Pay, hiring numbers tumble as Moelis sees 30% drop in revenue

Unlike some rival boutiques, Moelis & Co. saw a steep drop in revenues during the second quarter as the choppy global M&A environment led to fewer transactions. Founder Ken Moelis acknowledged on the earnings call that the beginning of 2019 “hasn't been our best first half” while predicting the firm would bounce back during the last six months of the year.

Second quarter revenues of $153.5m were down 30% year-on-year, though Q2 of 2018 set company records, creating a tougher point of comparison. Moelis’ muted start to the year hasn’t negatively affected the company’s share price, but it has hit bankers where it hurts most. Compensation and benefits costs were down 34% for the quarter and 32% on the year.

Perhaps more troubling is the fact that compensation as a percentage of revenue fell from 58% to 55%. The $84m in comp expenses for Q2 compares to the $119m allocated by rival PJT Partners, which employs significantly fewer managing directors and people in general. Second quarter revenues at PJT increased 28% year-on-year to more than $166m. When asked on the earnings call, Ken Moelis said that a year-end comp ratio of between 57% to 58% was still the target, though he acknowledged that hitting the number would require a big second-half.

Meanwhile, the firm has only made two outside managing director hires during the first half while promoting another five. In contrast, admittedly larger rival Evercore has hired 14 outside MDs. Ken Moelis took the blame for the firm’s “slow start” to hiring, noting the firm was “a little conservative” in the fourth quarter of 2018 and the first quarter of this year. However, he also suggested that the company will be more aggressive in the second half, pointing to issues confronting some European firms that have made potential big-name MDs more available. “We’ve got a pretty good backlog now,” he said of the senior candidate pool.

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