Moelis & Company Q4 2024 Earnings Report

Moelis & Company EPS Results

• Actual EPS: $1.18
• Consensus EPS: $0.39
• Beat/Miss: Beat by +$0.79
• One Year Ago EPS: N/A

Moelis & Company Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $348.79 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Moelis & Company Announcement Details

• Quarter: Q4 2024
• Date: 2/5/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, February 5, 2025
• Conference Call Time: 5:00PM ET

Moelis & Co. operates as a holding company. It engages in the provision of financial advisory, capital raising and asset management services to a client base including corporations, governments, sovereign wealth funds and financial sponsors. The firm focuses on clients including large public multinational corporations, middle market private companies, financial sponsors, entrepreneurs and governments. The company was founded by Kenneth David Moelis, Navid Mahmoodzadegan, Jeffrey Raich and Elizabeth Ann Crain in July 2007 and is headquartered in New York, NY.

Moelis & Company Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good afternoon, everyone, and welcome to the Molas and Company Earnings Conference Call for the Fourth Quarter of twenty twenty four. To begin, I'll turn the call over to Mr. Matt Soukroff. Please go ahead, sir.

[Matt Tsukroff, Vice President - IR at Moelis & Company]

Good afternoon, and thank you for joining us for Moles and Company's fourth quarter and full year twenty twenty four financial results conference call. On the phone today are Ken Moles, Chairman and CEO and Joe Simon, Chief Financial Officer. Before we begin, I would like to note that the remarks made on this call may contain certain forward looking statements, which are subject to various risks and uncertainties, including those identified from time to time in the Risk Factors section of Mollis and 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.

[Matt Tsukroff, Vice President - IR at Moelis & Company]

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.mollusz.com. I'll now turn

[Matt Tsukroff, Vice President - IR at Moelis & Company]

the call over to Joe to discuss our results.

[Joseph Simon, Chief Financial Officer at Moelis & Company]

Thanks, Matt. Good afternoon, everyone. On today's call, I'll go through our financial results and then Ken will comment further on the business. We reported $439,000,000 of revenues in the fourth quarter, an increase of 104% versus the prior year period.

[Joseph Simon, Chief Financial Officer at Moelis & Company]

For the full year, our adjusted revenues increased 40% to $1,200,000,000 Our revenue growth was powered by year over year increases across all products. Regarding expenses, our adjusted compensation expense ratio was 58.4% for the fourth quarter and 69% for the full year. Our non comp expense ratio was 11.4% for the fourth quarter and 15.9% for the full year. Non compensation expenses of $50,000,000 in the fourth quarter include approximately $2,000,000 of transaction related expenses. In 2025, we anticipate non compensation expenses to trend higher as a result of an expected increase in technology, occupancy and T and E spend.

[Joseph Simon, Chief Financial Officer at Moelis & Company]

We achieved the pretax margin of 31.4% for the fourth quarter and 16.4% for the full year. Regarding taxes, our normalized corporate tax rate for the year was 30.1% and our effective tax rate was 23.5%. 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 twenty twenty four. Consistent with prior years, the annual vesting of RSUs will occur later this month. For purposes of quantifying the excess tax benefit in quarter one, we expect the impact to EPS to be approximately $0.01 for each $1.25 difference between the vesting price and adjusted grant price of $41 a share.

[Joseph Simon, Chief Financial Officer at Moelis & Company]

So as an example, if market price at time of vest were $76 the estimated impact on EPS would be $0.28 Regarding capital allocation, the Board declared a regular quarterly dividend of $0.65 per share, an 8% increase from the prior quarter. And lastly, we continue to maintain a strong balance sheet with $560,000,000 of cash and no debt. I'll now turn the call over to Ken.

[Ken Moelis, Chairman and CEO at Moelis & Company]

Thanks, Joe, and good afternoon, everyone. We're pleased with our strong year over year performance in 2024 across all products and sectors, all driven by the collaboration, commitment and dedication of our global team and their relentless focus on executing for our clients. During the M and A slowdown, we made significant investments in key sectors and products, while remaining deeply committed to developing internal talent, highlighted by the promotion of 12 new Managing Directors earlier this year. The performance resulting from the large investments we made in technology, industrials and energy in 2023 have exceeded our expectations in 2024. In fact, technology was the largest sector contributor to our 2024 revenues.

[Ken Moelis, Chairman and CEO at Moelis & Company]

The industrials and energy sectors have also been quite active and the Capital Markets Group had a strong year and continues to be a strategic weapon as deal making accelerates and private capital providers play an increasing role in the transaction financing markets. Looking ahead, I'm optimistic for 2025. The M and A market is poised to benefit from the new administration's pro growth strategy and at the same time we're seeing early evidence of a pickup in sponsor activity. In capital structure advisory, elevated rates in our enhanced creditor coverage capabilities provide a constructive environment for our restructuring business. And earlier this week, we announced the hire of a market leading banker who will join the firm as Global Head of Private Funds Advisory.

[Ken Moelis, Chairman and CEO at Moelis & Company]

This appointment underscores our commitment to expanding our capabilities in providing private capital solutions to sponsors and limited partners globally. We've never been better positioned to deliver innovative solutions for our clients and results for our shareholders, and I've never been more energized about the future of the firm. With that, I'll open it up for questions.

[Operator]

And we'll take our first question today from Devin Ryan, Citizens JMP.

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

Hey, Ken. Hey, Joe. How are you?

[Ken Moelis, Chairman and CEO at Moelis & Company]

Good. Hi, Devin.

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

Really nice end of the year here for you guys. And I just wanted to dig in a little bit on what you're seeing in the environment. Obviously, you've been saying kind of backlogs have been at records and then we see kind of this really strong quarter here. I know turnover has been a bit slow, but I'm just curious if we should think about this quarter as maybe there being a catalyst where there's been a change in kind of that conversion ratio or timing or is this just more seasonality from this quarter? And then just more broadly how we should think about kind of that conversion ratio or timing of deals kind of moving through the backlog as we look into 2025?

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

Thanks.

[Ken Moelis, Chairman and CEO at Moelis & Company]

Well, it felt to me like just the pace of deals closing, there's always some seasonality in the fourth as opposed to some of the other quarters, but this one felt like something happened and it might have been the election, but something happened and conversion did pick up. What's interesting is, like we always talked about, you kind of have this book to bill with your pipeline. So you can look at the fourth quarter and say you emptied the pipeline of a significant amount of revenue, but our pipeline is at the highest levels ever. It's increasing. So we're building backlog faster than even than it is converting.

[Ken Moelis, Chairman and CEO at Moelis & Company]

But I think the problem was, Devin, it was just it was really in that period of the Fed uncertainty and maybe even some of the regulatory uncertainty. It was just everything just took a long time. There was some accordion effect that started at 2022, I guess, when rates started to move, where everything just took longer to get through your pipe from start to finish. It feels different now. It's not quite as quick to completion as 2021, but it's much clearer and more rapid to go from deal start to deal end it feels.

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

Got it. Okay. That's great color, Ken. Thank you. And then a follow-up for Joe.

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

I heard you mention, I think, some kind of inflationary non comp expense items as we look ahead. So I'm just curious if we can maybe flesh those out a little bit. Is there any degree of kind of how significant those will be or how to think about non comp growth into 2025? Because obviously you have that on one end, but then my sense is there's also probably less SVB contracted expenses, if I'm correct. So I just wanted to kind of think about some of the puts and takes as we are modeling out non comp expenses for 2025.

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

Thanks.

[Joseph Simon, Chief Financial Officer at Moelis & Company]

Yes, sure. So there to be perfectly clear, there are no more SVB related transaction expenses. But I'd say the underlying run rate in 2025 is going to increase over 2024 and it's primarily driven by continued adds to headcount. I think if I took out transaction expenses projecting into 2025, percent. I'm thinking probably around 15%.

[Joseph Simon, Chief Financial Officer at Moelis & Company]

We're adding and building out space in The UK. We are having tremendous success with client events. And so we expect to expand on that. And then always technology and information services, particularly as headcount grows, that expense by definition will grow as well.

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

Understood. Okay. That's very helpful. Thanks, Joe. And thanks, Ken, as well.

[Ken Moelis, Chairman and CEO at Moelis & Company]

Thanks.

[Operator]

Your next question is from James Yaro, Goldman Sachs.

[James Yaro, Vice President Equity Research at Goldman Sachs]

Good afternoon, and thanks for taking my questions. Just wanted to turn to restructuring quickly. Obviously, it's very strong for you and for the industry in 2024. As you think about the outlook for 2025, what's the ability to hold this level of activity? Is there any potential that we could see a further acceleration from here?

[James Yaro, Vice President Equity Research at Goldman Sachs]

And then any ability for you to just give a rough split of how much revenue in the quarter was from M and A versus restructuring versus capital markets? Thanks.

[Ken Moelis, Chairman and CEO at Moelis & Company]

Look, it's always hard to project because restructuring is based on the economy, interest rates. Look, we did have a very good year. The economy feels strong enough that as of now, I don't see an event that would cause a major disruption. Of course, I have to also say that things are pretty volatile in and around the things like the government and things like that. So anything could happen.

[Ken Moelis, Chairman and CEO at Moelis & Company]

I would expect 2025 to be a year that looked a lot like 2024 as of now, as of now. And that's without any external events in the restructuring world. I think on the to your answer, about 60% of our revenue was M and A. That doesn't mean it was all restructuring. The rest is capital markets, really capital markets and restructuring.

[Ken Moelis, Chairman and CEO at Moelis & Company]

And those numbers by the way are for the full year.

[James Yaro, Vice President Equity Research at Goldman Sachs]

Okay. Thank you. That's very clear. Maybe just quickly on the comp ratio. I think you were well within the range of the sensitivity that you gave for the comp ratio for 2024.

[James Yaro, Vice President Equity Research at Goldman Sachs]

Maybe if you could just provide any context on the comp ratio progression to 2025 and whether that sensitivity is still something we should be thinking about?

[Ken Moelis, Chairman and CEO at Moelis & Company]

So I think it gets it's more complicated. Look, we gave a pretty good algorithm and stuff to it for the year. As you get closer to market based low 60s comp, it's going to start flattening out. It's not a linear progression. I think we do have leverage.

[Ken Moelis, Chairman and CEO at Moelis & Company]

If everything stayed the same, I think we'd probably get 75% of those savings. And that's if we didn't do anything exciting for the year, but I will say 75% of the savings per $100,000,000 is kind of what we gave you. And again, I just want to reiterate, as you get down near the low 60s, it just becomes competitive with the market and what everybody else is doing. That's kind of a we're not planning on linearly going through that in any capacity. But then you have other things like this private funds advisory hire we made.

[Ken Moelis, Chairman and CEO at Moelis & Company]

We do intend to build a market leading business around that. How big and how fast we do that will affect that, but we do intend to we think we have a market leading banker to put us in position. We think it's an important project for us and we'll be aggressive.

[James Yaro, Vice President Equity Research at Goldman Sachs]

That's very clear. Thanks a lot, Ken.

[Operator]

Next up is Brandon Hawken, UBS.

[Brennan Hawken, Senior Analyst - Equity Research at UBS Group]

Afternoon, Ken and Joe. Thanks for taking my question. Curious on capital, Ken. So saw the dividend increase, clear sign of confidence from you. And I know that you have an expressed fondness for dividends and being in the dividend growing club and whatnot.

[Brennan Hawken, Senior Analyst - Equity Research at UBS Group]

But with fully diluted shares on an average basis from 4Q 'twenty three to 4Q 'twenty four increasing by 12%, what are your thoughts on allocating some of your excess capital or capital generation to buyback to neutralize the employee comp?

[Joseph Simon, Chief Financial Officer at Moelis & Company]

Can I just correct one thing that you said, Brennan? You're looking at an accounting result with respect to share count. And as you may remember, when you run losses, which is what we did in 2023, you only have basic count and the fully diluted count is what you're looking at at the end of twenty twenty four. So you basically are looking at apples and oranges. It did not grow by 12%, but I'll let Ken answer the question now.

[Ken Moelis, Chairman and CEO at Moelis & Company]

To the gist of the question, which is, look, we're twelve months away from, I think, on this earnings call being asked if our dividend was safe. And today we're being asked what we're going to do with our excess capital. So we increased the dividend because it very timely and quickly gives away what we think will be excess cash generation and we're confident in that, so we raise the dividend. And from there, we will return the capital. It may be a series of things, right?

[Ken Moelis, Chairman and CEO at Moelis & Company]

It might be stock repurchases. We're not against that. We repurchased a large amount of stock a few years ago. So we're not against that. It's going to be determined by us, the Board, the market, how we want to get the capital back to you, a series of things.

[Ken Moelis, Chairman and CEO at Moelis & Company]

But again, this is it's a good conversation and I'll be discussing what we're going to do with our substantial excess capital versus can we make our dividend. So we'll address that and believe me, we will not keep any of the capital. It will be returned in the best way we can think of and as quickly as possible.

[Brennan Hawken, Senior Analyst - Equity Research at UBS Group]

Okay. Totally fair and I get the irony, Ken, there's no doubt. And Joe, thanks for pointing that out. If we just convert to 1Q then it's 8% and that's over a year and a half, nearly two years. So it's a more modest amount of dilution for sure.

[Brennan Hawken, Senior Analyst - Equity Research at UBS Group]

So appreciate all that. When you're thinking about the productivity levels, right? So you guys did really there is no other way to describe it. I mean, you really did quite a great job here in 2024, very strong finish to the year. You got to like nearly $8,000,000 of advisory revenue per trailing MD.

[Brennan Hawken, Senior Analyst - Equity Research at UBS Group]

So really turned what we are all thinking was going to be a pretty bad year into quite a solid one. How given the quantum of banking talent and the caliber that you've added, you flagged the tech team's contribution here this year, Ken. How should we be thinking about that metric? And given the new team and the new capabilities, is 2021 really such a stretch from a productivity perspective? I know you guys did 12.5% that year.

[Ken Moelis, Chairman and CEO at Moelis & Company]

Well, look, I don't know the full answer to that, but I will say the tech team, remember, it's only eighteen months into it. So I don't think we're at full run rate with the revenue per head on that team. This is again, it takes time to build up and we're seeing the benefits. Our industrials team, we added in from Credit Suisse. So that's about a that's also about a year in, maybe a little more.

[Ken Moelis, Chairman and CEO at Moelis & Company]

And we then made a big investment in energy and we're extremely happy with energy. And energy, I think you're going to see ramp up and it's a big feet pool. And then lastly, I'm very excited, but we do have some garden leave on the private funds advisory. It's a large business for many of our peers and it's been a very small business for us. So the headcount and that's the same a lot of same calling effort to the sponsors.

[Ken Moelis, Chairman and CEO at Moelis & Company]

We will add MDs there, but I think the revenue per MD there. Brendan, I don't really know the answer, but my gut feel and my hope is that, yes, that 2021, you probably had an S and P 500, I'm doing this out of memory, that was probably at the beginning or is up significantly. I'll just leave it. It's up significantly. The amount of private capital is up significantly.

[Ken Moelis, Chairman and CEO at Moelis & Company]

The opportunity to do business in a larger global economy with larger deals. By the way, we had no tech team in 2021, which was kind of a glaring hole in our go to market, especially because 2021 was a pretty good tech year. So look, I'm excited to find out. Let's leave it that way. I'm excited to find out and I'm not limiting it to that.

[Ken Moelis, Chairman and CEO at Moelis & Company]

I've never limited it to that, but we'll find out.

[Brennan Hawken, Senior Analyst - Equity Research at UBS Group]

Fair enough. Thank you for the color.

[Operator]

Next question today is from Brendan O'Brien, Wolfe Research.

[Brendan O'Brien, Senior Vice President at Wolfe Research]

Hey, good afternoon and thanks for taking my questions. I guess to start just on the sponsor business, you said that you're starting to see signs of a pickup there. It would be great to get a sense as to how meaningful of an acceleration we could start to see. And on top of that, a lot of the restructuring activity has been focused among sponsor clients through LME activity. I was just wondering whether there is any connection between the elevated restructuring activity among sponsor backed companies and the subdued sponsor M and A backdrop?

[Ken Moelis, Chairman and CEO at Moelis & Company]

I think sponsors are definitely coming forward. I mean, again, is it, I don't know, on a scale of one to 10, I guess a year ago, I'd give it a two or a three. I think we're probably at a six. Again, very rough estimate of mine. I don't think we're at full speed.

[Ken Moelis, Chairman and CEO at Moelis & Company]

We're again, I'd go to 2021 when if on a scale of one to 10, that was kind of a 10. Everybody was buying and selling at the same time and it was active. But I think we're kind of at a six. But my feeling is people wanted to get as opposed to a year ago where I think people are like, hey, we're not doing anything and we really don't expect to do anything. I think it's we're doing things and we expect to do more and want to do more.

[Ken Moelis, Chairman and CEO at Moelis & Company]

So I think the desire and the bias is to be more aggressive. On the creditor side, it's interesting. Probably our biggest opening is a lot of our restructurings were company side or debtor side. It's where we do a lot I mean, it's probably seventythirty. And we are being much more active now on the private credit side and trying to get in on that side of the restructurings.

[Ken Moelis, Chairman and CEO at Moelis & Company]

Is your point like these companies couldn't sell, so they're getting into trouble? I don't think that's the answer. It's hard to sell a company that can't cover its debt. So I don't think M and A truly covers restructuring. I think restructuring might be driven more by interest rates, which just make the onerous debt obligations kind of come in quicker than they would have three or four years ago.

[Ken Moelis, Chairman and CEO at Moelis & Company]

But I don't think it's the M and A that's driving it. In fact, if anything, I think some of the private capital solutions that we're doing, very pick preferred, structured rescue credit, that's probably staving off some of the restructuring more than M and A would.

[Brendan O'Brien, Senior Vice President at Wolfe Research]

That's helpful context. I guess for my follow-up, I just wanted to touch on the comp ratio. It was great to see the comp leverage come through this year. And I think you kind of alluded to this in your prior answer to a prior question. But when you provided the incremental guidance, you indicated that you thought you could get back to a low 60s comp ratio with about $1,300,000,000 to $1,400,000,000 of revenues.

[Brendan O'Brien, Senior Vice President at Wolfe Research]

So I just want to get a sense as to whether you think that's still the case today or has the continued investment in the business maybe pushed that number a bit higher?

[Ken Moelis, Chairman and CEO at Moelis & Company]

Yes. I don't remember saying it exactly because even the algorithm we hit didn't really go to that number if you did it straight line. So I don't think that. I think I might have said something like by the fourth quarter, we might be having a run rate of revenue. I might have said at one point that would justify getting back to low sixty, sixty in that range.

[Ken Moelis, Chairman and CEO at Moelis & Company]

And I think that's kind of where I that's what you get. So that would be a couple of hundred point I think it's higher than the revenue number you're talking about. There is leverage by the way all the way up, but it just gets more and more difficult as you get there.

[Joseph Simon, Chief Financial Officer at Moelis & Company]

And we've been making we continue to make substantial investments last year, this year we expect to. So yes, that will also have a that's a headwind to the operating leverage that you're Yes.

[Ken Moelis, Chairman and CEO at Moelis & Company]

I want to be clear on that. It's not like we didn't do anything this year in terms of investing. Even bringing down the comp ratio, we did invest. And so inherent in 2025 is some investment. The private funds advisory think could be a little larger and more aggressive than just regular way sector bank or it will depend how fast and how quick we can get moving on that.

[Ken Moelis, Chairman and CEO at Moelis & Company]

We have garden periods and lots of things like that, but we're going to move as quickly as we possibly

[Brendan O'Brien, Senior Vice President at Wolfe Research]

can to build that out. Great. Thank you for

[Brendan O'Brien, Senior Vice President at Wolfe Research]

taking my questions.

[Operator]

Thanks. We'll go next to Ryan Kenny, Morgan Stanley.

[Ryan Kenny, Executive Director - Equity Research at Morgan Stanley]

Hi. Thanks for taking my question. So you've been really strong at hiring and protecting your workforce in downturns and then taking share in market upturns. So as the market starts to recover, is the recruiting environment getting more competitive and does that blow the pace of leaning into hiring or do you expect to continue hiring at pace?

[Ken Moelis, Chairman and CEO at Moelis & Company]

I think the environment's not gotten it's competitive. It's about the same as it's been. I actually think the continuing what I call the continuing regulatory crunch on the major banks makes people available. I actually think the onerous capital restrictions, I think there was a I said it at the Goldman conference when I was there. I do believe that the entire transaction financing economy is switching from being bank centric to being, I won't call it private credit centric, but to be institutional centric, whether that be sovereign wealth funds, insurance, private credit.

[Ken Moelis, Chairman and CEO at Moelis & Company]

I do think the regulators are intent on taking the risk out of the taxpayer guaranteed financing sector, which is commercial banks. And I agree with them that should have been done long ago. But you can see it. I think there was a major bank that two weeks ago announced they were shutting down their entire investment bank. And I think bankers are starting to see, all you have to do is look at the market and realize that being independent and not having the conflicts and the problems of being a regulated financial institution, lead the best I think the best people in the world tend to want to come to an independent firm in which creativity and intellectual talent is highly recognized.

[Ken Moelis, Chairman and CEO at Moelis & Company]

So that continues to happen and that's where a lot of the talent comes from.

[Ryan Kenny, Executive Director - Equity Research at Morgan Stanley]

And then just a follow-up on the quarter, revenues were clearly really strong. Should we think about the build through 2025 as building off of 4Q annualized revenue numbers? Or should we look more at full year 2024? Was there anything idiosyncratic in the quarter, any big fee events or pull forwards that we should be thinking about as we model into 2025?

[Ken Moelis, Chairman and CEO at Moelis & Company]

Interestingly, there was nothing really unusual about Q4. I think our pull forward, Joe, was what, '8?

[Joseph Simon, Chief Financial Officer at Moelis & Company]

Yes, it was modest, which was the same as third quarter.

[Ken Moelis, Chairman and CEO at Moelis & Company]

Very light the pull forward wasn't there. There was no unusual fee. If anything, we always have puts and takes, deals move and deals move in, deals move out. The most interesting part is the deals that moved out in the fourth quarter were mostly regulatory and so they almost the move outs are going to skip a quarter. We had some things move from not from quarter four to quarter one, but from quarter four to quarter two because they were regulatory.

[Ken Moelis, Chairman and CEO at Moelis & Company]

And I thought it was about normal of what went in versus what got delayed other than what got delayed, didn't get delayed by weeks, it got delayed by a couple of months. Again, it's always been a bit of a seasonal business. The amount of transaction animal spirits we saw arise in the fourth quarter, I think we're more important than the seasonality alone, but I don't want to discount. We always have a first quarter is always the lightest and fourth quarter is always not always, usually the best and the first quarter is usually the lightest. But I do think over the full course of the year, I feel like the trend is good.

[Ken Moelis, Chairman and CEO at Moelis & Company]

I just can't say that you should annualize one quarter.

[Ryan Kenny, Executive Director - Equity Research at Morgan Stanley]

All right. That's helpful. Thank you.

[Operator]

Next up is Ken Worthington, JPMorgan.

[Ken Worthington, Financial Analyst at JP Morgan]

Hi, good afternoon. Big questions largely answered and asked and answered. Joe, a little one for you. The comp ratio usually early in the year, the comp ratio is like a placeholder and then you true up later in the year. How should we think about the placeholder as we start thinking about compensation for twenty twenty five?

[Joseph Simon, Chief Financial Officer at Moelis & Company]

Yes. Good question. As you know, we always have a bump in the equity charge due to the incentive equity, which is granted later this month and then the retirement eligible participants are accelerated in the first quarter and then what Ken was describing as typical seasonality in the first quarter. I would probably start with where we landed for the full year as a starting point placeholder and we'll go from there.

[Ken Worthington, Financial Analyst at JP Morgan]

Okay, great. Thank you very much.

[Operator]

We'll go next to James Yaro, Goldman Sachs.

[James Yaro, Vice President Equity Research at Goldman Sachs]

Thanks, Ken, for taking the follow-up. I just wanted to clarify on your comment around the 25% comp ratio here. Just to confirm, are you saying that for, let's say, $100,000,000 increase in revenue that 75% of that would drop to the bottom line. So that would be like a 25% comp margin. Is that the right is that what you No.

[Ken Moelis, Chairman and CEO at Moelis & Company]

Look, Joe is looking at me because he said, stay away from extending out the algorithm we want. And of course, I stepped in it. I was just saying that it's not straight line. I was going to say it's asymptotic what happens as you go to 61, but Joe told me no one will know what that means. So I'll try it and see if anybody writes that and gets it.

[Ken Moelis, Chairman and CEO at Moelis & Company]

But it's just going to slow we were doing 400 basis points, I think we gave you at the beginning of last year per 100 basis points. It can't go that fast. It's not straight line. There is room to improve. So I was saying, would we get would we get 300 basis points if we did nothing else?

[Ken Moelis, Chairman and CEO at Moelis & Company]

Maybe, maybe that would be right. But again, that's going to change because as you get that, you're getting down closer and closer to 60 low 60s. And then you're going to look around and see what is the competitive environment, what do you have to do. As you get there, that's you're not going to go through that. So the question is how close, how quick and when do you do it.

[Ken Moelis, Chairman and CEO at Moelis & Company]

I don't think it look, I don't think the right answer here is to have an algorithm from this point on other than to say to you, I think we can get a lot of savings and then offset that by any outsized investment in a new business that is outsized. I think inside of that comp ratio, we always do think we're going to hire some people. So I don't want to say that would but if we do something in which, let's say, PFA, which could be a sizable thing that might affect it too. So it's complicated and Joe told me not to do it and I made the mistake adding that.

[Joseph Simon, Chief Financial Officer at Moelis & Company]

I mean, again, remember the purpose. We were at 83% comp ratio in 2023. We wanted to demonstrate that there was a path to getting to something that was more reasonable. And that's why we put out that algorithm. I think it's going to be more difficult to be precise around that given some of the opportunities that are before us with respect to investment and where we are today.

[Joseph Simon, Chief Financial Officer at Moelis & Company]

But we will be striving for operating leverage that is absolutely on the bingo card.

[James Yaro, Vice President Equity Research at Goldman Sachs]

Okay. That's very clear. Thank you.

[Operator]

And everyone, at this time, there are no further questions. I'll hand things back to our speakers for any additional or closing remarks.

[Ken Moelis, Chairman and CEO at Moelis & Company]

Well, thanks for joining us and we hope to come back and continue to improve all the elements that you've been asking about. So thank you.

[Operator]

And once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.

Participants

Executives

• Matt Tsukroff, Vice President - IR
• Joseph Simon, Chief Financial Officer
• Ken Moelis, Chairman and CEO

Analysts

• Devin Ryan, Director of Financial Technology Research at Citizen JMP
• James Yaro, Vice President Equity Research at Goldman Sachs
• Brennan Hawken, Senior Analyst - Equity Research at UBS Group
• Brendan O'Brien, Senior Vice President at Wolfe Research
• Ryan Kenny, Executive Director - Equity Research at Morgan Stanley
• Ken Worthington, Financial Analyst at JP Morgan