Moelis & Co (MC) 2021 Q4 法說會逐字稿

Good afternoon, and welcome to the Moelis & Company Earnings Conference Call for the Fourth Quarter of 2021. (Operator Instructions) Please note, this event is being recorded. To begin, I'll turn the call over to Mr. Chett Mandel, Head of Investor Relations. Please go ahead.

Thank you for joining us for Moelis & Company's Full Year and Fourth Quarter 2021 Financial Results Conference Call. On the phone 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. The firm undertakes no obligation to update any forward-looking statements. Our comments today include references to certain adjusted 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 Ken to discuss our results. Ken?

Thanks, Chett, and good afternoon. 2021 was an outstanding year for Moelis & Company, and I'm proud of how we executed this past year and the relentless efforts of our people. Our adjusted full year 2021 revenues exceeded $1.5 billion, and were up 65% from the prior year's record performance. We grew year-over-year across all of our products and all regions.

Our M&A activity on its own exceeded last year's full total revenues and we also produced record levels of capital markets and restructuring activity. We achieved a full year pretax margin of 34%, which is our highest in history, allowing us to return a significant amount of capital to shareholders. And we announced 16 Managing Director, Banker promotes, the largest class in the firm's history. In fact, nearly 50% of our current Managing Directors have been internally promoted and we expect this to continue to be a fundamental part of our growth strategy.

By being laser focused on internal talent development and differentiating our advisory offering through an integrated one firm approach, we've been able to organically grow our revenues by 20% and earnings per share by 25% on a 5-year compounded annual growth rate, while also paying out a total of $21.79 per share in dividends over that same period.

I'll now turn the call over to Joe, who will take you through our financial highlights, and then I'll come back and discuss our growth strategy some more. Joe?

Thanks, Ken. First, on revenues during the quarter. Our adjusted fourth quarter revenues of $417 million represented our third largest quarter of revenue since inception. The performance during the fourth quarter was driven by continued strength in M&A and capital markets.

There were non-GAAP adjustments that reduced revenues during the fourth quarter and full year related to mark-to-market of the firm's equity positions that were taken in lieu of cash to facilitate certain client transactions.

Regarding expenses, our adjusted comp expense ratio was 58.5% for the full year, down from 59.3% in the first 9 months and the prior year. For the full year, we reported a non-comp ratio of 8%, largely due to continued expense discipline, low levels of travel, partially offset by transaction-related fees associated with increased activity levels.

Regarding taxes, our normalized corporate tax rate for the year was approximately 27%, and our effective tax rate was approximately 23%, driven primarily by the benefit recognized related to the delivery of equity-based compensation at a price above the grant price. Similarly, we should have recognized a tax benefit in the first quarter of 2022 related to the annual vesting of RSUs later this month. For purposes of quantifying the excess tax benefit in quarter 1 for each dollar difference between the vesting and breakeven price of $35 a share, we expect the impact to EPS to be approximately 2/3 of $0.01.

Regarding capital allocation, we remain committed to returning 100% of our excess capital. With respect to the 2021 performance year, including the dividend declared today, we will have returned approximately $576 million through dividends and share repurchases. And lastly, we continue to maintain a fortress balance sheet with no funded debt.

And I'll now turn it back to Ken.

Thanks, Joe. To summarize, I think there's been a secular shift in M&A. Historically, M&A has been used by companies as a tactic to accelerate growth and to seek cost synergies, and that continues to be the case for many of our most important clients. But now in addition to that significant client base, global investment institutions have becoming the fastest growing part of the market as their primary business is M&A.

These businesses must transact and as a result of rapidly expanding and dominating the pace and velocity of M&A. Activity for them spans the globe and is across all sectors. Investment takes place at all stages of a portfolio company's life cycle and at all levels of their capital structure. The breadth of activity and growing size of funds requires these investment institutions to have an adviser who's plugged into their platform. We've been completely aligned with what they require since the founding of the firm 15 years ago. Our advisory offering has become an essential and recurring service to these institutions. As a result, our ability to execute has never been stronger and the market dynamics that contributed to our success in 2021 remain in place. We have a large pipeline today. We have a larger pipeline today than we have ever had at any time last year and a significant level of ongoing new business activity.

So with that, let's open it up for questions.

(Operator Instructions) The first question is from Ken Worthington of JPMorgan.

Ken, I think to my question last quarter, I asked about the number of bankers being sort of constant over multiple years. And of course, this quarter, you showed some big growth to 136. You mentioned in, I think, in the prepared remarks, it was the biggest class of internal promotes that you've supported thus far.

Maybe first, what's happening in terms of banker attrition? Is that sort of expected to increase to higher than typical levels as well? And if not, is this more consistent level of senior bankers that we've seen for the past couple of years? Is it time for that to sort of break out to new higher levels given the internal promotes and based on what you're seeing on the attrition side?

Okay. The answer is yes to that. I actually believe -- and I'll get into that. I feel very strongly that we have a great base group of talent now, and we're also in a wonderful position to continue to expand from there. Now your point, Ken, on attrition, do I think attrition is coming. There's a lot of things we get to see in life. Attrition as always, I get to hear about that at about 4:59 on an afternoon when somebody tells me that they're thinking about that. There's very little insight.

But let me say this, you can look at our numbers. The last year was spectacular. For us, for our bankers, we've run the company extremely efficiently, 8% non-comp. And look, the numbers are fairly transparent. I think we have an energized, motivated energetic group of people here. The addition to that, by the way, is that other people can see our platform. And if I were a banker, I would want to work for a place that lost $0.08 to non-comp between the dollar of revenue I took in and the decision of whether to -- whether to pay comp or put it into pretax. So after your non-comp, you have 2 choices. One, the shareholders got 34% and the bankers got comp.

So I believe that where we are -- look, we're a fairly young firm in the history of investment banking. But where we are now is our go-to-market has matched this incredible surge in M&A as a recurring, growing dynamic primary business, by the way, as well as our strategic. And I think there's a lot of people around the street who would look at it and say, that's where I want to have my career. And I think you'll see both our internal promotes continue to be -- well, last year was, I think, unique, but we have great people. I hope it's not unique. And then I think we can -- we're in a really good position to attract bankers who want to work as a team and get revenue delivered to the bottom line -- to both the top line and the bottom line.

Got it. Okay. And then maybe just to follow-up on the outlook for '22. Maybe things that are different as we look forward this year versus the last, call it, 2 years, maybe one, we're in a rising interest rate environment. And two, there seems to be a transition in leadership from growth towards value. You're diversified clearly, do either of these really change the outlook in the second half of the year, maybe even in '23 versus the record pipeline, strong environment that you're kind of seeing today and the sponsor-driven business that's really driving some of this great activity levels that we're seeing today.

Yes. Look, I think there are several crosscurrents going on that are interesting. So we do -- we have our largest backlog, I believe, pipeline ever. And it's interesting because we probably have one of the lowest backlogs in restructuring. And I think we signaled that at the end of the third quarter.

To us, restructuring is a very visible, predictable -- it's the most predictable of your businesses because you usually get hired and cases unfold pretty steady over 6, 9 months, something like that, and a year it could be. So -- but you know what you have. And so we saw that coming down. So very interesting that our M&A backlog has replaced essentially all of the, I call it, missing restructuring. And believe me, restructuring is very light right now, and the ability -- there aren't many targets.

To your point, rising interest rates might change that, but it has not yet. The other thing that we're seeing, and I think it's very fair to say this is all of what you just said, Ken, the change from value to growth, interest rates, even some geopolitics probably has caused an enormous amount of volatility. We started to see that really in maybe second or third week in December. You guys probably could track it better than I.

But it immediately started to elongate closures even in the back half of December, the fourth quarter. And we definitely are seeing that in the first quarter. The pipeline and the activity level is extremely high, but the pace of closures is accordion-ing out a little bit. It's just taking longer. So everything that you're working on is just a little harder, a little longer, a little tougher. By the way, we don't see any -- I shouldn't say anything. We don't see a lot dropping out of pipeline. We just see it. The thing you thought would close next week is going to close in 3 weeks or 4 weeks. And we're seeing that pretty -- we're seeing that in the first quarter.

So although our pipeline remains extremely high, and every banker I talk to seems to be almost busier than they were last year. We're definitely seeing pace of closings slow in the first quarter as a result of the volatility, I think.

The next question is from Steven Chubak with Wolfe Research.

This is Brendan O'Brien filling in for Steven. So margin expansion has been quite substantial since the onset of the pandemic, but with inflation and return to travel, putting upward pressure on your cost base as well as peers. How should we be thinking about the sustainability of 30%-plus operating margins in an environment where revenues -- revenue growth is likely not going to be as strong as what we've seen in recent years?

I think we should be able to sustain. And I think travel -- Joe and I talked about it. Travel's probably -- if you went back to pre-COVID, it's probably 2 or 3 points. Joe, what do you think? Joe?

Yes. I mean we're probably -- as of '21, we're 40% of pre-pandemic levels, and we've got 10% more headcount.

So -- and I don't know -- and I don't know that it's going back. So that won't kill the leverage in the model is substantial. I think there's more leverage to be had out of the model. I actually believe our customer base that I described in my remarks is a large group of -- it's a large customer base and almost everyone has a plan to double their size. I don't listen to all the alternative asset manager calls you do, but I would suspect every single one of them has a plan to double their size, where the fundamental input that they need to, which is the information, the deal flow, the ability to show transaction flow.

So I feel very good about that and getting margin out of that. Or when you talk about inflation, our comp was on an absolute level was fantastic -- that's me talking, by the way, you might have to ask some of the people. But I believe it was excellent, and we hit a 34% pretax margin. Now am my positive we can stay at 34%, no. But you gave me 30% as a number. I would very much hope to stay in excess of 30%.

And on capital raising, you guys have obviously had a lot of great success growing out that business. But with industry issuance slowing meaningfully, due in part to the recent volatility in equity markets I was wondering how your outlook for the business has changed and I was hoping whether you could give us some color on how meaningful of the contributor to capital advisory was to your results this past year.

Capital markets started to -- look, we set out to make it a big contributor. And I think it was -- if I think it was mid-double digits, like 15-ish percent probably, if I had the plus or minus.

Remember, we're not doing the IPO markets. We're not doing regular way. In some ways, when things get volatile, people go to the private markets, they structure, they go to structured finance because you're unsure that the public markets are based on tremendous companies. You have to file a document and go out there and distribute shares into the public. If you're uncertain like at the beginning of COVID, when people were uncertain, it was all structured private. So I'm still very bullish about that. The markets are large. The -- and again, I will tell you the alternative asset managers are all getting very creative and aggressive in taking down credit money.

Really, if you look at most of these alternative asset players and you say, what's substantially different about them from 5 years ago to today, it would probably be that almost everyone has a credit fund or a credit asset class that's growing significantly, and they want to do interesting things. That's not something where they want to go out and buy a single A rated bond. They want structure. So I'm really very -- I think that will be great for a long period of time. That will be a good business.

And lastly, again, to this volatility, when I look back, the volatility always affects things pretty significantly in the short run. But what volatility then makes every corporation do is make decisions. So COVID, the first 3 months of COVID was extremely negatively volatile. But then the world woke up, everybody had to make a decision, and we had 2 years of helping people make decisions about the future of their business and strategy, and it was -- we had a great 2 years.

Even I go back to maybe even the crisis, it was horrible for a -- and by the way, we're nowhere near that. I don't want to -- I'm not comparing the volatility we've had over the last 8 weeks. But what happens then is people come back and to the point that Ken might have said it if people are revaluing growth and versus different forms of cash flow, you can bet there'll be a lot of decision-making and a lot of focus on strategic go-to-market and that usually leads to a real upturn in our business. So it's a small price to pay, I think. And capital markets will be part of that. I mean the short answer to that capital markets will be key to that as well.

The next question is from Brennan Hawken with UBS.

Ken, I wanted to dig into your comments on the backlog. So you -- I believe you said that it's the biggest backlog in history. But...

Our history.

Yes. Yes. Got it. So curious if -- and I know the closing pace you indicated has been slowing. But like when we're tracking the public data, the public announcements have slowed too and it very much looks like the public pipeline has diminished recently. So is included in your backlog, are there deals that you're working on that are unannounced, and therefore, there's sort of a double swelling on that front in order to help us reconcile between the 2? I know the public is never a perfect proxy, but it's usually like kind of directionally close. So how do you square those 2 different metrics?

I would encourage you, look, my problem with that question, Brennan, is everybody was asking me about those, whatever public numbers you look at. And I've spent almost no time looking at them because I have our numbers, so, I don't spend a lot of time looking at somebody external taking a guess, and I'm not being wise. I just don't spend any time bridging that.

Chett and Joe might be able to help you do that. But look, there's a lot of things we work on that are not announced until they're announced. I mean that is the very essence of public market M&A. We announced a deal yesterday that wasn't announced until 7:00 this morning. And there would be no sign of that. And so I don't -- again, I don't know how to reconcile it other than I know what we have. And I know the activity. I know the bankers are also very much engaged. I think what you're seeing is the volatility is causing things to churn a little bit. All those conversations, if you and I were trying to buy each other's company, your stock might have gone down. I mean if you're in the wrong industry right now, your stock could have going on 20%, right?

And I might feel I should be the beneficiary of that you might feel you shouldn't. And we're still actively engaged in trying to make it happen, but we need time for price discovery. So again, I would encourage you, I don't know the answer to how to bridge it. But I'll just tell you what we see on our -- what we're looking at is healthy, as I said, record backlogs. And the amazing part is that's with I think, I'm not going to say it's near record lows because I don't know what the lows are, but restructuring is near record lows.

Yes. Okay. Maybe I can try and approach it from a different direction. When we've been analyzing some of the -- and this is a broad industry data, this isn't about Moelis specifically. But when we're looking at the industry data and some of the trends, some of the announcements -- the pace of announcements have certainly slowed. But also interestingly, looking at sponsor activity as a percentage of industry volume, that really got quite elevated in 2021 up to about 40%. And here, this year, we've actually seen it start to decline.

And from your perspective, are you seeing maybe the idea that the sponsors are looking out seeing the forward curve show higher financing costs and maybe we're seeing some bid-ask spreads widen and there needs to be some time for that market to settle out? Or are you seeing something else? Or are you not seeing that trend at all, the same trend that I'm seeing in the data?

A [giant market does sit], but that's probably happening. First of all, but that will get over very quick. I mean, again, I go back to the first 6 or 7 weeks of COVID. I went home and I thought who's ever going to do a deal. Well, private equity went home and thought about what thought about their businesses, let 6 weeks past and then came roaring out of the gate.

Now we're nowhere near that kind of volatility. I think there may be some -- we have lots of conversations going on. Their AUM, I'm sure, is growing. So again, to explain away what happens in any 4- or 5-week period, especially when there's volatility, I think it's almost too much to think somebody can explain it.

It's volatile. It will cause things to defer. By the way, there are things going on. I even think the pace -- when you talk about the pace of closing. So I think sometime in the third or fourth quarter, the SEC started to really kind of slow down its backload. I think that was almost purposeful on the accounting approvals and things like that. So all those things are in there. And it started at the middle of December, maybe second or third week. And maybe we're coming out of it now. We'll see. But it definitely -- it was definitely happening over the last 8 weeks.

Okay. This one might be a question for Joe. There's a $7.7 million adjustment. It looks like a reclass from other expense into revenue for unrealized losses. Is that tied to some of the Atlas Crest SPAC activity, Joe?

That's -- I mean, that is part of it. Basically, what we said in the third quarter was that we had these kinds -- we had these SPACs and ultimately, we took them in lieu of transaction fees, cash...

We took shares. You said SPACs.

Shares back. We took share -- shares, right. I'm sorry, shares, and that we would ultimately reflect those through revenues until we monetize them. So this quarter, we reflected a mark-to-market loss, and that went through revenues, which obviously would have an impact on comp as well.

Okay. So there was also the part of the $1.3 million adjustment was it looks like that's related to enforcement of non-compete, but was there some reversal because I know you guys took the comp on the marks initially, did you then reverse it tied to the $7.7 million?

Exactly what that $7 million or so million is about. $7 million was reclassed to revenues, and it was adverse.

Next question is from Manan Gosalia with Morgan Stanley.

So Ken, how do you on the backlog being low on the restructuring side, but any early signs or thoughts here, we could get several rate hikes in quick succession here, and that's pretty different from the slower ramp that we saw the last time rates went up from 0. And then you're sort of starting to see spreads rise a little bit as well, albeit from really tight levels. I was just wondering if you're seeing any early signs of activity ramping on the restructuring side, is it too early to tell? And do you have any opinion on like where it would go as we get towards the end of this year?

I'd say too early to tell. We're not seeing it. And you do -- you have a long -- you get a pretty good -- well, sometimes you don't. I mean if it's when things go into commodity cycles when the energy cycle could happen quick. Right now, there's not much out there. You're right, at any point, I know there's a lot of paper in the market and anything can happen.

So look, I'm not worried about it. I think it's -- I just pointed out because it's a whole engine on the airplane that is not helping right now. But let me tell you if I could hire into our restructuring business, I know how good it is. I know how good our team is. I hope they're getting good sleep if they're listening to the call, I hope they're getting to bed early, getting some rest because someday, it will hit.

And in the previous cycles, it's very, very busy. And what happens in those cycles is why the business is so good. You just can't -- you can't create the people again. It's -- people always say, "Oh, there's a restructuring cycle, let's create a -- let's create a group." It's not creatable in the instant it happens. And so I almost think this is good. There may be some retirement -- some people who aren't as committed to staying in the business, and I think that, that would be great for us. So we are committed. We love the team, and I hope they're resting up for what will inevitably be a cycle.

Fair enough. We did see that sharp ramp up in 2020. And then maybe a separate question on just a SPAC market here. So there's over 500 SPACs out there looking to find targets. And I think we will start seeing several of them bump up against their expiration dates as we get into the back half of this year.

So just with the prospect of rising rates, the market volatility that we're already seeing here, what do you think it means for the SPAC market overall? And how do you see the SPAC activity trending from here as we go towards the end of this year and into '23?

I always thought the SPAC market would be extremely volatile because it is an IPO market. And IPO markets go sharply into high gear, and then they go sharply out of favor. I mean there have been years where there was no IPO market and people forget how volatile IPO market is.

And then here, you had a new technology and you had a lot of noninstitutional players try their hand at it. And I think the market for pipes and money is now focused on institutional -- is doing their transactions with institutional players who they feel comfortable with. I think we're in obviously -- it's a very difficult part of the SPAC market now, but things are getting done.

If you have a really good quality product and you price it right, I think you can get something done. But like IPOs during the downturn, I think it's -- I wouldn't call it an attractive, it's not a hot market right now. And -- but I think it's permanent. It will be back. It will professionalize. It will be done better, and it will be very cyclical. And there may be a lot of liquidations. Again, I don't track all the -- I spend more time with what we're doing than what everybody is doing, but it is possible that there'll be a lot of liquidations.

The next question is from Devin Ryan with JMP Securities.

Just want to ask a question about average fees and what you guys are seeing. And obviously, you're talking about the sponsor is getting a lot more sophisticated. And so they have, even in an M&A transaction, more needs than just kind of the M&A advisory role. So how are you guys playing a part in that? What are the implications on fees? And then as we think about maybe longer term, and I'm talking more on the sponsor side, if we think about portfolio companies roughly doubling over a 5-year hold, that implies the deal values 2x what it was previously. Do you see the fee grids, if you will, holding up? And these are sophisticated sellers in the sponsor market. So I'm just kind of curious if -- as we see the deal values hopefully continue to increase over time and sponsors become even a bigger part of the market. Is there any compression on fees? Or do they kind of hold the line? So kind of short-term and long-term view on that.

First, just looking back our average fees were up pretty nicely. And secondly, I think that's the exact opposite is going to happen. Let me just spend a second walk through your private equity firm XYZ. The reason you want to buy a $2 billion asset that we might have is you think in 5 years, it's going to be worth $4 billion. And that $2 billion profit goes into a carried interest, 20% of this is $400 million.

The key to the success of your firm isn't getting our fee down from X to Y. I mean because that doesn't even come out of the $400 million, is the key is to get access to that $2 billion company to get access, be shown it, be in the flow so that when that company comes and you train your whole team in whatever specialty they're in and they say they go to committee and say, "Look, this is an unbelievable asset and we want to buy it."

So remember, our fee is the difference between -- I'm just making this up $10 million or $15 million fee. It doesn't come out of $400 million. So a difference between $2 billion going to $4 billion or $2 billion going to $3.990 billion. And then the carry is -- the carry comes out of that.

So, I'd say, I believe the access to our intellectual property, the size and scale, the global integrated nature with which we can deliver unique, difficult to access places to put your capital is extremely worth it for them. That's the best part of being a supplier of very rare super highly charged, valuable information and assets. And so I think, if anything, as these firms double in size and for -- and the amount of firms double, the desire to get access to that flow of information assets, quality deal flow only goes up. And our ability again, this goes -- I know it's hard for anybody to see it, but the fact that we can deliver the one firm and do it across all with our commission structure across the globe and across products, I think we can deliver to that financial institution very well. So I do not see any pressure. And if anything, I would like to try to extract more value for the quality of the information that we're working our butts off to get to them.

Got it. Okay. That's great color, Ken. And then just a follow-up on kind of the conversation on margins. And it kind of stood out that the expectation that margins can kind of remain at very elevated levels. I appreciate you're not giving guidance, so it's going to be 33% every year. But I like the way you guys think about the business as kind of the balance is not just about operation of non-comp but the overall margin, and so there's always puts and takes there.

But if I think about just this kind of concept that non-comp expenses is probably going up in the absolute and travels coming back. As you think about margin, even if you were to think about margins remaining flattish or remaining particularly elevated, is the leverage going to come from as revenues grow from non-comps? Or do you see kind of leverage from here on the comp ratio. You had a great year and you still were able to deliver 33% margin. So your people were paid well, but I'm curious if there's any leverage, I guess, still in the system on the comp side as well.

I wouldn't look to it. What I would look to is the leverage is in the revenue side. The money -- the 34% margin wasn't for me, going after comp ratio. We just felt it was optimal the way we did it. The leverage came from all of our bankers taking that last phone call on December 15 and still executing transactions because they -- because I wasn't going to take it out. I wasn't going to say enough to stop work.

By the way, you'd be amazed, people understand that if you're not going to -- if they cap out in the last deal is not for them, people work, they get motivated. So all the leverage. And I think there might be more in revenue is in the revenue line. And you saw getting our non-comp down 8%. I mean I never thought I'd see a number like that. I didn't know that was possible. That wasn't because I am a master of cost-cutting. That was because the revenue was high. And if we're good at the technology, somebody, we were talking about travel, maybe travel is a revenue generator.

Maybe now the base business is done via Zoom, the drafting and the commodity stuff. And maybe we're going to get another kick up because once we start traveling and meeting clients, the travel is actually an incremental for a revenue generator, not just a cost generator, if you follow. I think there may be a new way to do business, which is commodity stuff execution is done on the computer and most of travel is for generation and relationship.

But Devin, that's all I'll say is all of this is a result of the revenue. And when you start getting production throughout the system, and integrate. We're even talking about the -- I was talking a little about the restructuring team. They are -- we already have them doing other things because we're one firm in one integrated effort. And that's the key is to have revenue and relationships come out of every part of the organization. So again, it's the revenue line that will generate the margin.

Okay. Great. Just real quick for the model for Joe. Is the -- sorry if I missed this, but the fourth quarter ending MD headcount, is that 120, if we just make the adjustment for the internal promotes or just if you have that number, that would be helpful.

I think with the internal promotes, we're at 136.

But as of year-end, sorry, or as of right now, I guess, we're just trying to...

I think that's as of right now. But if you need year-end, I'm sure Chett can help you.

Devin, that's of right now, by the way. That's (inaudible) today.

The next question is from James Yaro with Goldman Sachs.

So maybe you could just speak geographically to the strength of the M&A environment? And specifically, whether you're seeing activity remain robust in the U.S.? And then what the environment looks like in Europe?

We said we were actually up every single geography, which is stunning. The U.S. is definitely -- and again, I'm going to hold back again on this sort of near-term volatility. I'm just going to give you what I see on the rolling, on a 12-month view.

Europe is definitely up and exciting. And by the way, because Europe is also starting to go to the same model, I think you're starting to see a real recurring client base much more significant than it ever was, much more diverse in sponsors and middle market. So you have the big strategics, which Europe always had. And I think they're developing a much more recurring sponsor and diverse sponsor model. Interesting, Asia was pretty good. Episodic, of course, but we had some pretty good China, Hong Kong, Asia business.

We had our office in Brazil. They had a very good year. I'm going through our offices. Our Middle East office is on fire. I think everything we -- in the Middle East, we just seem to be -- mean a lot and do a lot in the Middle East, that's a fantastic franchise for us. And even India, which has ups and downs, had a very good year. And that might be the only economy right now. I don't off the top of my head know if next year looks as good. But everything feels like it's a continuity from that trend.

Yes. And we're going to be issuing our 10-K in a couple of weeks. And I think you'll see that the non-U.S. entities basically wrote the same way as U.S. So the contribution to revenues has been around 15% for the last several years, and it was still 15% in '21.

Okay. That's extremely helpful. And then I just had one other one, which is you've seen tremendous growth in revenue over the past few years, but you still only disclose one revenue line. Do you think there's a scale your business will reach at some point, which you might disclose a little bit more granularity across the various business lines? And if so, how would you sort of think about that?

I'm going to give back to Joe as a financial question. In my mind, we run one business. We work as a team.

Yes, I think that's exactly right. We always -- we always think about it that way and the way the teams work it's that way that an M&A, restructuring, capital markets, it's like -- there's a continuum and it would be very difficult to start parsing that and start allocating it. And I don't think it would be -- I don't think it would be real and I don't think it would be particularly useful internally to try and start like matching up and crediting various product areas because it's not how we work and it's not how we're organized.

The next question is a follow-up from Brennan Hawken with UBS.

I just wanted -- I think Devin was kind of poking around in this direction. I'm kind of curious about it. The range of compensation ratios initially was 57% to 59%. This is an epic year for revenue. Great leverage and whatnot and a lot of attention to the pretax margin. But this T&E, low T&E is going to go away to some degree and whatnot. So why wouldn't in a year like this, we go to the lower end of the comp range, particularly given how, Ken, you spend a lot of time talking about how it's not a commission model, and it's not prescriptive like that. Wouldn't we're in the -- what draws people to the platform, not be that extra point of comp ratio, but rather the revenue opportunity to generate?

Well, you came up with a range. But I mean we were at 59.3% and went to 58.5%. Look, I will say this. We manage the company. It's not -- we don't have like a Microsoft Excel spreadsheet and put these numbers in and out pops a number. We think this was optimal. And by the way, I've never felt better about being optimal. What am I trying to do? I'd be definitely be like if you owned a hotel well, why don't you just pay your shareholders more? Why you refurb the rooms? Why do the rooms really need a new -- why do that? I mean you can do that every eighth year. Does anybody -- it's like it's asking why don't we stick to some modular thing.

I will tell you that the reason I am so excited about the future is our people are motivated. They're enthused. They feel great about working. Our junior people are heroic in what they've accomplished, and we treated them such. This was an optimal way to make this franchise on February -- what date was it? February 9. The reason we did it is because it optimizes the value of this franchise on February 9, for the next 5 to 10 years.

Now we can debate that because there's no scientific formula that says that. But myself, the Board of Directors and the executive team came to that conclusion. And I believe it now. And I'd much rather be at a firm to optimize the way I just did it than try to did it a different way. And I think you'll be -- hopefully, all our shareholders will be the benefit of that decision.

The next question is from Michael Brown with KBW.

Ken, just looking at the promotional class and great to see a broad base of sectors and capabilities represented there. When we think about the next leg of growth, where is that white space for you now? Obviously, as you've gotten larger, becomes less obvious from us on the outside. So love to hear a little bit more about that. And then you also had a strong pipeline of internal and external talent, how does that pipeline compare to last year? If you could just give us a frame of reference there?

Okay. Well, it's sort of embarrassing because you're in my seat, I look down and all I see is white space. I can name 2 or 3 of the largest sectors for fees and we should be much bigger or better. I mean it's extraordinary to me what we haven't done. By the way, I know the $1.5 billion of revenue when I go right, it's a lot of revenue that I look and I see the substantial sectors that have huge market shares. And look, they're out there. I mean, we could be -- just to pick one. Look, we could still do a lot more in tech. It's a gigantic -- it's a gigantic fee pool. It's a great team. I like what we do, but we can do more. So -- and then there are other tremendous ones like that. And I don't want to signal them out. But from inside, I've seen more white space than I see block space by far. So I don't worry about that. Sorry, what was the second part of the question?

Just the talent pipeline. You mentioned that it's in the press release, it's a strong -- at a very strong level. I just wanted to get a frame of reference onto that compared, let's say, last year.

Higher. I mean, we're definitely higher than last year and much more skewed to M&A, as I said. And again, to your point about our young talent, in the up and comers. You're right about one thing. I think we don't even see these things coming. I mean if you would have told me, Ken, who's your banker in the Metaverse 2 years ago, I would just ask you to spell that.

So I think you're seeing what we ended up doing in places like online gaming, some of these things where a new industries are being created all the time, you're right, and that's the brilliance -- the brilliant part of having these young energetic people who are finding their own sectors and niches and places where you and I might not even know there's an opportunity in the next 3 to 5 years, and they know it. And it's not top down. I'm not hiring a banker, that's the difference. I'm not going out and finding a 50-year-old banker in that space.

What's happening is the young people that we're hiring out of school are coming in the middle of it saying, "Hey, I think there's a huge opportunity here. Can I attack that space". And that's really refreshing and it will lead to a lot more value creation, and it's bottoms up. So that's the excitement of having the internal talent promotion grabbing new sectors and market shares that they see way before I would.

Okay. Great. I appreciate that, Ken. And then just a quick one for Joe. I heard the commentary on the tax rate for the first quarter and I always appreciate that color in terms of the impact of the share-based comp. The tax rate was high this quarter. Apologies if I missed it. What was the key driver there? And then after the first quarter, where should we expect the tax rate to be just kind of fall back to where it has been historically?

So I would answer the second part. I would expect it to be at or around the 27% level now. I think there's 2 items that are primarily affecting it. One is an increase in the nondeductible expenses. And the other one is really what we were talking about earlier is the increase in income coming from outside of the U.S. In some cases, it relates to income earned in higher rate jurisdictions. And in other cases, the income earned is subject to foreign tax credit limitations and so that combination basically has given rise to a little bit of rate creep.

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 all. I appreciate your time, and we'll see you after the first quarter.

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