, our adjusted revenues grew 28% to $1.54 billion.

Our revenues in 2025 were driven by 35% growth in M&A, a record-setting year for our capital markets business and double-digit increases in both average fees and number of completed transactions. Momentum continues to build across our business. Since our last earnings call, we advised on a number of notable M&A transactions, including Netflix acquisition of Warner Bros., Allied Gold sale to Zijin Gold and Ventyx Biosciences sale to Eli Lilly.

Outside of M&A, we advised on USA Rare Earth's transformative partnership with the U.S. Department of Commerce, the debt restructuring of King Abdullah Economic City and X-Energy's pre-IPO convert transaction. Constructive financing markets and strong equity market performance are setting the stage for an active transaction environment in 2026.

The breadth and depth of M&A activity that we saw at the end of last year is expanding and accelerating. Strategics are becoming even more active as Boards gain confidence to pursue larger transformational deals to drive scale and best position themselves for rapid technological shifts. Sponsor activity is also building as valuation alignment improves and sponsors respond to growing pressure to deploy and return capital to investors. While larger cap transactions have been driving the M&A market, momentum in our pipeline gives us increasing confidence that activity will broaden across transaction sizes as the year progresses.

In Capital Markets, our team is benefiting from increased investor appetite across growth-oriented sectors with strong capabilities in both the public and private markets. With respect to capital structure advisory, we continue to see a long runway of liability management assignments driven by the significant leverage that exists across many companies, compounded by the accelerating pace of technology disruption. And over time, we anticipate more traditional restructurings as prior out-of-court solutions run their course.

Finally, following substantial investment in 2025, our private capital advisory business is gaining meaningful traction and is well positioned to serve our sponsor clients as the GP-led secondary market continues to hit record levels. Our thesis for this business is clearly being validated. Our PCA team is fully integrated with our industry and financial sponsor bankers and our secondaries pipeline is developing rapidly. We continue to invest in this area with the addition of a Managing Director focused on private credit secondaries joining next week. And with another MD joining later this year, we will have a team of 7 managing directors dedicated to GP-led secondaries.

This growth enhances our ability to support sponsor clients and reinforces our conviction that PCA will be an increasingly important fourth pillar of our firm. Against this constructive backdrop, we see significant opportunity to continue growing our client capabilities and footprint. During 2025, we added 21 managing directors, including 9 lateral hires. In the beginning of 2026, we promoted an additional 13 professionals to Managing Director, bringing our total MD count to 178 as of today's call. These promotions, together with our continued hiring, deepen our global centers of excellence and further align the firm with the largest market opportunities.

Given our strong revenue performance and the maturation of our recent investments, we delivered meaningful operating leverage this year, highlighted by a 320 basis point improvement in our adjusted compensation ratio to 65.8%. Our capital position remains strong with no debt and substantial cash, and we materially increased our capital return through significant share buybacks in the fourth quarter. In summary, our coverage platform and our culture of collaboration have never been stronger.

Our business outlook is positive and our pipeline is near record levels. We are confident in our ability to continue driving growth while generating operating leverage and delivering sustained value for our clients, our shareholders and our team over the long term. With that, I'll pass the call to Chris to review our financial results in more detail.

Thanks, Navid, and good afternoon, everyone. We reported record fourth quarter revenues of $488 million, an increase of 11% versus the prior year period. For the full year, our adjusted revenues increased 28% to $1.54 billion. As Navid said, our revenue growth was driven by year-over-year increases in M&A and capital markets, partially offset by a decline in capital structure advisory.

Our business mix for the fourth quarter and full year was approximately 2/3 M&A and 1/3 non-M&A. Turning to expenses. As Navid mentioned, we saw significant improvement in our adjusted compensation expense ratios, which were 61.1% for the fourth quarter and 65.8% for the full year, down from 69% last year. Adjusted non-compensation expenses were $60 million for the fourth quarter, resulting in a 12.4% non-compensation expense ratio.

Our adjusted non-compensation expenses for full year 2025 were $224 million, resulting in a non-compensation expense ratio of 14.6%, down from 15.9% in the prior year. The main drivers of the expense growth for the year were increased deal-related T&E and client conferences, continued investments in technology and data, including AI and higher occupancy costs due to headcount growth.

Given our ongoing investments in technology, increased deal activity and headcount, we currently anticipate full year 2026 non-compensation expenses to grow at a similar rate to 2025. Our adjusted pretax margin was 28.6% for the fourth quarter and 21.5% for the full year 2025, representing 510 basis points of improvement from a 16.4% adjusted pretax margin in 2024. Regarding taxes, our normalized corporate tax rate for the year was 29.8% and our effective tax rate was 22.4%. The difference in rates is primarily driven by the excess tax benefit related to the delivery of equity-based compensation in the first quarter of 2025.

As a reminder, consistent with prior years, the annual vesting of RSUs will occur later this month, and we expect to recognize an excess tax benefit, which will favorably impact Q1 EPS. Our revenue growth and reductions in both our comp and noncomp expense ratios contributed to EPS gains. For full year 2025, we reported adjusted EPS of $2.99 per share, representing an increase of 64% from the $1.82 per share in 2024.

Turning to capital allocation. The Board declared a regular quarterly dividend of $0.65 per share. During the fourth quarter, we increased buyback activity, repurchasing 716,000 shares in the open market at an average price of $62.96 per share, bringing total repurchases for the year to approximately 950,000 shares. For the 2025 performance year, we will have returned $284 million of capital to shareholders through dividends, net settlement of shares and open market repurchases. Additionally, the Board authorized a new share repurchase program of up to $300 million with no expiration date. And lastly, we continue to maintain a strong balance sheet with $849 million of cash and no debt. With that, let's open the line for questions.

[Operator Instructions]. And our first question comes from the line of Devin Ryan with Citizens Bank.

Good afternoon Navid, and Chris, how are you?

Good Devin, how are you doing?

Doing great. First question, just kind of on the broader advisory outlook. So clearly, a good year in 2025, you're growing 28% year-over-year, even without having kind of sponsors at their, I'd say, potential, and this is clearly an important customer base for Moelis. So it shows that you guys were able to kind of work with a number of different sizes of customers and types of customers. But on the sponsor specifically, how would you frame kind of the order of magnitude of how much upside there is towards kind of more of a normal level and the impact from Moelis? Because you just -- you're coming off of a very good year, but it still feels like there's probably maybe another step function of sponsors truly reengaged, but just love to get some sense from you and if you can kind of frame out how you think about quantifying that.

Sure, Devin. Thanks for the question. I think the premise of your question is exactly right. As we -- as 2025 developed, we saw an increasing velocity of sponsor deals. We think there's still a fair amount to go before we get to the kind of volumes that I think will create more equilibrium between capital return and deployment. I do think both in terms of opening up the aperture to more deals in the middle market, I think that's coming in 2026. That's certainly what we're seeing in our pipelines and our conversations with sponsors. We've talked about it on a lot of the previous earnings calls. There's just a real push from LPs to get capital returned in these portfolio companies.

I think we're reaching the point where the financing markets are good. The broader economy is good, inflation seems to be under control. And this is the point where valuations are what they are in the market, and I think sponsors are getting their head around what options are available to them to get return back to their LPs. One of those options in addition to M&A is doing a GP-led secondary. And that's one of the reasons why we're super excited about that business. We have now an industry-leading GP-led secondary capability to pair with our industry-leading sponsor coverage and industry-leading M&A capabilities to bring the sponsors to be a solution provider to help solve those issues. And I think we're really seeing an opening of the market. I think that's going to happen in 2026. And I think we're really well advantaged -- well positioned to take advantage of that.

That's great color, Navid. And then just as a follow-up on the restructuring liability management, you mentioned kind of a long runway of activity here. Can we maybe just parse through that a little bit more, like how we should be thinking about a base case for the level of activity there? Is it something around what we've been seeing like kind of hold the line or a view that maybe takes a little bit of a step back, but the high -- it stabilizes at a higher base. Just love to kind of think through what kind of that looks like right now. I appreciate there's obviously scenarios where if an economy rolls over, it could be more active, but that probably wouldn't be as good for M&A. So just love to think about kind of the base case for what that long runway suggests.

Sure. So as we look at the base case, as you put it, we do think there is this long runway of companies. There's just a number of companies that took advantage of very favorable financing -- a very favorable rate and financing environment to take on a fair amount of leverage over the last many years through the last cycle. There's still -- some of those companies have done various stages of liability management exercises, but you still have a lot of balance sheets that are still out of whack, quite frankly, relative to the size and the earnings of those companies.

On top of that, you see technology disruption coming, and it's going to impact some of these sectors pretty dramatically. And so as we look out into the future, I think there's just going to be many, many companies that still have to grapple with their balance sheet. I think some of that's going to happen through amended extends and liability management type exercise out of court. But I think some of those companies are going to tip into more active in-court restructuring assignments. And again, we're well positioned for all of that.

In addition, we've significantly bolstered and invested in our creditor side capabilities so that if we're not on the company side in these situations, we have a really good seat working with creditors there. And we're really excited about the rise of that business and our traction in that business. So a year ago, if you said to me, we remember, we came off a really strong 2024 on the CSA side of the business that we sort of predicted that our business might be down a little bit given the market backdrop. As I look out this year, I'm predicting flat to up as opposed to flat to down in terms of the strength of our business in what we call CSA.

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

I wanted to touch a little bit on the M&A composition of 2025 and what we could see for 2026 and beyond. 2025 was a heavily mega cap M&A-driven market. So I'd love to just get your perspective on the outlook for large deals to continue and juxtaposing that versus the outlook for smaller deals, which I think ties into your sponsor comments. And then I guess, if you take a step back, when and why would smaller deals catch up to the big ones?

So look, I think as we look out into the next few years, I do think there's a real possibility of the bigger cap type transaction that we've seen a lot of. Last year was really close to a record year on the larger side of the curve of transactions, that continuing. And I think the reason that's going to continue is the motivation to create more scale for these larger companies to serve their customers, to create efficiencies, to best position themselves for technology change.

Those motivations are only accelerating. And you have a market environment, a regulatory environment that's allowing those kinds of transactions to happen and who knows how long that's going to last and a financing environment and a stock market that's conducive to promoting those kinds of transactions. So we continue to see very active dialogues with our clients on these bigger type transactions. But I think we're at that point now where this middle market, which we talk about, which has been more muted because there's been sort of a disconnect on buyer seller expectations. We had financing costs that had risen, which make it harder to finance new buyouts of these companies. You had tariffs and inflation and all of those things that make it hard to underwrite a purchase of those kinds of companies.

A lot of those issues have dissipated and this pressure from LPs to get money back, the pressure they're putting on the private equity firms is still really there. And so I think we're at that point where a number of the financial sponsors who own these portfolio companies now for 6, 7, 8, 9 years are finding it hard to do anything other than actually go to market and see what the market will bear in terms of the price for these portfolio companies. And I just think that's increasingly happening. There's really no reason to wait at this point unless there's something specific with that company where you see there's going to be a step function up in the earnings of that company in a year or 2. It now is what it is. It's time to monetize, and I think more and more sponsors are bringing those companies to market.

Excellent. Very clear. So you've talked about a lot of areas of positivity here. I just wanted to touch on one area which is evolving a lot recently, which is geopolitical backdrop. When you're in the boardroom, is that having any impact on dialogues? Or is it just that we've seen so many different permutations of geopolitical considerations that boards are getting more comfortable with that at this point?

So it's a great question. And of course, geopolitics and what's happening on the world stage is always a topic when we're in boardrooms and we're conversing with clients over potential transactions.

Uncertainty is never a friend generally of larger-scale corporate transactions. And so certainly, if there was to be some kind of exogenous shock, some geopolitical flare-up that's significant, that could have an impact on the level of transaction activity as we roll forward. But you're right, I think in a certain respect, there's been over the last year, just a lot of activity and people may be coming a little numb to some of the flare-ups, the short-term flare-ups and sort of saying, look, I got to do what I need to do to position my business the best I can.

We know technology changes coming. We have to be prepared for that. We have to position ourselves well for that. We know the equity markets are rewarding focus and execution and growth and simplicity of story. We know that's happening. So let's undertake corporate transactions that help us best position ourselves for equity value creation and for dealing with technology disruption that's coming. And perhaps unless there's a very visible geopolitical thing that's on the horizon, people are kind of playing through that.

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

Just a question on the revenue backdrop and how you expect the cadence of revenue recognition to play out over the course of the coming year. So it's only been a month to start the year here. But on the announcement side, at the industry level, it's been a little weaker than most had hoped. And from what we can see in the public completion and pipeline data for Moelis, specifically, the first quarter looks like it could be a little bit on the lighter side relative to the past couple of quarters.

But with all that said, the overall backdrop obviously remains really constructive. So wondering how you're thinking about this and maybe if you're expecting revenues to potentially be more back half weighted this year as the environment continues to improve? Yes, any color here would be great.

Yes. Look, I don't -- I appreciate the question, Alex. I don't -- we don't want to extrapolate too much based on a month or any particular snapshot. Here's what I can tell you. We -- as we've talked about, we see a really constructive and conducive environment for transactions. We see our clients having a lot of motivation to do transactions. We see our new business generation activity at all-time highs, and we see our pipeline at all-time highs.

So how that plays out in terms of specific months and specific quarters is always a little tough to predict. But -- and I think you're right, in an improving environment, you tend to see the first quarter be the weakest quarter seasonally and you build through the year. We certainly saw that last year for us. So I don't want to make any predictions about the first quarter versus the second quarter, et cetera. I just think when you look out into the outlook for 2026 and beyond 2026, we're really optimistic.

Got it. No, fair enough. That makes sense. And then maybe for a follow-up, just on comp. So really strong leverage there in the quarter and the full year. But thinking about, again, 2026, if the year plays out as expected from a revenue setup and volumes improve at a solid rate, can you just give us your updated view on the cadence of maybe getting to that low 60s kind of normalized range that you've highlighted previously?

Yes, sure. Thanks for the question. Look, we're really pleased with our ability to bring that comp ratio down. Just by way of reminder, we did have an elevated comp ratio as market revenues were weaker and we were making substantial investments in the business and saw the opportunity to really catapult our business forward, went from 83% in 2023 to 69% last year and now 65.8%. So we're really pleased with that progress. I think we can continue to do even better than 65.8% to the point of your question.

How much better we can do in 2026, I think, will really be dependent on 3 factors. One is what revenues we produce in 2026. That's always a really important determinant in terms of the leverage we can create in the model. Second, what's the environment for banker pay and competition for bankers. It is a competitive market out there. We've pointed that out in previous calls, and we need to obviously protect our base of great bankers we have, and we want to keep growing.

And our ability to find great bankers who fit the culture, who are industry leaders in big TAMs, it's not easy to find those people. And when we do find those people and they want to come, if we can make a sensible deal with them, we want to bring them on board. And so how many of those people we can bring on board in 2026 will also impact the specific comp ratio in that given year. So we try to balance all that. We want to bring the ratio down. I think we're committed to doing that.

But we want to do that in the context of still taking advantage of all the opportunity we see in front of us, all the great dialogues we're having with bankers who want to join the firm and trying to get more and more of those people to join so we can attack this great opportunity we see in front of us.

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

To start, Navid, you alluded to this a bit in your prepared remarks, but just one of the big topics of discussion at the moment is AI disruption and the potential implications for the outlook for M&A activity. On the one side, I understand that this can be a catalyst for more strategic activity. But just given software companies represent a significant portion of PE inventory, there's a risk that they could struggle to exit a significant portion of their portfolios.

So I just wanted to get a sense as to how you view these puts and takes and whether you've seen any impact on your discussions around some of these [indiscernible] software companies.

Thanks, Brendan. Look, I think it's an excellent question, and I think your framing of it is spot on. As we talked about earlier, I think in a lot of different parts of the economy and different industries, AI disruption, technology shifts, are an accelerant of M&A activity. And in other parts of the ecosystem, although we haven't seen yet -- there's not one example I can point to where AI has created a restructuring opportunity in the near term. That's probably coming at some point. Software is getting a lot of attention these days.

The public markets are clearly devaluing the multiples on software companies and SaaS companies are coming down because people are worried about the threat to the business model that AI brings. At some point, that could impact the ability of those companies to finance themselves, and that could lead to transactions that look more like liability management transactions than M&A transactions. And so we're watching all of that. We're obviously in active dialogue with all our clients about all of those trends. I think you're right to point out that disruption could have a counter effect relative to M&A, but it also could create other opportunities for us to give advice to clients that have to deal with balance sheets in those spaces that are coming under stress.

So early days, we're monitoring it really carefully. And more than anything, look, we're in the business of giving advice and disruption creates the opportunity for us to get closer to our clients and help them navigate through those periods.

That's helpful color. And for my follow-up, I just wanted to get an update on the time line for the PCA build-out. I know you guys have previously indicated that you think this business could get to a couple of hundred million in revenues, but that's likely to be a relatively nonlinear growth curve. So I just wanted to get a sense as to how we should be thinking about the trajectory into next year, how far -- how much or how far along that growth path you could be by 2026?

I don't want to make a specific prediction on 2026. Here's what I'll say. We love the team that we're putting together. We love the dialogues we're having with additional folks who may want to join the team. And the early reception from our PE clients has been phenomenal. Our thesis here is spot on. We have such great relationships in the sponsor community, and they're so long-standing and deep and our coverage teams do a great job there. We have incredible industry bankers, and we were missing this capability so that we can actually go and have conversations with sponsors about GP-led secondaries.

And now we're able to have those and we're winning mandates and we're executing mandates, and it's ramping pretty much exactly the way I thought it would ramp. And I think the opportunity for this to be a very meaningful business for us like our CSA businesses like our capital markets has ramped. I think it's going to be a business that's just like that in terms of the size and scale and the quality. It's just the question is under what time period that happens. And I'm optimistic we'll be able to achieve that over the next few years.

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

I think that's the first time we went Brendan to Brennan. So there we go. So I appreciate the comments, Navid, on the comp leverage uncertainty. But given we've got a marketplace that's really active and therefore, it's probably good bankers might be a bit loath to move because they want to be there for their clients, given competition for talent is elevated, so costs are there. Why not maybe ease up on the throttle a little with the recruiting at this just current moment, not necessarily changing the opportunity set, but just saying maybe it's not the best time. How do you balance that?

So Brennan, it's a good question. And look, we're only going to do deals that make sense for the firm in the long run and make sense for the culture of the firm. But these individuals, a uniquely talented individual in an area that we want to be in or in a sector that we want to be in that fits our culture, that's a high bar. It's a very, very high bar to cross.

And when that person shows up and you start a dialogue with them and you know they're going to trade. And by the way, when they trade, they're probably off the market for a number of years. Bankers don't -- they're not like college football players these days where they're trading themselves -- marking themselves to market every year. They're going to be at a firm for a period of time.

And so when you find that person who's perfect for your platform, and again, culture is critical. We're just not hiring great bankers. We're hiring great bankers that want to be part of a team, a collaborative team. And when that person shows up, and you have a good dialogue and they're ready to move for whatever reason. They don't love their firm. They don't feel like they got paid the right way, something happens inside their firms, they don't like it anymore or their firm lets them down on some assignment. When that person shows up, you may lose them for a number of years if you don't move.

And so we don't always -- can't always dictate the timing and these people are unique. They don't grow on trees. So look, we're very cognizant of the pace of what we do. We're very cognizant of our ability to onboard people the right way and make sure we can get them going the right way with the right support. And we're very cognizant about deal structure. And beyond that, some of the timing is a little out of our control. Having said that, as we said before, the comp ratio and our ability to get leverage and our ability to make sure we're being prudent there is at the very top of our concerns as we think about growth of the company.

That actually is really helpful in framing it. I appreciate that answer, Navid. And obviously, you guys did a good job on the comp leverage here recently. So we can certainly point to that. Following up on one of Brendan's questions. And if you think about software and IT services within your sponsor franchise, it's kind of tricky because the public data doesn't do a great job of capturing all your activity. How big are those sectors for your banking and activity-driven business? And I know you spoke to the fact that it might be somewhat fluid, it might shift from an M&A discussion to a liability management discussion. So thinking about it broadly just across Moelis, are those a big sector for you? It was always my sense that they were, but curious about sizing.

Sure, Brennan. Look, as I think you know, we made a major investment, a really great investment in an excellent technology franchise and technology team a few years ago. That build has been really successful.

And technology, broadly speaking, is pretty much at the top of the list now of our most productive sectors of the firm. And then within technology, software is a really big piece of that. So you're right to say that we have a lot of dialogue and a lot of client connectivity to both the sponsors and the companies that fit broadly within the software sector. And then again, I think as you think about products, it's not just liability management. So if you have a sponsor that owns a technology company or a software company, that dialogue can be M&A. It could be raising bespoke capital, more of a capital markets type transaction to either get a sponsor some liquidity or deal with a balance sheet challenge.

It could be a CV or it could be liability management, right? And so having the ability now for the first time in our history to be able to be super versatile, super fluid across 4 products that could be applicable to that software company or that technology company. It's the first time in our history, we've been able to really do that in a meaningful way with a top technology franchise with a great sponsor coverage team. So we're going to be there to help our clients find solutions as the market evolves and as they're dealing with the disruption that's coming in that space, for instance.

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

So you've done a lot of hiring over the last few years, and it sounds like you'll be opportunistic going forward. Is there any way that we can think about what percent of MDs currently are ramped and maybe what percent since 2021 are ramped?

Yes. Let me give you some stats. Great question, Ryan. So about 1/3 of our MDs have been MDs on the platform for less than 3 years and about 1/4 of our MDs have been MDs on the platform for less than 2 years. And when I say -- just to clarify, when I say MDs on the platform, that's either lateral hires or internal promotes. So that captures both of those cohorts. And so to this point, we're still a firm that's maturing into its talent base. A very, very meaningful percentage of our MDs are younger MDs or MDs that haven't been on the platform for a long period of time. And so the best years of those MDs, the most productive years of those MDs are really in front of them as they sink into the platform, as they introduce their clients to the platform, as they mature as bankers.

And that's one of the things I'm so excited about is just such a high-quality talent level of people whose really brightest days are ahead of them as they partner with their other parts of the firm and as they introduce the firm to their clients.

And as you build out PCA, is the time to ramp for MDs and private capital advisory a lot faster than traditional M&A? Just trying to understand as you lean into PCA, is that less of a drag on the comp ratio because the MDs can ramp faster?

Yes, I think it's a great question because remember, we already have the sponsor relationships, and those are long-standing. You already have the industry relationships. Those are long-standing and a growing platform of industry relationships as we hire great sector bankers. So in fact, it's funny. I brought Matt Wesley, who runs our group and see a client last week. This is a client we had done capital raising for already, and we were looking at doing M&A for.

And the client said, I may want to do a CV and I have Matt there the next day. And so if we -- there's no ramp-up there because that's already a client of the firm. We just were missing that product capability. We would have missed that opportunity if it wasn't there. And so I think [ approp ] to your question, a lot of the ramp-up there is happening quickly because we're just plugging a product set into an existing set of relationships, and it's working really beautifully.

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

In the release, you specifically called out the M&A and capital markets revenues increasing in 4Q, while capital structure advisory decreasing. Could you just really quick highlight trends in the PCA business relative to the fourth quarter of last year?

Yes. PCA, remember, is still ramping. So that team has really come together towards the back half of this year. And so most of their activity is still winning new mandates, originating new business. You're not going to see a lot of actual revenues in the fourth quarter or in 2025 from that business. I think there'll be much more meaningful revenue growth as we move into 2026 on PCA.

Okay. That's fair. And I appreciate the transparency. And for my follow-up, I actually wanted to ask about capital allocation. For the $300 million announced buyback authorization, do you have any thoughts on timing that we can think about?

Sure. It might be helpful just again to talk through just how we think about excess capital. So look, we had a good year this year. We're really pleased with our revenue growth. We were able to do all the things we needed to do strategically in terms of hiring, in terms of making technology investments like Chris talked about.

And so we still have created a lot of excess cash. We have a dividend. So the dividend is the first priority to make sure we maintain and protect that dividend. And then even beyond the dividend, this year, we had a fair amount of excess cash, and we deployed a lot of that excess cash towards share repurchase, especially in the fourth quarter. So I think that's how we're going to think about prioritization going forward is let's grow the business within prudent constructs as we've talked about relative to the previous questions. Let's make those investments that we need to make in our people and our technology, client conferences, those kinds of things, all the things that we need to grow the business long term.

The dividend, we're committed to maintaining and then beyond that, we do want to mitigate some of the share dilution from our equity issuances for compensation. And so we're committed to trying to do that as much as it makes sense to do, all within the context of keeping a really, really, really strong balance sheet. We think that's a real strategic advantage for us. And in a business where there is some cyclicality, we just think it makes all the sense in the world to continue to keep dry powder and keep optionality on the balance sheet and make sure we can withstand any market environment.

And our next question comes from the line of Daniel Kochiaro with Bank of America.

As regulatory scrutiny on the G-SIBs has diminished over the past year, has this coincided with the pickup in competition from the bulge brackets to win more deal mandates? And how would you describe Moelis' ability to gain market share in a deregulatory environment?

Sure. I don't -- it will probably depend a little bit on which sectors you're talking about and maybe some sectors are different than others. I don't see meaningfully stronger competition than we've seen in recent years from the bulge brackets who already weren't strong. Look, we have strong bulge bracket competition, clearly from a handful of firms. They've always been strong. They'll continue to be strong.

And so I don't -- I think that's there, and it's the way it has been. With respect to that next set of bulge bracket firms, I don't see that meaningfully being different than it's been in the past. And clearly, the momentum that I see on the client side is really us competing against other independent firms who have really good people and who are entrepreneurial and nimble and have a lot of good intellectual capital and ideas. And that, to me, feels like where we sit in our part of the market is where a lot of the action is taking place and the incremental market share is being gained.

And that -- of course, we compete against the bulge bracket, but a lot of the times, we're competing against independent firms like us.

And our next question comes from the line of Ken Worthington with JPMorgan.

Circling back to comp in the past couple of years, you've determined the comp ratio. You've started the year at that comp ratio. And then as you've moved to either the second half of the year or even the fourth quarter, you've adjusted compensation and the compensation ratio based on the activity levels that you've seen. So as we think about 2026 and where we start the year, where do you anticipate kind of starting that comp ratio just to give us a little help in modeling out the first part of the year.

Yes. I would imagine we would maintain a similar comp ratio to where we ended the year at to that 65.8%. I think Q1, as you mentioned, it's usually too early to predict the remainder of the year. And I'd expect changes to come in later quarters, assuming nothing out of the ordinary takes place. And just an additional reminder, we fully expense our retirement eligible equity that's granted in Q1. So depending on revenues, the Q1 ratio may not be indicative of the full year.

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

Great. Thank you, everyone, for joining us. Really appreciate you being on the call and look forward to speaking to you all very soon again. Thank you.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Okay. Let's get started here. We are pleased to welcome Navid Mahmoodzadegan, CEO and Cofounder of Moelis to this stage. Navid took over the CEO role only about 2 months ago and was a Cofounder of the company, which is in 2007, he previously served as Co-President. Prior to Moelis, Navid held leadership roles at UBS and DLJ with over 30 years of investment banking experience and as a founder, I think he has a unique perspective both in the industry and the company. So thank you so much for joining.

Thanks, James. Great to be here.

Okay. So now I think this is your second conference since taking over as the CEO role. Have there been any surprises? And what excites you most about the future?

So thanks for inviting me. It's great to be here. No real surprises. As you pointed out, I've had the privilege of being a founder of the company and have been part of the senior team helping to lead the company since day 1. So I knew what our firm is about. I think that's one of the real benefits of me taking over this role is well known to our population. And I think there's just a ton of excitement within the firm about doing a seamless transition from within. A lot of what we do as a firm is about talent development. We talk about that a lot. It's been one of the foundational pillars of the company, taking bankers out of schools, developing them on our platform, having them well established within our culture and seeing them succeed as managing directors is something we're really good at and being able to do succession that way too, I think, really reinforces that. So it's been great so far. The mood around the firm is incredible. The excitement in the future is incredible. Our business outlook is really strong. And so I'm excited to be in this role.

Okay. Great. So you talked about on the last earnings call, how you focus on clients' growth and culture. I think those are the 3. So maybe you could just expand a little bit on those, but then maybe also just on the key strategic focus areas as you look ahead.

Sure. Let me start with culture. As I mentioned, the culture of the firm is very dear to us. We pride ourselves on having a culture of collaboration and teamwork, people working together. The firm has very much has a one firm feel, even though we have people who focus on sectors and geographies and products. What we like to do and what we're really good at is kind of bringing all the best of all of that -- of those capabilities to our client situations. And I think we're exceptionally good at doing that, which is, I think, part of the secret to our success. So as we've grown from starting a founding group of a few people to 1,400 people now globally, I'm really proud that the culture is very much intact and thriving and evolving in a really positive way.

Growth. We -- over the last number of years, growth has been central to our firm, but I think really since COVID, we've had 4 big growth initiatives that have been very, very successful. Build out of our capital markets team, build out of our tech team, build out of our oil and gas team, our energy team and more recently, the build out of our PCA business. And each of those, and I'm happy to talk about each of those, has been enormously successful. The early returns on PCA are very, very promising, even though that team has only been with us here for a few months, very, very promising and very much on track with our going-in thesis. And so continuing to grow the firm intelligently with difference makers in lots of sectors that we're not currently covering is what I'm really excited about and something I'm going to spend a lot of time on.

Great. So I want to touch on a couple of those products or the growth initiatives, but maybe just one more big picture one here. So you've been there since the beginning, but I'd say the past 5 years have been a pretty big step-up in growth in terms of talent. So maybe you could just talk about the talent you've added in recent years and maybe how the talent has evolved over the history.

Sure. So again, we -- what we're trying to do is really look at what are the big market opportunities. What are the big TAMs where we think we have licensed to win and where we think there's big opportunities for client impact. And it became obvious to us, I want to go through each of those. Capital markets was an area we were in since the beginning. But when you looked at the evolution of the capital markets, growth of private credit, all of the different capital providers that were out there providing all different slices of capital structure, so many of those providers out there and companies trying to navigate all of those different providers, it lend itself to a much more advanced advisory opportunity there, helping companies and sponsors navigate private credit.

Second, you had an explosion of new technologies and opportunities to finance growth companies. And so making sure we had an A+ capital markets team integrated across debt and equity to attack all of those opportunities has proven to be a spectacular success. Our Capital Markets group will have its best year ever this year. We're continuing to invest behind that and grow behind that. Similarly, technology. We've been in the technology business since the early days of the firm, but we were subscale in technology.

And when we looked at that marketplace, we saw the biggest sector by fees. We saw a very vibrant and active sector, and we saw one where financial sponsors, a space where we historically played a lot in doing more and more tech deals, but we had a subscale tech team. And so being able to go in there and hire a group of people that we spent years developing a relationship with, bringing them onto the platform has been a really big success and done the same thing in oil and gas. And PCA is a product that's very strategic for us.

So being able to be to provide financial sponsors with a GP-led secondary continuation vehicle product is in and of itself a big revenue opportunity for us, but it's also protective of our M&A franchise because lots of time sponsors are looking at portfolio companies and saying, I could CV this company, I could sell this company. I'm not really sure what I want to do, and they really want one adviser to come in and be a thought partner with them to help navigate that. And if you didn't have an A+ effort in EVs, it was a lost revenue opportunity, but it actually also threatened part of your M&A business, too.

Interesting. Okay. So you started out private capital advisory just there. So maybe you could touch a little bit on where you are in the process of building the private capital advisory business out. And then maybe just how should we think about the growth ambitions there for medium term?

Sure. So as I said, within PCA, the first business we're really focused on is GP-led continuation vehicles, GP-led secondaries. And that's the most strategic business within PCA for us. And right now, with our leadership team and with the people we've hired, including some people who are going to be starting with us next year after they sit out notice periods, we have about 7 MDs focused just on that space instead of our PCA business. And that's a good critical mass of people to get the business up and running and to have a credible platform to present the clients, which we've already been doing very successfully. So we'll grow that over time as the business opportunity expands. And so that's GP-led secondaries.

From there, there's numerous other ways to grow the PCA business. One is in LP secondaries, which is less strategic, but potentially an opportunity for us if we can hire the right team. There's primary fundraising, which is more strategic, and then there's GP stake sales. And I think eventually, over time, we will look to add all of those capabilities.

Okay. So you talked about the 4 areas of hiring. It sounds like 3 of them are -- you feel like you've completed a lot of the growth there, one we just talked about. So how do you think about hiring talent from here? How much hiring do you think you can get done in this sort of backdrop?

Look, we look at -- when we look at industries in the sectors, we're in every major sector group with great teams. But within those big sectors, there's many subverticals where we just don't have coverage. And so the big opportunity for us is to fill in those white spaces within these sectors, especially the ones with the biggest fee opportunities. And so when I look at -- just to pick out a few health care and industrials, within health care and industrials, we have spectacular teams in parts of those ecosystems, but there's many other parts of those ecosystems where we're subscale or we're completely absent. And so hiring difference makers to bring into those businesses to establish and develop and grow those franchises, I think, is a major opportunity for us as we look to scale the company. As we do that, we'll continue to add product capabilities, M&A, capital markets and when we talk about PCA. But the big white space opportunity right now is to grow out verticals within our big teams.

Okay. Last big picture one here. So I think you're coming into the role at an interesting time in terms of AI disruption. What does that mean for your business and headcount and maybe margins? And how are you shifting investments in response to that?

Sure. So we have a couple of different working groups within our company with some of our brightest people who are really passionate about AI and technology and subject matter experts focused on precisely this set of questions. So I think right now, we're focused on what's practical in terms of analyzing, identifying, testing and ultimately deploying all the tools that are being created for our industry. And so there's a number of those tools we've already deployed to our bankers. A lot of our bankers are using those tools, finding them very, very helpful in terms of making them better and more efficient. And I think the number of those tools we push out to our bankers will increase over time.

Second, we have a project going on trying to figure out how to integrate a lot of this data that we've collected over the last 18 years and making sure that our data is usable and can plug into these AI tools. I think that is sort of the next iteration that we're thinking about. I think your question about what is it going to do to our pyramid is subject to a pretty big debate within our company. I think some people within our company look at all of the productivity tools that have come before, spreadsheets, the Internet, mobile, et cetera, and said, well, that's made everybody better and more efficient, but we haven't chunk our headcount at all. So why is this any different and other people think this is such a transformational technology that's really going to take over a lot of the tasks that some of our people are doing right now.

I personally don't believe, and right now, we are not changing at all our plans for headcount. So when we go and we recruit at schools, our analyst programs are as big as they've ever been. Our planning is still for full analyst programs. If I had to guess, I think that's going to continue into the indefinite future. And remember, those programs are important, not just to help support our teams. They're also the next generation of senior bankers. And it's very important, especially in an apprenticeship culture, an apprenticeship business that we're all in to make sure we're hiring the best people out of schools. We're developing them, and we're creating that next generation of Managing Director.

You brought up data. I think that's really interesting. One of your competitors has talked about how their view is that data allows you to show up when someone is about to do something like selling a family business, for example, and helps with that. And look, you've had a lot of transactions in the past what, 18 years now. So maybe you can talk a little bit about the data.

Well, look, I do think we have a lot of information sitting within the experience base of our bankers within the 4 walls of our company. And how do we use that data to win business, to give better advice and to make transactions happen is really the key question. And I do think that's something we're focused on. And I do think AI and the promise of AI and integrating our data will help with that. I think there's clearly an opportunity in the future for the banking industry, our industry, our firm to be able to be much more productive at all levels of the organization. And that doesn't necessarily mean less people or a change of pyramid. It just means a much more productive business. And I think if we can harness data and harness AI the right way, that will be an important part of that.

Doing more for your clients, that makes sense. Okay. So maybe let's turn to the business trends. As we look ahead to next year, 2026, what's your mark-to-market on the health of the macro? And what does that mean for your businesses?

So as I look out to 2026 and dialogues with our clients, I think there's general optimism and confidence in the macro economy, data of the economy, direction of travel on interest rates, inflation being relatively contained. I think for the most part, there's general confidence and optimism. That doesn't mean there aren't parts of the economy that are less peppy or that are showing some cracks. But I think for the most part, people feel good about the macro. I do think there are secular forces, technology forces that are forcing a lot of companies to use M&A as a tool to make sure they're best positioned to be on the winning side of technology change as opposed to the losing side of technology change.

And so I think the need for scale, the need to make sure they have good exposure to growth opportunities and growth factors within their companies, making sure that companies are focused. The market wants focused companies. They don't want disparate companies with -- or disparate businesses with inside of big conglomerates. So they want focused businesses. And I think M&A is an important tool to help facilitate those goals. My outlook for overall M&A activity is quite good going into next year. This has been generally a very good year this year, primarily led by larger transactions, primarily led by strategic transactions. I think you're going to see that continue given the regulatory environment and some of the things I just mentioned.

But I think what's been missing in the market so far this year, there's been kind of that middle market, primarily sponsor-led businesses. I think if you look at of transaction sizes of $1 billion or so, the deal counts were actually down this year versus last year. And I think that's going to change. When we kind of look at our deal activity, our pitch activity, our mandates and the conversations we're having with our sponsor clients, especially, I think that's going to turn next year. I think the aperture on deal activity in that middle market is going to be much more positive.

So on the mid-market and the sponsors, what's the catalyst there? I mean rates are slowly creeping lower. Is that enough? Are there other factors that we should be thinking about that gives you that confidence?

Well, so I think this is another year or 2 of a lot of these companies seasoning into valuations that are going to be acceptable for sponsors to trade. I think it's another more seasoning in terms of sponsors hearing from their LPs of a desire for liquidity and monetization and DPI. I think the fact that strategics are leaning more into corporate transactions helps because sometimes sponsors sell to other sponsors, but a lot of times, they're selling to strategics. And when you have a regulatory environment that's more welcoming of strategic transactions, I think that bodes well for some of those assets trading as well. So I think -- I don't think there's a step function in any of those things happening, but I think the cumulative effect of all of those things becoming a forcing function for the inevitable churn of a lot of those businesses that need to trade.

So you talked about regulatory posture a little bit already. You talked about in the last earnings call. Are there still bottlenecks here? And maybe when you're in the boardroom, are there deals that these companies are looking at that they couldn't do a year ago?

For sure. Yes. Look, I think it's generally acknowledged that this administration is much more accommodative of larger transactions, strategic transactions, especially in some spaces where it was almost taboo to think about deals in the previous administration. I think this administration doesn't view size as is in and of itself is a out-of-the-box problem for companies to do transactions to get bigger. And so there's definitely more of a green light flashing for people to think about and actually execute deals that you couldn't do in last administration. We'll see as some of these transactions go through the regulatory process, how the Justice Department, the FTC actually treats these transactions, but there's generally a view that you can do things that you can't do in last administration.

Okay. So maybe just quickly on some of the sector-wise trends. Maybe firstly, the outlook for tech. I think that's the biggest sector so very important what's going on there. And then I think you've talked about strength in health care, industrials, other parts of TMT. So what areas do you think are -- 2 to 3 areas, let's say, are most durable in your view or likely to improve next year?

And transactional activity?

Yes.

Look, when I look at our firm and I look at our pipelines and I look at deal activity, it's hard to actually find a sector within our firm that I don't think is going to be up next year. I think it's really across the board. And so, yes, you could talk about tech and health care and industrials and some of these spaces that I think are going to be active. But it's almost easier to talk about where you don't think it's going to be active because there's not many of those. So I think the outlook and optimism is pretty broad-based. I don't think it's necessarily going to be concentrated in a few sectors. I think it's going to be pretty broad-based.

Interesting. Okay. So you've added some European talent recently. So maybe you could just give us your thoughts on Europe. And is there a structural growth driver there? Or is it really just that you're moving into the market in a bigger way?

So Europe is definitely lagging in terms of the health of the M&A market and the vibrancy of the M&A market. There are some structural reasons for that, that we could talk about. But if you sort of look at the trajectory of the U.S. M&A market versus the European M&A market, it's on a different slope. Having said that, it's a really important market. It's a really important market for us. It's important for us to be global and to have a great team and an active team there. And it's especially important for us to match our sector capabilities in Europe with great teams in the United States. So we do best in Europe, where our bankers are part of a global coverage team with our industry bankers in the United States. So that's what we're really focused on. We're really focused on in some of our sectors where we have real strength in the United States to make sure we have equally great strength in Europe and having those teams work together. So as I said, the European market is more difficult, but we're continuing to invest there, but we're doing it prudently.

Okay. Maybe just last one, near term. So I hear a lot of positivity here for the longer term. But maybe near term, we have the government shutdown. The trends I see suggests there was a little bit of a blip in completed volumes in October, November. So in hindsight, have there been impacts, anything structural? Or was it more of just a blip?

Nothing structural, more of a blip. I think, look, it's possible that a deal or 2 that would have closed in the fourth quarter may slip into next year, but not clear that that's going to be the case either. So I would say any impact from the shutdown is very, very modest and short lived.

Okay. Well, let's see if there's any questions in the room, there's a microphone. Is there a microphone? Okay. Well, I guess if anyone wants to speak up, I can repeat the question. So maybe I'll repeat the question. So just expand the definition of tech, including media and commentary on Paramount.

I'm not going to comment. We are involved. I'm not going to comment on that particular transaction. So -- and the first question on...

[indiscernible].

I'm not going to comment on that whole situation. Look, I think you're maybe taking a step back. I think you're definitely seeing more of a convergence of companies that have historically been thought of as technology companies and companies that you would have thought of as content companies. You're seeing that across numerous companies in the ecosystem. I think that trend of convergence is going to continue. At the end of the day, what really matters is what's best for consumers and consumers consume content and they do it increasingly through advanced technology platforms. And so inevitably, those worlds are going to converge. And I think you're seeing that play out in the transactional environment, in the operating environment, and I think you're going to continue to see that.

Okay. Great. So maybe just one more here before we turn away from M&A, which is just mid-caps. You talked about sponsors being a key driver of mid-cap picking up. But is there something else why that stat you quoted deal counts being down is happening? Is there something else that we're missing in deal cap that we don't have in large cap or we do have in large cap?

I think most of it is, again, a big chunk, not all. So when you look at a mid-cap company, the ownership of that really can come in 3 ways. It could be a privately-owned company, family-owned company, could be a sponsor company or could be a public company. So I think over time, you've seen a shrinkage of the number of mid-cap public companies, right, for a lot of different reasons, structural reasons. And I think the calculus for a lot of the private owners is similar to the sponsors, which is, can I get the price I want. And I think for the last few years, that's been challenging. It's been challenging because of rates, it's been challenging because of inflation, it's been challenging because of macro volatility and a general sense that there was malaise in the M&A environment. So as those constraints are lifted, I think you'll see more private companies, family-owned companies come to market, and I think you'll see more sponsor on companies come to market. Obviously, families are also -- the timing is dictated by other considerations, right, death, et cetera, state planning, those kinds of things. But I think you'll see -- as the M&A market comes back, in that part of the world, I think you'll see more of those transactions come to market as well.

Perfect. Okay. So let's turn to restructuring. I think you've guided to a somewhat weaker 2025 in restructuring. Maybe just help us think through some of the drivers this year and then maybe just the longer-term outlook for the business. I think within that answer, if you're willing to break down a little bit between the traditional bankruptcy versus liability management as well.

So look, we have one of the leading restructuring franchises on Wall Street. We call that business CSA because it's really much more than just traditional bankruptcies. It's the liability management, out-of-court restructuring, so on and so forth, balance sheet management. It's a great team that's been very important to the success of the firm for a long period of time as both a deep pool of revenues for the firm, but also it feeds into M&A opportunities, et cetera, for the firm. We've grown that business over time. Last year, we hired and really focused on the creditor side of the business, which historically, we had just focused on company side, and we made 2 senior hires over the last couple of years on the creditor side of the business to enhance those capabilities, and that's gone well.

In terms of the actual revenues this year, down a little bit from last year. Last year was a particularly good year for that franchise. I think they probably punched above their weight due to some unique fee situations last year. And so I think when you look at the overall health of the economy, lower rates, all of those things that are giving us optimism on the M&A side, they're also creating less new opportunities on the restructuring and liability management side. And we've definitely seen over the last bunch of years, a trend away from traditional restructurings, in-court restructurings. And part of that is because of the heavy costs associated with restructurings. As much as possible companies, creditors, et cetera, are trying to keep companies outside of bankruptcy as opposed to in bankruptcy given the tremendous transactional cost and friction costs there.

So one of the things that I found very interesting in restructuring is that there seems to be a somewhat finite pool of bankers. So even though the quantum of debt has expanded manyfold over the past decade, you haven't seen this tremendous growth in restructuring MDs or certainly not as much as you've seen growth in M&A MDs. Why is that? And why can't we see that catch up?

It is a very [ niche ] area. And it does require a particular expertise to work your way through and understand traditional restructuring, liability management, et cetera. You're 100% right. There's a finite universe of people who do that business at the highest levels. And having a team of people, a critical massive team of people who do that is really important. It's a big barrier to entry to be able to prosecute that business. One of the things that's unique about our business and one of the reasons we've been super successful at it is because of the collaborative nature of the firm and the collaborative culture of the firm.

Our restructuring team works very closely with our industry bankers with our sponsor coverage bankers to bring all of those relationships and all of those strengths to bear to chase client opportunities. I don't believe many of the other franchises in the Wall Street are as collaborative within their organizations to go do that. A lot of them are much more siloed. And so one of the -- again, one of the hallmarks of the way we approach that market as we do other parts of our firm is working together to do that. And I think that's been part of our success.

So maybe let's just turn to margins. Maybe you could just update us with your outlook on the comp ratio. And I'm not talking about the next quarter, unless you want to give us next quarter, but maybe just the longer-term outlook? And what does normalized comp ratio look like for you?

So, look, we are very appreciative that our shareholders have been understanding around the investments we've made over the last couple of years in a market that was more challenging on the top line. That caused our ratios to go to levels that were not normalized. And we're very cognizant and have been working really hard to kind of bring those numbers down as you've seen this year. And we're going to continue to bring those -- bring that comp ratio down. I think, especially given the payoff from these past investments and what we're seeing, the overall macro environment and health of the M&A market, I think we can both continue to make investments in growth and bring that ratio down as we roll forward here over the next many quarters and years, and we're committed to doing that. Where that settles in, I could tell you where I'd like it to settle in. I think I'd like it to settle in, probably in the low 60s. But whether that happens will depend a little on the competitive environment.

Again, we -- we're in the market for talent and we're -- we've got to protect our own talent. And so some of that's within our control and some of that's not within our control. And I'd like to see it get to that place. I think that's a fair balance between investing in growth, investing in our people and our relationship to our shareholders to make sure that that's balanced. But whether we can ultimately achieve that will depend a little bit upon the macro environment and the hiring environment.

Makes sense. Maybe just on capital return, you've built a strong cash position, no debt. I think that you're more focused on buybacks of returning capital than special dividends, which was something that you used in maybe 10 years ago much more prevalently. Maybe just walk us through your capital return philosophy.

Sure. So look, first and foremost, we want to make sure we have a pristine balance sheet that can weather any storm that was to hit in the marketplace and any reasonable shock to the system. And that's really important to us to make sure we have a fortress balance sheet. We want to make sure we can continue to make smart investments in growing the firm. And we want to make sure that we can protect our dividend, our dividends at a relatively healthy level, especially relative to our peers. And so making sure that, that continues uninterrupted. It's going to be really important. Having said all that, I think we can do all of that and still have a bunch of excess cash. And as we think about what to do with that excess cash, if the choice is dividends -- I'm sorry, share repurchases or special dividends, I think we're going to lean more into repurchases and special dividends.

Okay. So maybe one last one for you. As we look ahead to 2026, your first full year as CEO, any last words, anything we should be thinking about for next year?

Firm is in great shape, lots of excitement about the momentum of the firm, our hiring, the quality of the culture of the firm, lots of great conversations to continue to grow the firm smartly and a macro and deal outlook that looks really positive. So I'm excited about attack in '26.

It's great summary. Navid, thank you so much.

Thank you, James. Appreciate it.

Do it again next year.

Sounds great.

Thank you.

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 MDs 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 to 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 time lines. 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 T&E 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.

[Operator Instructions] 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. Look, we -- as you point out, we've seen an explosion of private credit as an asset class. That's generally good for our business because it gives us more opportunities to advise clients on accessing the private credit market. That's an area that's outside of the traditional banking system and banks that have advisory franchises attached to them. So we like the growth of private credit. We have deep sponsor relationships and lots of active dialogues with companies and sponsors trying to match sources of capital with our client base, alternative sources of capital with our client base. So big picture, very good for our business, as I highlighted in our remarks. Our Capital Markets business is benefiting from that.

I don't think the -- a couple of the high-profile situations -- by the way, there were banks involved in some of those situations as well. I don't think those were particularly insulated as private credit situations or explicitly private credit situations.

But look, when that much capital goes out in an asset class into all bunch of companies, there's going to be some mistakes. There's going to be some idiosyncratic situations that pop up. That's not a surprise that you'll see some of those, but I don't think there's a systemic problem with private credit. I'm not a believer in that scenario. I think private credit is going to continue to grow. There's a need for that source of capital to provide for companies and for growth. And there's lots of companies that find that source of capital really attractive. And I think that trend is going to continue, and it's good 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 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.

Sure. Yes. Thanks for the question, Devin. So I think you're right. It's definitely a larger transaction-driven market today. We see that certainly on the strategic side and also on the sponsor side. There's definitely a flight to size, a flight to quality in terms of the volume of sponsor transactions that are getting done today. And so I think both -- on both -- in both markets, larger transactions are definitely in the middle of the fairway.

I do think we've seen and are starting to see a broadening of that market. What's really been missing on the sponsor side, especially is that heavy flow middle market, sub-$1 billion kind of flow of transactions. I do think it's starting to broaden out. We saw evidence in the third quarter of an uptick in volume of sponsor activity, not just deal size and dollar volume, but volume of transactions.

And I do think that's what's coming, a broadening of that sponsor flow, that middle market flow I think, is hopefully in the offing as we roll into 2026. That's what it feels like to us. But you're right on the larger transactions, higher quality transactions, that's been driving a lot of the business over the last couple of quarters for us and for the industry.

Yes. Great color. And then a follow-up here just on compensation. So revenues up really strong year-to-date, 37% comp, expense 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, Navid, 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 take -- 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 with -- in 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?

Yes. So I think the GP-led secondaries, the continuation vehicles, which is kind of the first part of the PCA business that we're investing in, I think that, that product is here to stay for a long time.

I think irrespective of whether or not the M&A market is open or the IPO market is open, there's going to be a category of company and a category of sponsor that -- where the sponsors look at that company and say, I have more to add to this business. I see more upside in this business longer term. I want to continue to own and manage this business or this set of businesses. And yes, I need to get some return back to some of my investors who need liquidity, but I'm not prepared to sell this company yet and I'm not prepared to take it public yet.

And so we think there's a permanence to the CV product that isn't directly tied to how healthy the M&A market is or how healthy the IPO market is. Clearly, there are some categories of transactions maybe over the last couple of years where one of the primary drivers was, hey, you can't sell the company right now or you can't take it public right now, and we got to get liquidity. But I think there's a much broader category of situation that is going to be around for a long time, which is why we're investing so heavily in that product.

As it relates to the IPO market, look, I love the healthy IPO market. I think it's good for the M&A market. I think sponsors getting a return, whether it's through the M&A market or the IPO market is good for deal making. It's good to increase confidence in putting more money out and buying more companies and investing in more things.

I think those things come together. I don't view it as if the IPO market is healthy, it takes away from the M&A market. I think these markets work very much together in terms of kind of creating 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. Look, I think you rightly point out that against this backdrop of a more accommodative antitrust or regulatory backdrop, there are definitely nuances as it relates to certain types of cross-border deals, economic companies that are have security sensitivities, CFIUS and other issues like that. You're seeing some noise around certain types of media companies, right, and what's approvable and what may not be approvable.

So I think there are idiosyncrasies in some of these sectors. But I think generally, putting aside some of those idiosyncrasies in some of the sectors, the overall thrust is a much more accommodative thrust. But you're right to point out that it's not -- there are elements in some of these sectors given the political landscape that create some nuance.

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 or 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 applies 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.

Got it. Okay. And then on the MD count, it looks like that's down by 3 quarter-over-quarter. And you did have a -- it looks like you had a $6.5 million benefit from comp forfeiture. I know that there was a sort of senior person who left in restructuring, but was there sort of more elevated churn here this quarter, which led to that? Or was that just sort of a single isolated incident? Or have you been more actively managing or refocusing the talent pool? Any color on that would be great.

Yes. If you kind of look year-over-year, I think our MD count has gone from 157 at this point last year to 170 today. And when you look at that, that's the increase, the gross number of MDs is roughly split kind of half and half between internal promotes and external hiring. There have been some levers in that, which is what gets you to your kind of net adds of, call it, 13 over the last 12 months. But it's -- again, as I said, a combination of internal promotes and external hiring that makes the difference.

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 there was -- anything was elevated here this quarter?

No, no, not at all.

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. Look, we -- as I think you all know, we have an outstanding practice in CSA and restructuring, a great team that's been successful for a long time and continues to be successful. We are seeing more muted level, to your point, around ample Capital Markets, good economy. We are seeing less new origination of business than we saw a year ago.

I remind everybody that last year was a record year for our CSA business, up 30% over the year prior. And so I think we've sort of outlined that business was unlikely to be flat this year, likely to be down a little bit. And part of that is the market environment and part of it is a tough comp over last year.

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 taking 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. Look, I think we said that in our remarks and in one of the other questions. We're definitely seeing the broadening. I think that's kind of what's been missing is kind of just the heavy volume of middle market activity, and we think that's coming. We're seeing signs of that already.

Our engagement level, dialogue level, pitch activity in our sponsor universe is very high. So our outlook for that business is good and getting better. And I do think as you kind of roll forward here into 2026, there's likely to be further improvement in the overall level of sponsor activity. We're definitely seeing that as well. Again, supported by ample financing, pent-up demand and need for sponsors to get liquidity.

The fact that there's an active -- more active strategic environment now helps, too, because sometimes those businesses are sold to strategics and not sponsors. And you're seeing it on take privates, some large-scale take privates here recently. So there's more take private activity as sponsors look at companies that are better off in the private markets.

We're seeing it with holdco financings. We're seeing it with CVs. And so there is a lot of activity around sponsors these days, and we're really well positioned to capitalize on given that, that's been a fundamental and important business for us since the beginning 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?

Sure. Thank you for the question. Yes, look, we're -- we still have -- as I mentioned, we hired 5 people this quarter, 5 MDs this quarter, 10 for the year. We have a number of active dialogues that we're trying to get over the finish line today. And as you know, recruiting is a 365 year-round affair. And our focus is on building out PCA, as you mentioned, that's a really important strategic priority for us to make sure we get that team built out fully because we think there's a significant opportunity to go take advantage of. And we're focused on other big TAMs where we're still light on coverage or where there's still white area that we can fill in and go after big opportunities.

So hiring continues to be a very important priority. We have lots of great conversations happening and a lot of focus on trying to convert those and have people join us. The hiring activity that we've had over the last 3 or 4 years has been really spectacular. The success we've seen in Capital Markets and oil and gas and tech and the early signs in PCA have just given us a lot of confidence to continue to attack the hiring opportunity and continue to grow the franchise.

Obviously, we want to do that in a prudent way. We want to do that in a way that's consistent with our culture that's critical. And we want to bring in people on the platform that can really thrive as partners of the firm.

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

I wanted to ask a bigger picture question. So the group sold off today, early this afternoon after the Fed comments came out. Do you guys -- how do you guys think about maybe the change in the marketplace just given the Fed comments today?

Look, as I said, I don't -- you can always sort of impute go-forward market activity based on perceptions of interest rates and where interest rates are going. And clearly, that's a variable in transactional activity, but it's not the only variable in transaction activity.

As I said before, the need for strategic acquirers to get scale, efficiencies and position themselves well for technology change, the need for requirement for sponsors to return capital and keep that return of capital and deployment cycle going, all of those things are driving a lot of what's happening in the M&A market.

Cost of money is a variable. And clearly, low interest rates and ample credit is a positive to the marketplace, but it's not the only variable. And so I don't read the market commentary is -- the Fed commentary is fundamentally changing our outlook for the business. We'll see what rolls forward, but I don't believe it's going to fundamentally change the direction of travel and what we're seeing in terms of demand in the environment for transactions.

Great. And then if I could just ask a follow-up on pipelines in general. across different sectors. You guys have done a lot to build out your tech offering in the last few years. So maybe just talk about your M&A -- let's just say, M&A deal pipelines within tech and any other sectors you'd like 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.