MC - Moelis & Company
Price:
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CONSENSUS:
Hold
DETAILS
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PRICE TARGET:
$73.33
DETAILS
HIGH:
$85.00
LOW:
$60.00
MEDIAN:
$75.00
CONSENSUS:
$73.33
UPSIDE:
7.21%
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Q2 2026 Earnings Call
Jul 29, 2026 12:00 AMOperator: Good afternoon, and welcome to the Moelis and Company Earnings Conference Call for the Second Quarter of 26. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 to raise your hand. Withdraw your question, press 1 again. To begin, I turn the call over to Mr. Matthew Tsukroff. Please go ahead.
Matthew Tsukroff: Afternoon, and thank you for joining us for Moelis and Company second quarter 26 financial results conference call. On the phone today are Navid Mahmoodzadegan, CEO and Co-Founder, and Christopher Callesano, 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 Moelis 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. 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.moelis.com. Now I will turn the call over to Navid.
Navid Mahmoodzadegan: Thank you, Matthew, and good afternoon, everyone. Appreciate your being with us today. The second quarter was another strong period for our firm. We reported revenues of $409 million, up 12% year over year. For the first half of 26, revenues were $729 million, an increase of 9% from the prior year period. These results represent record revenues for both the quarter and the first half, driven by higher average fees per completed transaction and meaningful contributions from the businesses we have built and expanded in recent years. Collectively, our non-M&A businesses generated record revenues in the first half led by capital markets and the growing contribution from private capital advisory. Since our last earnings call, we have advised on a number of notable transactions. These include Taylor Morrison's $8.5 billion sale to Berkshire Hathaway, Magnolia Oil and Gas' $4.1 billion acquisition of Wildfire Energy, Iqvia's $3.8 billion sale to Eli Lilly, and Bridgepoint's acquisition of Kate Anderson Real Estate. Beyond M&A, we advised Office Properties Income Trust on $2.4 billion restructuring, Carlyle on its continuation vehicle for content partners, we served as active bookrunner and lead placement agent on a $1.1 billion IPO and concurrent private placement. Despite market volatility driven by the war in the Middle East, concerns about private credit redemptions, and the evolving impact of AI, client engagement and transaction activity has remained strong. At the end of the second quarter, our announced pipeline had increased over 80% versus the prior year period. In addition, new business origination accelerated in the second quarter and we entered the back half of the year with a record total pipeline. These factors support a strong outlook for the remainder of the year. Now let me turn to each of our businesses. In M&A, market conditions continue to improve in the second quarter. Accessible financing and strong equity market performance are supporting increased transaction activity, while the strategic need for scale and a more constructive regulatory environment are driving greater interest in larger transactions. This is evident in our performance and pipeline, which includes a higher number of opportunities advising larger cap clients and substantially higher average fee opportunities. While industry wide sponsor M&A activity has remained modest year to date, our sponsor business continues to perform well. In the first half, announcement activity in our sponsor M&A business grew meaningfully over the prior year period, and our overall sponsor pipeline remains strong. We are encouraged by this and are confident in our ability to support our sponsor clients across a variety of market environments, given our broad capabilities and including continuation vehicles and bespoke private capital raising. In capital markets, our expanded capabilities continue to drive meaningful growth. Our capital markets business achieved record second quarter and first half revenues, driven by constructive market conditions, strong demand for late stage growth in pre-IPO financings, and healthy IPO activity. We remain active across the public markets with further activity expected later this year. At the same time, demand for hybrid and structured financing solutions is robust. To support this growth, we have continued to invest in our capital markets platform. On our last earnings call, we referenced 2 managing director hires, who have now joined our team. 1 brings deep expertise in debt capital markets and private credit. The second will help establish our securitization capabilities expanding our offering into structured products and enabling us to provide clients with asset backed financing solutions across the capital structure. Turning to private capital advisory, our PCA franchise was a meaningful contributor to our revenue growth in the first half of the year, and the team has momentum in deal completions and new client mandates. The market for GP led secondaries remains very active, and its growth is structurally supported by sponsor liquidity needs and institutional investor demand for exposure to seasoned private market assets. To address this opportunity, we have aggressively expanded our GP led secondaries capabilities, achieving critical mass with 7 dedicated managing directors, including 1 MD who will be joining shortly. The team's early success is a testament to both the quality of talent we have hired and our collaborative model. where our sector bankers work closely with our PCA team to deliver exceptional client solutions. We are now expanding the business into complementary areas and have hired 1 managing director to launch our LP led secondaries capability, and another to develop our promoted co investment expertise. Both of these areas will be important in building a comprehensive platform that serves the full PCA ecosystem. In capital structure advisory, we enter the second half of the year with high levels of engagement. Liability management continues to dominate deal activity. And while well-positioned borrowers can still access capital, increasing lender selectivity is making refinancing more challenging for some highly levered companies. We are beginning to see AI create differentiation among software businesses, and we expect that demand for liability management as well as capital market solutions will pick up for certain companies as the sector continues to evolve. Combined with the strength of our technology franchise, we are well positioned to support our clients as their needs develop. In addition, we are expanding our CSA team with an MD hire who will further enhance sponsor and creditor coverage joining later this year. This brings me to our investment in talent, which continues to be 1 of our highest strategic priorities. To summarize, since our last earnings call, we have hired 4 managing directors which include the 2 PCA hires and 1 CSA MD already mentioned, and 1 MD in Europe focused on infrastructure. This brings our total lateral MD hires year to date to 12, in addition to the 13 internal promotions announced at the beginning of the year. Recruiting exceptional bankers is a core priority, we are excited about the quality of senior talent that is joining our firm. Finally, we continue to make meaningful progress deploying AI across the firm. These tools are becoming increasingly embedded in our workflows, and are enhancing the quality of our client engagement. We remain optimistic that growing adoption of AI tools will increase the efficiency and productivity of our business. In closing, I am very pleased with the way our firm is performing, and I expect a strong second half of the year. With the best talent and most comprehensive capabilities across products and sectors in our firm's history, we continue to be focused on delivering exceptional outcomes for clients, executing our strategic growth priorities, and creating long term value for our shareholders. With that, I will pass the call to Christopher to review our financial results in more detail.
Christopher Callesano: Thanks, Navid, and good afternoon, everyone. As Navid noted, second quarter revenues were $409 million up 12% from the prior year period. First half revenues were $729 million up 9% year over year. Growth in current year periods was driven primarily by Capital Markets and private capital advisory, partially offset by declines in capital structure advisory. For the first half of the year, our business mix was approximately 2-thirds M&A and 1-third non-M&A. Turning to expenses. Our adjusted compensation ratio for both the second quarter and first half of 26 was 65.8% compared with 69% in both prior year periods. As we have stated previously, we expect to make continued progress on our compensation ratio this year with the magnitude of improvement depending on full year revenues senior hiring, and the competitive market for talent. Adjusted noncompensation expenses were $66.5 million in the second quarter, resulting in a 16.2% non-compensation expense ratio For the first half of the year, our adjusted non compensation expenses were $134 million, representing a non-compensation expense ratio of 18.3%. The main drivers of the expense growth in both the second quarter and first half of the year are attributable to increased business and client activity including higher deal related T and E, expenses associated with client conferences, and underwriting syndication costs from our expanding public equity capital markets capabilities. Additionally, we continue to invest in technology and data including AI, and increased occupancy to support the growth of the business. We expect our quarterly non-comp expenses to be in the mid to high $60 million range for the remainder of the year. Our adjusted pretax margin was 18.6% for the second quarter and 17% for the first half of 26, an improvement compared with 17.6% and 16%, respectively, in the prior year periods. Our effective tax rate for the quarter was 29.1%, roughly in line with the second quarter of 25. Turning to capital allocation. The board declared a regular quarterly dividend of $0.65 per share consistent with the prior period. In the second quarter, we repurchased approximately 337 thousand shares on the open market at an average price of $64.43 per share. During the first half of the year, we have repurchased the approximately 2.3 million shares through open market repurchases and net share settlements for a total cost of approximately $141 million including the dividend declared today, we will have returned approximately $246 million of capital to shareholders with respect to the first half of 26. And finally, ended the quarter with a strong cash position of $481 million and no debt. With that, we can open the line for questions.
Operator: We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Devin Ryan with Citizens Bank. Your line is open. Please go ahead.
Neil: Hey, guys. This is Neil on for Devin. My first question is on Moelis. Progressing upstream in deal size. So, obviously, you have had some increasing success when your role is on 1 of the largest strategic transactions, which appears to be becoming a more important part of the franchise. Can you talk a little bit about the key drivers of that progress and where you are focusing on your efforts to kind of sustain that?
Navid Mahmoodzadegan: Sure. Thanks, Neil. So, as I think most people are aware, you know, the M&A market certainly for the last number of quarters has been geared more towards you know, larger transactions. that is where a lot of the activity is you know, primarily, you know, up until this quarter and in the $5 billion plus range. You know, interestingly enough, we noticed an upswing in that next tier down, the billion to $5 billion. This quarter, both in the market data and in our own-- in our own practice. And so we are going to watch that, but I am optimistic that it could signal an expansion of the overall M&A market into more of the middle market. But you are right. We are more active than we have been historically on larger transactions. Part of that is because that is you know, where the market activity is. But it is also because, you know, the investment in talent we have made both laterally and with respect to our internal talent development, A lot of that hiring and the people who have joined our firm maturing on our platform, creating critical mass in some of our spaces, enhancing and expanding our product capabilities. it is all of that coming together. To really support, you know, larger cap, bigger fee opportunities. And I think on top of that, as a as an institution, I think we are doing a better job of really focusing and organizing and marshaling our resources around bigger cap opportunities. I think it is a combination of the market. it is a combination of the maturation of the talent that we have assembled at the firm. As well as, you know, organizational focus. Great.
Neil: And then, for my follow-up, could I ask a question on the rising cost of senior talent? So how is the increasingly competitive environment affecting your hiring plan? And then the returns you require when adding senior bankers? And then are there any particular industries, geographies, or products that you guys are targeting?
Navid Mahmoodzadegan: Sure. Look. it is definitely competitive out there. The market for hiring, you know, world class talented bankers both in sectors and products and is certainly very, very competitive. And retaining our talent is also, you know, very, very competitive marketplace out there. So we put a lot of care, attention, and effort, on both of those things. Retention and recruitment. What we are really looking for and what we are really focusing on is know, best in class talent, that is consistent with the culture that is going to add to the culture and wants to be part of a collaborative culture and firm. We if you look at the 12 MDs we have hired this year laterally, about 5 of those are in various sectors. You know, including, you know, energy, and industrials and health care, etc. And, you know, 7 of those MDs are, you know, product bankers sitting across M&A. And PCA and capital markets, etc. So we like that balance and mix in our lateral hiring. And then we also love the balance and mix of this internal talent development. So we promoted about 13 MDs this year. And so there is a good balance and mix there between know, internal talent promotion, lateral hiring, And I suspect as we roll forward here, you know, we are going to try to kind of keep both of those engines humming in terms of, you know, further developing our talent and adding to our MD population.
Operator: Your next question comes from the line of Mike Brown with UBS. Your line is open. Please go ahead.
Michael Brown: Okay. Great. Thanks for taking my questions. Navid, so you talked about the fact that the backlog continues to rise. You got a record backlog now. Maybe as we talk about the or think about the second half, here, looks like revenue typically will rise about 37% in the second half. Versus the first half. We look at the last 3 years, Understandably, you do not have a crystal ball and the market can shift quickly. But assuming the base case kind of plays out here and you look at your backlog, can that seasonal second half pickup play out this year similar to the prior years?
Navid Mahmoodzadegan: Look. I do not wanna make any specific, you know, predictions around those second half of this year playing out exactly the way it may have played out in further in future or past, I should say. You know, back halves. But look, I will say this. I mentioned, you know, our overall pipeline is at a record level, you know, as of you know, at the end of the second quarter. You know, even more importantly, you know, within that overall pipeline, because that overall pipeline is a combination of both things we are working on that have not yet got to deal announcement and deals that are waiting to close. So within that overall pipeline, the thing that is, you know, very encouraging about our back half and it gives us a lot of visibility is, you know, the announced pipeline. And that announced pipeline sitting here today you know, it is up 80% versus where it was a year ago. at the exact same time of the year. So all of that gives us confidence in addition to know, the new business review activity. The general feeling we are getting from our bankers who are in the trenches working on deals that, you know, the second half of the year is shaping up to come together quite. So we are encouraged by that. We will obviously have to see and play it out and see what the market will, will support, but, we feel really good about the overall level of activity.
Michael Brown: Okay. Great. Thanks. Thanks for those. Those thoughts. Maybe just to double click a little bit on the kind of software space and, you know, maybe a little bit of extra focus on the sponsor side there. Sean Gray talked a little bit about what they are seeing in their ecosystem in terms of 3 different buckets in the kind of AI disrupted world, and they talked about kind of companies that are AI unaffected companies, and then those where there is more uncertainty and a lot of activity focused on the first 2 buckets. Maybe talk a little bit about what your observations are in terms of businesses that are impacted there, and then how are kind of sponsors approaching a lot of the uncertainty at this juncture? Obviously, you know, a lot has kind of happened over the last few months, and curious how some of those conversations have developed, and I am sure there is some pockets of the software space that are active, perhaps things like take privates, some of the again, some of the AI winners can be more active, but can that offset some of the traditional software LDOs that were so common in the prior few years?
Navid Mahmoodzadegan: Sure. Great. Thanks for the question, Mike. Well, look. If you go back and listen to our call from a quarter ago, we had a very similar construct that we laid out for how we thought the software disruption would play out, you know, very similar to what you just mentioned, kind of 3 buckets. We believe that the time that the market was sort of painting a broad brush across all different software companies and that over time, there would be clear differentiation and that, you know, some of the companies in the software would end up being that beneficiaries of AI. They would adopt and adapt to kind of the new world and thrive. And a lot of those companies would you know, be able to raise capital and do M&A and participate in, you know, you know, growth vectors. On the other end of this-- and we have seen some of it and we have actually, you know, engaged in software M&A this quarter. We had a recent announcement, sizable for this-- for this period of time, you know, software M&A transaction. So we are definitely seeing some of that. You know, folks are starting to differentiate themselves. On the other end of the spectrum, I do think there is gonna be some companies who are disrupted. And potentially materially disrupted by you know, artificial intelligence, and it will have a real impact on their businesses. Some of those companies sit within sponsors. Some of those companies have a fair amount of leverage. And, you know, our tech and CSA teams are all over you know, those sets of opportunities to do, you know, work around balance and liability management, etc., etc. Again, the beauty of our model is very, very collaborative. When we identify opportunities sponsors who need help with those kinds of situations, our sector teams and our product teams work hand in glove to bring those solutions, you know, to our sponsor clients. And then I think in the middle, as you pointed out, I think there is gonna be a bunch of companies where it is just too early to tell. You know, how this is going to play out and, you know, some of those companies over time may take advantage of capital markets trades, continuation vehicles, things of that nature as things develop for those companies. So I agree. I think we are seeing that demarcation start to play out. Or differentiation start to play out, I should say.
Operator: Your next question comes from the line of James Yarrow with Goldman Sachs. Your line is open. May now go ahead.
Analyst: Good afternoon, all. Today, I am here on behalf of James. First question which we had was how would you characterize where we are in the M&A cycle today? And how long can it continue to grow?
Navid Mahmoodzadegan: I think I appreciate the question. I think when you look at it, I still think we are in early innings of the M&A cycle. When you look at the factors that are promoting M&A, the need for scale, technology disruption, you know, the heavy investment, that needs to go into staying out in front of you know, technological trends. The vast number of companies that are still sitting within sponsor portfolios that need to get you know, sold over time. Many, many companies that are have been in sponsor portfolios for a very long time. I and the regulatory, you know, at least for now, the regulatory environment that is more relaxed than it is been. I still think we are, you know, early days of a of a longish M&A cycle. And within, you know, that cycle, there will be some ups and downs and periods of ups and downs in terms of the volume of activity. But I just I just think the forces that are promoting M&A are gonna be around for a while. You for that. That makes sense. As a follow-up, could you help us think about your structural margin profile over time? When you weigh up a higher comp ratio but a lower non comp ratio, how does this shake out and relative to your historic margin profile? Let me start, and Christopher can chime in as well. Look. I think we have as I think you have seen, you know, we have I think, done a good job of bringing our comp ratio back more into line with what you know, we have traditionally seen. We have been investing very heavily in the platform in terms of world class bankers, on the product and sector side. I think we are still committed, for sure, to continuing to invest in that talent. To serve our clients and create, you know, a long term great long term business servicing those clients. We also, you know, appreciate that, you know, there is more room to kind of bring that comp ratio down, over time, and we are committed to doing everything we can to do that to create that balance between bringing that comp ratio down and continue to invest in our business. And I think as our revenues grow, you know, we will be able to get more leverage over you know, our non MD cost base. And I think we will get more leverage over our non comp expenses. Christopher, if you wanna add to that.
Christopher Callesano: Yeah. I mean, the only thing that I would add is, you know, we do focus on margins, which is obviously includes both comp and non comp, and we target leverage over time. I would note that our pretax margins have improved sequentially. And over the prior year for both the quarter and year to date periods. And we have been improving our margins over the last several years.
Operator: Your next question comes from the line of Brennan Hawken with BMO. Your line is open. Please go ahead.
Brennan Hawken: Thanks for taking my question. Now, you spoke a bit to software and some of the potential issues there around some of the sponsor positions. But I am more curious about the sponsor market more broadly. You guys have done a great job in pivoting, and you spoke to that earlier. But, you know, sponsor engagement is really important for your franchise. What we have been waiting for that to improve for quite some time, and nobody really seems to have good answers as to why it has not. Do you have any theories? And what is it you are watching for to see some engagement pick up in that really important cohort?
Navid Mahmoodzadegan: Thanks for the question, Brennan. Look, engagement is very, very high with sponsors. So there is no shortage of very intense engagement from our sponsor teams or sector teams. Sponsors wanna talk about deploying capital into new opportunities, and they absolutely wanna talk about know, solutions to monetization and moving assets you know, in their portfolios. So there is no issue with engagement. The issue is really more around M&A and the you know, and mostly the middle market. There are a bunch of companies that you know, sponsors bought you know, in kind of that period, you know, right before COVID as the market was heating up. And then certainly right after the reopening of the economy, that were bought with a different in a different rate environment, with, you know, different growth outlook And, you know, you have seen disruption from technology in some of those spaces. And so, the difficulty is not engagement. The difficulty is, you know, for a segment of the universe of sponsored portfolio companies. You know, we are not at the point yet where those companies can be exited at values that, you know, correspond with appropriate rates of return that the sponsors are expecting. And so it is gonna take more time for some of those companies to, you know, kinda grow into valuations that will create, you know, that equation, more positive equation for you know, sponsor exits, or it is gonna take, you know, more time for sponsor to decide this is the best it is gonna get. You know, I need to move these assets. So things will improve over time. As I said, I think we are starting to see know, a little bit of improvement in some of the data on, you know, in the $1 billion to $5 billion range. And I think over time, you will start to see, you know, that drift down more into this, you know, heavy portfolio of companies, especially in that mid market. Know, will start to move. The good news is you know, even if that does not happen, right away, you know, we have built a very sizable capability in capital markets. And so there is lots of conversations around bespoke capital raising and you know, creative solutions to get liquidity for sponsors on portfolio companies. And so we do a lot of that work. And now we have a world class you know, CV business, and we have lots of conversations and traction on you know, working with sponsors around putting assets into longer term vehicles.
Brennan Hawken: For my I would actually love to drill down on what you just commented on with the growing PCA business you guys have added several managing directors here in this business, recently. It sounds like you have got some good momentum. The comments in your prepared remarks were constructive, growing contribution. So when you think about time frames, for that business, and you think about the potential for the revenue per MD in that business versus the rest of Moelis? Is the expectation it would be in line with the firm wide numbers? And how long do you think it will take to get there? And is there a particular level of scale that you would need as far as number of MDs or whatnot? Thanks.
Navid Mahmoodzadegan: Yeah. I think, generally, that business should be in line, you know, with the rest of our business on revenue per MD. Parts of that business, again, we are we are now, I would say, in you know, soon to be in kind of 3 of the 5 components of PCA. Some of those PCA businesses like GP led continuation vehicles, you know, the time to market, the ramp to build some of that activity is pretty quick. You know, 1 of the things I mentioned in our prepared remarks is you know, this collaborative approach that we have where, you know, our sector bankers work closely with our PCA teams is creating a lot of early at bats and early wins for our PCA team. And you combine that with our deep sponsor relationships. You know, that business is ramping up pretty quickly. Other businesses like primary fundraising, which you know, we are not quite in yet, but I hope to be in soon. Know, will take longer to ramp up because the cycle for, you know, raising new funds getting signed up to raise a fund, and actually raising that fund takes a little longer. But, look, I think we have said over the next few years, we expect to have a sizable PCA business across, hopefully, most of the factors of PCA. And everything we have seen so far about a year into it is you know, we are we are well on our way to doing that.
Operator: Your next question comes from the line of Alexander Bond with KBW. Your line is open. Please go ahead.
Natalie Null: Hi, everyone. Natalie on for Alexander Bond. I heard you mention that it was a record second quarter for Capital Markets. Can you talk a little bit more about how this compares relative to the last couple of quarters? And any color on that group's performance and then the outlook for the rest of the year would be helpful.
Navid Mahmoodzadegan: So look. That group, I appreciate the question. That group is doing an exceptional job Our business in capital markets really spans both debt and equity, both public and private. And soon to be a business in securitization, which I mentioned earlier. So that business is, growing and dynamic. Great leadership, great team that we have built, Obviously, part of that business is, you know, partially dependent on the strength of the capital market. And it is been a it is been a good environment here over the last, you know, few quarters. But I think, as I said, long term, we see significant opportunity to continue to grow that business. And you know, we are continuing to look for ways to kind of expand our capabilities there because you know, we continue to see, you know, client demand for you know, objective aligned advice to help navigate you know, these markets, to help navigate, you know, the private credit markets. To, you know, sit with companies and really help them find the best and cheapest and most aligned source of capital. And, you know, we see just a big opportunity to continue to build that business.
Natalie Null: Great. And then maybe 1 for Christopher. Hoping you can add a little bit more color on the non-comp expense commentary. I appreciate the updated guide. And then maybe on AI tech spend in particular, it makes sense to invest there, but wondering if maybe you can share when you expect to see some of the recent investments translate into operating leverage.
Christopher Callesano: Sure. As I, you know, mentioned on the prepared remarks, much of the growth in non-comp is tied to increased business activity. And 1 of the primary drivers of the larger than expected growth in non-comp relates to increased underwriter syndication costs. Associated with our public equity capital markets business that Navid was just touching on. So I would say excluding these distinct transaction related expenses, the growth in our non-comp would be at the same rate as last year, which was our original forecast. And, you know, along with the other activity related increases that we spoke about, we would expect our quarterly non-comp expenses to be in the mid to high million dollars range for the remainder of the year. With respect to AI and the expenses, you know, I know we monitor our AI usage across the firm. However, currently, many of our tools are on a fixed contract. Without any incremental or variable costs for, you know, increased tokens. Through the year and it actually ends up part of next year. Of course, we will continue to monitor that usage and see how those costs develop over time. But for now, we are comfortable with our projected AI spend.
Operator: And, Natalie, just to add on to that on your question on productivity.
Navid Mahmoodzadegan: I mean, look. Right now, we are still in that phase of testing, adopting, deploying, you know, getting these tools out in the hands of our bankers. I think the next phase of that will continue. The next phase of that, which we are well underway is, you know, as our bankers adopt these tools and implement them into our workflows, you know, making sure that you know, our bankers are talking to each other. They are spreading those best practices. You know, I like to say at the end of the day, AI is gonna be bottoms up not going to be top-down. it is gonna have to come from you know, our bankers in the field and in our different disciplines, you know, incorporating that into their workflows and then kind of spreading that gospel throughout the organization. So that we can get the kind of, you know, productivity gains that I think will come. Both in terms of efficiency, but even more importantly, you know, I think the promise of AI, and we are really bullish on it, is I think it can make all of us better more effective, you know, investment bankers at all different levels. And if we can create more ideas, better ideas for our clients, get better advice, use those tools to do that, I think we can create more transactions and be more efficient you know, in terms of, you know, our banker headcount. And so that is the goal, and that is what we are striving for. Still early days, though.
Operator: Your next question comes from the line of Ryan Kenny with Morgan Stanley. Your line is open. Please go ahead.
Ryan Kenny: Hey. Just want to follow up on the AI conversation there. So clearly, there is some efficiency opportunities, but how do you think about the risks there? And how do you think about the idea that maybe the industry evolves, it all gets competed away, pitch decks have to come faster, clients expect more, and so the margins do not really improve. Are there any other risks as you think about AI?
Navid Mahmoodzadegan: Yeah. Look. We spent a lot of time thinking about know, protecting our information, protecting our data. At the end of the day, our real competitive moat is the quality of our people, the quality of our relationships, and our information and data. And so our teams, our legal teams, our IT teams, our the committees that work on AI for us, spend a lot of time thinking about you know, the risks and, you know, how do we make sure that our client information, and our own data is, you know, protected and, you know, we preserve, you know, those competitive moats. Look. As I said, I in terms of your second part of your question, know, I do think, you know, there is gonna be an element of this that is gonna be commoditized. You know, we are all gonna have access to a lot of the same tools. I think how we use those tools and how we adopt those and how we you know, incorporate those into our workflows is gonna be you know, part of what you know, improves the performance of our company and our ability to execute with clients. And if you look at previous technological innovations, you know, spreadsheets, you know, etcetera, the ability to create decks faster. All of the innovation that sort of happened mobile. You know, all of those things, I think, made the industry better, even though those were commoditized things that everyone had access to. I do think over time, investment bankers became better, more efficient, provided better advice, could do more transactions. There are many more transactions happening today per senior investment banker than you saw 20, 30 years ago. So I think I think you can it can both be commoditized, but also, you know, make all of us better and more efficient.
Ryan Kenny: And then shifting gears, I have a question on capital, which is cycle seems like it is building, sustainable, a lot of tailwinds ahead for the persistence of M and A. So as you create more capital, how do you think about the uses there on dividend, buyback, And would you ever be open to being an acquirer?
Navid Mahmoodzadegan: So let me take those questions. So I think, as you all know, we have tend to be pretty conservative when it comes to the balance sheet. Know, we run the business with no debt and, you know, lots of excess cash. Our priorities are, you know, to continue to make sure we are investing in the long term growth of the business and serving our clients. Know, the second, you know, want to make sure we kind of protect the dividend. We, obviously, have a nice healthy dividend and wanna make sure that, you know, nothing happens to change that. I think our next order of priority after that is share repurchase. And, you know, we look at that really carefully as you have seen, we have been you know, pretty aggressive at least versus historical standards here over the last few quarters. And, you know, I suspect as we roll forward, we are gonna continue to wanna make sure we are you know, largely mitigating, you know, the dilution that comes from, you know, employee comp you know, equity that is issued as part of employee comp. I think that will continue to be kind of the order of priorities as we roll forward in terms of capital. In terms of acquisitions, I think, look, as the hiring market has continued to be, you know, competitive. I do think being open minded about acquisitions is the right approach, and we are open minded. I do think, you know, we do strive to look at every opportunity that is out there. I think for us to actually do a sizable acquisition, you know, I think there is, you know, 3 criteria that have to be part of that. You know, first is it is gotta be, you know, world class talent that would add to our firm. You know, second, it is gotta be consistent with our culture. We are never gonna do an acquisition that we think is gonna diminish or impair our culture in any way. So cultural alignment is really important. And then, you know, we want those people who are gonna be joining those firms to be equally excited about you know, the long term growth opportunity of our firm. And so alignment on deal structure and deal terms is gonna be absolutely critical. So really open minded about acquisition opportunities. And if we find you know, the right situation that checks all 3 of those boxes, you know, we would not hesitate to do something.
Operator: There are no further questions at this time. I will now turn the call back to Mr. Matthew Tsukroff for closing remarks.
Matthew Tsukroff: Really appreciate everyone joining us today. Enjoy the rest of your summers, and we will talk to you soon. Thank you.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Matthew Tsukroff: Afternoon, and thank you for joining us for Moelis and Company second quarter 26 financial results conference call. On the phone today are Navid Mahmoodzadegan, CEO and Co-Founder, and Christopher Callesano, 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 Moelis 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. 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.moelis.com. Now I will turn the call over to Navid.
Navid Mahmoodzadegan: Thank you, Matthew, and good afternoon, everyone. Appreciate your being with us today. The second quarter was another strong period for our firm. We reported revenues of $409 million, up 12% year over year. For the first half of 26, revenues were $729 million, an increase of 9% from the prior year period. These results represent record revenues for both the quarter and the first half, driven by higher average fees per completed transaction and meaningful contributions from the businesses we have built and expanded in recent years. Collectively, our non-M&A businesses generated record revenues in the first half led by capital markets and the growing contribution from private capital advisory. Since our last earnings call, we have advised on a number of notable transactions. These include Taylor Morrison's $8.5 billion sale to Berkshire Hathaway, Magnolia Oil and Gas' $4.1 billion acquisition of Wildfire Energy, Iqvia's $3.8 billion sale to Eli Lilly, and Bridgepoint's acquisition of Kate Anderson Real Estate. Beyond M&A, we advised Office Properties Income Trust on $2.4 billion restructuring, Carlyle on its continuation vehicle for content partners, we served as active bookrunner and lead placement agent on a $1.1 billion IPO and concurrent private placement. Despite market volatility driven by the war in the Middle East, concerns about private credit redemptions, and the evolving impact of AI, client engagement and transaction activity has remained strong. At the end of the second quarter, our announced pipeline had increased over 80% versus the prior year period. In addition, new business origination accelerated in the second quarter and we entered the back half of the year with a record total pipeline. These factors support a strong outlook for the remainder of the year. Now let me turn to each of our businesses. In M&A, market conditions continue to improve in the second quarter. Accessible financing and strong equity market performance are supporting increased transaction activity, while the strategic need for scale and a more constructive regulatory environment are driving greater interest in larger transactions. This is evident in our performance and pipeline, which includes a higher number of opportunities advising larger cap clients and substantially higher average fee opportunities. While industry wide sponsor M&A activity has remained modest year to date, our sponsor business continues to perform well. In the first half, announcement activity in our sponsor M&A business grew meaningfully over the prior year period, and our overall sponsor pipeline remains strong. We are encouraged by this and are confident in our ability to support our sponsor clients across a variety of market environments, given our broad capabilities and including continuation vehicles and bespoke private capital raising. In capital markets, our expanded capabilities continue to drive meaningful growth. Our capital markets business achieved record second quarter and first half revenues, driven by constructive market conditions, strong demand for late stage growth in pre-IPO financings, and healthy IPO activity. We remain active across the public markets with further activity expected later this year. At the same time, demand for hybrid and structured financing solutions is robust. To support this growth, we have continued to invest in our capital markets platform. On our last earnings call, we referenced 2 managing director hires, who have now joined our team. 1 brings deep expertise in debt capital markets and private credit. The second will help establish our securitization capabilities expanding our offering into structured products and enabling us to provide clients with asset backed financing solutions across the capital structure. Turning to private capital advisory, our PCA franchise was a meaningful contributor to our revenue growth in the first half of the year, and the team has momentum in deal completions and new client mandates. The market for GP led secondaries remains very active, and its growth is structurally supported by sponsor liquidity needs and institutional investor demand for exposure to seasoned private market assets. To address this opportunity, we have aggressively expanded our GP led secondaries capabilities, achieving critical mass with 7 dedicated managing directors, including 1 MD who will be joining shortly. The team's early success is a testament to both the quality of talent we have hired and our collaborative model. where our sector bankers work closely with our PCA team to deliver exceptional client solutions. We are now expanding the business into complementary areas and have hired 1 managing director to launch our LP led secondaries capability, and another to develop our promoted co investment expertise. Both of these areas will be important in building a comprehensive platform that serves the full PCA ecosystem. In capital structure advisory, we enter the second half of the year with high levels of engagement. Liability management continues to dominate deal activity. And while well-positioned borrowers can still access capital, increasing lender selectivity is making refinancing more challenging for some highly levered companies. We are beginning to see AI create differentiation among software businesses, and we expect that demand for liability management as well as capital market solutions will pick up for certain companies as the sector continues to evolve. Combined with the strength of our technology franchise, we are well positioned to support our clients as their needs develop. In addition, we are expanding our CSA team with an MD hire who will further enhance sponsor and creditor coverage joining later this year. This brings me to our investment in talent, which continues to be 1 of our highest strategic priorities. To summarize, since our last earnings call, we have hired 4 managing directors which include the 2 PCA hires and 1 CSA MD already mentioned, and 1 MD in Europe focused on infrastructure. This brings our total lateral MD hires year to date to 12, in addition to the 13 internal promotions announced at the beginning of the year. Recruiting exceptional bankers is a core priority, we are excited about the quality of senior talent that is joining our firm. Finally, we continue to make meaningful progress deploying AI across the firm. These tools are becoming increasingly embedded in our workflows, and are enhancing the quality of our client engagement. We remain optimistic that growing adoption of AI tools will increase the efficiency and productivity of our business. In closing, I am very pleased with the way our firm is performing, and I expect a strong second half of the year. With the best talent and most comprehensive capabilities across products and sectors in our firm's history, we continue to be focused on delivering exceptional outcomes for clients, executing our strategic growth priorities, and creating long term value for our shareholders. With that, I will pass the call to Christopher to review our financial results in more detail.
Christopher Callesano: Thanks, Navid, and good afternoon, everyone. As Navid noted, second quarter revenues were $409 million up 12% from the prior year period. First half revenues were $729 million up 9% year over year. Growth in current year periods was driven primarily by Capital Markets and private capital advisory, partially offset by declines in capital structure advisory. For the first half of the year, our business mix was approximately 2-thirds M&A and 1-third non-M&A. Turning to expenses. Our adjusted compensation ratio for both the second quarter and first half of 26 was 65.8% compared with 69% in both prior year periods. As we have stated previously, we expect to make continued progress on our compensation ratio this year with the magnitude of improvement depending on full year revenues senior hiring, and the competitive market for talent. Adjusted noncompensation expenses were $66.5 million in the second quarter, resulting in a 16.2% non-compensation expense ratio For the first half of the year, our adjusted non compensation expenses were $134 million, representing a non-compensation expense ratio of 18.3%. The main drivers of the expense growth in both the second quarter and first half of the year are attributable to increased business and client activity including higher deal related T and E, expenses associated with client conferences, and underwriting syndication costs from our expanding public equity capital markets capabilities. Additionally, we continue to invest in technology and data including AI, and increased occupancy to support the growth of the business. We expect our quarterly non-comp expenses to be in the mid to high $60 million range for the remainder of the year. Our adjusted pretax margin was 18.6% for the second quarter and 17% for the first half of 26, an improvement compared with 17.6% and 16%, respectively, in the prior year periods. Our effective tax rate for the quarter was 29.1%, roughly in line with the second quarter of 25. Turning to capital allocation. The board declared a regular quarterly dividend of $0.65 per share consistent with the prior period. In the second quarter, we repurchased approximately 337 thousand shares on the open market at an average price of $64.43 per share. During the first half of the year, we have repurchased the approximately 2.3 million shares through open market repurchases and net share settlements for a total cost of approximately $141 million including the dividend declared today, we will have returned approximately $246 million of capital to shareholders with respect to the first half of 26. And finally, ended the quarter with a strong cash position of $481 million and no debt. With that, we can open the line for questions.
Operator: We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Devin Ryan with Citizens Bank. Your line is open. Please go ahead.
Neil: Hey, guys. This is Neil on for Devin. My first question is on Moelis. Progressing upstream in deal size. So, obviously, you have had some increasing success when your role is on 1 of the largest strategic transactions, which appears to be becoming a more important part of the franchise. Can you talk a little bit about the key drivers of that progress and where you are focusing on your efforts to kind of sustain that?
Navid Mahmoodzadegan: Sure. Thanks, Neil. So, as I think most people are aware, you know, the M&A market certainly for the last number of quarters has been geared more towards you know, larger transactions. that is where a lot of the activity is you know, primarily, you know, up until this quarter and in the $5 billion plus range. You know, interestingly enough, we noticed an upswing in that next tier down, the billion to $5 billion. This quarter, both in the market data and in our own-- in our own practice. And so we are going to watch that, but I am optimistic that it could signal an expansion of the overall M&A market into more of the middle market. But you are right. We are more active than we have been historically on larger transactions. Part of that is because that is you know, where the market activity is. But it is also because, you know, the investment in talent we have made both laterally and with respect to our internal talent development, A lot of that hiring and the people who have joined our firm maturing on our platform, creating critical mass in some of our spaces, enhancing and expanding our product capabilities. it is all of that coming together. To really support, you know, larger cap, bigger fee opportunities. And I think on top of that, as a as an institution, I think we are doing a better job of really focusing and organizing and marshaling our resources around bigger cap opportunities. I think it is a combination of the market. it is a combination of the maturation of the talent that we have assembled at the firm. As well as, you know, organizational focus. Great.
Neil: And then, for my follow-up, could I ask a question on the rising cost of senior talent? So how is the increasingly competitive environment affecting your hiring plan? And then the returns you require when adding senior bankers? And then are there any particular industries, geographies, or products that you guys are targeting?
Navid Mahmoodzadegan: Sure. Look. it is definitely competitive out there. The market for hiring, you know, world class talented bankers both in sectors and products and is certainly very, very competitive. And retaining our talent is also, you know, very, very competitive marketplace out there. So we put a lot of care, attention, and effort, on both of those things. Retention and recruitment. What we are really looking for and what we are really focusing on is know, best in class talent, that is consistent with the culture that is going to add to the culture and wants to be part of a collaborative culture and firm. We if you look at the 12 MDs we have hired this year laterally, about 5 of those are in various sectors. You know, including, you know, energy, and industrials and health care, etc. And, you know, 7 of those MDs are, you know, product bankers sitting across M&A. And PCA and capital markets, etc. So we like that balance and mix in our lateral hiring. And then we also love the balance and mix of this internal talent development. So we promoted about 13 MDs this year. And so there is a good balance and mix there between know, internal talent promotion, lateral hiring, And I suspect as we roll forward here, you know, we are going to try to kind of keep both of those engines humming in terms of, you know, further developing our talent and adding to our MD population.
Operator: Your next question comes from the line of Mike Brown with UBS. Your line is open. Please go ahead.
Michael Brown: Okay. Great. Thanks for taking my questions. Navid, so you talked about the fact that the backlog continues to rise. You got a record backlog now. Maybe as we talk about the or think about the second half, here, looks like revenue typically will rise about 37% in the second half. Versus the first half. We look at the last 3 years, Understandably, you do not have a crystal ball and the market can shift quickly. But assuming the base case kind of plays out here and you look at your backlog, can that seasonal second half pickup play out this year similar to the prior years?
Navid Mahmoodzadegan: Look. I do not wanna make any specific, you know, predictions around those second half of this year playing out exactly the way it may have played out in further in future or past, I should say. You know, back halves. But look, I will say this. I mentioned, you know, our overall pipeline is at a record level, you know, as of you know, at the end of the second quarter. You know, even more importantly, you know, within that overall pipeline, because that overall pipeline is a combination of both things we are working on that have not yet got to deal announcement and deals that are waiting to close. So within that overall pipeline, the thing that is, you know, very encouraging about our back half and it gives us a lot of visibility is, you know, the announced pipeline. And that announced pipeline sitting here today you know, it is up 80% versus where it was a year ago. at the exact same time of the year. So all of that gives us confidence in addition to know, the new business review activity. The general feeling we are getting from our bankers who are in the trenches working on deals that, you know, the second half of the year is shaping up to come together quite. So we are encouraged by that. We will obviously have to see and play it out and see what the market will, will support, but, we feel really good about the overall level of activity.
Michael Brown: Okay. Great. Thanks. Thanks for those. Those thoughts. Maybe just to double click a little bit on the kind of software space and, you know, maybe a little bit of extra focus on the sponsor side there. Sean Gray talked a little bit about what they are seeing in their ecosystem in terms of 3 different buckets in the kind of AI disrupted world, and they talked about kind of companies that are AI unaffected companies, and then those where there is more uncertainty and a lot of activity focused on the first 2 buckets. Maybe talk a little bit about what your observations are in terms of businesses that are impacted there, and then how are kind of sponsors approaching a lot of the uncertainty at this juncture? Obviously, you know, a lot has kind of happened over the last few months, and curious how some of those conversations have developed, and I am sure there is some pockets of the software space that are active, perhaps things like take privates, some of the again, some of the AI winners can be more active, but can that offset some of the traditional software LDOs that were so common in the prior few years?
Navid Mahmoodzadegan: Sure. Great. Thanks for the question, Mike. Well, look. If you go back and listen to our call from a quarter ago, we had a very similar construct that we laid out for how we thought the software disruption would play out, you know, very similar to what you just mentioned, kind of 3 buckets. We believe that the time that the market was sort of painting a broad brush across all different software companies and that over time, there would be clear differentiation and that, you know, some of the companies in the software would end up being that beneficiaries of AI. They would adopt and adapt to kind of the new world and thrive. And a lot of those companies would you know, be able to raise capital and do M&A and participate in, you know, you know, growth vectors. On the other end of this-- and we have seen some of it and we have actually, you know, engaged in software M&A this quarter. We had a recent announcement, sizable for this-- for this period of time, you know, software M&A transaction. So we are definitely seeing some of that. You know, folks are starting to differentiate themselves. On the other end of the spectrum, I do think there is gonna be some companies who are disrupted. And potentially materially disrupted by you know, artificial intelligence, and it will have a real impact on their businesses. Some of those companies sit within sponsors. Some of those companies have a fair amount of leverage. And, you know, our tech and CSA teams are all over you know, those sets of opportunities to do, you know, work around balance and liability management, etc., etc. Again, the beauty of our model is very, very collaborative. When we identify opportunities sponsors who need help with those kinds of situations, our sector teams and our product teams work hand in glove to bring those solutions, you know, to our sponsor clients. And then I think in the middle, as you pointed out, I think there is gonna be a bunch of companies where it is just too early to tell. You know, how this is going to play out and, you know, some of those companies over time may take advantage of capital markets trades, continuation vehicles, things of that nature as things develop for those companies. So I agree. I think we are seeing that demarcation start to play out. Or differentiation start to play out, I should say.
Operator: Your next question comes from the line of James Yarrow with Goldman Sachs. Your line is open. May now go ahead.
Analyst: Good afternoon, all. Today, I am here on behalf of James. First question which we had was how would you characterize where we are in the M&A cycle today? And how long can it continue to grow?
Navid Mahmoodzadegan: I think I appreciate the question. I think when you look at it, I still think we are in early innings of the M&A cycle. When you look at the factors that are promoting M&A, the need for scale, technology disruption, you know, the heavy investment, that needs to go into staying out in front of you know, technological trends. The vast number of companies that are still sitting within sponsor portfolios that need to get you know, sold over time. Many, many companies that are have been in sponsor portfolios for a very long time. I and the regulatory, you know, at least for now, the regulatory environment that is more relaxed than it is been. I still think we are, you know, early days of a of a longish M&A cycle. And within, you know, that cycle, there will be some ups and downs and periods of ups and downs in terms of the volume of activity. But I just I just think the forces that are promoting M&A are gonna be around for a while. You for that. That makes sense. As a follow-up, could you help us think about your structural margin profile over time? When you weigh up a higher comp ratio but a lower non comp ratio, how does this shake out and relative to your historic margin profile? Let me start, and Christopher can chime in as well. Look. I think we have as I think you have seen, you know, we have I think, done a good job of bringing our comp ratio back more into line with what you know, we have traditionally seen. We have been investing very heavily in the platform in terms of world class bankers, on the product and sector side. I think we are still committed, for sure, to continuing to invest in that talent. To serve our clients and create, you know, a long term great long term business servicing those clients. We also, you know, appreciate that, you know, there is more room to kind of bring that comp ratio down, over time, and we are committed to doing everything we can to do that to create that balance between bringing that comp ratio down and continue to invest in our business. And I think as our revenues grow, you know, we will be able to get more leverage over you know, our non MD cost base. And I think we will get more leverage over our non comp expenses. Christopher, if you wanna add to that.
Christopher Callesano: Yeah. I mean, the only thing that I would add is, you know, we do focus on margins, which is obviously includes both comp and non comp, and we target leverage over time. I would note that our pretax margins have improved sequentially. And over the prior year for both the quarter and year to date periods. And we have been improving our margins over the last several years.
Operator: Your next question comes from the line of Brennan Hawken with BMO. Your line is open. Please go ahead.
Brennan Hawken: Thanks for taking my question. Now, you spoke a bit to software and some of the potential issues there around some of the sponsor positions. But I am more curious about the sponsor market more broadly. You guys have done a great job in pivoting, and you spoke to that earlier. But, you know, sponsor engagement is really important for your franchise. What we have been waiting for that to improve for quite some time, and nobody really seems to have good answers as to why it has not. Do you have any theories? And what is it you are watching for to see some engagement pick up in that really important cohort?
Navid Mahmoodzadegan: Thanks for the question, Brennan. Look, engagement is very, very high with sponsors. So there is no shortage of very intense engagement from our sponsor teams or sector teams. Sponsors wanna talk about deploying capital into new opportunities, and they absolutely wanna talk about know, solutions to monetization and moving assets you know, in their portfolios. So there is no issue with engagement. The issue is really more around M&A and the you know, and mostly the middle market. There are a bunch of companies that you know, sponsors bought you know, in kind of that period, you know, right before COVID as the market was heating up. And then certainly right after the reopening of the economy, that were bought with a different in a different rate environment, with, you know, different growth outlook And, you know, you have seen disruption from technology in some of those spaces. And so, the difficulty is not engagement. The difficulty is, you know, for a segment of the universe of sponsored portfolio companies. You know, we are not at the point yet where those companies can be exited at values that, you know, correspond with appropriate rates of return that the sponsors are expecting. And so it is gonna take more time for some of those companies to, you know, kinda grow into valuations that will create, you know, that equation, more positive equation for you know, sponsor exits, or it is gonna take, you know, more time for sponsor to decide this is the best it is gonna get. You know, I need to move these assets. So things will improve over time. As I said, I think we are starting to see know, a little bit of improvement in some of the data on, you know, in the $1 billion to $5 billion range. And I think over time, you will start to see, you know, that drift down more into this, you know, heavy portfolio of companies, especially in that mid market. Know, will start to move. The good news is you know, even if that does not happen, right away, you know, we have built a very sizable capability in capital markets. And so there is lots of conversations around bespoke capital raising and you know, creative solutions to get liquidity for sponsors on portfolio companies. And so we do a lot of that work. And now we have a world class you know, CV business, and we have lots of conversations and traction on you know, working with sponsors around putting assets into longer term vehicles.
Brennan Hawken: For my I would actually love to drill down on what you just commented on with the growing PCA business you guys have added several managing directors here in this business, recently. It sounds like you have got some good momentum. The comments in your prepared remarks were constructive, growing contribution. So when you think about time frames, for that business, and you think about the potential for the revenue per MD in that business versus the rest of Moelis? Is the expectation it would be in line with the firm wide numbers? And how long do you think it will take to get there? And is there a particular level of scale that you would need as far as number of MDs or whatnot? Thanks.
Navid Mahmoodzadegan: Yeah. I think, generally, that business should be in line, you know, with the rest of our business on revenue per MD. Parts of that business, again, we are we are now, I would say, in you know, soon to be in kind of 3 of the 5 components of PCA. Some of those PCA businesses like GP led continuation vehicles, you know, the time to market, the ramp to build some of that activity is pretty quick. You know, 1 of the things I mentioned in our prepared remarks is you know, this collaborative approach that we have where, you know, our sector bankers work closely with our PCA teams is creating a lot of early at bats and early wins for our PCA team. And you combine that with our deep sponsor relationships. You know, that business is ramping up pretty quickly. Other businesses like primary fundraising, which you know, we are not quite in yet, but I hope to be in soon. Know, will take longer to ramp up because the cycle for, you know, raising new funds getting signed up to raise a fund, and actually raising that fund takes a little longer. But, look, I think we have said over the next few years, we expect to have a sizable PCA business across, hopefully, most of the factors of PCA. And everything we have seen so far about a year into it is you know, we are we are well on our way to doing that.
Operator: Your next question comes from the line of Alexander Bond with KBW. Your line is open. Please go ahead.
Natalie Null: Hi, everyone. Natalie on for Alexander Bond. I heard you mention that it was a record second quarter for Capital Markets. Can you talk a little bit more about how this compares relative to the last couple of quarters? And any color on that group's performance and then the outlook for the rest of the year would be helpful.
Navid Mahmoodzadegan: So look. That group, I appreciate the question. That group is doing an exceptional job Our business in capital markets really spans both debt and equity, both public and private. And soon to be a business in securitization, which I mentioned earlier. So that business is, growing and dynamic. Great leadership, great team that we have built, Obviously, part of that business is, you know, partially dependent on the strength of the capital market. And it is been a it is been a good environment here over the last, you know, few quarters. But I think, as I said, long term, we see significant opportunity to continue to grow that business. And you know, we are continuing to look for ways to kind of expand our capabilities there because you know, we continue to see, you know, client demand for you know, objective aligned advice to help navigate you know, these markets, to help navigate, you know, the private credit markets. To, you know, sit with companies and really help them find the best and cheapest and most aligned source of capital. And, you know, we see just a big opportunity to continue to build that business.
Natalie Null: Great. And then maybe 1 for Christopher. Hoping you can add a little bit more color on the non-comp expense commentary. I appreciate the updated guide. And then maybe on AI tech spend in particular, it makes sense to invest there, but wondering if maybe you can share when you expect to see some of the recent investments translate into operating leverage.
Christopher Callesano: Sure. As I, you know, mentioned on the prepared remarks, much of the growth in non-comp is tied to increased business activity. And 1 of the primary drivers of the larger than expected growth in non-comp relates to increased underwriter syndication costs. Associated with our public equity capital markets business that Navid was just touching on. So I would say excluding these distinct transaction related expenses, the growth in our non-comp would be at the same rate as last year, which was our original forecast. And, you know, along with the other activity related increases that we spoke about, we would expect our quarterly non-comp expenses to be in the mid to high million dollars range for the remainder of the year. With respect to AI and the expenses, you know, I know we monitor our AI usage across the firm. However, currently, many of our tools are on a fixed contract. Without any incremental or variable costs for, you know, increased tokens. Through the year and it actually ends up part of next year. Of course, we will continue to monitor that usage and see how those costs develop over time. But for now, we are comfortable with our projected AI spend.
Operator: And, Natalie, just to add on to that on your question on productivity.
Navid Mahmoodzadegan: I mean, look. Right now, we are still in that phase of testing, adopting, deploying, you know, getting these tools out in the hands of our bankers. I think the next phase of that will continue. The next phase of that, which we are well underway is, you know, as our bankers adopt these tools and implement them into our workflows, you know, making sure that you know, our bankers are talking to each other. They are spreading those best practices. You know, I like to say at the end of the day, AI is gonna be bottoms up not going to be top-down. it is gonna have to come from you know, our bankers in the field and in our different disciplines, you know, incorporating that into their workflows and then kind of spreading that gospel throughout the organization. So that we can get the kind of, you know, productivity gains that I think will come. Both in terms of efficiency, but even more importantly, you know, I think the promise of AI, and we are really bullish on it, is I think it can make all of us better more effective, you know, investment bankers at all different levels. And if we can create more ideas, better ideas for our clients, get better advice, use those tools to do that, I think we can create more transactions and be more efficient you know, in terms of, you know, our banker headcount. And so that is the goal, and that is what we are striving for. Still early days, though.
Operator: Your next question comes from the line of Ryan Kenny with Morgan Stanley. Your line is open. Please go ahead.
Ryan Kenny: Hey. Just want to follow up on the AI conversation there. So clearly, there is some efficiency opportunities, but how do you think about the risks there? And how do you think about the idea that maybe the industry evolves, it all gets competed away, pitch decks have to come faster, clients expect more, and so the margins do not really improve. Are there any other risks as you think about AI?
Navid Mahmoodzadegan: Yeah. Look. We spent a lot of time thinking about know, protecting our information, protecting our data. At the end of the day, our real competitive moat is the quality of our people, the quality of our relationships, and our information and data. And so our teams, our legal teams, our IT teams, our the committees that work on AI for us, spend a lot of time thinking about you know, the risks and, you know, how do we make sure that our client information, and our own data is, you know, protected and, you know, we preserve, you know, those competitive moats. Look. As I said, I in terms of your second part of your question, know, I do think, you know, there is gonna be an element of this that is gonna be commoditized. You know, we are all gonna have access to a lot of the same tools. I think how we use those tools and how we adopt those and how we you know, incorporate those into our workflows is gonna be you know, part of what you know, improves the performance of our company and our ability to execute with clients. And if you look at previous technological innovations, you know, spreadsheets, you know, etcetera, the ability to create decks faster. All of the innovation that sort of happened mobile. You know, all of those things, I think, made the industry better, even though those were commoditized things that everyone had access to. I do think over time, investment bankers became better, more efficient, provided better advice, could do more transactions. There are many more transactions happening today per senior investment banker than you saw 20, 30 years ago. So I think I think you can it can both be commoditized, but also, you know, make all of us better and more efficient.
Ryan Kenny: And then shifting gears, I have a question on capital, which is cycle seems like it is building, sustainable, a lot of tailwinds ahead for the persistence of M and A. So as you create more capital, how do you think about the uses there on dividend, buyback, And would you ever be open to being an acquirer?
Navid Mahmoodzadegan: So let me take those questions. So I think, as you all know, we have tend to be pretty conservative when it comes to the balance sheet. Know, we run the business with no debt and, you know, lots of excess cash. Our priorities are, you know, to continue to make sure we are investing in the long term growth of the business and serving our clients. Know, the second, you know, want to make sure we kind of protect the dividend. We, obviously, have a nice healthy dividend and wanna make sure that, you know, nothing happens to change that. I think our next order of priority after that is share repurchase. And, you know, we look at that really carefully as you have seen, we have been you know, pretty aggressive at least versus historical standards here over the last few quarters. And, you know, I suspect as we roll forward, we are gonna continue to wanna make sure we are you know, largely mitigating, you know, the dilution that comes from, you know, employee comp you know, equity that is issued as part of employee comp. I think that will continue to be kind of the order of priorities as we roll forward in terms of capital. In terms of acquisitions, I think, look, as the hiring market has continued to be, you know, competitive. I do think being open minded about acquisitions is the right approach, and we are open minded. I do think, you know, we do strive to look at every opportunity that is out there. I think for us to actually do a sizable acquisition, you know, I think there is, you know, 3 criteria that have to be part of that. You know, first is it is gotta be, you know, world class talent that would add to our firm. You know, second, it is gotta be consistent with our culture. We are never gonna do an acquisition that we think is gonna diminish or impair our culture in any way. So cultural alignment is really important. And then, you know, we want those people who are gonna be joining those firms to be equally excited about you know, the long term growth opportunity of our firm. And so alignment on deal structure and deal terms is gonna be absolutely critical. So really open minded about acquisition opportunities. And if we find you know, the right situation that checks all 3 of those boxes, you know, we would not hesitate to do something.
Operator: There are no further questions at this time. I will now turn the call back to Mr. Matthew Tsukroff for closing remarks.
Matthew Tsukroff: Really appreciate everyone joining us today. Enjoy the rest of your summers, and we will talk to you soon. Thank you.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.