Moelis & Company - Earnings Call - Q1 2020
April 22, 2020
Transcript
Operator (participant)
Good day and welcome to the Moelis & Company first quarter earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask a question. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Chett Mandel, VP of Investor Relations. Please go ahead.
Chett Mandel (VP of Investor Relations)
Thank you. Good afternoon and thank you for joining us for Moelis & Company's First Quarter 2020 Financial Results Conference Call. On the phone today are Ken Moelis, Chairman and CEO, and Joe Simon, Chief Financial Officer. Before we begin, I would like to note that the remarks made on this call may contain certain forward-looking statements which are subject to various risks and uncertainties, including those identified from time to time in the risk factor section of the Moelis & Company's filings with the SEC and in our earnings release. 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 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 Ken to discuss our results.
Ken Moelis (Chairman and CEO)
Thanks, Chett, and good afternoon, everyone. During the COVID-19 health crisis, we quickly adapted to a work-from-home world and efforts to support the health and well-being of our team. We have been very active in helping our clients who need quality advice, judgment, and focus during this challenging time, and while this has certainly been an unprecedented environment, I have absolute faith in science and human ingenuity to defeat this pandemic. The world has completely changed during the first quarter of 2020. The first two months of the year were nothing like the third month, and right now it's completely different from where we were in March. From the moment it became clear that the virus would radically impact the global economy, we shifted our focus to advising clients on the importance of balance sheets and their business models.
Companies are seeking our expertise to better understand their capital and liquidity needs, the resilience of their business, and how they should adapt to this new environment. But just as these matters are central to our clients right now, I felt that it is important to walk you through the fundamentals of our own balance sheet and the strength of the Moelis business model as well. So first, we have a fortress balance sheet and substantial liquidity. We have $145 million in cash and an undrawn revolver. We have absolutely zero debt on our balance sheet. Third, we have very favorable and low-cost lease obligations. And most importantly, we have not undertaken any commitments on additional space for growth, so we have a lot of flexibility there. And last, on balance sheet, we have virtually no cash compensation obligations arising from prior years. Secondly, the strength of our business model.
We have the best restructuring and capital solutions team in the world. Our collaborative one-firm model with one P&L and no segmented commission structure delivers the full capabilities of the firm seamlessly to bring the best solutions to the client. We have already shifted tremendous resources throughout the firm to support the rapidly changing needs of our clients, which has led to strong activity levels since the middle of March. At the same time, we are still having significant M&A dialogues, but most of these transactions will probably be on hiatus in this environment. As indicated in our press release, after careful deliberation, we halved our regular dividend to $0.255 per share. Modifying our regular dividend is the prudent thing to do in the current uncertain environment. One of my all-time favorite quotes comes from a book, Adventures in the Screen Trade by the late William Goldman.
Goldman wrote, and I quote, "Nobody knows anything." He was referring to the ability of movie experts to reliably pick winning movies. I feel that sentiment accurately describes today's economic environment and the unknown timing of the recovery. So we have decided to retain capital until we know more. However, we remain committed to returning all of our excess capital to shareholders, and when the future is more certain and business activity stabilizes, we will not hesitate to restore our dividend and declare a special dividend if appropriate. I'll now pass it to Joe, who will walk you through our financial results, and then I'll conclude with a few final thoughts on the environment. Joe?
Joe Simon (CFO)
Thanks, Ken. We earned first quarter revenues of $154 million, up 12% from the prior year period. Toward the end of the quarter, we saw transactions being put on hold, with most of those deals delayed due to the uncertainty and market volatility caused by COVID-19. At the same time, our restructuring business, coupled with our capital markets capabilities, has experienced a tremendous increase in mandates recently, and we feel very confident about its longer-term contribution. However, there is a transition period in the short term as we earn retainers and interim capital raising fees, but expect a lag before we earn completion fees on most restructuring transactions. Moving to expenses, our first quarter adjusted compensation expense ratio was 62%. The fixed compensation costs are always slightly elevated in the first quarter due to retirement accounting for our annual equity grants and payroll tax charges.
Our non-compensation ratio was 22% for the first quarter of 2020 versus 28% in the prior year period. Absolute non-compensation expenses declined 10% versus the prior year, largely driven by decreased travel and other business development expenses due to social distancing restrictions implemented for most of March. Moving to taxes, our underlying corporate tax rate was 25.2% for the quarter before the discrete tax benefits primarily related to our equity award settlements. This resulted in an overall net tax benefit for the quarter, and I'll now hand the call back to Ken.
Ken Moelis (Chairman and CEO)
Thanks, Joe. So let me conclude with this. I've experienced many different cycles and environments through my 40-year career, but I've never seen an economic cessation caused by a global health crisis. A lot of what will happen in the coming weeks and months will be dictated by governments, medical experts, and circumstances that are completely unpredictable and out of our control. Because the timing of the recovery is uncertain, a fortress balance sheet and having a diversified, flexible, and collaborative business model is of paramount importance. We have come prepared. It puts us in a position to do what we do best, which is empower our employees, exceed our clients' expectations, and execute for our shareholders. And with that, I'll open it up to questions.
Operator (participant)
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Our first question will come from Ken Worthington with JPMorgan.
Ken Worthington (Analyst)
Hi, good afternoon, and thank you for taking my questions. I'll stick to costs for my questions. So first, on compensation, $95 million. Last year's compensation for the year averaged a touch under $120 million for the quarter. And in hindsight, it seemed like Moelis may have under-recruited in the first part of the year in compensation and moved to a higher level of compensation in the second half of the year. So as we think about sort of the $95 million, is that a comfortable, is that a level or a figure that you would feel comfortable with if revenue generation is low for 2020 to kind of persist for the rest of the year? And if so, that would suggest about $100 million less in compensation in 2020 versus 2019. Is that a level that feels right to you or not?
Ken Moelis (Chairman and CEO)
The answer is I don't know. I am going to try to be very careful. I think the next couple of quarters and maybe even the recovery quarters, if they come as soon as the end of the year, are so unknowable, Ken, that I'm not going to - that was the first quarter was the first quarter, and we did ratios pursuant to the first quarter. I believe we've got a really - this is a year that, again, I have no control over. There's no tools I can use as the CEO to turn the economy back on, to cure the virus, and to affect the medical expertise. so in that regard, I am just going to leave it as we're going to all have to wait and see how the year unfolds, and we'll make decisions around that when we know more, and that's really all I'm going to say.
Ken Worthington (Analyst)
Okay. Okay. I think it's fair, and then on the non-compensation side, so social distancing and sort of the slowdown in travel happened towards the end of the quarter, not for the full quarter. As we think about sort of at least the next quarter, and maybe I'll throw out the assumption that the social distancing continues, what should we expect from you guys in terms of the non-comp if travel remains as slow as it was and the latter part of 1Q? And I guess my assumption is that travel and meeting with clients has really slowed. Maybe that's an error, and you guys are able to get out on the road, but if my assumption is correct, what should we think about for non-comp?
Ken Moelis (Chairman and CEO)
You're correct on that. Joe, we're not having a lot of in-person meetings and not a lot of flights. So Joe, do you want to take that?
Joe Simon (CFO)
Yeah, sure. I mean, so just as background, we're constantly reviewing non-comps. And you might recall in 2019, we decreased the absolute dollar amount of overall non-comp versus 2008 while still adding headcount. This year, we are seeing a natural reduction in T&E. We're also taking action on a variety of other areas. And I think I'd expect the second quarter to be probably less than $30 million going into the second quarter.
Ken Worthington (Analyst)
Okay. Okay. Great. Thank you very much.
Joe Simon (CFO)
Yep.
Operator (participant)
Our next question comes from Devin Ryan with JMP Securities.
Devin Ryan (Director of Financial Technology Research and Managing Director of Financials and FinTech Equity Research)
Great. Good afternoon, Ken and Joe. Question I get pretty frequently from our clients is trying to frame the upside case for restructuring and restructuring revenues. And I appreciate the long timeline on restructuring closings, and so there tends to be a little bit of a mismatch as M&A slows. But how do you guys think about, I guess, maybe the potential upside case? Is there conditions for doubling or more or any other kind of frameworks that you think about kind of how much better business could get to the extent the stress continues? And appreciate you guys have a pretty good opinion just given that the firm was set up really at the beginning of the prior restructuring cycle.
Ken Moelis (Chairman and CEO)
Yeah. I don't have an exact number, and it's hard to know, but doubling seems like it's easy. I think as we get going and revved up, again, Joe said, there is a transition when you go from it's like the car was going forward, and we put it in stop, and now we're going backward. How fast can we go? We can go fast. And I've probably been pleasantly surprised at how fast the level of conversations and calls are picking up. I think one of the reasons is, one of the benefits is M&A is a relationship business. You had to be out on the road and meeting your clients for weeks and weeks before the—sorry, years and years before they will hire you. I've always said that restructuring is kind of a fire department type of business.
You don't spend a lot of time with the person who's going to restructure your balance sheet because you're not thinking that, and most places aren't planning on that. And so the calls are fairly immediate, and actually not being there in person is much less of a barrier, not having that personal interaction. And then on top of that, we're able to get calls and work done extremely quickly because, as I said, nobody's at their kid's ball game or out for dinner or on an airplane or at a board meeting. When we've gotten calls to come up with ideas and help people, we've had everybody on the phone five or 10 minutes later. It's a stunning efficiency. So the short answer to you is I think M&A became a fairly large business over the last three, four years.
I don't know that restructuring could ever replace it, but I think restructuring can be a lot larger than it was in the 2008, 2009 cycle, given how much paper's out there. And our firm, we've retained almost our whole team. We've probably promoted five people from within over that time to be MDs or more. And as I said, last cycle, we went back and looked. Every one of our MDs, except one, actually worked transition from working on M&A and advice to restructuring. And this cycle, we're committed to finding that one guy and making sure he gets to work too.
Devin Ryan (Director of Financial Technology Research and Managing Director of Financials and FinTech Equity Research)
Got it. Very helpful, Ken. And just to follow up on maybe a little bit more of an M&A spin, but pretty clear that pretty much every company in the world moved from kind of normal business operations to a hyper-focus on health of their employees and clients as well. And as you're talking about maybe some of the dialogue starting to pick back up a bit here, but we're early days, and there's still a lot of uncertainty, what are some of the signposts that you would maybe think about as indicators from the outside that would suggest there's more willingness to move forward on a transaction? And then if anything is kind of different here, any nuance between sponsors and how they're thinking, behaving versus corporate clients at the moment?
Ken Moelis (Chairman and CEO)
So you're talking about M&A. There is a lot of, I call it, transactions. They're not for control. There's a lot of PIPE and transactional volume around rescue financing. And I'd say the risk-adjusted return because on a lot of those, you're coming in at levels above common stock or almost sometimes in a secured position for rates of return that are close to equity return. So right now, there is a lot of transactions, and that's where they're going. I think the signpost, and you'll be able to almost see it when we'll see it, is you have to be able to underwrite the next 12 months. You cannot buy a company if you cannot underwrite to some level of certainty the next 12 months of operations or even the 12 months after that. Right now, you couldn't do either.
Again, because we're not in control of this, I just want to say that's one of the reasons M&A has to slow down. In the 2009 crisis, maybe you could figure out what you wanted to do because it was a financial crisis, and you could wager on your own expertise in figuring out how deep and how long a financial crisis is. A health crisis is outside of the purview of most of boards and management teams to underwrite. Again, remember that also goes to the government reaction to the health crisis. So I think you'd have to see two things. The ability to control your own destiny, come back into the boardroom or the C-suite somewhere inside your company. You need to be able to control your own outcomes.
And I also think you need to be able to underwrite some level of an economy or the business that you can do. And by the way, that's why M&A is not dead. There are some companies that are involved in technology and even in healthcare that are uniquely not negatively affected by this, but there's a significant amount that are. The significant majority are.
Devin Ryan (Director of Financial Technology Research and Managing Director of Financials and FinTech Equity Research)
Right. And I guess, is there any nuance between sponsors that need outside financing and maybe have more leverage, but there's also some differences there versus corporates that could use equity here and all equities or values have moved lower? So maybe there's still kind of a fair swap. I mean, is there any difference in kind of those conversations, or would you say it's all quite similar in terms of how your firms are reacting and kind of their thoughts on M&A?
Ken Moelis (Chairman and CEO)
I'd say it's fairly similar because you sort of have to be able to do due diligence and underwrite a business model. Even if you're going to swap your own stock and you think your stock is low, you do have to do due diligence and become comfortable with the other person's business prospects, which is very hard to do in this environment. So that's difficult, and I think sponsors are willing and looking at doing things, but I think the rescue financing opportunities, risk-adjusted for where they can put their capital in for the time being, are attracting their attention more than trying to do whole company transactions, and I do think it'll come. The only thing lastly I'll say to you is I think that the most difficult part of this to get back on track is going to be the middle market.
Financing is already available to large caps. You've seen that the Fed's move to open the liquidity and start to buy investment-grade and even fallen angel and junk credits has really helped some of them, and you've seen them. The companies have rushed to market. I think the part of this market that people don't, that might have a longer time coming back is that basic financing, leveraged financing for the middle market company that has to rebuild after, and rebuilding is going to take some time as well.
Devin Ryan (Director of Financial Technology Research and Managing Director of Financials and FinTech Equity Research)
Yeah. Got it. Appreciate it, Ken. I'll leave it there.
Ken Moelis (Chairman and CEO)
Thanks.
Operator (participant)
Our next question comes from Manan Gosalia with Morgan Stanley.
Manan Gosalia (Head of U.S. Midcaps Banks Research)
Hi. Good afternoon. You mentioned that doubling of restructuring is very possible. Is there a limit on how much capacity you have to take on more business, given that multiple industries right now are facing pressure and you could see a pretty significant spike in restructuring activity? How easy is it for you to pivot your entire team towards restructuring?
Ken Moelis (Chairman and CEO)
I think we can do it. Is there a limit? Yeah, there's going to be a limit. And by the way, so I do think if we stayed in this type of environment for a while, I think doubling would be the baseline for the total amount of restructuring. And by the way, remember, it depends how you define restructuring. A lot of this rescue financing is starting as restructuring and ending up with what might be a capital markets trade, by the way, which is very good. It's not a terrible thing. It's a good thing. It's good for the companies, and it's in a more immediate private fee opportunity. But you might read that as capital markets, and we might really see that as having started as restructuring. So it's one of those businesses if you're willing to get into it as a managing director.
The trouble is sometimes you have some very senior managing directors that kind of, they don't want to learn a new business. I mean, part of the reason I think our workforce is much more flexible than that. I think we hired a managing director in energy a few years ago who didn't know what a restructuring was. When I told him we had a grid restructuring group, he told me, he shook my hand. He said, "That's really good to know." Then he went home and googled what a restructuring group does. Now he's probably, he's not in our restructuring group, but he's probably our most experienced restructuring guy that we have, and that's happening in retail. It's happened in media before, and so I think we could really expand. The workforce will expand very rapidly. We have sort of 50 or 60 dedicated restructuring people.
We will pair them up with our leadership. They will do one or two deals in their space, and then the leadership will be pretty expert in how to do it.
Manan Gosalia (Head of U.S. Midcaps Banks Research)
Got it. That's helpful. And then separately, can you give us a little more on how you're thinking about your liquidity? I know you said you have $145 million in cash and short-term securities, and that's higher than what you've had in some quarters. So I was wondering what buffer would you be comfortable building before you take the dividend back up?
Ken Moelis (Chairman and CEO)
It's not really the buffer. We're in a great look. We have no debt. We have a low burn rate. We have the best lease structure of anybody, and we have no deferred cash. I view it as an offensive move. There are two things that could happen. Lo and behold, somebody cures this thing, and we're all back to work. Fine. I'll pay a special, and I'll be embarrassed a little bit that I was overly careful. Or it could go further. I just believe it's a very offensive move. I think this is the time to get prepared to take great-to grow. Moelis & Company was created in the last crisis. People used to ask me that five years ago when we went public, what's the one thing I regretted? And I said that we only hired 60 people a year.
It was the greatest moment we could ever have to acquire A+ talent that never becomes available. I think in this environment, people are going to look at their balance sheets of the companies they work for, and that could be in whether it's boutiques or big banks. And they're going to want safety, and they're going to want to know that they have a great career in front of them. So to me, it's not the buffer. This is an offensive move so that we can be aggressive if we have the opportunity.
Manan Gosalia (Head of U.S. Midcaps Banks Research)
Got it. Thanks for taking my questions.
Operator (participant)
Our next question comes from Brennan Hawken with UBS.
Brennan Hawken (Senior Analyst of Equity Research)
Hey. Good evening. Thanks for taking the question. I wanted to follow up on the dividend question. And I guess you flagged the strength of your balance sheet, and I certainly would agree with you on that point. I mean, it seems very, very clear. This is something that's been a priority for you since the IPO. And so I think maybe what might be leading to some confusion is that if you have such a strong balance sheet, if you think that this is such an asset, then are you worried about sending the mixed message of cutting the dividend, which might lead some to wonder whether or not you're facing. It's usually seen as not a move of strength, a move of weakness.
And so how did you balance the risk of sending the wrong message, especially in light of what a priority is to have the fortress balance sheet that you've built up over these many years?
Ken Moelis (Chairman and CEO)
Right, so that's a good question. We thought a lot about that, and we thought, obviously, the ranges of the spectrum, there are a lot of people out there that are skipping a dividend, and we said, "Let's go to half." By the way, was there extreme science around a half? I'd like to tell you yes, but it felt fair. It felt like a good place to be. Now, two things. One, our capital return method has been to almost pay 100% of any come out in dividend, and until recently, we weren't buying a lot of stock. A lot of our competitors and comps, let's say, our comps have a much lower dividend payout and have managed the spigot of that excess capital through share repurchase. They can stop the share repurchase easier, so we decided to do this.
Look, the last part of that is the biggest non-recipient of the cash is probably the largest shareholder is myself and the employee base. What I really want to own is the best franchise. People have asked me, and I've said, "We will be the best and largest investment bank in the world, but it won't happen. It won't happen, it'll happen because," and I've said this in the past, "it'll happen because we're prepared for a downturn in a way that nobody else is. We're not going to grow an extra 5% a year in the good markets by stretching, but we might grow 25% or 30% during a bad market." It's here, Brennan. I'm not going to say I'm not going to give up. Lastly, this is a long answer too, but I think it's important for everybody to know.
I'm not driving the car on the decisions here. Tony Fauci and Donald Trump and the governors and. There's a lot of people driving the car of when I can get back in gear. And I don't know when that is. It's a different decision if I was trying to predict to you what I could do with things under my control. I can't. And I'm not going to give up my advantage that I've kept a clean balance sheet for. I'm going to keep that advantage no matter how tough it gets. I hope it doesn't get much tougher than this. But I want to keep it because I know the franchise will be extremely more valuable three to five years from now if we keep it. And that's what happened during the financial crisis.
That's what will happen post this crisis if we play our cards right.
Brennan Hawken (Senior Analyst of Equity Research)
Okay. Thank you for that. And then my follow-up is on the same topic, actually. Is it too much? Is it overstating it to say that maybe the Moelis approach to a dividend is just a more flexible philosophy around the dividend? In other words, you described some of the others in the comp set as using the share repurchase as the valve. You all have used specials, but you also have ratcheted up the regular pretty quickly, and now you're adjusting it also more quickly than others might. Is it just a difference in philosophy that you?
Ken Moelis (Chairman and CEO)
No. No. No. Let me tell you something. Last dividend raise, we raised it slightly. And really, the reason I was raising it is I had in my mind that 20 years from now, we'd be a dividend aristocrat. That we would have raised our dividend every year, and I wanted to be one of those guys. I did. And that's what we were doing. That was my plan. But nobody told me they'd shut the economy for an unknowable amount of the global economy. The whole world would shut down. I didn't have that in my planning. Or maybe I did because we ended up with a good balance sheet. But I just decided in the balance of, did I want to be a dividend aristocrat 20 years from now, or did I want to have the most powerful franchise position that I could take advantage of?
I think we chose the other one. We chose the powerful franchise. And I hope one day they'll have a footnote around dividend aristocrats and said, "Only skipped during the pandemic." It would be like the Roger Maris home run asterisk.
Operator (participant)
Our next question comes from Jeff Harte with Piper Sandler.
Jeff Harte (Analyst)
Hey. Good evening, guys. A couple from me. One, you talked about restructuring and kind of things being very active, but the timeline to revenue recognition being longer. Can you give us an idea of kind of what you think that timeline to revenue recognition would normally be and to what extent kind of the pandemic environment may impact and kind of string that out or make that longer like it appears to be doing for strategic M&A?
Ken Moelis (Chairman and CEO)
Look, a restructuring usually goes about six months to 18 months, depending on whether it's out of court or has to go to court, but between six to 18 months, we've had some that have gone longer, and we've had some go shorter. But that's kind of a restructuring. You get a monthly, and you do it. Now, I actually just want you to know, I think the pandemic restructuring fee stream could be slightly shorter, and I'll tell you why. It's less of a leverage. I mean, it may become an over-leveraged situation in the short term. In the very short term, it's a liquidity crisis. There's a substantial amount of companies out there that either have zero EBITDA and some have zero revenue, and so how much cash becomes a problem. And therefore, the solution is capital or something immediate.
You don't have enough time to fix a balance sheet. All you're trying to do is fix a cash position. So I think a substantial amount of the early assignments here could actually fundamentally be quicker to conclusion and might be reported as capital markets. But 6-18 months is a usual restructuring.
Jeff Harte (Analyst)
Okay. And along those lines, capital markets advisory kind of, I would think there's the potential for that to pick up some with the environment out there. I mean, would you expect to see that pick up some as well? And can you give us even a general idea of what kind of fee sizes capital markets advisory tends to bring in relative to, say, advisory, normal advisory?
Ken Moelis (Chairman and CEO)
Normal M&A advisory?
Jeff Harte (Analyst)
Yeah. I'm trying to just get an idea of what kind of the general fee size on capital markets advisory versus, I mean, it can be versus normal advisory or versus underwriting, just kind of how it falls in on transactions.
Ken Moelis (Chairman and CEO)
The fee pool is kind of much smaller, has been much smaller. Right now, it's all over the place. But anywhere from a point to three points. Equity is probably still five points of private capital being brought in. But of course, it depends on because some of the rescue capital, liquidity capital is coming in as secured credit. Some is coming in unsecured. Some is going to be a PIPE, preferred PIPE, and some is going to be equity. And I would guess it's broad, broad brush. There's a lot of specifics, but it could go anywhere from as you get into the rescue financing, I'd say it's going from one point on the secured financing to as large as five points on the equity.
Jeff Harte (Analyst)
Okay. Finally for me, as far as kind of ongoing client dialogue, can you talk a little bit about on the strategic side how conversations are still taking place? I guess I'm trying to get a feel for how underlying C-suite kind of desire to and focus in acting strategically today compares to maybe how it has in prior recessions, if they're not so much in survival mode and they could turn back on more quickly.
Ken Moelis (Chairman and CEO)
There was a lot. We had a good backlog coming into the end of the crisis, just quality assets, as I said, when markets are peaking and valuations are high. I think I used the art world as a good example. The best assets were getting ready to come to market in January, February because you were at all-time highs in valuation. People will put their best assets up, and we had a substantial very good backlog in that. We're continuing to talk about that with them. We're not moving forward. By the way, that conversation really happened for a few weeks: should we? A lot of them have now been put on hiatus. That's part of the dialogue, and then people are talking about what they'd like to accomplish if the market comes back.
So I think there's just, I wouldn't say it's "should we approach." That's an interesting asset at that price, and maybe they'll need to do something, and maybe we should be thinking about it, and that kind of thing, so it's conversational, but I wouldn't say they have their finger on the trigger.
Jeff Harte (Analyst)
Okay. Thank you.
Operator (participant)
Our next question comes from Michael Brown with KBW.
Michael Brown (Equity Research Analyst)
Hey. Good evening, guys.
Ken Moelis (Chairman and CEO)
Hi.
Michael Brown (Equity Research Analyst)
So most of my questions have been asked, but I had a couple on restructuring. I just wanted to get your thoughts on how you kind of think about this cycle, given it's quite different than prior cycles. And one element I was trying to get at is how do you think about how some of these stimulus programs and really how quick QE came to market will impact this cycle? And is it possible we see a second wave of restructuring when some of the support kind of wears off, say, next year? And then just kind of one other follow-on there. We saw that the Treasury announcement for yourselves to help with the rollout of the government programs.
Just as you gave some color on the debt advisory side, could you give a little bit of color on how those fees play out and how they compare to kind of typical mandates? Thanks.
Ken Moelis (Chairman and CEO)
Okay. So I'm going to start with the second one. No, I don't want to. We don't talk about specific assignments. So I know that was announced publicly, but I still can't talk about it. So I won't, and I guess the first question you were asking about was, oh, how do I think the Fed policies will? So look, again, I don't know. As I said, I like to stick with the nobody knows anything, so don't try to be a genius here, but to your point, I think there could be a second wave. I just feel like, again, comparing this to the 2009 crisis, most people went to work every day. There was a crisis, but if your firm didn't shut down, I guess Lehman Brothers didn't go every day.
But 99% of the jobs and the restaurants and the bars and the mom-and-pop retail, they went to work every day. This is unbelievable what's going on. And the damage it will do, to me, is going to come in waves. It's going to come right now, what's happening on liquidity and crises about and then it's going to come with what's the depth of the consumer? What money do they have when they haven't had a job? How do businesses who have to socially distance and make money in their structure? All those. And the consumer is going to be scared to travel and fly and spend. There's second and third derivatives that we don't know yet. And it goes to why I'm being so conservative. I don't think you'll have a chance to replay the hand. And yes, I do think there'll be a second wave.
Today, it's about liquidity. I think down the road, it will be about leverage.
Michael Brown (Equity Research Analyst)
Okay. Just one quick follow-up. So appreciate all the color that you gave on the dividend and kind of hunkering down for really a very uncertain environment. Clearly, it sounds like you're looking for an opportunity for hiring, kind of similar to what you saw in the financial crisis. But given the significant shift in the environment, is this also a time to kind of reassess your existing workforce? Is there some repositioning that could happen relative to the change in the environment that you may need to consider, given obviously the outlook for industry has radically changed? So any color as to how you're thinking about kind of the existing workforce? Thanks.
Ken Moelis (Chairman and CEO)
Thank you. Yes. And look, we don't want to do anything during the crisis. People have a hard time. And second, we've been doing this continuously. We take workforce management as a continuing operation. Last year, we moved some people out. We do it continuously. It's an every year, every day event. I will say to your point, if the shape of how you work changes, the shape of industry, maybe we have the wrong workforce in the wrong places for the post-COVID, we'll address that. But for the time being, we're not planning anything, and we're pretty happy with the majority of what we have. Look, everybody needs help. So we want all our sector bankers to be contacting their industries. And even if it's talking about restructuring, we have great restructuring expertise, so we can move that in.
We don't want to give up the connectivity, but look, there's going to be a lot new about the world when we finally figure this all out, and if that's your question, yes, we'll reassess. It's why I pointed out that we have not a lot of excess lease expense on real estate because we had about 20% expansion, and the question really is, could you do it 20% less, and we always thought 20% expansion was going to be tight, but if we could do it 20% less, maybe we have 50% room to grow because of work from home, so I'm happy that we don't have those obligations, and we'll look at the whole shape of the coverage and our workforce again when we're back to work and we know what happened.
Michael Brown (Equity Research Analyst)
Okay. Great. Thank you for taking my questions.
Operator (participant)
Our next question comes from Matt Coad with Autonomous Research.
Matt Coad (Equity Research Analyst)
Hey, Ken and Joe. Thanks for taking the question. And I hope you guys are making it through this strange time where I just signed. So one open-ended one, and I know it's incredibly difficult to tell with where we stand right now, but given the number of conversations you have with various business leaders across the country and globe, could you provide your take on any potential ramifications a cycle like this could have on M&A activity once the economy begins to recover?
Ken Moelis (Chairman and CEO)
Okay. So there is a very optimistic and I think it's really very possible that you have a continuing restructuring environment from over-leverage, and you also have a consolidation M&A wave. Look, it's not a good thing that this has happened to the middle market companies, but they may not be able to get back on their feet. And you could really see the people who are going to survive this are obviously the biggest folks in their industry who had balance sheets and accessibility to capital. And I could see a large M&A wave in industries where you just have to consolidate out the middle. And we end up with very large concentrated industries doing a lot of consolidation. And so you could have both things happen. And I could see that being a very likely outcome. And that's why we do a lot.
We have a great middle market, and we have a great large cap. We cover everything, but I could see that happen. I don't think that's a this-year event. If that starts to happen, I think it'll be next year, but it could happen.
Matt Coad (Equity Research Analyst)
Awesome. Thanks, Ken. And then one kind of nitpicky question on restructuring. Is there any broad-brush kind of guidance you could give on the fee mix of a typical contract just between retention, progress, and success?
Ken Moelis (Chairman and CEO)
Look, the monthlies are usually within a range of probably $150,000 to the vast majority of them are $200,000-$300,000. Obviously, there's some big complex ones where you charge a lot more and everything's different, by the way, and then success. I can't give you a ratio because if you're dealing with a company with $800 million who's in trouble, that's a different success than if you're dealing with a company with $8 billion, so it's not a ratio. The monthlies are usually in a certain range. They can get larger than that, by the way, if you're working in a transaction that doesn't have a very easy-to-define success fee, so then you want to get more monthlies, but the standard range of fees is kind of in there and then there's no ratio because the back end is by size.
Joe Simon (CFO)
But maybe another way of thinking about it is we've looked at this in the past, and typically, a third of the fee, a third of the total fee comes in the form of retainers, and two-thirds comes in the form of a completion fee, typically, or on average.
Matt Coad (Equity Research Analyst)
Awesome. Thank you so much, guys.
Operator (participant)
Our next question is a follow-up from Brennan Hawken with UBS.
Brennan Hawken (Senior Analyst of Equity Research)
Hey. Thanks for taking my follow-up. Just a quick one, and it might be just something I'm unaware of. But the CARES Act benefit to your taxes, I haven't heard another company flag that. Could you just walk through what piece of the act and how that benefit flows through to you guys?
Ken Moelis (Chairman and CEO)
Yeah. I'll let Joe do that.
Joe Simon (CFO)
Yeah. So the CARES Act permits net operating losses to be carried back five years based on current uncertainties. We're calculating our tax rate this year on a discrete quarterly basis rather than trying to come up with a full-year forecast that's virtually impossible. So accordingly, due to the large stock vest that we had in quarter one, we generate GAAP income, but we generate an NOL for tax. And so applying the NOL to years starting with 2015 when we had taxable income, the corporate tax rate was then 35%. It's today 21%. That rate differential applied to that calculated NOL for the quarter is ultimately what comes through the benefit.
Brennan Hawken (Senior Analyst of Equity Research)
Okay. Thanks for that, Joe.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back over to Ken Moelis for any closing remarks.
Ken Moelis (Chairman and CEO)
Okay. Thank you, everybody. Before I go, I wanted to thank Michele Miyakawa for her important contributions as a founding member of the firm, and she is transitioning back to the banking side of the business. Taking over investor relations function is Chett Mandel, who a lot of you have met and have worked closely with over the past five years. Please try to throw Michele Miyakawa some business. She's a great banker, and I'm sure you've all gotten to know her. So again, thank you for your time this afternoon. My thoughts are with all of you and your families and your extended families as we navigate this difficult time. Please stay safe and healthy, and we look forward to speaking with you soon. Thanks.
Operator (participant)
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.