Moelis & Company Q3 2025: Contradictions Emerge on Regulatory M&A Outlook, Restructuring Trends, and Compensation Leverage

Date of Call: October 29, 2025

Financials Results

• Revenue: $376.0M adjusted revenue for Q3 2025 (up 34% YOY); $1.05B adjusted revenue for first 9 months of 2025 (up 37% YOY)
• Operating Margin: Adjusted pre-tax margin 22.2% for Q3 2025; adjusted pre-tax margin 18.2% for first 9 months of 2025

Guidance:

• Expect continued acceleration in deal activity with pipeline near all-time highs.
• Q4 comp ratio "best guess" ~68% (year-to-date 68%, down from 75% YTD last year, ended prior year at 69%).
• U.S. government shutdown could slow regulatory reviews but is not currently reducing client appetite for transactions.
• Investing to scale Private Capital Advisory (PCA); expect PCA to become a meaningful growth pillar.

Business Commentary:

• Strong Financial Performance and Market Momentum:
• Moelis & Company reported adjusted revenue of $376 million for Q3 2025, representing a 34% increase from the prior year, with year-to-date revenues of $1.05 billion, up 37% from the previous year.

• The growth was driven by robust client engagement, strategic M&A transactions, and a healthy M&A pipeline.

• M&A and Capital Markets Growth:

• The company's M&A business experienced an increase in larger strategic deals and sponsor transactions, resulting in a significant increase in average M&A fees.

• The Capital Markets business saw a substantial increase, with year-to-date revenues more than double the same period last year, driven by enhanced capabilities in public and private capital markets and the rise in private credit.

• Investment in Private Capital Advisory:

• Moelis & Company is actively building its Private Capital Advisory (PCA) business, with a focus on GP-led secondaries, aiming to create a fourth pillar in its franchise.

• The investment is driven by the expectation that PCA will become a key engine of growth, complementing their leading sponsor franchise.

• Regulatory Environment and Deal Activity:

• The current regulatory environment, particularly the perceived accommodative stance towards transactions, is contributing to increased deal activity.
• Improved clarity on trade policies and an accommodative regulatory environment are supporting corporates in pursuing transformative deals and sponsors in returning capital.

Sentiment Analysis:

Overall Tone: Positive

• Management: "The firm had a very strong third quarter." Reported adjusted revenue of $376M (Q3, +34% YOY) and said the pipeline remains "near all-time highs." Capital Markets "on pace for a record year." Emphasis on hiring and PCA as growth drivers supports a constructive outlook.

Q&A:

• Question from Kenneth Worthington (JPMorgan Chase & Co): One of the narratives in the market is the disruptive nature of AI... Are you seeing this risk start to pop up in your dialogue with your clients on the restructuring side? And is AI a theme that you think might be meaningful to restructuring as we look out over the next 1 to 2 years?
  Response: AI is likely to create restructuring opportunities over time; it's early but disruption that affects corporate P&Ls could drive mandates later.

• Question from Kenneth Worthington (JPMorgan Chase & Co): Are the recent higher profile defaults in private credit a concern? Do you see risk to M&A if more 'cockroaches' emerge in private credit?
  Response: Private credit growth is positive for Moelis; isolated defaults are expected but not seen as systemic—private credit should continue to expand and drive advisory opportunities.

• Question from Devin Ryan (Citizens JMP Securities): How are you seeing the breadth in the M&A market today (smaller deals, sponsor deals)? Is it broadening and when did that pick up?
  Response: Market driven by larger deals today, but we saw Q3 signs of broadening—middle market sponsor activity (sub-$1bn) is starting to pick up and should broaden further into 2026.

• Question from Devin Ryan (Citizens JMP Securities): How would you frame the 68% comp ratio year-to-date? Is that a step toward further leverage if revenues normalize?
  Response: 68% YTD reflects progress toward normalization (75% YTD last year, ended at 69%); management expects to continue reducing the comp ratio over time depending on market conditions.

• Question from James Yaro (Goldman Sachs): How is the more accommodative regulatory outlook affecting antitrust dialogues and deal activity; is deregulation driving M&A?
  Response: A more accommodative U.S. regulatory stance is increasing corporate ambition and enabling larger transactions, with greater flexibility on remedies contributing to dealmaking.

• Question from James Yaro (Goldman Sachs): How do you view the right mix of GP-led secondaries versus regular exits (IPOs, M&A) over time?
  Response: GP-led secondaries/continuation vehicles are a permanent, distinct product not fully tied to IPO/M&A markets; Moelis is investing heavily because they expect sustained demand.

• Question from Ryan Kenny (Morgan Stanley): When you talk to corporate clients, are they hearing the regulatory shift similarly and are there industry nuances we should consider?
  Response: Clients perceive a generally more accommodative antitrust environment, though sector-specific nuances exist (e.g., CFIUS, media) that can affect certain cross-border or sensitive deals.

• Question from Ryan Kenny (Morgan Stanley): Can you unpack the $19.1M benefit to revenues from the gain on Moelis Australia and should we expect more share sales?
  Response: The $19M was a realized gain from selling MA Financial Group shares; the JV remains strategic and periodic sell-downs are possible; gains are reclassified to revenue.

• Question from Brennan Hawken (BMO Capital Markets): The EPS neutral clause—does that apply to the reclassification of the Moelis Australia gain?
  Response: Yes; the realized gain is reclassified from other income to revenues.

• Question from Brennan Hawken (BMO Capital Markets): Were there expenses tied to that gain and did it impact the comp ratio?
  Response: Bankers contributed to value creation and may receive compensation; realized gains are booked to revenue and compensation may reflect contributors accordingly.

• Question from Brennan Hawken (BMO Capital Markets): MD count down by 3 QoQ and $6.5M comp forfeiture—was churn elevated or isolated?
  Response: Not elevated—MD count is up year-over-year (157 to 170); net hiring reflects internal promotions and external hires; forfeitures and their GAAP treatment vary by case.

• Question from Brendan O'Brien (Wolfe Research): Given Fed rate cuts and other factors, what's the outlook for the restructuring/CSA business into 4Q and 2026?
  Response: CSA origination is more muted versus last year's record (last year +30%); business likely down a bit this year due to tough comps, though the practice remains strong.

• Question from Brendan O'Brien (Wolfe Research): Outlook for sponsor exits—are you seeing exit activity broaden beyond highest-quality assets?
  Response: Yes—exit activity is broadening; engagement and pitch activity in the sponsor universe are high and improvements in exits (CVs, holdco financings, take-privates) should continue into 2026.

• Question from Alexander Bond (Keefe, Bruyette, & Woods): How are you thinking about the pace of hiring in 2026 versus this year, and PCA hiring trajectory?
  Response: Hiring remains a priority; Moelis will continue to recruit (focus on PCA and other large TAMs) prudently to build out capabilities and capitalize on opportunities.

• Question from Nathan Stein (Deutsche Bank): How do you interpret recent market moves after Fed comments—does this change your view of the marketplace?
  Response: Rates are one variable but not determinative; underlying drivers (strategic needs for scale, sponsor liquidity) support ongoing deal demand—Fed commentary doesn't change the firm's outlook materially.

• Question from Nathan Stein (Deutsche Bank): Can you discuss sector pipelines, particularly tech and other notable areas?
  Response: Pipelines show broad-based strength; tech is strongest, with robust activity also in health care, industrials, sports/media/entertainment, data centers, AI and digital infrastructure.

Contradiction Point 1

Regulatory Environment Impact on M&A

It involves differing perceptions of the impact of the regulatory environment on M&A activity, which is crucial for the company's revenue and growth strategy.

How is the regulatory environment affecting deal activity, and are there sector-specific impacts? - James Yaro (Goldman Sachs Group, Inc.)

2025Q3: The regulatory environment is more accommodative, allowing for larger transactions. Certain sectors have nuances, like media and cross-border deals, but the overall outlook is positive. - Navid Mahmoodzadegan(CEO)

What drove the strong quarter and higher deal closings? How to view deal conversion and timing in 2025? - Devin Ryan (Citizens JMP)

2024Q4: We're seeing somewhat unclear regulatory guidance in this environment. It's slowed somewhat the activity overall in that area. - Kenneth Moelis(CEO)

Contradiction Point 2

Restructuring Activity Trends

This contradiction involves differing perspectives on the trends in restructuring activity, which can affect client engagement and service demand.

How do you assess the restructuring outlook amid current market conditions and Fed rate cuts? - Brendan O'Brien (Wolfe Research, LLC)

2025Q3: We're seeing less new origination, but our restructuring business remains strong. The market environment and tough comps from last year are factors. - Navid Mahmoodzadegan(CEO)

How has restructuring activity changed since April 2, and what are your expectations for this business moving forward? - Brendan James O'Brien (Wolfe Research)

2025Q2: Restructuring activity has been flat to slightly down this year. As markets improve, marginal cases move to M&A or refinancing, reducing restructuring activity. The trend is expected to continue. - Kenneth Moelis(CEO)

Contradiction Point 3

Compensation Ratio and Leverage Expectations

It involves different expectations regarding the relationship between compensation ratios and leverage, which are critical for financial planning and profitability.

How should we assess comp ratio and leverage with normalizing M&A conditions? - Devin Ryan (Citizens JMP Securities, LLC)

2025Q3: We are striving for a more normalized compensation ratio. As market conditions improve, we aim to bring the ratio down further. - Navid Mahmoodzadegan(CEO)

How will comp ratio progression impact leverage in 2025? - James Yaro (Goldman Sachs)

2024Q4: I would think the comp ratio could get down to the low 60s. But let's say it's 63, 64, we would get 75% of the savings per $100 million in revenue. - Kenneth Moelis(CEO)

Contradiction Point 4

M&A Market Trends

It involves differing views on the trends in the M&A market and the factors driving deal activity, which is critical for the company's revenue projections and strategic planning.

How is the breadth and pace of M&A transactions trending in the sponsor and middle markets? - Devin Ryan(Citizens)

2025Q3: The M&A market is driven by larger transactions. A broadening trend is starting, particularly in sponsor transactions, with an uptick in volume and deal size. - Navid Mahmoodzadegan(CEO)

How long will it take for CEOs to engage in M&A post-exogenous shock? - James Yaro(Goldman Sachs)

2025Q1: M&A will return rapidly once policy is settled. Moelis & Company is hiring for future activity, indicating confidence in a quick return. - Kenneth Moelis(CEO)

Contradiction Point 5

Regulatory Environment Impact on M&A Activity

It highlights differing views on the impact of the regulatory environment on M&A activity, which can influence investment decisions and market expectations.

How is the regulatory environment affecting deal activity, and are there sector-specific effects? - James Yaro (Goldman Sachs Group, Inc.)

2025Q3: The regulatory environment is more accommodative, allowing for larger transactions. Certain sectors have nuances, like media and cross-border deals, but the overall outlook is positive. - Navid Mahmoodzadegan(CEO)

Is there a formula for the comp ratio for the remainder of the year? - Ryan Michael Kenny (Morgan Stanley)

2025Q2: We talked about the potential for more activity post-Labor Day, and I think that remains to be seen in the U.S. But certainly, that doesn't mean that we're not going to see some big deals done between now and Labor Day. - Kenneth David Moelis(CEO)