Moelis & Company targets PCA expansion and sees M&A cycle acceleration amid robust Q3 2025 results

Earnings Call Insights: Moelis & Company (MC) Q3 2025

MANAGEMENT VIEW

* Navid Mahmoodzadegan, in his first call as CEO, highlighted "a very strong third quarter" with adjusted revenue of $376 million, up 34% year-over-year. He reported "client engagement and new business origination continue to be robust, and our pipeline remains near all-time highs." Recent high-profile advisory mandates included a major U.S. utility merger, OpenAI's recapitalization, and a landmark minority stake sale for the New York Giants.
* Mahmoodzadegan emphasized ongoing hiring, stating, "We finished the quarter with 170 managing directors. Year-to-date, we've hired 10 managing directors, including 5 MDs since our last earnings call." He identified these hires as enhancing expertise in technology, industrials, private capital advisory (PCA), capital markets, and M&A.
* The CEO described a "meaningful increase in our average M&A fee," driven by larger strategic and sponsor transactions, and noted a "steadily improving multiyear M&A cycle." He pointed out that capital markets revenues year-to-date were "more than double the same period last year" and projected a "record year" for this business. He also stated, "we expect [PCA] to become a significant contributor to our firm."
* Mahmoodzadegan outlined three focus areas: "clients, culture and growth," reaffirming commitment to "hire and develop difference makers to fill white space and further build leading centers of excellence throughout our firm."
* Christopher Callesano, CFO, stated, "we generated adjusted revenues of $376 million for the third quarter of 2025, an increase of 34% from the prior year period." He added, "our adjusted compensation expense ratio for the third quarter was 66.2% bringing our year-to-date ratio to 68%, down from 69% in the first half of 2025." He also cited "a regular quarterly dividend of $0.65 per share, consistent with the prior quarter," and noted share repurchases totaling $14.5 million in Q3 2025.

OUTLOOK

* Mahmoodzadegan expressed optimism for "continued improvement in the transaction environment" while mentioning that a potential U.S. government shutdown "could slow the pace of regulatory reviews potentially affecting deal closing time lines." He clarified, "from where we sit today, this is not impacting our clients' appetite for strategic transactions, and we expect continued acceleration in deal activity."
* The CEO projected the PCA business to "become a meaningful fourth pillar of our business and complement our leading sponsor franchise."

FINANCIAL RESULTS

* Moelis & Company reported adjusted revenue of $376 million for Q3 2025 and $1.05 billion for the first nine months, with increases of 34% and 37%, respectively, compared to prior year periods.
* The business mix was "approximately 2/3 M&A and 1/3 non-M&A."
* Adjusted pre-tax margin for Q3 2025 was 22.2%, with a year-to-date margin of 18.2%.
* Adjusted non-compensation expenses were $53 million for Q3, with a non-compensation expense ratio of 14%.
* The company reported a gain of $19 million from the sale of shares in MA Financial Group, with CFO Callesano explaining, "we reclassified that gain from other income to revenues" as these were considered equivalent to advisory revenues due to banker involvement.
* Cash and liquid investments stood at approximately $620 million, with no debt.

Q&A

* Kenneth Worthington, JPMorgan, asked about AI disruption in restructuring. Mahmoodzadegan answered, "I think AI is going to have a profound impact...while it's still early days, I do think that disruption is going to create opportunities for us on the restructuring side." Worthington also questioned private credit risks; Mahmoodzadegan responded, "I don't think there's a systemic problem with private credit. I'm not a believer in that scenario."
* Devin Ryan, Citizens JMP, inquired about the breadth of M&A recovery and comp ratio leverage. Mahmoodzadegan described "a larger transaction-driven market" but said "we've seen and are starting to see a broadening of that market" and indicated commitment to normalizing the comp ratio over time.
* James Yaro, Goldman Sachs, asked about regulatory impacts. Mahmoodzadegan stated, "the more accommodative regulatory outlook...is allowing for companies to think big and pursue larger transactions." Regarding PCA, he noted, "there's a permanence to the CV product that isn't directly tied to how healthy the M&A market is or how healthy the IPO market is."
* Ryan Kenny, Morgan Stanley, asked about regulatory nuances and the $19 million gain from MA Financial. Callesano confirmed continued periodic sales of shares and ongoing partnership with MA Financial.
* Brennan Hawken, BMO, questioned MD churn and comp forfeiture. Mahmoodzadegan clarified MD count changes were due to a mix of internal promotions and external hires, not elevated churn.
* Brendan O'Brien, Wolfe Research, focused on restructuring and sponsor exits. Mahmoodzadegan stated restructuring was "more muted" versus last year due to a "good economy." He said sponsor exit activity is broadening and "our outlook for that business is good and getting better."
* Alexander Bond, KBW, asked about 2026 hiring. Mahmoodzadegan reaffirmed PCA hiring as "a really important strategic priority" and pointed to ongoing recruitment in "big TAMs where we're still light on coverage."
* Nathan Stein, Deutsche Bank, asked about Fed commentary and sector pipelines. Mahmoodzadegan stated, "I don't read the market commentary...as fundamentally changing our outlook," and described a "pretty good broad-based strength across most, if not all, of our sectors."

SENTIMENT ANALYSIS

* Analyst sentiment was neutral to slightly positive, with questions focused on structural trends, regulatory impacts, and financial discipline. Skepticism appeared around comp ratios and restructuring but was met with detailed responses.
* Management tone during prepared remarks was confident and optimistic, while Q&A responses remained measured, with phrases like "we are making progress towards a more normalized comp ratio" and "we're really well positioned to capitalize" indicating confidence. The tone was consistent with the previous quarter, though now with more explicit optimism due to improved financial results and expanding business lines.
* Management showed confidence in strategic direction, especially in PCA and capital markets, and analysts reflected a constructive but questioning approach.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language shifted from cautious optimism to explicit confidence in accelerating deal activity and PCA as a growth engine.
* Strategic focus broadened, with continued investment in PCA and expansion of managing director talent, compared to last quarter’s initial PCA buildout.
* Analysts’ questions evolved from seeking clarity on market recovery and PCA ramp-up to more nuanced inquiries about segment breadth, regulatory impacts, and comp discipline.
* Key metrics improved: adjusted comp ratio fell to 68% YTD from 69% in H1; MD count increased from 157 to 170 year-over-year; cash and liquid investments rose.
* Management’s tone became more assertive regarding business momentum and hiring priorities, while analysts remained focused on execution and sustainability of growth.

RISKS AND CONCERNS

* Management identified a potential U.S. government shutdown as a risk that could "slow the pace of regulatory reviews potentially affecting deal closing time lines," but said it was not currently impacting client appetite.
* Analysts raised concerns about private credit risk, restructuring trends, compensation leverage, and talent churn, all of which management addressed as manageable and not systemic.
* The CFO cited increased expenses from "deal-related T&E and client conferences, continued investments in technology and data, including AI and higher occupancy costs as a result of headcount growth" as drivers of expense growth.

FINAL TAKEAWAY

Moelis & Company delivered strong Q3 2025 results with robust revenue growth and expanding business lines, driven by larger M&A transactions, capital markets momentum, and a strategic push into Private Capital Advisory. The firm’s leadership highlighted confidence in the multiyear M&A cycle, ongoing talent investment, and broad-based sector strength, while remaining attentive to regulatory and market risks. The company’s management sees PCA as a new pillar, expects hiring and growth to continue, and believes the franchise is well positioned for an active deal market ahead.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/mc/earnings/transcripts]

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