Michele Miyakawa - Head, IR Ken Moelis - Chairman & CEO Joe Simon - CFO.

Mike Needham - BofA Merrill Lynch Ken Worthington - JPMorgan Devin Ryan - JMP Securities Conor Fitzgerald - Goldman Sachs Brennan Hawken - UBS Jim Mitchell - Buckingham Research Jeff Harte - Sandler O'Neill Vincent Hung - Autonomous.

Good day, and welcome to Moelis & Company's First Quarter Earnings Conference Call, all participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Michele Miyakawa, Head of Investor Relations. Please go ahead..

Great, thank you. Good afternoon, everyone. Thanks for joining us for Moelis & Company's first quarter 2017 financial results conference call. On the phone today are Ken Moelis, Chairman and CEO; and Joe Simon, Chief Financial Officer.

Before we begin, I'd like to note that the remarks made on this call may contain certain forward-looking statements including regarding future performance 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 or non-GAAP 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 Joe..

Thanks, Michele. Good afternoon everyone. On today's call, I'll go through our results and then Ken will speak about the market and our future outlook. I'm pleased to report that we achieved another record quarter of $173 million of revenues in first quarter on the back of a record quarter for 2016.

Our quarter one revenue performance which was up 37% compares favorably to the overall M&A market in which the number of global M&A completion is greater than $100 million declined 11% year-over-year. All areas contributed to our year-over-year revenue growth.

First in restructuring you may recall that this time last year, we commented on the higher number in volumes of restructuring mandates. Many of those mandates came to completion at the end of last year and this quarter. In capital markets, we experienced an increase in the number of deal completions and average fees.

And I'm M&A, we continue to be active across the board particularly in sell side hick up in middle market and sponsor related transactions. Overall, we advise a greater number of clients and we completed a larger number of transactions over the prior year period.

Moving to expenses our adjusted comp expense ratio of 58% for the quarter is in line with our target as well as with prior periods. Our non-comp ratio decreased from 18% to 16% for the first quarter of 2017 driven by higher revenues. We reported $28.5 million of non-comp expenses.

The increase in absolute dollars was primarily attributable to transaction related charges as well as incremental business development activities.

On an ongoing basis, we now believe the underlying run rate to be $26 million to $27 million per quarter, primarily the result of anticipated increases in recruiting and ongoing business development related activities.

Our corporate effective tax rate declined to 29.2% from 39.5%, this includes the impact of the tax benefit related to the new accounting which reflected the increase in the value of employee equity delivered in February. The contribution to EPS this quarter was approximately $0.07.

Excluding this discrete benefit, our effective tax rate would have been 38.8%. As a reminder, our adjusted presentation assumes that all partnership units have been converted to shares, so that all the firms' income is taxed if it were subject to the corporate effective rate. Our fully diluted share count was 62.3 million shares at quarter end.

The increase in fully diluted share count is driven by the treasury stock method calculation. Significant factor in this calculation is the change in average share price. The average share price increased substantially in quarter one over the average observed in quarter four 2016. This served as an accelerant of share dilution.

So we now believe that instead of shares growing by a million per quarter that will instead be approximately 300,000 per quarter assuming a consistent average share price. Lastly on April 21, our board declared a quarterly dividend of $0.37 per share consistent with last quarter. We paid on May 24 to stockholders of record as of May 10.

We ended the quarter with a strong financial position with $184 million of cash, short term investments and no debt. And I'll now turn the call over to Kenneth..

Thanks Joe. We built up our significant momentum in 2016 to start 2017 on a high note achieving record revenues this quarter. I'd like to point out two relevant trends that we saw in the quarter. Last year, I said we might experience an increase in middle market activity particularly with the sale of private businesses.

In fact the number of global market completions was up 13% year-over-year for transactions size between $500 million and $2 billion and the number of announcements was up 25%. And we are benefiting from this activity.

We believe our expertise and focus on this part of the market differentiates us from other advisers and represents significant growth opportunity going forward. We continue to see increased synergies across our products and regions as the early investments we made in the global network continue to pay off.

In fact for the quarter we saw growth across all major regions and products. We advised a greater number of total clients and completed more transactions in all areas, M&A, recapitalization and restructuring, capital markets advisory and private funds advisory.

We continue to win important large global mandates as a result of our culture of collaboration. We expect to continue to grow the business organically and with a high focus on ROIC, which leads me to review an excellent recent example that's our experience in Australia.

After reviewing the unique characteristics of the Australian market, we decided to form a joint venture with the best local talent in 2010 and we made a modest investment of approximately $4.5 million which the team matched.

The business opened on the Australian Stock Exchange earlier this month at a valuation of almost US$300 million and we continued on 40% of the unconsolidated JV. This translates to approximately $2.40 per share on the 50 million shares we hold, $2.40 on most of company stock, the 50 million shares we own.

In addition as part of the IPO, we received a dividend of $11.7 million. Moelis Australia will continue to be an important part of a global network and we believe the IPO will help accelerate its continued growth. With a prudent focus on profitable organic growth, we've built a network of 110 managing directors.

Many of whom we promoted internally and they're working together to better deliver advice to our clients. We announced recently, a veteran software and technology hire. Who will join this summer and our recruiting pipeline is strong.

As a result of our unique model, seamless and collaborative global network with relentless focus on profitable growth, I feel exceptionally optimistic about our prospects and ability to deliver for our shareholders in both the new and longer term. With that I welcome any questions..

Thank you. We will now begin the question and answer session. And our first question comes from Conor Fitzgerald with Goldman Sachs, please go ahead..

Good afternoon and thanks for taking my questions. First one just on structuring, you know the strong quarter for completions. How about pipeline for that tracking kind of from here and any color you could provide on what subsectors you saw the most activity would be helpful? Thanks..

So again, I think restructuring has basically been a flat business for about last 12 months. I think it's about flat going forward. This quarter was an exceptionally good one for closings, but I think it's a pretty much a -- it's a good business, but it's a flat grower right now and that's the way I feel it'll stay for a while..

That's helpful, thanks. And then just - maybe just one on tax reform. As you are talking to clients about the potential of pursuing M&A and then think about how tax reform fit in those plans. Give a sense from them if there's a strong preference between tax cuts versus tax reform.

You think one kind of makes M&A - easier for kind of potential buyers to think about?.

I don't know the answer to that. You know tax reform if it was large, you know it might just trigger M&A because it would -- reform would mean tremendous changes in the way your capital structure, you're go to market would have to be not just a lower rate. People would have to respond to it possibly.

But I don't have a strong belief or knowledge that either one would be of significant difference..

That's helpful. Thank you for taking my questions..

Our next question comes from Ken Worthington with J.P. Morgan. Please go ahead..

Hi, good afternoon, maybe along the same lines.

Obviously a lot of political certainty globally at the moment and in various layers, but given the strong equity markets and I would say constructive credit markets where are politics helping your business and where are politics sort of hurting your various advisory businesses? And as you put the various pieces together into the big picture, how does politics kind of drive the outlook today maybe compared to when you last spoke to us at the end of the last quarter?.

Boy that's a tough one and I'm limited to an hour on this phone call.

So I'd say look in the US, remains extremely strong and maybe what you're saying I think politics might have slowed up the mega deals recently as I think the French election was as the market's response to it sort of shows we got the response that I think was the most likely and it was still a pretty positive response to a likely outcome which shows possibly how much concern was in that election.

But the US remains a very strong market in all ways and I think that's where you're seeing a lot of this middle market what I call the $500 million, almost a $5 billion market where people I think are buying cash flow.

Buying companies just based on the cash flow low interest rates, low volatility and ability to make that transaction work in that environment. I'd say the place where politics might've hurt us the most in the quarter is the funds flow issues out of China right now.

We had a very specific instance where a deal did not get done because of that and I do think if anything, we had I think 2016 we had 12 transactions we tried it to the US. That's an issue right now is the flow of money. Europe, I feel pretty optimistic about Europe.

I think it's coming back and I do think that that election was a bigger a bigger problem in a lot of people's mind than they were talking about..

Okay, great very helpful. And then just for the near term as we think about the advisory business 1Q is very strong here.

To what extent would you say there was a reason the big pull forward of activity out in 2Q and 3Q into 1Q or is your pipeline kind of good enough to really have replenished itself?.

Look I didn't see anything unusual in quarter one. So there's nothing I could tell you that was pulled forward or backwards. It was a normal quarter. There was nothing unusual to it. Quarters are tough to evaluate their business as said, I don't want you to evaluate our business on a quarterly basis, but there was nothing unusual about it.

We've been saying that you really forward one day and you went back to listen to our calls in retrospect, we've been saying we've been producing better and stronger client relationships that's what we can't control. And our system, the network we put together has really kicked in another gear.

We saw that a while back, but we don't know when it's going to start to show. So the answer to your question is, no there was nothing that we could find unusual except that it was a pretty good quarter..

Okay, great. Well, thank you very much..

Thanks..

Our next question comes from Devin Ryan with JMP Securities. Please go ahead..

Hi, thanks. Good afternoon Ken and Joe. Just a couple kind of follow-ups here. So maybe just first on restructuring, just love to get a sense of the flurry of energy activity from kind of late 2015 the early 2016.

How much of that has already run its course and you had at a good quarter of closing to this quarter, but I'm just curious kind of how much of that is maybe still left to close? Then when you think about some of the other opportunities, I mean how big do you think retail can really be, it seems like we're only seeing that accelerate in the market? And then I think last quarter you also mentioned TMT as well, so just wanted to drill into those sectors specifically..

Are you talking about solely in the restructuring market?.

Correct..

So I think we had a natural moment there, I forget exactly when it was about 2 years ago now maybe a little more when energy had its first down tick from 80's to high 40's and that set a wave of restructurings emotions, which capitalization just could not absorb that. And I think we've seen a lot of that start to close.

I've noticed just in the general market hours and our competitors in the fourth quarter in the first quarter. That doesn't mean it's over. That just means that first shock of companies that were capitalized in an $80 market who had to immediately go into a restructuring or recap in a $50 or $40 market.

So that's what I think you saw coming through the pipeline in the fourth and the first around all over Wall Street. But there's still a steady stream of companies.

That are exposed to energy capitalizations that $40 and $50 oil it's still not going to be productive for those capitalization and -- but it's not the same as that one cliff moment we saw when energy really went from 80 to 40 and 50 and triggered a wave.

So the answer is, I feel good about it but as I said I think it's going to be a pretty flat grower from here on out. Our retail is just not as big retail is going to be an interesting market it's just not as big as energy in the leverage finance market. So there will be some activity in retail, but I don't think you can replace energy..

Got it; terrific. Good color. And just a follow up just on the backlog question previously, just kind of think about new mandates and M&A specifically and whether we're accelerating decelerating., kind of taking a pause.

I mean the first quarter obviously a great quarter of deal closings and you probably stronger than normal and so that does look like from the outside the backlogs come in little bit, but you trying to sense of maybe that's just normal timing as you close a number of deals and then you have to replenish it and searches the optics from the outside that we're looking at and so that's kind of the genesis of my question to try to get a sense of does it feel like activities on the M&A side.

Accelerating or kind of welcome you what's the pace right now?.

Well. I'd say first of all in the first quarter all regions and all products were off that is a broad base acceleration. So I really do attribute it to the quality of the global network that we invested in a long time ago, put a lot of people on the ground.

It's organic so people know each other, its non-commission based so people work with each other and we've seen the whole system gel into a way that is client friendly and people want it.

That's what's happening, M&A continues to pick up, we've been saying it for a while and what we're seeing is a good increase in quality and quantity of discussions we are having and assignments we are in. Now I don't want to overstate that, you know I don't want people to get off this call and annualize that percentage increase in the first quarter.

But the firm is doing very well..

Got it. Okay, terrific. And then just last one here. The comment on the financial sponsor activity picking up, I'm seeing that from some other companies that I cover and statistics in the market.

So I'm just curious what you're seeing that's change there and what you think is driving better engagement from that group?.

I'd say couple of things. One is there's been a large reallocation in the alternative space of capital back in the private equity or more toward private equity as especially, the allocations have come out of hedge funds.

There's also a thing that happened back in ‘08 with the denominator, some people have an allocation of X percent to alternatives and when the stock market goes up that just creates new basket to put money and also the denominator goes up so the numerator can go up.

That was the problem at least I could work in the reverse in the ‘08 ‘09 crisis as people had to stop funding private equity. So there's capital going in prices are excellent prices create sellers. People can sell their assets. Private owners are finding this to be a wonderful time to capitalize on an asset they have gone for a long period of time.

And the buyers are still finding low interest rates, very low volatility. And they are really buying cash flow in a world where it's hard to find yield, what used to be considered high multiples are really not that high considering your alternative investment.

So that's what's driving and I believe their financial transactions and they are being driven on ability to create return on them..

Got it. Okay, terrific. Thanks Ken..

Our next question comes from Michael Needham with Bank of America Merrill Lynch. Please go ahead..

Hi, good afternoon. So first question on the Moelis Australia IPO looks like you had a good deal of success with that business it looks like the IPO did well. Are there other markets we think you may be able to I don't know like replicate but do something similar with the joint venture. That's the first question..

No. That was very unique and it was -- because Australia is a unique market, I love my partners down in Australia. But Australia is a unique geography. People get it wrong a lot. We went in there and realize that the best way to motivate our Australia partnership was to be in partnership. We have great, great partners down there.

They are -- they've been fantastic, we think they are going to create a lot more value. But it really is the only place where we decided that the characteristics of that market are such that it works better in joint venture. I can give you offline the whole cycle analysis of the Australian mentality, but I'll save that for a private conversation.

But they are entrepreneurial and there's nowhere else that I think we could replicate that, that's unique..

Okay. Fair enough. And from those comments, it sounds like this is going to be -- continue to be a long term investment for you guys..

Yes. We continue to have the exact same relationship on advisory and we're very close. And we think this has freed them up to grow they do some other things by the way.

Like asset management that that's one of the reasons they were joint venture and we think they have a very unique asset management opportunity down there and are very encouraging them to grow that and we think they will..

Okay. And then just last on the hiring pipeline. If I were to look back and pick a couple of sectors where I think you've been positioned to capture a good amount of field activity I think of like TMT industrials as to are there specific areas where you are focusing for hiring this year or is it more just finding the right people? Thanks..

It's really finding the right people, I mean I could give you a couple of areas we are interested in expanding on a little more quickly, but we think that the network we put in place has become extremely effective.

Clients want collaborative coverage they really do like the fact that when we cover them we can have 5 MDs in the room one might be giving you some input on Brazil, one might be beginning you some input on China and regional specialist, the sector specialist. And I think we're very confident now that that network is valuable.

It's very, very hard for anybody to replicate and so we want to build it. So the answer is, it's really about talent and the people that want to be part of a network in a culture of collaboration verses kind of independent commission salesmen..

Got it, thank you..

Our next question comes from Brennan Hawken with UBS. Yes please go ahead..

Hi, good afternoon. Thanks for taking the question, just one at this point.

Could you walk through the impact of the IPO, the Australian JV on 2Q? I think you mentioned nearly $12 million div, so it that kind of flow through and what other dynamic should we think about when we think about modeling the impact of this on a go forward basis?.

Yes. So I think you got it right the pre IPO dividend of $11.7 million will be treated as a return of capital so it won't go through the income statement.

The accounting related to the effective dilution from 50% holding to 40% under GAAP is basically we'll report a gain and I think that's approximately $15 million and it's probably going to be after tax $0.15 for the quarter. But I think the two key takeaways are what Ken suggested that the alliance.

Continues with or without the investment of course we were really positive about the investment and the second is the fact that as Ken remarked that the value, the $120 million of fair value you won't find on our balance sheet because GAAP is historical accounting model..

Sure. Yes. No, no, I completely got that message I just wanted to ask a blocking and tackling question that's it.

So restructuring just wanted to follow-up on that, I think can your preclearance say that the market's been fairly flat for a while? But I think what you also said is that some deals, some closings sort of fell into the quarter and caused 1Q results to basically be a little bit better that maybe might otherwise be expected a flattish restructuring market is that fair or did I hear that incorrectly?.

Well look, I think those -- they could have. They didn't surprise us these were coming, if anything we were hoping some of them got done last year they just didn't and we had a good quarter though too.

We had a big fourth quarter these are these are deals that we are in backlog that we're going to close sometime that's why we ask you not to look at this quarterly. But I don't - there was nothing unusual about them closing. There will be transactions they close some quarters and others that why the quarter is tough to look at but I don't.

Again there was not something that surprised us, when we look at our numbers and we try to figure out what's going to happen. We kind of -- these were all things we thought were going to happen and did happen..

Sure. No doubt and the business is lumpy quarter to quarter which is just the whole reason for the clarifying comments, that's all..

Yes, look the fact is the boom in energy restructuring was playing through a lot of numbers now for 12 months. I mean it just was a matter of -- and it's still going to go on. We're not done with an energy restructuring market.

So I think this is a natural way to restructuring and our firm work, there was a large M&A transaction that didn't happen in the quarter so maybe there was a restructuring that did happen. I'm just saying that's the way the numbers have worked. And again I didn't think it was an unnatural quota.

I didn't see anything happen that we thought was going to happen in the second quarter happened in the first..

Okay. Fair enough thanks Bren. .

Our next question comes from Jim Mitchell with Buckingham Research. Please go ahead..

Hi, good afternoon. Maybe just another question on the outlook just you guys seeing great momentum. I think some of your peers have been more mixed around the commentary given uncertainty around policy.

Do you see more - have you sensed any of that some hesitation on the part of some your clients given the uncertainty around tax reform for example? And if so would you expect, if we do get more clarity that could be an accelerant for activity levels may be Ken know at the back half of the year you sense that people are hesitating a little on and that can help cross border or larger deals or how do you think about that?.

It's hard for me to say. You ask me about the deal that didn't happen, what's the reason that for the deal that didn't happen. While I don't even know which deal didn't happen, so I don't know the reason. So I don't know that, I would think as things get more certain.

I thought the mega deals might have been toned down a little bit by some global risk that people were waiting to pass. But we see -- we don't see. Look we're in a small percentage of the overall market and what we're seeing again, I think we're seeing our own system that we put in place and it's been a lot of time and effort.

And it's only been 10 years and so we're seeing our system mature into a really good network of method of covering people and I think that's over running the global uncertainties you're talking about. We're just seeing our own network get more efficient and become more and more powerful as we put more and better MD's on it. So I, again I don't.

That might be happening I just can't prove it, I can't prove that there's a transaction that didn't happen because of some tax deal..

Right, its bit more market share for your guys.

Maybe just where are we in the MD headcount and you know you talked about a pretty robust pipeline is there kind about a size that opportunities that when you think you might end up by the end of the year or is there any kind of soft targets on that front?.

Yes. We are 110 as of today and look we'd like to grow if we get the right people and we are looking at several people, but I don't want to commit to where. And the good news is our internal pipe of promotions is stronger and stronger.

Remember we're just now getting into people that we really recruited out of business school, eight to ten years ago, trained and acculturated so we're getting much more confident in our own internal pipeline as well. So I do expect you'll see that go up either organically or with some hires, but I don't have a firm target on that..

Okay, great. Thanks for answering my questions..

Our next question comes from Jeffery Harte with Sandler O'Neill. Please go ahead..

Good afternoon guys..

Hi, Jeff..

When we look at a strong restructuring quarter, and just kind of historically look at restructuring can you give us kind of an idea of how big that business is for you relative to kind of your other revenue generating businesses maybe how outsized or in line the first quarter was?.

You know we said on about a 12 month basis that we think it's about 20-ish plus or minus, 20 to 25 we've said and that's been about right.

I think our M&A business has been becoming a larger and larger our M&A business as if I had more growth so if I had to guess I'd be at the lower end of that range of our business and that's kind of where we -- and it's because our M&A business is growing so strongly that I think the flatness of the restructuring has made it go to the bottom into that rain clouds in the topic..

The bottom of that range, I think over a 12 year..

Over 12 month, over a year. Over 12 month period it's in the bottom. You know I think, look I'm giving you an estimate..

Yes, we don't look at it..

We don't look at it that way. We move people around and people are working, we have some very large restructurings out there right now where our sector team is leading the conversation is more exchange offer oriented than bankruptcy oriented and that's the way we do it.

But I would just say, we have been saying it's about 20% to 25% we characterize as restructuring the capitalization. And I think it's going because of the flatness in restructuring and the growth in M&A, we are seeing it on a 12 month basis that it will be at the bottom of the percentage..

Okay. And you mentioned MD's in hiring. Can you comment a little bit on the overall environment you're seeing out there, I mean M&A is kind of a business - where it wasn't a few years ago I mean.

Score 2 hire, you guys have two hires in the -- still very early in the year but is your level of dialogue with prospective hires kind of as robust it has been say in last couple of years?.

Probably better. But yes, we think we have a strong pipeline but again those are --you know you don't know tell you know. Hiring quality people is always a -- you know you've never done till you're done. So I don't want to overdo it, but our pipeline of people and conversations is as strong as it's ever been in the last 2 or 3 years..

Okay. Thank you..

And this concludes our question and answer session. I would now like to turn the conference back over to Ken Moelis for any closing remarks..

Alright I appreciate everybody calling in. Thank you for this time and again, call me if you need to discuss the Australian psychology overview. Thanks. We look forward to talking to you soon..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..