Moelis & Co (MC) 2015 Q4 法說會逐字稿

Good afternoon and welcome to the Moelis & Company fourth-quarter earnings conference call. (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.

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 our 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.

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 regular 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 will 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 will discuss the opportunity for Moelis and Company and how we are uniquely positioned in this environment. So Joe?

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 $175 million of revenues which was up 21% from the prior year. We reported $552 million of revenues for the full-year 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 $100 million actually declined 5% 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 the number of transactions completed and in the total number of clients who paid us fees equal to or greater than $1 million. As we have 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 transactions 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 have 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 vest of MD equity and instituted long-term lock agreements.

Also worth noting, in connection with the 2015 incentive comp awards, we are about to grant RSUs which will have a new 5-year pro rata vest for MDs. This is a change from the previous two years which have a 5-year vest, but pro rata in years 3, 4 and 5. The impact of this change will increase the year-1 equity amortization expense associated with the 15 equity grants we are about to make.

We remain committed to balancing our shareholder and employee interests and 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 result 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 4, to shareholders of record as of February 19. 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 straightforward 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'll now turn it back to Ken.

Thanks, Joe. I'm going to quickly address the current market environment and Moelis & Company's positioning now. I've 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 board rooms and managements, I do believe that the capital markets are now catching on to the 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 repricing 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 US 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 and 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 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 100% focused on our clients and, in this market, that's a real asset. It's a great time to take advantage of the dislocation surrounding many of the large, money-center banks.

In summary, we feel good about our business. Our teams remain very busy. We're 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.

With that I'll open it up to any questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Ken Worthington, JPMorgan.

Good afternoon. Thanks for taking my question. 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? Are you getting pushback in terms of some of the financings on some of the things that you and your clients want to accomplish?

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

Good to hear.

Look, the financing market is very difficult. I think, in certain industries it is almost completely shut down in the non-investment grade market. I think the lower end, the Triple-C and lower Single-B rating market is very difficult to access in the public markets. Let's put it this way, it's also getting much more expensive. We do see that.

It is creating problems in financing and it is also creating the opportunities in the restructuring market. But we are seeing it.

It's starting to go -- for a while there, we 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.

Sorry, to dump off, but what does this mean for you? You mentioned, obviously good on the restructuring side of the business, to what extent does this become, I don't want to say a problem, but maybe start to slow things down on the straight advisory side? What is the -- how do you think this impacts you over the next six months, if at all?

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 benefiting, I think, from tough markets.

And then M&A, it's 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 -- if it got a lot worse, I think it would affect M&A. But the other thing to think about is, I know everybody is trying to figure out are the financial sponsors out.

I don't think they are. I think they have actually been further sidelined than people think the last two years because strategics were outbidding 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's a lot of factors in there, Ken.

I think the prices might come down. Our 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.

Okay. Great. Thank you and then maybe, as you think about running the business, to what extent is there incremental opportunity to grow or improve the business? Obviously, you've been growing very nicely already, but does it get even better given 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?

I think it gets to be an opportunity. Look, I believe we are a Firm -- we are just about 8 years old. We are a Firm born in the crisis of 2008.

We got incredible talent move during that time frame, 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 in Dodd-Frank. I said, just what the banks need, another doubling of the oversight expense.

So, 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 is a positive for us.

There is nothing good about sitting with $1 trillion 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 is a problem. 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 is where I would want to be.

Great. Thank you very much.

Ashley Serrao, Credit Suisse.

Good afternoon.

Hi, Ashley.

So Ken, you added several MDs in 2015. Do you think that they will be able to contribute meaningfully to 2016 results?

Yes. We thought we had a great year in 2015. I think some of those people are already contributing. Again, I have 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 is good about doing those in the market, and Jill pointed this out, is remember there is nothing on our balance sheet. There is no deferred acquisition cost in there. It is going right to 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 of the benefits of having them on board.

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

Yes. I continue, we went into the energy business 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 US.

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 $1 trillion of assets a couple of points up or down.

And I think you're 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.

Okay. Thanks for taking my questions and congratulations on a record quarter.

Thank you.

Devin Ryan, JMP Securities.

Thanks, good afternoon. On restructuring again, clearly you guys have one of the largest franchises. It sounds like energy, natural resources, is where things are picking up, not surprisingly. In energy, I would love some perspective of the types of deals that you think will lead the way here. Is it Chapter 11s, distressed asset sales, 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'm just curious if there's other sectors where you're seeing maybe a couple data points. It's too early, but maybe the next industry where there is some restructuring activity.

To the first part of your question, you see it all. When you get hired by a company, the first thing you try to do is do the things out of bankruptcy. They are distressed asset sales. There's debt swaps. If things continue in the wrong direction, it sometimes leads to Chapter 11.

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 a company out of Chapter 11. That's 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 that get done out of bankruptcy.

Obviously, the commodity sectors are going to be very active. I think if oil stays in these levels it's going to be hard to avoid it for some -- I think it's going hard to avoid it for a lot of companies. I think we're 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 the economy -- I do think you're seeing some of that in retailing and restaurants are slowing down. You're 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.

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, 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.

Great. Appreciate that. With respect to fund placement, I know it hasn't been too big of a contributor, but momentum had been pretty good earlier in the year in the -- and I suspect still been pretty good, though curious with the volatility that we have seen here, if anything's changed on the outlook and just the broader outlook for that business.

I can't say that we have seen a change because of the volatility. And you're right, we have had a couple closings this year. We have got a decent backlog and again we started with a small group, a team, and we are building around it. We feel good about it.

I think it is 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 2008 liquidity crisis, that seems to be a pretty solid, stable business and I can't say that I have seen any change to it, but we are not that big a part of the market that I can speak to the market.

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?

I would 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.

Great, thanks taking all my questions.

Brennan Hawken, UBS.

Good afternoon. Thanks for taking the question. I just had a follow-up on the comments on the financing market and Ken, you have given some really great color. I appreciate that.

Just 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.

It is interesting. I think the markets have been difficult for not just the 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's tens of billions of dollars of assets in the financial sponsor world and they want interesting opportunities.

One of the best deals I ever worked on was in 2008 was with Apollo on LyondellBasell. It wasn't an M&A deal but they happened to make the biggest profit they ever made, I think, or the biggest profit ever made in private equity. It was close to $10 billion, I think, buying distressed debt and renegotiating the position.

I am only pointing that out because I think if you ask financial sponsors, are they upset where this 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 out how to finance better than anybody else. That is 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 has been the problem for them for the last two or three years, so I think you're going to see them become very active.

They may not be able to get 7 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 do not understand sometimes about the business is we built -- what we tried to build here is a Firm that advises clients on how to do great deals. That does not mean -- that's why we never break out M&A and restructuring and capital markets advisory into separate businesses. We see it as a holistic event, trying to go in and figure out how to help them make things happen in whatever they want to do. I think financial sponsors are actually going to get a little more active in the coming 12 months. It will just be in ways that are not cookie-cutter LBOs.

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 separately, which tees this up nicely. How should we think about your restructuring business and the opportunity set that you've got?

Because as you said, you've 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 reference that you kept your team intact, but is the MD count the same? Is it up? What is it proportion to the rest of the Firm? Can you maybe help us frame that a little bit?

Well again, I think the MD count is up from -- 2010 was the last peak. In 2010, we looked back at 2010 and every one of our MDs except one worked on a restructuring.

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 the media guys go in with the restructuring experts and pitch together.

I think you'll 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 2 times larger today than it was and already I think our mandated assignment that you would call restructuring are up about 50%. That's not to 2010. That's year over year, the 50%. 2 times is the footprint to 2010.

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.

Okay. That's well said. Just to clarify there, you said the footprint, which means basically your focused -- your restructuring focused team is --

I think that's what you call our MDs. Our MDs plus the relevant -- I think it would actually be our Managing Directors on a global footprint basis that would consider them restructuring -- that sells restructuring experts.

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

Yes.

Got it. Okay.

It wasn't a bad year. By the way, I would not say it was the lowest year. Last year was not a terrible year on restructuring.

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

I'm just saying, we had a better 2015 in our restructuring than 2014. 2015, remember the last half of 2015, you were already starting to see some of this stuff hit the -- especially, again, we think we are a pretty good out-of-court advisor so we were active early in 2015 and had a pretty good year. 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.

Okay. Thanks for the clarification. Last one for me, and it again references a comment you made in your last answer about the one-team approach and the 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? 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?

I could. I probably -- maybe I'll do that with you. Give me some time after; I will call you directly on it and we'll make that available. But 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 were one of those people who you doubted it. Thought I'd call you out on that, Brennan.

But we could tell -- we have -- it's not as lumpy as -- it's pretty broad base of business right now and we can see it. Look, I think we are going to stick to our comp ratio target.

The last part of it is, I think the fact that we expense it all right through the balance sheet, that we don't put a lot of it on a deferred basis -- I mean through the income statement. Our acquisition cost, the cost of acquiring talent is being run right through so it was expensed in 2015. We do not have any deferred acquisition charges or things like that to write off on our balance sheet after the fact. I think people don't realize how clean we are running our expansion and expensing it as we go.

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 there.

It might have been a comment you had to me. I will have to go back and look.

We will check the record. Thanks, Ken.

Daniel Paris, Goldman Sachs.

Hey, good afternoon, guys. I was hoping you could help us frame how you're thinking about the dividend from here. Is this year's mix of regular or special kind of indicative of how you would like to run going forward? Would you say it's a goal of yours to continue growing that all-in dividend?

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. Our goal is to return 100% this year. I think we returned more than 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 would like to get larger. The answer is, I think for the foreseeable time frame, that is the most optimal way for us to return our capital to our shareholders is a base level of dividend we feel very comfortable with, then 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.

Got it. That is very helpful and I guess is there a -- I'm not asking for the price but the change in your stock price, does that equation change a little bit where you might think about buying stock and trading off the float?

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 over whether you think the stock price is cheap enough.

I think I saw something 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. The easiest thing for me -- I think the most optimal thing is give you back our capital and let you make that decision.

But either, way we're 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 Company.

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?

No. I think that it's -- 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 one-year cycle. So if we get the right banker in the right spot, that is what we did in 2008 and 2009 and we built the whole Company off of getting the right bankers at the right time.

We've had low turnover since then and that is the basis of the Firm. 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're much longer assets than people think. You can have people join you for 10, 15, 20 years and if you miss them you'll will never have a chance to have them. If you can get the right people at the right risk/reward, I think we will move on that.

That is all really helpful. Thanks for taking my questions, Ken.

Joel Jeffrey, KBW.

Good evening, guys.

Good evening.

As you think about the momentum of the business, you had a strong fourth quarter and the pipeline currently looks strong. Can you see this carrying into 1Q as being another strong quarter or is this more of a typical seasonal year and where the back half of the year is stronger?

I don't want to get into trying to do quarter by quarter. Our business continues to be, I think, strong in terms of the conversations, the deal flow, and things we are seeing. I did specifically point out that these are markets -- this last two months of markets have the opportunity to change rather quickly and we are 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 it is hurting, 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 is 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 are also going to be very vigilant about this market.

Okay, that is fair enough. And then just a house cleaning question. In terms of the move to that five-year pro rata vesting on the deferred comp, can you guys quantify the potential impact that has on the comp ratio -- or the amount of comp this year?

Do you want me to do that, Ken?

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

In terms of just the math 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 vest it is going to be closer to 46% of the year one or of the total grant.

Obviously, over the course of the vesting 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 vesting terms.

Great. Thanks for taking my questions.

Jeff Harte, Sandler O'Neill.

Good evening, guys. A couple -- we've talked the little bit about capital and the RSU changes. How should we be talking about share count creep over 2016, 2017? I'm just trying to get it better feel for how much growth we should expect.

I think at this point before -- again, our 2015 grant doesn't actually get issued for another couple weeks, but as of the end of the year, I think we had on the order of 5 million unvested shares, of which probably about 1.3 million have hit the fully diluted line and we are likely to issue something on the order to 3 million to 3.1 million in the course of the next couple weeks.

And that will obviously -- so the whole treasury method is, it's 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.

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

I estimate with flat share price, before the new grant it 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 would add another couple hundred thousand to that.

Okay. Thank you. I don't know if there's an answer to this, but you talk about not wanting to do a buyback 'til there's a larger public float, which I get. Do you have in mind anything of what a targeted public float would be before you would be willing to start buying back?

No. I would want it to be liquid. I think there's a -- if you don't have a liquid stock, you end up trading at some liquidity discount. It makes it tough for people to get in and out of your stock and I think we will figure out when the stock's trading liquid enough.

But again, I don't understand the -- I look at it just as a factor of we are going to return 100% of the excess capital so it doesn't really -- I don't spend a lot of time thinking there is a big difference between a stock repurchase and doing it through a special dividend. I probably would lean to making sure the float is good because I think the more float you have, the better it is.

Okay. Finally, can you give us any additional color on some of the maybe nature and quality of some of the conversations or pre-pipeline activity levels? Conversations are a good thing. I guess the fear I keep hearing back from investors is, conversations are not going to turn into anything because corporations are really starting to pull back.

I'm glad to hear bankers are still busy talking. Do you think -- do you sense any kind of a change on the client side that it's talking versus willing to actually transact?

Interestingly, I -- remember, there are certain 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 is leading to conversations on the restructuring side.

Interesting on the other stuff, there has not been that much diminution on people's desire to go forward. I think -- I am a believer that the corporate management teams and the board room 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. I don't think this is a new fact to them, how tough it is to get top-line revenue growth and how important expense savings are.

Look, I still -- when I say conversations, I don't mean just chitchat. I am referring to conversations that are in process towards transactions. I think they are still high.

Are they off 5%, 6%, 7%? Are some deals not getting done? Yes, I'll bet that's right. But that may be being offset then by the 50% pickup in restructuring assignments. Again, I don't see the total activity level slowing down yet, but again, I am as 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.

Okay. Great. Thank you.

Vincent Hung, Autonomous.

Hi, how's it going?

Good. How are you doing Victor -- Vincent, sorry?

What proportion of your M&A deals involve private companies?

Wow. I don't know the answer to that. I just don't have the answer to that.

Okay. Just to clarify one of the points you made earlier, so on restructuring mandates you said it was up 50%. I assume that's new engagements in 2015 versus 2014?

Yes. The assignments were -- yes, new assignment that we are working on. Active assignments that are going on today. I don't know when -- we might have gotten hired on December of 2015 but January of 2016 but assignments that are in the house right now.

Okay. Lastly, on non-comp, should we be thinking around $25 million, $26 million a quarter as a run rate?

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

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've never divided it up in that matter. I was going to give you an estimate and I realized I just don't have an estimate. I'll get you one.

Great, thanks a lot.

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

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 have been having over the last quarter. Thank you. Look forward to our next call.

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