Moelis & Company's (MC) CEO Ken Moelis on Q4 2015 Results - Earnings Call Transcript

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Moelis & Company (NYSE:MC)

Q4 2015 Earnings Conference Call

February 09, 2016 17:00 P.M. ET

Executives

Michele Miyakawa – Head, IR

Ken Moelis - Chairman and CEO

Joseph Simon - CFO

Analysts

Ken Worthington - JPMorgan

Ashley Serrao - Credit Suisse

Devin Ryan - JMP Securities

Brennan Hawken - UBS Investment Bank

Daniel Paris - Goldman Sachs & Company

Joel Jeffrey - Keefe, Bruyette & Woods

Jeffery Harte - Sandler O'Neill & Partners

Vincent Hung - Autonomous

Operator

Good afternoon and welcome to the Moelis & Company Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation there will be an opportunity to ask questions. [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.

Michele Miyakawa

Good afternoon and thank you for joining us today for Moelis & Company's fourth quarter and full year 2015 financial results conference call. With me 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 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.

Our comments today include references to certain adjusted pro forma or non-GAAP financial measures. We believe these measures when presented together with comparable GAAP measures are useful to investors to compare results across several periods and to better understand our operating results.

The reconciliation of these adjusted pro forma 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 would now like to turn the call over to Ken.

Ken Moelis

Okay, thanks, Michele, and good afternoon everyone. I am pleased to report that we delivered solid performance in 2015 with record revenues for both the fourth quarter and the full year which were up 21% and 6% respectively. Consistent with our model we generated strong operating cash flow during the year which we are returning to shareholders with today's announcement of an $0.80 per share special dividend in addition to our regularly quarterly dividend of $0.30 per share.

We are able to return this capital while having made significant investments in our team at the same time. We added over 80 bankers ending the year with 462 total bankers and 105 Managing Directors, a net increase of 11 Managing Directors from 2014. In January we promoted three of our Advisory professionals to Managing Director and our recruiting pipeline remains strong.

We are very excited about the business we are building. We built our global investment bank with a strong balance sheet with no goodwill, a solid cash position, and no debt. We believe the strength of our firm, our exceptional people, our leading mergers and acquisition, and restructuring franchises position us to succeed in all cycles of the market.

On today's call we’ll focus on three topics. First, Joe will give additional color around our results. Second, I’ll give my thoughts on the current market environment. And third, I’ll discuss the opportunity for Moelis & Company and how we are uniquely positioned in this environment. So Joe?

Joseph Simon

Thanks Ken. I’ll spend a few minutes reviewing revenues, compensation and non-compensation expenses, the strength of our balance sheet and our continued commitment to return capital. For the fourth quarter of 2015 we reported a $175 million of revenues which was up 21% from the prior year. We reported $552 million of revenues for the full year of 2015, up 6% over the prior year.

Our full year performance compares favorably to the overall M&A market in which the number of global M&A completions, greater than a 100 million actually declined by a percent year-over-year. Our revenue growth was driven by increased M&A deal activity and an active restructuring business. On M&A we experienced a steady improvement in a number of transactions completed and in the total number of clients who paid us fees equal to or greater than a $1 million. As we had stated last year, we had expected this growth to occur in the second half of the year, and it did.

On restructuring we continue to be active having worked on Glitnir, the largest global restructuring in 2015 and LightSquared, one of the most complex chapter 11 proceedings. In addition to a healthy year of completions we had a number of significant M&A announcements in the fourth quarter including transaction such as Pfizer, the largest deal in 2015, and Dell the sixth largest. Regarding compensation expense, our fourth quarter and full year comp expense ratio on an adjusted pro forma basis was 54.9% of revenues, which is in line with the range we previously discussed and compares with 52.2% of revenues in 2014. The increased compensation ratio is attributable to the additional tranche of equity awarded in early 2015 as well as new hires.

As a reminder we’ve been reporting a lower than targeted total comp run rate expense due to the incentive equity reset that occurred in 2014, when we accelerated the best of MD equity and instituted long-term lockup agreements. Also worth noting in connection with the 2015 incentive comp awards, we are about to grant RSUs which will have a new five year pro rata vest for MDs. This is a change from the previous two years which have a five year vest but pro rata in years three, four, and five. The impact of this change will increase the year one equity amortization expense associated with the 2015 equity grants we’re about to make.

We remain committed to balancing our shareholder and employee interest in maintaining our compensation ratio within our previously mentioned 58% target level. Our adjusted pro forma non-comp expense ratio increased to 18.2% for the full year of 2015 from 17.4% in the prior year. The increase was primarily driven by increased headcount combined with modest revenue growth. As previously discussed we expected to slightly exceed our target for the full year. However, our average annual cost per head decreased from approximately $175,000 in 2014 to $165,000 in 2015, as our business continued to scale. We continue to maintain our full year non-comp ratio target of 15% to 18%. Our key focus is to manage the pace of expenses while continuing to support growth.

Income from equity method investments was $4.5 million for the full year of 2015 which compares with 0.3 million for the prior year. The increase from the prior year resulted from an equity interest obtained as part of an advisory assignment fee structure which we discussed in the first quarter. The full year results of this arrangement resulted in $4.2 million contribution for 2015. While we expect additional economics in the first quarter of 2016 from this investment we do not anticipate a meaningful contribution beyond that period.

Our adjusted pro forma presentation assumes that all partnership units have been converted to shares. So that all of the firm’s income is presented as if taxed as a corporation at our current corporate effective rate of 40%. This compares with the prior year's tax rate of 40.5%. We ended the quarter with a strong financial position with $286 million of cash and short-term investments and no debt.

Finally, as Ken mentioned today we announced an $0.80 per share special dividend in addition to our regular quarterly dividend of $0.30 per share to be paid on March 4th to shareholders of record as of February 19th. Our total dividends associated with calendar year 2015 were $1.90 per share including today’s announcement. We’re focused on growing earnings power and shareholder returns reported in a straight forward and transparent manner. We have not grown through acquisitions and we expense all of our growth through the P&L with no investment adjustments to our earnings. With that I will now turn it back to Ken.

Ken Moelis

Thanks Joe. I am going to quickly address the current market environment and Moelis & Company's positioning now. I have been saying for a while that I think we are in a slow growth deflationary environment and I believe corporate management teams have had a sense of this for some time and have been adjusting for it. And that has served pretty much as the catalyst for much of the M&A activity in the past year as companies sought growth or cost savings through mergers. And while this is not a new phenomenon to boardrooms and managements, I do believe that the capital markets are now catching on to that level of slow growth and low interest rates and possibly deflation and readjusting to this environment. And this is undoubtedly causing volatility in the markets and re-pricing of assets.

Companies will be faced with making difficult decisions in this environment about how to grow, how to stay competitive, and in some cases how to restructure or reposition in this rapidly changing economy. There are and will be a tremendous amount of decisions being made which highlights the need for world class holistic advice. Moelis & Company is uniquely positioned to take advantage of this market. We intentionally built the firm to succeed in all parts of the cycle by providing the relevant expertise to our clients in both strong M&A markets and restructuring markets.

With over 460 bankers based in 17 offices we offer global M&A advice with a strong presence in the Americas, Europe, and Asia and stand ready for continued M&A growth in the U.S. and improved activity abroad. We also have one of the leading recapitalization and restructuring teams on Wall Street. We have kept our team intact since the restructuring peak in 2010 and today they are very busy advising commodity based businesses that are facing liquidity issues and other levered companies in helping them avoid issues.

Importantly in uncertain markets like today, companies are looking for holistic global advice. They need a team who can think about all scenarios, given various varying economic and market conditions. And as we have always said, we believe our collaborative and holistic approach sets us apart. We have our bankers working together across regions, products, and sectors to provide the best solutions to our client. And lastly we are a 100% focused on our clients and in this market that is a real asset and it is a great time to take advantage of the dislocation surrounding many of the large money centered banks.

So in summary we feel good about our business. Our teams remain very busy. We are in active dialogue with our clients. At the same time I want to acknowledge that the long-term volatility that we are seeing and the slowing of world economies are of a concern and we remain vigilant in ensuring that our company is well positioned in any environment. And by well positioned I mean by providing advisory expertise both in up and down markets and also maintaining our company's financial strength, balance sheet, and personnel as strong as it can possibly be. And with that I will open it up to any questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions]. And our first question will come from Ken Worthington of JPMorgan?

Ken Worthington

Hi, good afternoon. Thanks for taking my question. So, first can you talk about the market for financing deals, there seems to be some hung deals in the market and there is definitely a couple of examples of discomfort in the bank lending market. How does the financing market seem to you today and are you getting pushed back in terms of some of the financings on some of the things that you and your clients want to accomplish?

Joseph Simon

First, I want to say we have no hung bridges.

Ken Worthington

Good to hear.

Ken Moelis

Look, the financing market is very difficult. I think in certain industries it is almost completely shut down in the non-investment grade market and I think the lower end, triple C lower single B rating market is very difficult to access than the public markets. Or let's put it this way, it is also getting much more expensive. And we do see that, look it is creating problems in financing and it is also creating the opportunities in the restructuring market. But we are seeing it, it is starting to go, for a while there it felt like it was only going to be in the commodity based sectors but it has leaked across the board and financing is tougher in almost all transactions that are less than investment grade right now.

Ken Worthington

And sorry to dump off but what does this mean for you. So you mentioned obviously good on the restructuring side of the business, to what extent does this become I don’t want to see a problem but maybe starts to slow things down on this trade advisory side, how do you think this impacts you over the next six months if at all?

Ken Moelis

Look it is hard to tell that’s why they call it volatility. It's volatile. I think that there are two good parts of it both restructuring and our capital markets advisory are benefitting I think some tough markets. And then M&A, its interesting our conversation levels and that’s why I put it in at the end of the call there. Our conversation levels continue to be very high. We are still seeing a lot of interest in M&A. I just worry that at some point volatility does become a problem in the market. I wanted to say that because I think there is extreme volatility right now and depending on how it shakes out it could get, you know, if it got a lot worse I think it would affect M&A.

But the other think to think about is I know everybody is trying to figure out if the financial sponsor is out, I don’t think they are. I think they’ve actually been further sidelined then people think the last two years because strategics were out bidding them. It was very hard for them in the market we were in 12 months ago to actually win an asset. The strategics just had stock values and had access to investment grade public debt that made it very difficult for them to compete. So there is a lot of factors in there Ken. I think the prices might come down, their ability to compete against strategics given the stock market might go up and yet access to financing is more expensive. So how those all interplay we will see. But I don’t think you can write the financial sponsors off. They usually get pretty aggressive in markets like this trying to do things, sensing an opportunity even though the ability to pull the financing together gets a little tougher.

Ken Worthington

Alright, great. Thank you. And then maybe as you think about kind of running the business, to what extent is there incremental opportunity to kind of grow or improve the business, like obviously you have been growing very nicely already but does it get even better given the kind of the economic uncertain, the market uncertainty and the implications there for employees at other firms and other business leaders or does movement start to stall when economic conditions become a little choppy?

Ken Moelis

I think it gets to be an opportunity. Look I believe we are a firm, we’re just about eight years old. We’re a firm born in the crisis of 2008. We got incredible talent move during that timeframe, the distractions of being around a regulated money center bank. I just noticed I think the budget came out today and I think they are doubling the funding. I think I read this on the tape for regulations and Dodd-Frank -- I said just what the banks need, another doubling of the oversight expense. So look, again, I think we are a company that was born in the crisis and as things get very volatile here I feel very good that it’s a positive for us. There is nothing good about sitting with a trillion dollars of assets in a world like this. All you have to do is have a few percentage of them not be the right assets and it’s a problem. And we are sitting with a balance sheet with no debt, as of year-end over 200 million in cash and a very flexible organization. That’s where I’d want to be.

Ken Worthington

Okay, great, thank you very much.

Operator

The next question will come from Ashley Serrao of Credit Suisse.

Ashley Serrao

Good afternoon.

Ken Moelis

Hi Ashley.

Ashley Serrao

So Ken, you added several MDs in 2015, do you think they’ll be able to contribute meaningfully to 2016 results?

Ken Moelis

Yes, we feel we had a great year in 2015. I think some of those people are already contributing. Again, I’ve said it since we went public I believe having a public stock has allowed us to hire great people and they are contributing. And Ashley I want to point out one of the things that’s good about doing those in the market, and Joe pointed this out is remember there is nothing on our balance sheet, there is no deferred acquisition cost in there. It is going right through our income statement. So, when you look at those hires, I have expensed every cost of bringing them in in 2015 and now we get all the benefits of having them on board.

Ashley Serrao

Great, just along those lines in sort of clarifying Ken's question, as you think about hiring in 2016 are there specific sectors or regions that you are targeting?

Ken Moelis

Yes, I continue to -- we went into the energy business. It was in the middle of the year and it has been working very well for us so far but we could use more people in energy. I think we could use some more people in Europe and different sectors around the U.S. But I think what is going to happen is I suspect you are going to have a shaking of the money center banks, the big banks. I think people are going to get very uncomfortable. I think there will be some discomfort working with them again and basing your compensation on the movement as I said of a trillion dollars of assets, a couple of points up or down. And I think you are going to see some of those quality people come loose in 2016 and I am hoping it will be another very good year of recruiting. But we will have to see how that plays out.

Ashley Serrao

Okay, thanks for taking my questions and congrats on a record quarter.

Ken Moelis

Thank you.

Operator

And the next question comes from Devin Ryan of JMP Securities.

Devin Ryan

Hey thanks, good afternoon. Just on restructuring, clearly you guys have one of the largest franchises, it sounds like energy natural resources, it is where things are picking up not surprisingly. In energy, I would love some perspective of the types of deals that you think will kind of lead the way here as a chapter 11, distress asset sales and what type of activity? And then also it sounds like you are seeing some activity in other areas, highly levered companies that you alluded to, so I am just curious if there is other sectors where you are seeing maybe a couple of data points, it is too early but maybe the king of the next industry where there is some restructuring activity?

Ken Moelis

To the first part of your question, you see it all. Look, when you get hired by a company the first thing you try to do is do the things out of bankruptcy. So there are distressed asset sales there, there is step swaps, and if things continue in the wrong direction it sometime leads to chapter 11. Look we pride ourselves by the way as having the highest percentage of advisory assignments that do not go chapter 11. As we think our goal is to keep the company out of chapter 11, that is not to say chapter 11 doesn’t happen but the goal of a good advisory assignment ahead of time would be to save somebody from that and we have the highest percentage to get done out of bankruptcy.

Obviously the commodity sectors are going to be very active and I think if oil stays in these levels it is going to be hard to avoid it for some -- it is going to be hard to avoid it for a lot of companies. And I think we are going to see a lot of that. But then what you see happening as well is as the financing markets dry up, a lot of other sectors have put together balance sheets that are dependent on continuously rolling over some pretty leveraged balance sheets. And when the availability of capital goes down and a slight decrease in revenues, because of the economy, I do think you are seeing some of that in retailing, and restaurants are slowing down. You are starting to see some of that. The people with too much leverage in that end of the economy are going to have to do something as well. And it hasn’t spread as wide as it did in 2008 but I think it will continue to spread.

There is a lot -- we used to show you that debt issuance chart. There was a lot of debt issued in the last four or five years. And that means all you have to do is apply a slightly larger percentage of defaults and you have a very large restructuring wave hitting the market.

Devin Ryan

Great, appreciate that. And with respect to fund placement, we know it hasn’t been too big of a contributor but momentum had been pretty good earlier in the year kind and I suspect still been pretty good. Though curious with the volatility that we have seen here, if anything has changed in the outlook and just kind of the broader outlook for that business?

Ken Moelis

I can't say that we have seen a change because of the volatility. And you are right, we have had a couple of closings this year, we have got a decent backlog. And again we started with a small group of team and we are building around it and feel good about it. I think it’s a business that will be here for many years. It is really kind of a -– because the commitment into that type of a fund is for 10 years. So I think those -- unless you get to a 2008 liquidity crisis, that seems to be a pretty solid stable business and I can't say that I’ve seen any change to it. But we are not that big a part of the market that I could speak to the market.

Devin Ryan

Got it, okay. And then maybe last one here for Joe just on expenses, the $3 million expense increase on a -- non-comp expense increase on a sequential basis, how much of that was from the client event versus just higher variable expenses because revenues were better?

Joseph Simon

Yes I’d say probably two thirds of the delta was due to the client event and the other third was actually some fees in connection with some closed transactions. There were some consulting fees that went with some closed transactions.

Devin Ryan

Great, thanks for taking all my questions.

Joseph Simon

Sure.

Operator

And the next question comes from Brennan Hawken of UBS.

Brennan Hawken

Hi, good afternoon. Thanks for taking the question. Just had a follow up on the comments on the financing market, Ken you’ve given some really great color I appreciate that, just kind of curious about whether or not given your strength in the financial sponsor end of the market whether or not difficulty and especially difficulty rather than cost in financing might become a bigger near-term headwind for Moelis specifically and how you plan to manage that?

Ken Moelis

You know it is interesting. I think the markets have been difficult for not just last week for a while, our activity as we measure it from financial sponsors was up significantly last year over 2014. I think financial sponsors want access to financing but they also want interesting cheap assets that are undergoing violent change. It is not just M&A, there is tens of billions of dollars of assets in the financial sponsor world and the one interesting opportunities, one of the best deals I ever worked on in 2008 was with LyondellBasell. It wasn’t an M&A deal but they happen to make the biggest profit they ever made I think or the biggest profit ever made in private equities close to $10 billion I think, buying distressed asset and renegotiating the position.

I am only pointing that out because I think if you ask financial sponsors are they upset with where is market is today, I think they would tell you they are excited about it. That they will figure out, they are in the business of figuring it out how to finance better than anybody else. That’s why they maintain all these relationships on Wall Street.

But when assets are trading at values that they just can't see a way to make money on, that’s been the problem for them for the last two or three years. And so I think you are going to see them become very active. They may not be able to get seven times leverage but if an asset is trading at 50% discount to where it used to, I don’t think they are going to care. And Brennan what I think people don’t understand sometimes about the business is what we try to build here is a firm that advises client on how to do great deals. That doesn’t mean that’s why we never breakout M&A and restructuring in capital markets advisory in the separate businesses. We see it as a holistic event trying to go in and figuring out how to help them make things happen in whatever they want to do. And I think financial sponsors are actually going to get a little more active in the coming 12 months. It will be just be in ways that are not cookie cutter LDLs.

Brennan Hawken

Okay, that’s fair, thanks for the color on that Ken. And then on restructuring and you kind of referenced it there with the fact that you don’t break it out separately which tease this up nicely, how should we think about your restructuring business and the opportunities that you’ve got because, as you said it has been built over the last eight years. You landed a terrific team right as the restructuring cycle, the last restructuring cycle was really booming. So obviously proportionally it is going to be different this time around. You referenced that you kept your team intact but are the -- is the MD count the same, is it up, what is it proportion of the rest of the firm, can you maybe help us frame that a little bit at this point?

Ken Moelis

Well again I think the MD count is up from, you know, 2010 was the last peak. And in 2010 -- when you look back at 2010 and every one of our MDs except one worked on the restructuring. So, what we tended to do back then was let's say the media industry went into restructuring. We put together our media team because we don’t pay this commission based structure but we have a one firm bonus pool. We can move people into working together and we had sort of the media guys going with the restructuring experts and pitch together. And I think you will see our whole firm do that because we can make it happen. I think if you put up these silos around people it is much harder to do. We estimate that the footprint is probably two times larger today than it was and already I think our mandated assignments that you would call restructuring are up about 50%. That is not 2010 that is year-over-year, the 50%, two times is the footprint in 2010.

So, look you asked me a good question, how should you think of our restructuring team. I think you should think of them as the best on the Street.

Brennan Hawken

Okay, that is well said. And I guess just to clarify though, you said the footprint which means like basically you have focused your -- restructuring focused team is…

Ken Moelis

I think that is what you would call our MDs, our MDs plus the relevant -- I think it will actually be our Managing Directors on a global footprint basis that would consider themselves restructuring experts.

Brennan Hawken

And the 50% is like year-over-year versus the low base of previous?

Ken Moelis

Yes.

Brennan Hawken

Got it. Okay, and then…

Ken Moelis

I am not going to -- by the way I wouldn’t say it was the lowest year. Last year was not a terrible year on restructuring.

Brennan Hawken

Sure, in the context of when you look at the footprint versus 2010 right, that is obviously a very different bar than last year?

Ken Moelis

I am just saying we -- we had a better 2015 in our restructurings than 2014. So 2015, remember the last half of 2015, you are already starting to see some of this stuff hit the -- especially, again we think we are pretty good out of court advisor. So, we were -- we were active early in 2015 and had a pretty good. I was just addressing the point you said from a very low base and I would say 2015 was higher than 2014. So, it wasn’t a very, very low base.

Brennan Hawken

Okay, thanks for the clarification. Last one from me, and it again references a comment you made in your last answer about the one team approach and central bonus pool, in thinking about potentially slowing M&A and maybe a headwind to revenues, how should we think about the comp ratio through one of those more difficult times for the revenue side at Moelis and is there a way you can help us think about comp and how much of it is fixed and tied to salaries and amortization of prior year awards and how much of it is variable, is there any way you could help us frame that?

Joseph Simon

I could, maybe I will do that with you, give me some time. I will call you directly on it and we will make that available. But look, we intend to stick to our comp ratio. We have a very diverse revenue stream so I see it plus or minus, I know we had last year right after the first quarter, we said we were going to have an up year. I think Brennan you are one of those people who doubted it. Thought I would call you out on that Brennan.

We could tell. I mean, we have it is not as lumpy as -- it is pretty broad based a business right now and we could see it. I think we will be, we are going to stick to our comp ratio target and the last part is I think the fact that we expense it all right to the balance sheet that we don’t put a lot of it on a deferred basis. I mean to the income statement. That we don’t -- our acquisition cost, the cost of us acquiring talent is being run right through so was expensed in 2015. We don’t have any deferred acquisition charges and things like that to write off on our balance sheet after the fact and I think people don’t realize how clean we are running our expansion and expensing it as we go.

Brennan Hawken

Okay, thanks. By the way let's have the record reflect I believe I had positive revenue growth for you this year in most of my forecast.

Ken Moelis

By the way the comment you had to leave, I have to go back and look.

Brennan Hawken

We will check the records, thanks Ken.

Ken Moelis

I will check it.

Operator

And next we have a question from Daniel Paris of Goldman Sachs.

Daniel Paris

Hey, good afternoon guys. Was hoping you could help us frame how you are thinking about the dividend from here, is this year's mix of regular or special kind of indicative how you’d like to run going forward and would you say it’s a goal of yours to kind of continue growing at all end dividend?

Ken Moelis

Yes, well first of all for the foreseeable time we look at the float of the stock as being an asset. An asset to you our investors to have liquidity and to us to have a float out there and so our goal is to return a 100% this year. I think we returned more than a 100% of our net income in free cash flow. We’re going to return all of our excess capital to our shareholders. But right now we think the best way to do that is through a combination of special dividends and dividends, because then we don’t lose one of our assets which is the float which we’d like to get larger. So the answer is I think for the foreseeable timeframe that’s the most optimal way for us to return our capital to our shareholders. It is a base level of dividend we feel very comfortable with than a special if we have a year that generates enough cash flow to pay a special? And the answer is yes, I would hope it would grow.

Daniel Paris

Got it, that’s very helpful. And I guess is there a -- I am not asking for the price but like the change in your stock price, did that equation change a little bit or you might think about buying back stock and trading off the float?

Ken Moelis

It is possible. I would not want to destroy our float. I feel like capital is capital if I give you back all our capital, if I give you the capital you can make a decision of whether you think the stock price is cheap enough. I think I saw some on the tape today about billions of dollars lost in stock repurchases and I do have a price in which I think I would buy it but it may not be the same price that all of you on the phone would buy it. And so the easiest thing for me, I think the most optimal thing is give you back our capital and let you make that decision.

Either way we are going to give back 100% of our excess capital and I still think not shrinking our float until we have enough that institutions can feel comfortable and not discount us on liquidity is the optimal way to build the capital.

Daniel Paris

Understood, thanks for that and maybe just one follow up from earlier on the recruiting backdrop. You spoke about a pretty good environment this year, how do you balance that versus what is a bit of an uncertain M&A market backdrop, does that make you less inclined to be -- to go out and pursue new senior talent?

Ken Moelis

No, I think that really good talent can be a 10 year asset and I don’t think you want to measure it on a six month or a 1 year cycle. So if we get the right banker, in the right spot look that's what we did in 2008 and 2009 when we built the whole company off to getting the right bankers at the right time is that low turnover since then -- and that’s the basis of the firm. So, I think the answer is if we see good talent we are going to assume that we have a flexible enough business and a strong enough balance sheet that you take the talent in. They are much longer assets than people think. You can have people join you for 10, 15, 20 years and if you miss them you’ll never have a chance to have them. So if you can get the right people, at the right risk award, I think we will move on that.

Daniel Paris

That’s all very helpful. Thanks for taking my questions Ken.

Operator

The next question will come from Joel Jeffrey of KBW.

Joel Jeffrey

Good evening guys.

Ken Moelis

Good evening.

Joel Jeffrey

Just if you think about sort of the momentum of the business, you have a strong fourth quarter and the pipeline currently looks strong, do you see this kind of carrying into 1Q as being another strong quarter or is this sort of more of a typical seasonal year where the back half of the year is stronger?

Joseph Simon

Look, I don’t want to get into trying to do quarter by quarters. Our business continues to be I think strong in terms of the conversations, the deal flow, and things we’re seeing. I did specifically point out that these markets -- this last two months of markets have the opportunity to change rather quickly and we’re keeping our eye on that as well.

But for now I actually think the volatility in the market is stirring up as many conversations as is it is hurting and/or maybe more. I think some parts of the market I think, the volatility has started to stir up even more conversations around restructuring and things like that. But I don’t want to talk about the first quarter in any definitive way because it’s a tough business to know what closes on any single day. We have -- we feel like we are strong, we feel like things are going well, and like I said in the basis of the call we’re also going to be very vigilant about this market.

Joel Jeffrey

Okay, that’s fair enough. And then just sort of housekeeping question, in terms of the move to that five year pro rata vest on the deferred comp, can you guys quantify the potential impact that has on the comp ratio or the amount of comp this year?

Joseph Simon

Well, do you want me to do that Ken?

Ken Moelis

Yes, I just want to say it didn’t have any -- the comp ratio will remain 58% target I want to say that and Joe you might talk about just how that thing work though.

Joseph Simon

Yes, I mean in terms of just the map for the model in the past under our old ratable vest over years three, four, and five that would result in year one expense being kind of on the order of 26% of the full grant value. Whereas under the new ratable five year ratable divest it is going to be closer to 46% of the year one or of the total grant. So obviously over the course of divesting period, the value of the grant will be amortized it's just the path and the path will be slightly more accelerated under the new investing terms.

Joel Jeffrey

Great, thanks for taking my questions.

Operator

Our next question comes from Jeff Harte of Sandler O’Neill.

Jeffery Harte

Good evening guys. A couple of -- we’ve talked a little bit about capital and the RSU changes, how should we be thinking about kind of share count creep over say 2016, 2017, I am just trying to get a better feel for how much growth we should expect?

Ken Moelis

Joe?

Joseph Simon

Yes, so I think at this point before again our 15 grant doesn’t actually get issued for another couple of weeks. But as of the end of the year I think we had on the order of 5 million on vested shares of which probably about a 1.3 million have hit the fully diluted line and we’re likely to issue something on the order of 3-3.1 million in the course of the next couple of weeks. And that will obviously so the whole treasury method is its largely time vested with kind of a choke from whether the stock price goes up or down. If it goes down ultimately it will slow down the path of amortization, if the price goes up it will ultimately accelerate it slightly.

Jeffery Harte

Joe, how many new shares will come in on 2016 and 2017 just basic?

Joseph Simon

I estimate with flat kind of share price before the new grant was about 350,000 to 400,000 a quarter is what we’d ultimately add to the fully restricted. And so I would think that you add another couple hundred thousand to that.

Jeffery Harte

Okay, thank you. And I don’t know if there is an answer to this but you talk about not want to do a buyback to a larger public float which I get, do you have in mind anything of kind of what a target a public float would be before you would be willing to serve buying back?

Ken Moelis

No, I would want it to be liquid. I think if you don’t have a liquid stock you end up trading at some liquidity discount, makes it tough for people to get in and out of your stock and I think we’ll figure out when the stock is trading liquid enough. But again I don’t understand the -- I look at it just as a factor if we are going to return a 100% of the excess capital and so it doesn’t really -- I don’t spend a lot of time thinking there is a big difference in the stock repurchase and doing it through a special dividend. So I probably would lean to making sure the float is good because I think the more flow you have the better it is.

Jeffery Harte

Okay and I guess finally can you give us any kind of additional color on some of the maybe nature and quality of some of the kind of conversations are pre-pipeline activity levels. I mean conversations are a good of things. I guess the fear I keep hearing back from investors is conversations aren't going to turn into anything because corporations are really starting to pull back. I mean, I am glad your bankers are still busy talking, do you sense any kind of a change in the client side that it is talking versus willing to actually transact?

Ken Moelis

Interestingly, remember there are certain feed sectors that are just having really radical volatility. So cut those out a little bit. I think energy and commodities are having really radical volatility and that’s leading to conversations on the restructuring side. Interesting on the other stuff there is nothing that much diminishing on people's desire to go forward. I think, I am a believer that the corporate management teams and the boardroom kind of knew that the revenue growth was going to be slow for a long period of time here. And have been doing a lot of the M&A in anticipation of this type of an environment.

So I don’t think this is a new factor then how tough it is to get top line revenue growth and how important expense savings are. So I still, when I say conversations I don’t mean just chit chat, I am referring to conversations that are in process towards transactions. I think they are still high. Are they off 5%, 6%, 7% or some deals not getting done, yes, I bet that’s right. But that maybe being offset then by the 50% pickup in restructuring assignments. So again I don’t see the total activity level slowing down yet. But again I am just worried about that it could happen. I am worried about it happening as you are if the market were to take a radical detour here.

Jeffery Harte

Okay, great. Thank you.

Operator

And next we have a question from Vincent Hung of Autonomous.

Vincent Hung

Hi, how is it going.

Ken Moelis

Good, how are you doing Vincent?

Vincent Hung

So what proportion of your M&A deals involve just private companies?

Ken Moelis

Well I don’t know the answer to that. I just don’t have the answer to that.

Vincent Hung

Okay, just to clarify one of the points you made earlier so on restructuring mandate you said it was at 50%, I assume that’s new engagements in 2015 versus 2014?

Ken Moelis

Yes, the new assignments that we are working on. Active assignments that are going on today I don’t know when we might get on hired on December of 2015 or January of 2016 but assignments that are in the house right now.

Vincent Hung

Okay and lastly on non-comp, should we be thinking around like 25 million to 26 million a quarter as a run rate?

Joseph Simon

I guess that’s for me. I think that’s probably we were at a 100 million last year. I think that’s probably a reasonable estimate going forward.

Ken Moelis

And Vincent I’ll try to get you an answer on the private company I just have never divided it up. I wasn’t trying to avoid it, I never divided it up in that manner so I was going to give you an estimate and then I realized I just don’t have an estimate so I’ll get you one.

Vincent Hung

Great, thanks a lot.

Operator

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

Ken Moelis

Well, thank you for all the support and giving us the time. I hope our concerns about the volatility of the market do not come to pass and that we continue to have the strength that we’ve been having over the last quarter. So thank you, look forward to our next call.

Operator

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

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