Moelis & Co (MC) 2016 Q1 法說會逐字稿

Good afternoon and welcome to the Moelis & Company first quarter 2016 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.

Great. Thank you and good afternoon. Thanks for joining us today for Moelis & Company's first quarter 2016 financial results conference call. With me today are Ken Moelis, Chairman and CEO and Joe Simon, Chief Financial Officer.

Before we begin I would like to note that the remarks made on this call may contain certain forward-looking statements which are subject to various risks and uncertainties including those identified from time to time in the risk factors sections 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 Investor Relations website at investors.Moelis.com.

I will now turn the call over to Ken.

Thanks, Michele and good afternoon, everyone.

I'm pleased to report that we delivered our strongest first quarter revenues to date of $126 million, up 27% from the first quarter last year. On today's call, Joe will give additional color on our results and then I will provide my thoughts on the market and how our firm is positioned.

Thanks, Ken. I will review revenues, compensation and non-compensation expenses, the strength of our balance sheet and our continued commitment to return capital.

We reported a record first quarter of $126 million of revenues, up 27% from the prior year quarter. Our performance compares favorably to the overall M&A market in which the number of global M&A completions, greater than $100 million, declined 23% year-over-year. We're encouraged by our M&A revenue growth for the quarter which deserves a few observations.

Despite market volatility during January and February, our M&A completions were strong. Sector breadth continues to be a key attribute of our revenue production and our average fee earned per transaction increased.

We also participated in ongoing restructuring activity and while completions were down for the quarter, we're experiencing higher activity as the number of mandates increased, resulting in higher level of retainers. In fact, consistent with what Ken mentioned on our last earnings call, the number of restructuring mandates on which we worked was more than double the number in the prior year period.

Moving to compensation, our first quarter comp expense ratio was 58% which is in line with our target and compares with 54.2% in the first quarter of 2015. The increased compensation ratio is attributable to the additional tranche of equity awarded in early 2016 as well as the modified vesting terms associated with that equity. As a reminder we expense all new hires through the P&L.

Last month we bolstered our energy team in Houston with an additional MD hire who will join in July to advise midstream oil and gas companies and master limited partnerships. We also continue to focus on promoting from within and hiring to strengthen our sector expertise and global presence. In the first quarter we promoted three advisory professionals to Managing Director, one in Brazil, one in India and one in the U.S. covering aerospace and defense.

Our adjusted pro-form non-comp expense ratio decreased from 22.7% to 18% for the first quarter of 2016 driven by higher revenues. As discussed last quarter we expect full year 2015 non-comp expenses to be a reasonable full year proxy for 2016, absent the impact of any substantial hiring.

There's modest seasonality to our incurrence of non-comp expenses with quarter one typically at the lower end of quarterly average while quarter four is typically at the higher end. Income from equity method investments was $2.1 million for the first quarter of 2016 which compares with $2.9 million for the prior year period.

As previously mentioned, the majority of income in this line item results from an equity interest obtained as part of an advisory assignment. We do not anticipate a meaningful contribution from this interest going forward. Our adjusted pro forma presentation assumes that all partnership units have been converted to shares so that all the firm's income is presented as if taxed as a corporation at a corporate effective tax rate of 39.5%, which compares with the prior year's tax rate of 40%. The resulting adjusted net income for the first quarter of 2016 was $0.35 per share as compared with $0.28 in the prior year period.

Lastly, we ended the quarter with a strong financial position with $139 million of cash and short-term investments and no debt. On April 21 our board declared a quarterly dividend of $0.30 per share consistent with previous quarters to be paid on June third to stockholders of record as of May 20.

I'll now turn it back to Ken.

Thanks, Joe. I'll spend a few minutes on the current market environment and our outlook before opening it up for questions.

We believe companies will continue to see growth in cost savings through M&A, given the slower GDP growth and deflationary environment. Our M&A dialog remains healthy and the desire for interesting ideas and creative solutions for companies is the highest I have witnessed in a while. In fact, I have never been more confident in the strength of our strategy, the quality of our talent and the resonance of our brand and vision as a trusted advisor in corporate boardrooms.

However, it's important to note that during the first quarter, we really did witness what amounted to an air pocket in M&A activity across Wall Street. M&A announcements were down significantly given market volatility and the sharp widening of credit spreads in January and February as well as the increased level of government and political risk to transactions, as both antitrust and tax authorities became more aggressive in their stance on deals.

Since the first quarter the market has recovered and credit markets are probably past halfway back to their mid-2015 levels but the political and regulatory overhang has really not dissipated. Given the slow pace of announced deals in the first quarter and the time to completion for both restructuring and M&A closings, we may witness a scenario similar to last year where growth for the year will be back half weighted.

However we have significant momentum behind us and continue to see the global organic build of our business yield exceptional results. We continue to make important investments around the world that position us to grow market share and revenues. We are capitalizing on China's increased appetite for outbound M&A as they look for growth in the west.

In the past month alone, we have been involved in four deals in China. We advised XIO Group on its $1.1 billion acquisition of J.D. Power. We advised Asset Mark on its $780 million sale to (indiscernible) Securities. And just last week we advised a Chinese investor consortium on its $3.6 billion acquisition of Lexmark, which was the third largest U.S. public takeover ever done by a Chinese investor.

We entered China five years ago and are well positioned to capture share in the region. But more importantly this follows similar patterns of organic builds in other regions like the Middle East where, I think, we have the best investment banking franchise in the region and now Brazil where we're seeing increased activity having recently advised on a nice buy side in the region and we are also currently advising the bond holders of Oi, the largest telecom operator in Brazil with over $15 billion in debt.

Additionally with over 100 Managing Directors around the world, across numerous sectors and armed with both M&A restructuring expertise, we're well positioned to grow as a result of our revenue diversity. We were a firm founded in the financial crisis and intentionally built a resilient model that's well positioned to outperform even in volatile markets.

Again we are differentiated in our intense focus on return on invested capital, which allows us to both invest in growing our firm while returning a significant amount of capital to our shareholders. Since our IPO approximately two years ago, including today's dividend announcement, we have returned $3.80 a share or 15% of our IPO price back to our shareholders.

And at the same time we have invested in our business by organically increasing our MD head count from 86 to 103 and growing our revenues by 24%. These are the metrics that we think are important and that we can control over time, and we believe we can continue to replicate them going forward.

I now welcome any questions.

Well now begin the question and answer session. (Operator Instructions). And our first question will come from Ken Worthington of JPMorgan.

Hi. Good afternoon. First, really interested the restructuring business, it seems pretty consensus at this point that the restructuring business is getting and will continue to get more active and your comments continue to suggest that strengthening is taking place.

So as CEO and maybe based on sort of the idiosyncrasies of Moelis where your bankers have a lot of flexibility to pursue, kind of, advisory and restructuring, how do you further take advantage of opportunities or the improving outlook to capitalize on restructuring? You know, should we start to think that the either number of restructuring focused bankers will increase?

Do you kind of continue to focus on sectors or hiring within sectors or promoting within sectors where restructuring seems more likely? Or do you kind of do nothing, the business runs itself, the bankers are smart, they automatically adapt and you get to focus on other strategic initiatives outside of this?

That's a good wish, that last part of that question. Look, Ken, a couple of things. Our model is interesting for two reasons, one, we have a subjective bonus pool, one P&L and we actually reward people for doing the things that our clients need. And therefore we can actually motivate people to participate in sectors which are growing like restructuring.

Secondly, we have a very large restructuring team. During the M&A boom in the downturn of restructuring, I think we were asked that many times and we used to say, yes, we're maintaining the whole team. We don't know when it will hit but we know we can't move quick enough to hire the team. So we're going to keep them. It's a good investment. They were doing fine, by the way but we know that when the restructuring cycle hits, it's fast and it goes quickly. You can't replace the talent. So we have a very deep restructuring team. I think we have the best team on Wall Street. We have bankers who are in place.

Then what we have done, and you have been watching it a little bit through our announcements, we do things like yes, we have added banking expertise in places like energy. And just to give you a flavor, I believe we're now -- and I'll just -- I think I can say this. I'm going to say it so I hope we can say it. We have 19 restructurings in the energy field. That's from a position of a couple of years ago where I said, you know, we were trying to develop a good -- a better banking presence.

So that's -- yes, and energy, I think, we did hire bankers into position to take advantage of our unique expertise in restructuring. I don't think you'll see us hire significantly into the restructuring, that's not to say no one but we have a really full team and an excellent team on the ground. Then we're just going to direct our bankers in the industries where it's relevant to be aware of what's going on.

Lastly let me say one other thing. I think M&A and the rest of the business, you know, there's a lot of talk about restructuring. But I actually think as of today, the M&A marketplace is as active and as -- we're as busy as we have been in the M&A environment as well. So it's not like we can -- we have a lot of spare capacity to move people. Let's just say this, I think we're busy in both sectors.

Great. Great position to be in. Thank you very much.

And our next question will come from Ashley Serrao of Credit Suisse.

Good afternoon, Ken. As you continue to grow the firm, how are you thinking about how hiring this year? And can you also remind us where the MD count currently stands post all the promotions and hires?

I believe our MD count as of today is 103 Managing Directors, by the way, just to bring you up to speed to today. Look, I think there's something about hiring that people miss. We actually did our biggest hiring during the crisis.

So I think there's two aspects. Who are you hiring and how are you hiring them? What are the inherent risks you're undertaking? How is that process going? How good is the talent and what is the commitments you have to make? So I think this year we'll be close to an average -- close to our average year over the last two or three years, I think it will be high single digit MDs.

But I think what you will see is us being very careful on how we hire people. I think there's a lot of turmoil going on in the large banks. I think there's a lot of opportunity for boutiques. And I think the how is one of the interesting things that people don't -- as much as the number.

Okay. And then on the international front, can you just talk about the halo or branding effect (inaudible) of transactions in a region like China brings, and what are the, sort of, incremental opportunities that come from doing a bunch of deals in China?

Look, brand is a -- brand helps. And when you have momentum in the region, I literally prior to getting on this phone call I happened to see my partner Eric Cantor walk with a suitcase fresh from a trip to China, right off the airplane, where we held a conference on [Sithious] and how to approach it and had a significant turn out for thing like that. And in a young market like China, I think you can brand yourself and being in four deals and being there with some leading expertise in a space that, by the way, is very concerning to them. We have four Managing Directors in the region, we've been there for a while.

Again, you might not have noticed that because we had to run those expenses through the income statement as we organically build it for four years. And now we're taking advantage of it. This is the benefit of running a clean institution which you hire, expense and train your own talent, and I think that it does build on itself. And that's what we're seeing.

Okay. Thank you for taking my questions.

And the next question will come from Devin Ryan of JMP Securities.

Hi, thanks. Good afternoon. Maybe a follow-up here on restructuring. Appreciate the additional context you guys provided. Clearly good to hear how busy you are and good for revenues. With financial conditions easing a bit over the past several months, are you still seeing an acceleration in activity there or do we really (inaudible) spill into other sectors to see that list of mandates continue to actually grow from here, versus just execute on what you have and kind of stay constant?

I think it's going to continue to grow. Remember, the levels at which you're talking about materials, prices or energy prices, if we didn't take a short trip down into the low 30s, you would think this was a very distressed level of oil, let's say, oil price, relative to the debt levels and the companies that are out there.

So yes, there's been a recovery. But it's still at a price that's going to cause many companies to have to focus on restructuring their balance sheet. And the same in the commodities part of the cycle. And we're starting to see it in other parts of the consumer areas like retail. So I believe it will continue to accelerate.

Okay. That's helpful. With respect to the financial sponsor community -- it seemed they were maybe starting to get a little more excited about the market with the valuation pullback earlier in the quarter. With the improvement, you know, how are your clients feeling about kind of participating in the M&A cycle?

I mean, has the dynamic changed between whether it's sponsors looking at a deal or strategics. And just along those lines, the financing markets, a story that continued in 1Q, just a tight market but just didn't seem to impact your announcements too much. I'm just curious on an update of what you guys are seeing in financing as well.

Yes, the financing market -- I think the stock market has rebounded 95%, 99% on the way back to where it was. And the credit markets are a little slower. The spreads are still wide. There's still caution in the market. Deals are still being more diligent on covenants and structures. So it's a little different in the middle market. It's a little slower on the comeback.

I think one of the things we're seeing when I said I'm as confident as I've ever been is I think the mix of our business -- and we are always strong on financial sponsors, but we have, I think -- I don't have a statistic to back this up but my sense of the business is that our dialog with strategics has never been stronger and we're finding interesting -- in volatile times like this, when I say we're a resilient organization, I think we have defined ourselves by helping companies solve problems.

And I know that sounds minor but I think there's a difference to just approaching companies on their M&A issues but really being around them when they have other things -- other issues. And our expertise throughout the system and the global nature of the firm. So I just think we're finding ourselves in more and more situations where strategics need help and I think they like having us as one firm being able to put three, four, five Managing Directors around them and help them solve complex problems. And that's why I feel so confident about where we're position the right now.

Got it. Okay, great. And then just last question here, the comp ratio essentially now at that 58% level, that you guys were targeting, I mean, how should we think about the inputs that would maybe drive movement from here, meaning what would drive upward pressure over time? What would drive downward pressure?

And to the extent that the backdrop actually improves as we get into a better part of the M&A cycle, is that 58% still the right level or is there maybe room for improvement? Just trying to think through, is that just the right balance between employees and shareholders even in a better M&A backdrop?

I'll let Joe take this.

Yes, I think that overall the 58% level is the appropriate level. Certainly for the short and probably intermediate time period. I think that is how we've looked at it and how we have come to the conclusion that that is a fair balance between employees and investors.

If we had a substantially improved market, I think we've always said there's probably a range of a point where we would look at. But something happened this year. Remember, we took our amortization to five-year equal from back end. So inside that 58% is actually an increased amortization schedule in the early years.

Yes, we talked about this last quarter. The impact is actually fairly significant to the amortization expense component. And it will be substantial both this year and next as we kind of adapt to that new schedule. So I think it would be unrealistic to think that we're going to be able to kind of come off of that 50% for at least a couple of years.

In other words, I think if we use the old amortization schedule --

We would have a lot more flexibility.

Yes, we would be at a lower number right now. There's some pressure from that that's not going to allow us to come below 58%.

Right, understood. I understand that dynamic. I was more curious. Just bigger picture. Appreciate it very much. Thanks for taking my questions.

And the next question comes from Brennan Hawken of UBS.

Yes. Good afternoon. Thanks for taking my question. So a quick follow upon that. So we had you guys laid out the change in the RSUs at last quarter's call and I think then you had indicated that it was a switch from the prior schedule where the vest -- or the pro rata vest in years three, four, and five -- so basically does that mean that as we think about the comp ratio in 2015 to 2016, then, we should think about another corresponding component of upward pressure similar for next year as the few years ago prior RSUs begin to amortize?

Yes, I think that's probably a good way of thinking about it. I think, again, what we talked about last quarter and it remains true is that year one, the year one contribution to that amortization is 46% of the grant value in year one versus last -- the old -- the former schedule which was 26%.

Obviously the 26% is kind of constant for the first three years based on that graded investing, 46% will go to probably 26% in the second year. But that schedule ultimately in the next -- in this year/next year is going to put significant -- is going to be substantial in terms of the equity amortization component.

But to be clear, we're committed to 58%. We're just -- if somebody asked, can we bring it down? Well, we're committed to 58% even with the additional pressure of additional amortization.

Right.

Okay. All right. Thanks for clarifying that. And then another follow-up here. On the hiring point, Ken, I think you had said a couple of times that you currently stand at 103 MDs. Does that include the hire that was made in Houston -- I don't think that that person has formally started so I would assume not but just wanted to clarify.

And you also made a comment about -- that the how is as important as the number, when you were talking about hiring. And, maybe, could you just expand on that? It's been a long day. I might be a bit thick but I just don't follow.

Well, first of all that hire in Houston is not in the 103. That person joins in June. So that will hit in this quarter. The how is people always ask, are you seeing a vast pipeline? I could see as large a pipeline as I want if I were to put a number on the table that would be uneconomic for us in terms of guarantees, method of payment.

Remember, when I say "how," it's how much commitment do you make to a person? How much do you underwrite the future? What's the number? How much uninvested leave behinds do you pick up?

When I mean the "how" I do think there's a lot of people talk about volume of people, etcetera, but what comes down to the free cash flow line, the reason we have been able to return $3.80 to you as of counting this dividend, and also grow the business -- remember, we have no debt. This is all self-generated capital that is growing the business 26% of revenue and returning that much capital, is because we're very focused on the commitments we're making, the capital invested. And that is capital.

When you -- we don't build plants but we do make commitments to people and those are risks and rewards that you have to balance going forward. So that's a long answer but it's -- it really is how much capital did you put up to obtain the upside and the -- of the banker that you're about to get?

Yes, no. Appreciate the extensive answer for sure. And then last one from me. Ken, I think you had indicated that you expect, given some of the dynamics in financing markets, which you spoke about at length last quarter as well, would be back-end weighted. In prior years you've talked about the potential for back end weighted, you were willing to give an indication about the fact that there would still be revenue growth.

Do you have enough visibility into your pipeline and what you guys are actively working on now to make a commitment as to whether or not you're going to see revenue growth in 2016 and how we should think about that?

I'm not going to give guidance. Last year in the first quarter, I think we were -- I have to say, we were newly public and we felt like we should probably give a little guidance because we had a quarter that we felt we wanted to let you know what we felt.

We don't want to give guidance. It's too tough. It's too volatile. But I will say this, again, I've never felt better about this firm's position in the world, the clients we're dealing with and the value we are delivering and the number and the quality of the conversations we are having with -- and really the acceptance of the model where you deliver the whole firm -- I think over time as people get used to dealing with boutiques, they're going to like that more and more.

I think they're going to realize that getting the ability to tap into three, four, five expert Managing Directors because of the one-firm profit model is really a place where you get a lot of return out of a company's investment in the relationship. So that's a long answer to no, I'm not going to give guidance and get trapped into that for the rest of my life in a business that you can only look silly so many times.

Fair enough. Thanks for the color.

And our next question comes from Daniel Paris of Goldman Sachs.

Hi, good afternoon. Ken, you mentioned that M&A dialog feels very healthy but curious what impact the market volatility has had on CO confidence and general risk appetite. I guess the question I'm getting at is does this feel like other periods of choppiness in the market that have quickly rebounded or is there a risk that takes corporates a while to kind of pull the trigger after this period that we've seen here?

Look, if you were my call on the fourth quarter, I was pretty -- I tried to give a warning that if that volatility stayed where it was, we would have a problem. It was short, it was sharp, and outside of credit spreads, still, by the way, the credit spreads are still different than they were. So that's having an impact. But I think corporates are back in looking at how they can improve their business.

It's a very low-growth environment out there. They still have to look at M&A as a way to either take out costs or increase growth. And maybe we'll have some pressure on some of the larger deals because of the aggressiveness of both the antitrust focus and the inversion focus. And I know there have been people who said oh, it's not going to have that big a deal. In my mind it's a little bit like that story about the dog that doesn't bark.

Just because the dog didn't bark doesn't mean something didn't happen, meaning that the deal that didn't happen is hard to point to. But I think there are deals that probably won't happen as a result of that. It's just that no one will know about them.

Yes. That was actually my follow-up question to your point around the antitrust environment. Is there anything particular you think is driving that? Or is this just the consequence of a couple of years of really strong mega-cap activity and now that's picking up? Or anything that you can point it to?

It felt like there was a change. There was a day there when treasury came out and hit inversions and I think it was the same day that DOJ came out on the big energy merger and said they were going to fight it. And those have -- whether you want to admit it or not, those types of moves by the government -- and there are governments around the world that are having similar moves in different regions. And I think it will make a board. a companies, a CEO, rightfully, think about approaching something like that in the midst of a highly populist election year.

Remember, I do think there's a lot of information that's out there in an election year that adds risk to transaction. So I think that all plays a role. And it's there, whether you-- again, whether you can see it or not, it's there.

Got it. That makes sense. Maybe just one more from me and kind of piggybacking on that. It sounds like you're constructive on both M&A and restructuring. Each have kind of their own risks and opportunities. But if you had to choose which of the two business lines are you more optimistic on in terms of revenue growth? Call it over the next year or two.

Well, let me say this, one of the things is I think that -- I always say I see about 2%, 3%, 4% of the deal environment. So when I say I'm optimistic, I'm very optimistic about where Moelis & Company's positioned. It's really actually hard. We all pretend to speak for the other 96% of the market that we don't see, or whatever we've given our market share. And I'm very bullish about where we're positioned on this.

If I had to say on revenue growth, I would pick restructuring because we came off a low base. If you were to ask me where the absolute dollars of growth would come from, I think I would say M&A.

Got it. Thanks very much for that.

And our next question comes from Betsy Graseck of Morgan Stanley.

Hi. Thanks. Two questions. One on inversions. Just a very big picture question is let's say to your point, anybody who is interested in inversions maybe takes a sidebar for a little bit. What percentage of the overall pipeline does that impact for you?

Well, as many -- you know we were involved in a substantial inversion deal. And look, let me say this, that's a very small event for Moelis & Company over the life of the firm. I believe it's actually a bigger event for U.S. business community and U.S. GDP as a whole. I actually think the act -- you know, I look at that and I say, the act of writing decrees ex post facto to change the law for political goals is a terrible thing.

The United States is the most attractive capital market in the world for precisely the reason that we have the most predictable judicial system and ways to undertake and expose your capital to risk. And it's amazing what we did in an ex post facto way on inversions so I'll say this, we don't have a big exposure other than we all have exposure to the quality of our capital markets. And that does generate transactions. I actually think it's a bigger picture than any single transaction that we happen to be involved in.

Okay. And then a second question on the average fees per transaction. I think you mentioned that you've got a bit of a higher average fee per transaction recently. Maybe you could give us some color on to the drivers of that. I mean, clearly would think about more lead left, higher in the group. But I'm also wondering about impact of fee structure, pricing, ratchets, things like that. Anything that you could speak to, to help us understand what's going on, would be helpful.

I'd say it's more just bigger sized transactions. Like I said, I think our brand and our vision is resonating more and more with strategics, which tend to be larger transactions. Interestingly I would have to say that -- again it's a gut feel. I think our ratchets were lower than usual.

The -- we're being very disciplined because we're busy. So we have actually put in place a very disciplined business review committee structure. So that managing our talent and our time has become -- to optimize it, we have become very disciplined about what we'll take on and what we'll charge for doing that.

I might have said that three -- a few calls ago but one of the things about the post cyclicality of the business is as the streak gets busy, you generally do have fees expand because the whole street starts to watch their time and effort and has to price up a little bit to get the attention of the better players.

Okay. Thanks for that.

The next question comes from Jim Mitchell of Buckingham Research.

Hi. Good afternoon. Just maybe want to circle back to Europe. I guess that's one area we haven't talked about, that that's the second largest M&A market historically. It's lagged quite a bit. The U.S. -- and I appreciate your improvements in developing markets but how do you think of Europe, what you're seeing there, particularly now that QE is in place, pushing down corporate bond spreads? Do you see some opportunity there for growth? And how are you positioned for that?

We're positioned well in Europe. I think we're close to about 20 Managing Directors plus or minus. But Europe continues to be very slow. Slower than the U.S. in M&A. If I'm optimistic about the back half in the -- and really the future two or three years of M&A, so far in Europe it has not shown up.

There's a lot of -- people come up with rationales and reasons. I don't exactly know why. But Europe is still to me not anywhere as strong as we would like it to be where people thought it might be. And I don't -- I can't tell you that I see Europe dramatically changing from the slower growth that it's on right now. Slower growth in M&A.

Even with slow GDP and cheap financing, it's just CO confidence isn't there?

You know, I wish I had a singular answer to it. Again, it's just not -- I think it has something to do with it really isn't one market. So there are borders to cross. There are regulatory environments. There are things, you know, like the (inaudible) question. I don't have a real answer as to what is holding it down. But there isn't the amount of if you want to call it animal spirits apparent in the European market that I think we have in the U.S.

Fair enough, maybe just as you think about future head count growth. Where do you see maybe your biggest area that you would like to build further? Is it just broad-based or are there particular sectors or regions you would like to add more?

It's somewhat broad-based. Look, I think we're still understaffed in energy for what the opportunity is and we're hitting (inaudible) told you with the amount of business we have down there, I think we could accelerate that even further if we had more talent. We're waiting for one Managing Director to show up in June, we talked about. And places like healthcare, general industrial, we could always add more, do better. So I would say it's broad with, again, a focus that energy is probably a place where if we had more people, we would be happier.

Okay. Great. Thanks a lot.

And the next question comes from Vincent Hung of Autonomous.

Hi, how is it going?

Hi, Vincent.

Ken, now that you have stepped back from some of the day-to-day management responsibilities, has this allowed you to spend as much time as you would like in front of clients?

Yes, you know, I think I have had -- maybe that's why I'm as confident, and I have had as good a six months as I've ever had. And I didn't know I stepped back. Vincent, have you been talking to my co-presidents behind my back? I have had -- I think we're getting a lot more -- and by the way, it's not just me. I think we took a great banker, Rick [Layman] and really said to him -- I mean, Rick Layman's one of the great M&A bankers on the street and put him out there and we're getting enormous benefits out of taking some of the inside management work and giving it to Navid and Jeff and taking some of our most accomplished bankers and putting them in front of clients. Maybe that's why I had as much fun in the last six months as I've ever had.

Okay. Just a question on some placement business. So in light of the incident with the MD of Parkhill, have you seen any noticeable changes in that business day-to-day?

In the competition over private placements, are you saying?

Yes, or more scrutiny from clients. Or changes in processes.

No, you know, we went through our processes. And without boring you, we have a very -- let's put it this way, our bankers cannot generate their own payables. It does go through Joe. We can do this in private. I just want to say we think it would be difficult for somebody to accomplish what was accomplished. That's not to say fraud. Fraud is always tough to capture. But we did go and run through our processes. Joe, do you have any --

Yes, so we don't know everything that happened in that event. But what we do know and how we've looked at our process, we've made some small tweaks but overall we feel very comfortable with our internal control environment. We think the risk of it happening is remote. And even if it did happen, we also have a good fidelity bond insurance policy.

Lastly, Vincent, something different is the only client money that ever comes to us is the fees they owe us. We do not transfer money through the firm. I think that was a secondary trade. So substantial amounts of money flowed through. We have no sales, trading or any funds -- so the only funding that should come to us is a fee.

Yes.

And that's the difference. So I think it would be -- we can't disintermediate money that was meant to go from person "A" to person "B."

Yes. And just a last question; Can you give us an update on the seasoning of MDs? And I'm looking for color around the hires that you have made in the last two years and how that would split out between the external hires and the promotes.

Let me see if I can put it -- so right now our -- we have about 10% of our MDs in their first year and about 15% in their first to second year. So about 20 -- about 25%, a little under 25% of our Managing Directors have been here two years or less, if that helps to generalize it. But we feel very good about them, by the way. I think -- we talked about this when we were going public. We felt like the -- having a public tradeable instrument would improve our ability to hire highly talented Managing Directors and we think it has.

Right. Thank you.

And 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 spending the time with us this afternoon. As you know, if you have any additional questions you call [Margot] or Michele. And we look forward to speaking with all of you soon. Thank you.

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