Moelis & Co (MC) 2018 Q3 法說會逐字稿

Good day, everyone, and welcome to the Moelis & Company Third Quarter 2018 Earnings Conference Call. (Operator Instructions) And please note that today's event is being recorded.

I would now like to turn the conference over to Michele Miyakawa. Please go ahead.

Great. Thank you, and thank you, everyone, for joining us for our third quarter 2018 financial results conference call.

On the phone today are Navid Mahmoodzadegan, Co-Founder and Co-President; 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, including regarding future performance, 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. The firm undertakes no obligation to update any forward-looking statements.

Our comments today include references to certain adjusted 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 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 will now turn the call over to Joe.

Thanks, Michele, and good afternoon, everyone.

On today's call, I'll go through our financial results, and then Navid will provide additional commentary on our results and the business.

I'm pleased to report a record third quarter in which we achieved $208 million of revenues, representing a 22% increase over the prior year period. Our performance compares favorably to the overall M&A market in which the number of global M&A completions greater than $100 million was down 16% from a prior year quarter. Our revenues' strength was driven primarily by continued growth in M&A, and our restructuring business continues to benefit from strong positioning and market share with both sequential and year-over-year growth.

For the first 9 months of 2018, our revenues are $648 million, up 26% over the prior year period.

Moving to expenses. Adjusted compensation expense continues to be accrued at 57.5% consistent with prior periods. Our non-comp ratio was 16.4% in the third quarter and 16.7% year-to-date. For the third quarter, we reported $34.1 million of non-comp expenses. The year-over-year dollar increase was largely attributable to headcount increases and to the new accounting, under which client reimbursements no longer provide an accounting offset to the related non-comp expense categories.

Our corporate effective tax rate was 24.1% for the third quarter and 13.2% for the first 9 months. The timing of our vesting events are concentrated in the first half of the year, so this quarter's rate is a better approximation of the 25% underlying run rate corporate tax rate.

As a reminder, our adjusted net income presentation reflects all of the firm's income tax that are calculated effective corporate tax rate.

Finally, our board declared a quarterly dividend of $0.47 per share to be paid on November 14 to stockholders of record as of November 1.

We ended the quarter with a strong financial position with no debt and $232 million of cash and liquid investments.

And I will now turn the call over to Navid.

Thank you, Joe, and good afternoon, everyone.

Q3 was another outstanding quarter for our firm, continuing our strong momentum from the first half of the year. Year-to-date, our revenues are up 26% over the same period last year, all achieved organically without any acquisitions.

Our exceptional people, integrated culture and collaborative network continue to drive new business wins across sectors and across regions. Our third quarter was strong by any measure with all key indicators pointing up. We advised a greater number of clients overall, a greater number of clients who paid fees over $1 million, and completed a larger number of transactions compared with the prior year period. In addition, we earned higher average fees and completed transactions and saw a meaningful increase in the size and complexity of transactions that we advised on.

With all products contributing, including restructuring, which continues to be a steady contributor, we achieved record third quarter revenues.

Our strong growth, client momentum and collaborative culture are why Moelis continues to be a very attractive destination for top talent. Since our last earnings call, we announced that Matt Chlystek will be joining the firm next month as the Managing Director to provide financial and strategic advice to food and agri-business clients. We are also very excited to welcome Jane Sadowsky as the Senior Advisor focused on diversity and inclusion. We are very committed to recruiting, developing and retaining more women and other underrepresented groups. We've had the privilege of working with Jane previously and know that she will add tremendous value to accelerating and improving our diversity initiatives.

Before we turn to questions, let me make a few comments on what we're seeing in the overall deal environment. Overall, the key drivers of deal activity, which we have discussed with you all previously, remained very much intact in our view. These include: one, technological disruption, which requires companies of all sizes to assess their strategic positioning and asset mix in a rapidly changing competitive landscape; two, shareholder activism where M&A is often a key element for real or potential activist campaigns; three, record amounts of capital that have been raised and are being actively deployed by private equity firms, sovereign wealth funds and other institutions; and four, positive economic growth and equity market performance, especially in the United States, both of which have historically been positively correlated to overall deal activity.

I do think it's fair to point out, though, that there are some counter-balancing factors that are impacting the pace of dealmaking in the near term. Risk around global trade, certain geopolitical events and regulatory uncertainties are impacting some deals on the margin, especially with respect to the larger cross-border transactions. But as I said before, we don't see these risks threatening the fundamental strength of the overall M&A market at this point in time.

Turning back to Moelis, we have never felt better about our business, the quality of our people, our culture and our competitive positioning. Activity levels remain strong and our dialogue with clients remains robust.

With that, I welcome any questions you might have.

(Operator Instructions) And our first questioner today will be Ken Worthington with JPMorgan.

So maybe first, we're kind of going into this season where I'd expected you to be having more meaningful conversations with senior people who might be considering moving to Moelis. So maybe how is the pipeline of candidates of experienced hires you're talking to looking today versus maybe this time last year? And as we approach the season to promote, how does your latest class look there?

Thanks for the questions, Ken. Look, recruiting, for us, lateral recruiting is really a year-round endeavor. Look, we're constantly meeting people. We're constantly keeping dialogues and relationships up. And obviously, we tend to do most of our hiring when we actually bring people on board laterally kind of from the spring to late summer, typically. That's the overall progression. But generally, the types of dialogues we're having, the types of people that we're getting to know are really terrific. With respect to the internal promotes as, we've always talked about, internal promotes is a really key element of our business plan. It's been a really key element of our historical success, and it's fundamental to the future of the firm. We're in the process of going through our annual promotion process, so it's too early to say what the final numbers will be. But I suspect that they will be in the same ballpark in terms of number of internal promotes as we've been seeing over the last few years.

Okay, okay. Fair enough. Maybe second, you have a number of strategic alliances. To what extent are you seeing deal flow or activity with the Japanese and Mexican partners? And have these alliances -- to what extent have they been impactful over, say, the last either 9 or 12 months?

Sure. Great question, Ken. Thanks. So we have 2 important alliances, 1 in Japan and 1 in Mexico. The Japanese alliance is longer standing, and the Mexican alliance -- strategic alliance, is more recent. Look, I think they're both positive contributors to our firm. Sitting here today, we maintain that those relationships and those alliances are, by far, the best way for us at this point in time to be in those marketplaces. We do have good transactional activity kind of -- and dialogues, kind of taking place with respect to both of those alliances. It's hard to kind of put numbers on them. It's hard to be very predictive in terms of how impactful they are in any one quarter or any one set of quarters. But I will tell you, we are in business with great people in both of those markets, and we do believe that those are very value-added to our company.

And our next questioner today will be Michael Needham with Bank of America Merrill Lynch.

My first question is kind of just the M&A environment, I think Navid you touched on this a bit. A lot of the time when equity market volatility spikes, announcements kind of slow down for a period of time. Is that having an impact? I know it's fairly recent, but is that having an impact on CEO and board level, how confident they are and the level of transaction discussions?

Mike, look, not yet. As you point out, it has been a more recent phenomenon here, the volatility that we've seen over the last few weeks. So I think it's just too early to kind of make any generalizations about the impact of the volatility on dealmaking. Look, you're 100% right. If we have a prolonged period of volatility, that will have some impact. When you're having relative value conversations or companies are using their equities, if there's just a lot of movement kind of in those values, it does kind of impact how people are thinking about deals, and then volatility generally impacts CEO and board-level confidence, which has its own set of impacts on dealmaking. But I think it's still a more recent phenomenon, a, but b, the more important point is the macro drivers that I've mentioned before are still very much intact. The technological disruption that's kind of ripping through every industry isn't going to stop. The need for scale, the need for companies to be as well positioned as they can possibly be to deal with this disruption or to take advantage of the disruption isn't going away. And so near-term volatility could have some modest impact, but we still see those fundamental drivers still very much kind of carrying the M&A market for a period of time.

Okay. Thanks for that. And last quarter, you called out some deal -- deals that got pulled forward. Was there anything meaningful this quarter?

Joe, you want to take that one?

Sure. So yes, last quarter, we highlighted the matter really to draw attention to it so you could update your model and your thinking. We really don't plan to discuss revenues for any 2-day period. I think -- I'll disclose what we did last -- this quarter just to keep it in context, but going forward, I would just -- it's not a question that I plan on answering. So basically, it was about $16 million this quarter.

And our next questioner today will be Devin Ryan with JMP Securities.

Maybe just first one here on the restructuring business and whether there's been any change in tone there just with the pickup in or the uplift in rates. And I know it hasn't been dramatic, but not sure if that's driving any activity. And then whether just beyond that if you're seeing any pockets of stress out there that seem new.

Good question, Devin. Look, I think, as you point out, default rates are still low. It would be interesting to see what happens with default rates as interest rates tick up, but we haven't seen kind of a flurry of new restructuring activity recently in terms of really moving the numbers on the default rates. I do think what's significant, though, is our restructuring team continues to really knock it out of the park in terms of their rankings. I think whatever set of rankings you look at in terms of completed restructurings or announcements or U.S. or worldwide, we tend to be a #1 or #2 ranked firm in pretty much all of the statistics I have seen here recently. So from a market share perspective, they're doing a terrific job. I think it's a function of the strength of the team. And more broadly, this integrated model that we keep talking about over and over again, which has a major impact in terms of our ability to bring sector expertise and restructuring expertise on a global basis to clients everywhere, both on the company side and the creditor side. So I think the overall market is relatively stable on the restructuring side, but our team continues to take share, which I think is contributing to their really good results.

Great. Thanks for the color. And then maybe here just on the M&A environment and just to keep going on some of your comments. So if I hear you, it sounds like the environment remains pretty consistent or maybe consistently good. But a lot of the conversation in the market right now is around just cyclical peaks, whether that be in this business or just the business environment more broadly. But typically, at the peaks, we tend to see pretty frothy activity. People are pretty far out the curve on risk. And so I'm just curious if you've been through some cycles and whether you're seeing kind of those normal signs that we see at cyclical peaks, or anything else you can kind of shed light on there?

Yes. Look, Devin, it's always hard to kind of call cyclical peaks, right? You know that there will be a peak at some point and a cycle will happen. You just -- it's just notoriously hard to predict when that will be. And it's especially hard to predict it kind of once you're in the middle of -- while you're in the middle of all the activity, right? Look, just anecdotally, and again, I don't know how much this sheds light on your question. But look, you are starting to hear about private equity firms and prognosticators start to model in recessions in their base cases on deals, et cetera, et cetera, et cetera. So I think there's an acknowledgment that at some point, the economy will slow down. Hopefully, we won't have anywhere near the kind of pullback that we saw the last time around. And the overall kind of global economy can certainly handle a normal recession or a normal pullback. I do think one of the things you're likely to see, though -- and again, I'm not predicting that dealmaking won't be impacted by it, it certainly will because dealmaking is impacted by where the stock market is and what the overall economy looks like. But these trends that I keep talking about aren't going away. The pools of money that are sitting at the PE shops are going to get spent. I think activism is here to stay on a global basis. And the technological disruption I keep talking about, that everybody's talking about is not -- is going to accelerate, if anything. So again, you could have some impact on dealmaking here and there on the margin, but I do think some of these fundamental drivers are going to persist even if we start to see the economy look a little different than what we've seen over the last 24, 36 months.

Got it. Very helpful. I know that's a tough one to answer, but I appreciate the perspective. And then just last one here, just on -- maybe for Joe, just on share repurchases. I know kind of how you guys have been thinking about it. But did we get to, maybe, a point where the share price is attractive enough where you would want to get more aggressive there, or just even to offset some of the dilution that we've been seeing at the expense of a smaller float?

Yes. I think it's something that we're constantly having conversations about each quarter with our board. I'm not going -- I think at this point, what we've been doing is likely to continue to persist, but I wouldn't rule out the possibility of a share buyback at some point.

Devin, just to add some color on that. I mean, look, I think for -- we've been saying for many years now that, since we've been public, that doing share repurchases when you have no float out there didn't make a lot of sense, that liquidity and maintaining liquidity in the stock was important. Obviously, there's more liquidity today in the stock that there has been certainly the first few years we were public. But one of the things we've noticed is our shareholders really seem to like the fact that we've been very disciplined about returning excess cash to shareholders very regularly through these dividends. People tend to like it. And so I do think our mindset is still, generally, to continue to do that. As Joe said, we're always evaluating this, and we'll continue to evaluate that and have discussions about whether amping up share repurchases make sense. But we've just been hearing pretty clearly from most of our shareholders that they tend to like the consistency and the regularity of getting cash back.

And the next questioner today will be Brennan Hawken with UBS.

Navid, in your comments about the M&A market earlier, you spoke to PE firms starting to include recessions in their forecasts for some of them. Can you speak a little bit to trends that you're seeing amongst financial sponsors recently? I know how this is a big sort of practice and focus for you all, so interested in any adjustments and trends that you see emerging there.

Sure. Good question, Brennan. Thanks for that. Look, PE is certainly a big part of what we do. I forget the exact numbers, but PE tends to be either on one side or the other side of roughly half of our overall business, at least our M&A business. And so we are very much in tune with what's happening in that community. Look, PE market, PE activity is really active, continues to be active. A lot of that is the record amounts of capital that's been raised. PE has become an even more important part of the dealmaking environment. It's just not the amount of capital -- it's not just that the amount of capital, it's also the different types of capital. These large PE firms are now sitting with not just one controlled buyout fund, but many of them are sitting with many different pools and layers of money to facilitate transactions from core funds to mezz funds to credit funds to opportunity funds. And so that facilitation that private equity is so good at in lubricating transactions is now more present in the M&A market than it's ever been. And again, I don't see that changing because, as we all know, when private equity firms look to raise money and they're successful in investing -- raising money, they tend to invest it. So that money will get invested very consummate of that and will help to continue to be a driver of M&A activity. Look, on the margin, are some of the firms, in particular, auctions, sensing that there could be a recession in the next 2 or 3 years and being slightly less aggressive on particular transactions? Yes. There could be some of that, but we're not seeing that impact dealmaking activities. We're not seeing it ultimately impact the ability of sellers to get really good prices for assets. And we're in one of those markets right now where there tends to be both strategic and financial bids for many, many different asset types because both strategic and financial buyers have a desire to conduct M&A. So we're not seeing it impact the deal levels right now. You might ask about rates. Sometimes people ask about rates. While rates are ticking up, the leverage alone in higher markets continue to be very liquid, and so we haven't yet seen a tick up in rates have a real impact to dealmaking at all at this point. So we're obviously paying close mind to rates, but so far, not really impacting overall levels of activity as far as we can see.

That's great. Navid, thank you for that thorough color there. You had also spoken a little bit on hiring earlier, but just curious about how we should think about it and how you are thinking about it as you begin to plan for next year. Obviously, there are risks in the marketplace. And curious, we haven't seen Moelis go through a full period like this where there might be some potential need for caution and concern. Obviously, it wouldn't impact if you really -- if there was a candidate that you really wanted to hire. But generally, when you think about next year and you're planning, do factors like where we are come in play? Or would you all just continue to move forward as ordinary course and not really adjust your plans as far as the number of folks that you'd be looking to kind of hire next year?

So Brennan, look, our approach to hiring laterally is really straightforward, right? We still, despite the fact that we have 125 or so managing directors globally, still have lots of white space within pretty much all of our sector groups. When you start to dig down into the sub-sectors and sub-spaces, there's still many, many areas where we could definitely take on world-class talent to reach more clients more consistently. And so hiring and internal development, both, are critical for us to continue to build out our footprint and have the very, very best bankers in the world covering as many clients as we can. So we're going to continue to do that. And for us, it's all about finding the right person, finding the right person who is really, really good at covering those spaces; finding the right person who fits with our culture, critical, critical, and doing that in a way that works within our economic and model philosophy, which we've talked about incessantly. So if we could do that -- and sometimes, ironically, as you know from the last crisis, it's actually easier to do that when -- if there should be a market slowdown at some point, sometimes it's actually easier to find great talent on those -- in those moments. And we won't hesitate to continue to grow the firm, continue to have the pedal to the metal in terms of finding the very best people to continue to build up the global footprint. And again, the criteria will remain the same in a good market or a not good market. And we'll be doing that, as I said, 365 days a year through all market cycles as we continue to build the firm.

Yes. Yes -- no, totally appreciate that, Navid. And you touched on something that's really interesting in there, where you talked about how sometimes in a downturn, it might be even a better, more opportune time. And that was kind of what I was trying to get at. So let me rephrase. Would you guys think about maybe holding back as you plan out so that if the market would get more difficult, then you can get more aggressive and potentially be able to pull in great talent when others might be on their heels, competitors might be on their heels, right?

Yes. It's a good question, Brennan. Look, it's hard. When the right person shows up, right, or the internal candidate is up for promotion and you're trying to plot out their career, it's hard to pull back on that person. If they satisfy all the criteria I talked about and we can do it in a way that makes sense for us within our model, it's hard to say, look, we're going to hold off on person X or person Y and wait for a downturn that may not come for a while, right? So I don't think we're doing that in any kind of conscious way. I would say -- I would normally say, "Hey, well, maybe we'll be more disciplined, but we're generally pretty disciplined." So I think discipline is generally part of the equation when we're thinking about hiring. So I don't think we think about it that way. If the right person's here and we think they'd be a great fit and we can bring them on board and plug them into the system or the platform and they could be off to the races, that's a great outcome for us. And if the person is not here and a different market environment will make those people available, we'll be there, and we'll continue to kind of put people through the process that we've talked about in terms of evaluating whether they could be successful here. And look, now that we've been in the business now for 11 years, I think what we've -- we have a pretty good sense now better than we'd ever had of the types of people, the types of backgrounds. We don't hire people now from all different types of firms. We've hired people from big firms, we've hired people from the top of the bulge, we've hired people from boutiques, we've hired people from international firms, and we've done talent development. And the amount of data and information and just generally, the muscles that we've developed here internally to evaluate people are better than they've ever been. And so we feel really good about where we are in terms of recruiting and continue to feel good about, as I said, the dialogues we're having and our ability to continue to attract people in great markets and the not-so-great markets.

The next questioner today will be Betsy Graseck with Morgan Stanley.

Couple of questions. One, we talked a little bit earlier on the call about the appetite for buybacks, but I guess as I'm noticing the cash and short-term investments line creep up again I'm wondering how you weigh that against special DVs as I know you've done those several times in the past.

Yes, Betsy, look, and Joe can chime in here, too, but let me start. The record kind of speaks for itself, right, in terms of what we've been doing in terms of regular dividends, special dividends over the last few years since we've been public. The philosophy has not changed at all. Excess capital gets returned to shareholders pretty consistently, very consistently. You might ask about M&A. We haven't done any meaningful M&A. We've been able to sustain really high revenue growth without M&A kind of doing what we've been doing. And while we continue to evaluate everything interesting that comes in the door on the M&A side, we haven't found anything that's -- that kind of meets the criteria that's better than kind of what we've been doing in terms of building the firm. And on share buybacks -- look, as I said, the liquidity has been a big part of the hangup historically. While it's less of an issue today, again, the feedback we keep getting back from people is they like the consistency of returning the money. And we're all shareholders, too, major shareholders, and we find that as shareholders, it's not a bad thing to have cash returned to you on a pretty consistent basis. So we're always -- we always have this discussion. We'll continue to have this discussion internally and with our board, but right now, I think we're pretty much kind of sticking to what we've been doing here over the last number of quarters.

And I would just add one thing, which is it's easy to -- so we have a quite a bit of cash, but you also have to understand that we have been earmarking amounts for bonuses as well as taxes, and that ultimately accumulates through the year and then is ultimately released at the beginning of the following year. So those balances are building, but they are largely earmarked. As you know, we distributed a special, I think, in early September. So we regularly look at this -- at excess cash.

Yes. Okay. And I just wanted to change dialogue a little bit to the restructuring side, and Navid, wanted to get your thoughts on a question that I get from investors regarding the restructuring potential of the bonds that are -- that have been getting issued recently. And specifically around things like trapdoors that are becoming -- I don't know if want to use the world prevalent, but we see them idiosyncratically in the deal structures. And wanted to understand how you think about the restructuring wave that we get next time it kind of shows up. Is it going to look and feel like prior cycles? Or is there something different as to how the terms and structures are being done in today's issuance environment that might lead us to a different type of outcome on the restructuring revenue side when that wave hits?

So Betsy, let me try to unpack some of that. Good question. Look, yes, I do think that it's possible that the restructuring -- the types of restructuring transactions that happen in the next cycle could look a little different. We've obviously had lots of kind of covenant-light issues, et cetera, et cetera. We've been in a really frothy environment here now for a bunch of years in terms of high-yield and leverage loan issuances. And so issuers have definitely taken advantage of really attractive terms, not just on pricing, but also on structure. And so that could potentially elongate or kind of create different kinds of restructurings for over-levered companies if we have a turn in the cycle going forward. But it's hard to answer the question completely because we don't know the -- when and if the cycle comes and why the cycle happens, what's the trigger, and how deep it looks like and across which spaces and geographies it hits first and ripples through. It's really hard to predict what that will mean for restructuring revenues globally and, therefore, for our business. Here's what I do know with a high degree of certainty. We have kept our senior team and non-senior team, quite frankly, the whole team pretty much together through this whole low level -- relatively low level of restructuring activity for the last couple of years. Through that period of time, our team continues to elevate their presence, elevate their market share and is at the top of the rankings. And I think somebody mentioned to me today that we were involved in the 5 biggest restructurings year-to-date this year, something like that. So we feel great about their overall level of productivity in this environment and feel really great about where that business can go if you do see a big pick up in terms of default rates and activities across a bunch of different spaces. And again, I keep coming back to this because I do think it's critical. It was one of the reasons why our team was successful when they -- right when they joined, and it continues to be successful and will be through the next cycle, this bringing together of the global platform, the bringing together of sector expertise, the bringing together of things like risk advisory and capital markets and all these different elements that give you an edge when you're sitting there with a company, talking to them about their balance sheet. It gives you an edge when you're sitting there pitching against other firms for creditor assignments on large bankruptcies. It's -- the team is critical. You have to have a team of experts, and they've become extremely well known in the space. And then when you layer on these other elements in an integrated firm and have the track record we do, it really is powerful. And I do know that no matter how big that wave looks like and what it looks like, there's a very, very strong chance we'll be as successful as anybody else when it happens.

Okay. No, thanks for that color. Just one follow-up there is, let's say the covenant lights end up having some challenges from a restructuring perspective, does that end up meaning that it's more complicated and, therefore, maybe a higher fee rate? Is there any correlation there that we can think about?

I'm not sure I would draw that, Betsy. I find -- and this is just sort of my experience, and if our restructuring guys might have a different view. But if the company's over levered, it's over levered, right? And there'll be a day of reckoning at some point when maturities come up and those kind of things happen. So you may not have a covenant issue which causes a problem immediately, but at some point along the way, you'll either won't be able to pay interest or you won't be able to pay back maturities. And sometimes, what covenant light means is just the process takes longer. Sometimes the process taking longer could mean more overall fees. Sometimes it might be more fees but a lot more time. So it's hard to know whether that's good or bad for restructuring advisers. But what I know is when companies are over levered, if they're truly over levered, at some point -- generally, there's a day of reckoning at some point. And not always. Sometimes just cyclical businesses that can kind of get through a cycle and then kind of get back on their feet. But I would hesitate to sort of say lots of covenant light and, therefore, the restructuring wave will be much greater or not as great in terms of overall fee activity. I think it's just too hard. There's too many other factors that play into what that's going to look like to draw any kind of direct lines, if you know what I mean. I think it's very hard to predict that.

Got it. Yes -- no, I hear you. And then just lastly, why do you think we haven't seen any material wave in restructuring? I get this question constantly. Why hasn't the shoe fallen yet? There must be some good reasons for that.

Well, we have a very strong global economy. We have very strong financing environments. And when you have both of those things happening, when you have -- again, not all sectors of the economy are strong. We obviously saw a wave of activity in oil and gas a few years ago. We've seen some activity in retail. So there's definitely pockets of activity, and there are certainly specific companies that have legacy issues dating back to the financial crisis and the pre-financial crisis. But you haven't seen this widespread pick up in default rates and widespread restructuring activity because the economy has been really good and because there seems to be a form of financing somewhere for a lot of companies to kind of buy them some more time. And you tend to see that when rates have been relatively low, when there are lots of forms of alternative capital and lots of problem solvers in terms of funds and credit funds and folks who are prepared to lend money, hedge funds to give the company some more time. But like I said, when the economic cycle turns, some of those elements will no longer be there and you'll see an inevitable pick up in default rates.

And the next questioner today will be Jim Mitchell with Buckingham Research.

Just a quick question. You -- we did see a slowdown in industry activity levels globally in the third quarter. I think that's what's got investors nervous. I think you kind of mentioned that you never felt better about your business, and activity remains strong for you guys. So where are you seeing the momentum in the context of sort of the overall environment slowing? And what do you think is driving that? Is it just the network effect? Is it sort of maturation of new hires and new promotes? How do we think about, I guess, going forward if we have this kind of slower environment because I think that's what a lot of people are worried about?

Sure. Thanks for the question, Jim. Look, I think -- yes, I think it's a lot of the things that we've been talking about on our calls and in our dialogues with you all. So we're still a maturing firm, we're still a growing firm. There's been a major investment over many years now in the people and in the brand and in the culture and in the systems and in the global platform that I do think is paying off right now. And so even when you see good growth in the M&A market, we've tended to have even better growth than that. And when you see not-so-good growth for quarter 2, we tend to still grow. Can't predict that will happen every single quarter. We've also said don't look into any 1 or 2 quarters too closely because there's always luck and other things that are involved in deal timing and deal closings. But I think it's fair to say that we've been taking share and have been growing through a bunch of different types of market environments. We plan on that continuing. We do think we still have a lot of runway left in terms of growing the firm and growing the people, the base of high-quality talent that we have. And as you pointed out, there's just still lots of people who are early in their development as bankers and also people who are relatively new to the platform. And as that maturation happens, as the brand continues to mature, not just in the United States, but we're still relatively new in Europe and other parts of the world, if those things continue to -- as our name continues to get more well known, as we continue to work on more transactions and more foreign transactions, you tend to have a -- it tends to have a positive compounding effect on your ability to do other transactions. And so I do think the culture is continuing to bind everybody together. We're hiring good people, and all of those things are leading to, I think, the kind of performance you've been seeing.

Right. And then maybe among products, and one thing we haven't really talked about today is sort of some of the non-M&A spaces like capital markets advisory has been, I think, a growth engine for you guys. How has that been developing? Do you still feel very good about the opportunity set in that space? Just would be helpful.

Sure. So look, we've made a major investment in private equity fundraising. That ramp has continued nicely and is progressing. We've been -- we hired a good team and have been building and adding on to that team on a global basis. And it's been a good fundraising environment. And as that group continues to get mandates and successfully execute mandates, they get more mandates, and that business is growing nicely and ramping the way we hoped it would ramp. On capital markets, both on equity and debt, is an important business for us to be in, not just for what it does in terms of incremental transactions, but capital markets and that knowledge base and that expertise really helps and contributes enormously to our M&A business and to our restructuring business and again, bringing that kind of full suite of capabilities to clients so that they feel like they're getting the best of the firm. And so that continues to be an important part of the business for us. Risk advisory continues to be a really good business for us, working with financial institutions on complex transactions. That's what the risk advisory business is, is we have a unique team there and have a unique capability that continues to be a very positive contributor to the company. So all of those things are, as you point out, important to our continued growth.

And this will conclude our question-and-answer session. I would now like to turn the conference back over to Navid for any closing remarks.

Great. Thank you all for your time this afternoon. Appreciate you joining, and look forward to speaking and meeting with you all in the not-too-distant future. Thanks so much.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.