Q & A Highlights

Q: Can you talk about the key drivers of Moelis' progress in winning roles on larger strategic transactions and where you are focusing efforts to sustain that? A: Navid Mahmoodzadegan, CEO and Co-Founder: The M&A market has been geared towards larger transactions, particularly the $5 billion-plus range, though we are also seeing an upswing in the $1 billion to $5 billion tier. Our increased activity on larger deals is due to a combination of market conditions, the maturation of talent we've assembled through lateral hires and internal development, and a better organizational focus on marshaling resources around bigger-cap opportunities.

Q: How is the increasingly competitive environment for senior talent affecting your hiring plans and returns, and what industries, geographies, or products are you targeting? A: Navid Mahmoodzadegan, CEO and Co-Founder: The market for hiring and retaining world-class bankers is very competitive. We focus on best-in-class talent that fits our collaborative culture. Of the 12 MDs hired laterally this year, about five are in sectors like energy, industrials, and healthcare, while seven are product bankers in M&A, PCA, and Capital Markets. We balance this with internal promotions, having promoted 13 MDs this year, and aim to keep both engines humming.

Q: With a record backlog, can the typical seasonal second-half revenue pick-up play out this year similar to prior years? A: Navid Mahmoodzadegan, CEO and Co-Founder: I won't make specific predictions, but our overall pipeline is at a record level. More importantly, the announced pipeline is up 80% versus a year ago, giving us strong visibility. Combined with new business activity and feedback from our bankers, we feel really good about the overall level of activity and are encouraged about the second half.

Q: What are your observations on how AI is impacting the software space, and how are sponsors approaching the uncertainty? A: Navid Mahmoodzadegan, CEO and Co-Founder: We see a clear differentiation playing out. Some software companies are net beneficiaries of AI, adopting and thriving, which is leading to M&A and capital raising. Others are being materially disrupted, creating opportunities for liability management and balance sheet work, which our tech and CSA teams are pursuing. In the middle, it's too early to tell, and those companies may explore capital markets trades or continuation vehicles. Our collaborative model allows sector and product teams to work together to bring solutions to sponsor clients.

Q: How would you characterize where we are in the M&A cycle and how long can it continue to grow? A: Navid Mahmoodzadegan, CEO and Co-Founder: I still think we are in the early innings of the M&A cycle. Factors promoting M&Asuch as the need for scale, technology disruption, the large number of sponsor portfolio companies needing exits, and a more relaxed regulatory environmentare likely to be around for a while. There will be ups and downs, but the underlying forces are strong.

Q: Can you help us think about your structural margin profile over time, weighing a higher comp ratio against a lower non-comp ratio? A: Navid Mahmoodzadegan, CEO and Co-Founder: We've done a good job bringing our comp ratio back in line with historical levels while investing in talent. We are committed to bringing the comp ratio down further over time as revenues grow, which will also give us more leverage over our non-MD cost base and non-comp expenses. Chris Callesano, CFO, added that pre-tax margins have improved sequentially and year-over-year, and we target leverage over time.

Q: Sponsor engagement is important for your franchise. Why hasn't it improved more broadly, and what are you watching for? A: Navid Mahmoodzadegan, CEO and Co-Founder: Engagement with sponsors is very high. The issue is not engagement but the difficulty in exiting portfolio companies bought in a different rate and growth environment, where values don't yet correspond to expected returns. It will take time for those companies to grow into valuations or for sponsors to decide to move assets. We are seeing some improvement in the $1 billion to $5 billion range. Meanwhile, our Capital Markets and CV businesses provide creative solutions for partial liquidity.

Q: Regarding the growing PCA business, what is the expected revenue per MD versus the rest of the firm, and how long will it take to get there? A: Navid Mahmoodzadegan, CEO and Co-Founder: The business should generally be in line with the rest of the firm on revenue per MD. Some parts, like GP-led continuation vehicles, have a quick ramp due to our collaborative model and deep sponsor relationships. Other areas, like primary fundraising, will take longer. We are well on our way to building a sizable PCA business across most of its components over the next few years.

Q: Can you provide more color on the record Capital Markets performance and the outlook for the rest of the year? A: Navid Mahmoodzadegan, CEO and Co-Founder: The Capital Markets team is doing an exceptional job, spanning debt and equity, public and private, and soon securitization. The business is growing and dynamic, partially dependent on market strength, but we see a significant long-term opportunity to expand capabilities due to client demand for objective advice in navigating capital markets and private credit.

Q: How do you think about the risks of AI, such as the idea that efficiency gains get competed away and margins don't improve? A: Navid Mahmoodzadegan, CEO and Co-Founder: We spend a lot of time protecting our data and information, which is our competitive moat. While some AI tools will be commoditized, how we adopt and incorporate them into workflows will improve our performance. Like past innovations (spreadsheets, mobile), AI can make bankers better, more efficient, and able to do more transactions, even if everyone has access to the same tools. The number of transactions per senior banker has increased over time.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .