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M&

Moelis & Co (MC)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 adjusted revenues were $280.7M (+1% YoY) and GAAP revenues were $273.8M, with diluted EPS of $0.22 GAAP and adjusted; sequential revenue increased from Q2’s $264.6M as M&A improved while non‑M&A was modestly softer .
  • Compensation ratio accrued at 75% and non‑comp expenses were $47.5M; management guided Q4 non‑comp expenses to be “similar” ($48M), and reiterated comp leverage of 4–5 pts per $100M incremental revenues if activity accelerates .
  • Product mix remained ~60% M&A / ~40% non‑M&A YTD, with Q3 also ~60/40; restructuring activity is expected to skew toward liability management, while capital markets benefited from strong private credit demand .
  • Balance sheet stayed strong: cash and liquid investments rose to $297.7M with no debt or goodwill; MC declared a $0.60 quarterly dividend payable Dec 2, 2024 (record Nov 4) .
  • Catalysts: seasonality and healthy pipelines could support Q4 closing activity; improving sponsor engagement and an active private credit market are tailwinds, while regulatory execution timelines and LP fundraising cadence remain pacing risks .

What Went Well and What Went Wrong

  • What Went Well

    • M&A revenues increased; YTD mix ~60% M&A / 40% non‑M&A with Q3 at ~60/40, reflecting gradual improvement and strong public strategic activity earlier in the year .
    • Private credit tailwinds: capital markets had its best quarter since Q1 2022; hybrid capital demand and disintermediation from banks created advisory opportunity for bespoke financing solutions .
    • Strong balance sheet and capital return maintained: cash and liquid investments $297.7M; quarterly dividend of $0.60 declared; “no debt or goodwill” supports resilience .
    • Quote: “We are well positioned to drive long‑term growth” — Ken Moelis, CEO .

  • What Went Wrong

    • Non‑M&A revenues modestly declined YoY in Q3, partially offsetting M&A increases; longer transaction completion cycles persisted vs a full bull market .
    • Compensation ratio stayed elevated at ~75% for Q3 amid staffing needs to service elongated backlogs; headcount up YoY and MD count decreased sequentially, adding cost friction near‑term .
    • Regulatory and investment committee processes continue to slow closings; management flagged antitrust scrutiny and LP fundraising cadence as bottlenecks .

Financial Results

Revenue, EPS, and Expense Ratios (Quarterly progression)

MetricQ1 2024Q2 2024Q3 2024
Revenues (GAAP, $USD Millions)$217 $264.6 $273.8
Revenues (Adjusted, $USD Millions)—$264.6 $280.7
Diluted EPS (GAAP, $USD)—$0.17 $0.22
Diluted EPS (Adjusted, $USD)—$0.18 $0.22
Compensation & Benefits (% of Revenues, GAAP)75.0% 74.8% 77.0%
Non‑Comp Expenses ($USD Millions)~$46 run‑rate $46.6 $47.5

Note: Q1 adjusted revenue and EPS were not disclosed in the available documents above.

Year‑over‑Year (YoY) comparison (Q3)

MetricQ3 2023Q3 2024
Revenues (GAAP, $USD Millions)$272.2 $273.8
Revenues (Adjusted, $USD Millions)$277.7 $280.7
Diluted EPS (GAAP, $USD)$(0.16) $0.22
Diluted EPS (Adjusted, $USD)$(0.15) $0.22
Non‑Comp Expenses ($USD Millions)$50.0 $47.5

Product/Activity Mix and KPIs

KPI / MixQ1 2024Q2 2024Q3 2024YTD 2024
M&A Revenue Mix (%)~50% (non‑M&A ~50%) —~60% ~60% M&A / ~40% non‑M&A
Other Income (GAAP, $USD Millions)—$1.7 $11.1
Cash & Liquid Investments ($USD Millions)—$191.3 (as of 6/30) $297.7 (as of 9/30) —
Dividend Per Share ($USD)$0.60 $0.60 $0.60 (payable 12/2; record 11/4) —

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Compensation ratioFY 2024 modelAccrued ~75% in Q1–Q2; leverage algorithm of 4–5 pts per $100M revenue persistent Accrued ~75% in Q3; leverage of 4–5 pts per $100M confirmed; Q4 ratio contingent on revenue Maintained; leverage reiterated
Non‑comp expensesQ4 2024Run‑rate ~$46M/quarter excluding transaction costs (Q1 commentary) ; Q2 actual $46.6M Expect similar non‑comp in Q4 as Q3 (~$48M) Slightly raised vs run‑rate
Tax rate (underlying corporate)FY 2024~34% (Q1–Q2) ~34% (Q3) Maintained
DividendQ3 2024$0.60 declared in Q2 $0.60 declared; payable Dec 2, record Nov 4 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q1 2024)Current Period (Q3 2024)Trend
M&A recoveryImproving; strong public strategic activity; backlog healthy Pipeline building; conversion challenging but turning constructive Gradual improvement; pipelines/announced at all‑time highs; still elongated closing cycles Improving
Private credit / capital marketsBest quarter since Q1 2022; hybrid capital demand rising Capital availability reopening supports bespoke financings Larger/opportunistic than expected; strong demand for structured solutions Accelerating
Restructuring / liability mgmt~30% combined with capital markets in 1H Strong activity; more out‑of‑court liability management expected Prolonged cycle centered on liability management; Chapter 11 less dominant Stable to sustained
Sponsors and LP fundraisingSponsor sentiment improving; rotation in valuations helpful Timing impacted by rate‑cut expectations; need stability to transact Engagement up, but IC/LP pacing slows completion; potential acceleration with rates or valuation rotation Improving but gated
Regulatory/FTCChange in FTC regime could unlock deals —Regulatory and IC dynamics extend timelines Watchful
IPO market——Expect more sponsor IPOs with markets at highs and rates down; “strange” lack of IPOs currently Potential tailwind

Management Commentary

  • Strategic posture: “We are well‑positioned to drive long‑term growth” (CEO) .
  • Cycle view: “We are getting closer to the next up cycle in M&A… rapid innovation driven by technology fuels the need for M&A” .
  • Restructuring emphasis: Expect a prolonged liability management cycle given non‑IG maturities; Chapter 11 remains last resort with ample risk capital to extend maturities .
  • Private credit opportunity: Rise of private credit is larger and faster than anticipated; Moelis invested early and is competing effectively on arranging capital .
  • Talent: Active recruiting with additions in biotech and selective senior hires in strategic areas; deepening product/sector/regional expertise .

Q&A Highlights

  • Compensation leverage and Q4 setup: Management reiterated the 4–5 pt comp‑ratio leverage per $100M revenue increase, with Q4 ratio dependent on revenue realization; no expectation for a “significant hiring phase” that would impair leverage .
  • Rates and sponsors: Stability matters more than cuts; sponsors are engaged but IC/LP capital reloading cadence is a key determinant of whether 2025 is “good” vs “very good” .
  • Headcount dynamics: Elevated employee growth with MDs down q/q reflects servicing elongated backlogs and pending senior hires over existing teams; YoY employee growth closer to ~12% than ~20% .
  • Liability management vs Chapter 11: Expect more liability management exercises given open capital markets and sophisticated institutions willing to participate .
  • MA Financial share sale: $7M gain realized from selling 5M shares; helpful liquidity transaction without broader strategic change to Australia alliance .

Estimates Context

  • S&P Global Wall Street consensus estimates for Q3 2024 were unavailable due to data access limits during retrieval; therefore, we cannot provide definitive actuals vs consensus comparisons for revenue and EPS at this time. If you want, we can refresh and add the consensus and surprise metrics when access resumes.
  • Based on management’s guidance and operating commentary, Street models should reflect: sustained ~34% corporate tax rate , non‑comp expenses ~$48M in Q4 , and potential comp‑ratio leverage if Q4 revenues benefit from seasonality and pipeline conversion .

Key Takeaways for Investors

  • Sequential revenue improvement with Q3 adjusted revenues at $280.7M and GAAP EPS at $0.22; YoY comps improved materially vs Q3 2023, aided by an M&A pickup and lower non‑comp expenses .
  • Leverage setup remains constructive: with 4–5 pt comp‑ratio leverage per $100M revenue increase, any Q4 seasonality or pipeline conversion can drive operating margin expansion .
  • Private credit proliferation is an enduring tailwind for capital markets advisory and liability management, supporting non‑M&A revenue durability even as M&A accelerates .
  • Sponsor IPOs and valuation rotation toward small/mid caps could unlock exits and catalyze sponsor activity into 2025; monitor IPO pipeline and Russell 2000 relative performance .
  • Regulatory and LP fundraising cadence are key pacing variables; a friendlier FTC regime or clearer LP re‑liquification would accelerate closings and fee realization .
  • Capital return and balance sheet strength provide downside support: $0.60 dividend maintained; $297.7M cash/liquids; no debt or goodwill .
  • Actionable: Position for near‑term catalysts (Q4 seasonality, sponsor re‑engagement) and medium‑term thesis (M&A upcycle + durable private credit advisory), while hedging execution timing risk tied to regulatory/LP factors .