Moelis & Co

NYSE:MC

Earnings Call Transcript 2022-Q4

[Operator]

Good afternoon and welcome to the Moelis & Company Earnings Conference Call for the Fourth Quarter of 2022. To begin, I will turn the call over to Mr. Matt Tsukroff.

[Matt Tsukroff, Investor Relations]

Good afternoon and thank you for joining us for Moelis & Company’s fourth quarter 2022 financial results conference call. On the phone 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 that 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 Joe to discuss our results.

[Joe Simon, Chief Financial Officer]

Thanks, Matt. Good afternoon, everyone. On today’s call, I will go through our financial results and then Ken will comment further on the business. First, we achieved $202 million of adjusted revenues in the fourth quarter. For the full year, our adjusted revenues of $970 million were down 38% from the record prior year. Regarding expenses, our full year compensation expense ratio is 63%. For the full year, we reported a non-compensation ratio of 15.6%. The increase in full year non-compensation expenses is largely due to a normalization of travel and related expenses.

Looking to the first quarter, we expect non-compensation expenses to be in the $40 million range, excluding episodic transaction-related costs. Our full year pre-tax margin is 22.5%. Regarding taxes, our normalized corporate tax rate for the year was approximately 27% and our effective tax rate was approximately 22%. The difference is driven primarily by excess tax benefits related to the delivery of equity-based compensation in the first quarter of 2022. We may recognize a tax benefit in the first quarter of 2023 related to the annual vesting of RSUs later this month. For purposes of quantifying the excess tax benefit, we expect the impact to EPS to be approximately $0.01 for each $1.25 difference between the vesting and breakeven price of $36 per share.

Regarding capital allocation, we remain committed to returning 100% of our excess capital. Our Board declared a $0.60 per share dividend. We will have returned approximately $316 million to shareholders with respect to the 2022 performance year, which includes this declared dividend. And lastly, we continue to maintain a fortress balance sheet with $413 million of cash and liquid investments and no funded debt.

I will now turn the call over to Ken.

[Ken Moelis, Chairman and Chief Executive Officer]

Thanks, Joe. Before I begin, I just want to thank our bankers and the entire organization for their focus on our clients and their commitment to excellence in what has been a challenging year for M&A in the capital markets. The financing markets are the lubricant to complete M&A and financing has been a challenge. Despite the difficulties of completing transactions, our new business origination activities remained strong. However, as long as access to capital is limited, M&A transaction volumes are likely to be less robust. We also price our services based on transaction values, which have been lower. And at the same time, we are experiencing inflation in our costs, primarily compensation.

The current business environment, however, is the reason that we have maintained an unlevered balance sheet since our founding. This environment will change and our goal is to be ready for it when it does. Restructuring activity is increasing, but this cycle will be longer to fully develop. However, it might also be more sustainable over a longer period of time. Companies took advantage of attractive debt markets between 2019 and 2021 to refinance their debt and are now just beginning to see the higher – the impact of higher interest rates.

Again, global market capitalization has doubled since 2012 and private equity AUM has more than tripled over the past 10 years. As markets expand, transactions follow and there will be increased demand for high-caliber bankers operating within a focused organization, delivering comprehensive advice. This is the opportunity we are pursuing and the reason why we continue to build for the long-term. We hired 4 new managing directors and promoted 8 since the beginning of the year. By continuing to invest in the platform, I remain confident in our ability to execute for our clients, employees and shareholders.

And with that, I will open it up for questions.

[Operator]

[Operator Instructions] The first question is from the line of Devin Ryan with JMP Securities. Your line is now open.

[Brian McKenna, JMP Securities]

Thanks. This is Brian McKenna for Devin. So I am curious how dialogues with sponsors have trended thus far in 2023 relative to the last couple of months in 2022. Has there been any pickup in conversations? And then are you seeing any early signs of dialogues starting to move through the process toward formal announcements?

[Ken Moelis, Chairman and Chief Executive Officer]

Yes. I’d say it’s fairly volatile. And I think the sponsor dialogue has been improving pretty significantly as of the start of the year. There is an opening in the financing markets. We have actually seen a dividend recap deal, which in the sponsor community is a pretty significant event. Terms are better. But it remains to me very volatile as these markets, as I said I think Chairman Powell effectively shutdown the market or really market deteriorated pretty significantly in the September speech at Jackson Hole. Last week in the beginning of the year, a lot of the market has taken it to mean party on and started to get fairly optimistic, at least part of the market. But I think it remains volatile. As I said, the indication that we are all waiting around for a single individual statements to me is an indication that the market is not healthy. We hadn’t done that for 5 years before that. It’s probably not a good indication. But again, the activity level I would have to characterize is getting more active over the last 3 or 4 weeks than 8 weeks prior and maybe significantly so, at least in conversation, I might even say significantly so, but we will see if the markets hold long enough to complete some of these.

[Brian McKenna, JMP Securities]

Okay, great. Thanks. And then just a question on the comp ratio, assuming the first half of this year is still somewhat slow and then if revenues start to normalize in the back half of the year, should we expect the comp ratio in the first half to be in a similar zip code as the back half of 2022 and then you will kind of true that up into 3Q and 4Q or should we expect somewhat of a steady accrual throughout the year?

[Ken Moelis, Chairman and Chief Executive Officer]

I am going to turn it over to Joe for the first quarter, because we do have some events in the first quarter that always cause us to have a differential in timing. Our belief is that the general comp ratio of the firm should fall between where it fell over the last 3 or 4 years. Again, depending on revenues because our comp ratio did increase last year based on a very difficult market and our desire to hold the culture and team together. So again, depending on the revenue, I think that’s the range we are viewing for the entire year. But I want to turn it over to Joe, because we have some first quarter…

[Joe Simon, Chief Financial Officer]

Yes. So in the first quarter, that – in a couple of weeks, we will be granting equity. We expense all the equity granted to retirement eligible partners at the time of grant. Accordingly, our pre-bonus comp expense is likely to be much larger in the first quarter than the next three. So within a challenging revenue environment, which we are still experiencing, the comp ratio is likely to be higher than the target ratio. And I would imagine that we would think of, whatever, probably what you were just describing, it’s probably the 6 to 8-point spike in the first quarter. But again, we expect that the full year ratio will settle back, assuming again, revenues pick up.

[Brian McKenna, JMP Securities]

Thank you, guys.

[Operator]

Thank you for your question. The next question is from the line of James Yaro with Goldman Sachs. Your line is now open.

[James Yaro, Goldman Sachs]

Good afternoon, Ken and Joe. I just wanted to return to previous comments that you made, Ken, in December around the middle markets slowing down quite precipitously. And maybe that’s not exactly your language. But I guess the question is, how would you compare and contrast the dialogue across larger versus middle-market firms and in terms of your expectations for which might come back to transacting on the M&A side first?

[Ken Moelis, Chairman and Chief Executive Officer]

When you say larger and middle, you’re talking about the sponsor community?

[James Yaro, Goldman Sachs]

I mean, I guess it would be interesting to hear both sponsor and strategic from that perspective.

[Ken Moelis, Chairman and Chief Executive Officer]

Okay. So I will start with the strategic dialogue. It’s been pretty active. I found the strategics to be – it’s a good time. They don’t have – they have most of it when you talk about investment grade strategics has access to financial markets. They – it’s a good time for them. The financing markets have moved in basis points, not in availability and they do have goals they want to achieve. So they have been actively discussing and a significant amount of transactions. Some of that – by the way, I do think some of the regulatory environment is also impacting that to the negative, but there is a lot of dialogue there.

On the sponsor community, I believe there is a huge pent-up demand. Sponsors cannot sit still. I am not sure it’s that different within large and middle-market because both are trying to figure out an economy and a cost of capital that makes sense for them to invest in. So I think some of the larger ones have switched their focus maybe to providing other sorts of capital and might be more active just because they can more easily deploy their capital in other areas and maybe they also have – get more pockets of alternative capital, providing solutions, preferreds, things of that nature. But the dialogue is definitely, I’d say, improving. I think October, November, December you really had a wait-and-see attitude. They knew that they were in the middle of a cycle of interest rate raises. I think now you’re starting to see people take a view that we are possibly near the end. Some people want to be more aggressive on that, but that’s what makes markets. But I think you are having some part of the market say I think I see one or two raises. And as soon as that’s done, I really think most of them feel like it’s time to start figuring out prices, accessing financing markets at the new levels and moving on.

[James Yaro, Goldman Sachs]

Okay, that’s incredibly helpful. Just for my follow-up, when you think about some of the – putting aside M&A and restructuring, what do you think about your capital advisory businesses, in particular, the sort of fundraising businesses, how do you expect that – those to perform over the course of 2023 and what appears to be a somewhat more challenged sponsor fundraising backdrop?

[Ken Moelis, Chairman and Chief Executive Officer]

Well, last year, I think last year was a unique year. There was a lot of capital committed going into the year, then everybody talks about the numerator-denominator problem. You had a shrinkage in the denominator, total assets under management as all assets shrunk. And therefore, people ran out of ability to commit. Now I think that slate starts clean in January. And again, it will depend if the denominator holds and we have markets – public markets that hold. So I think that might return over the course of the year to a positive fundraising market. And what we’re really focused on is more secondaries, continuation funds, a little more higher value-add part of that process. And I do think that we will be active. And we’re building into that part of the private equity services much more than primary fundraising.

[James Yaro, Goldman Sachs]

That’s incredibly clear. Thank you.

[Operator]

Thank you for your question. The next question is from the line of Ken Worthington with JPMorgan. Your line is now open.

[Michael Cho, JPMorgan]

Hello. Good evening. This is Michael Cho for Ken. Thanks for taking my question. Ken, Joe, I just wanted to just touch on your restructuring business. I was hoping I can – we can just get some updated commentary on kind of how mandates have trended sequentially? And if there is any particular industries or geographies that have been more active than others recently?

[Ken Moelis, Chairman and Chief Executive Officer]

So on the geographies, I can’t discern a real difference. I mean I think the main markets are Europe and the U.S. where you see they are pretty much going into the cycle in a similar way, facing the same issues, whether people want to get ahead of the cycle and manage their liabilities. What was interesting is, again, we’ve said it was slower than the crisis restructuring markets of ‘08, ‘09 and even COVID. But this idea that the maturity wall was going to force people to – there is always a discussion if there is a large maturity wall in ‘24 and ‘25, I think. I think – I do not think that maturity wall will be as much of a motivating force as people are thinking.

If the market stays at least where it is today, all of a sudden, financing markets are opening up, people are finding solutions to not restructure but to access capital. By the way, it’s one of the reasons why I think the previous questions was about our private funds group, but we have beefed up our capital advisory group because we think innovative financings around that marginal one turn of leverage that you just have to solve in order to access the bank market and the private lending market. We think there’ll be a lot of activity around that last turn of leverage that just keeps companies from having to enter restructuring. And that might actually be more active than the restructuring that every – that people were focused on. Again, it is improving, but I do think we’re not seeing stress. I was just with a major – one of the leaders of a large group of private equity firms and they said there is no distress in the portfolio, no defaults. And companies are actually performing. And if the financing markets come back, I think the wall will take care of itself. Now that’s a lot of what ifs though that the financing market could change and as I say, in a Jay Powell speech. But for now, they are trending in the direction of being accessible.

[Michael Cho, JPMorgan]

That’s great. Thanks for the color. And I guess just to follow-up on that. And just relating to your business today in terms of restructuring, I guess, behind those comments, I mean, is it fair to say you’ve seen some, I guess, deceleration of growth in terms of the mandate trends or for the pretty strong for the quarter as well?

[Ken Moelis, Chairman and Chief Executive Officer]

They have been accelerating and they were building toward what I think was everybody looking – again, when I say everybody, there is always a restructuring going on somewhere even in a good economy, 1% or 2% of the companies are having distress that needs to be addressed immediately. But the idea of getting in front of a ‘24, ‘25 wall, which was in – it was getting in vogue in the late part – half of last year that there would be no access, so get ahead of it. I think you’re going to see companies delay and think about whether or not the financing markets might open again and give them a chance to regular way finance. So yes, our backlog is increasing. Our M&A – our restructuring volume was up significantly year-over-year, but the idea that the wave of ‘24, ‘25 maturities would cause people to accelerate their plan to address their liabilities. I think it’s slowing down a little bit. I think there is a hope and a belief that the capital markets might open and give people a regular way access to refinancing.

[Michael Cho, JPMorgan]

Okay. Great, great. Thank you. And if I could just squeeze one more in on the other side of the business when we kind of think about the M&A environment. I mean, you’ve made it clear around retaining culture and continuing to invest and the MD headcount continues to develop as well. I guess just near-term, just given your statement around caution around the deal environment, I mean, do you think there is kind of a stabilized or normalized MD count number for this type of environment looking ahead in the near-term?

[Ken Moelis, Chairman and Chief Executive Officer]

Which type of environment are you referring to? The environment seems – it’s like this weather and you’re living in New Hampshire. As I said, look, we want to build – we have a lot of white space we can build to. What our goal in managing the company we do it every year is to go through our labor force which is now 1,000 people and figure out who’s not right, who’s not going to – who’s not the right skill set and proactively address that and then continue to build around people who can address it and create quality. I do believe we are going to look back. At some point, I hope it’s months and soon, but there is a large pent-up demand for our clients to transact and to move forward. And lastly, one of the challenges we have is those clients, which we fought hard to get in the front door, both strategics and sponsors, we talk about sponsors. But behind every sponsor transaction is an actual company with the CEO and a CFO who we get to know these things aren’t awarded like apples off the tree, you develop relations and expertise in that system as well. And we can’t go dark on them and just say, so long your team is not around for the next 6 months, but we will hire a team back when you want to transact. So I think we will continue to grow the footprint, but we will continue to also be very diligent in making sure that we’re focusing on the bottom couple of percentile that we think does not make it and be very careful, especially in a bad environment that we’re analyzing that carefully and moving as quickly as we think we – as we should.

[Michael Cho, JPMorgan]

That’s great. Thank you for all the color, Ken.

[Operator]

Thank you for your question. The next question is from the line of Brennan Hawken with UBS. Your line is now open.

[Brennan Hawken, UBS]

Hey, good afternoon, Ken. How are you, Joe? Just wanted to follow-up on that a little bit and maybe clarify. So has some of that work already started on going through and parsing through the workforce and the talent you have and the bankers and whether or not everybody’s got the right skill set because when you look at – I think it’s 151 MDs in the release, it seems like that includes the eight promotions and the four external hires suggest that the year-end was like around 139, but maybe there was already some review or maybe I’m not backing into the right year-end number. So has that review process begun already? And what was the year-end MD headcount?

[Ken Moelis, Chairman and Chief Executive Officer]

Well, first of all, that review happens every year. And sometimes during the year, that’s our job, is to manage that workforce and stay on top of it. And Joe has just shown me what the end of the year headcount was. 142, the answer to your end of the year headcount. But look, we do that every year. And all I’d say when it gets tough, you might – if the bar is 2%, you might go to 3% of the system. We’re not looking at it as a change, Brennan. We’re looking at it as something we do every year. We do it midyear. We do it all year, by the way. We have these conversations. We don’t wait and do it once a year. But that’s always ongoing. And so yes, the answer to you is that, that process has begun because it’s continuous.

[Brennan Hawken, UBS]

Fair enough. A good hygiene. I get it. So the – I’d love to clarify, you guys gave a little color on near-term expectations of comp ratio and whatnot. It sounds like we will see some noise here and you seem to expect that the comp ratio will come down as the revenue ramps. So the ratio seems like maybe in this environment so uncertain, maybe more of an output. So another way to maybe ask the question might be how should we think about fixed expense comp. And you spoke – I think, Ken, you spoke to continued inflation in banker cost. Is that on the fixed side? Or is that a comment about recruiting? And how much should we think about that fixed expense base growing in 2023 based on what you know today?

[Ken Moelis, Chairman and Chief Executive Officer]

Yes. Well, we don’t have a fixed expense side that we keep – if you – first of all, the managing director pool of the firm is down very significantly in-line with revenues. You can think on that. I don’t have the exact number. I can get it for you. But the managing director pool, which we view as our equity partners and the outcome of the firm are very definitely down. What happens is I think we all fought – all the firms, especially probably the boutiques, fought very hard to keep their talent. 2021, I get my years mixed up. But 2021 was a very difficult year to maintain your workforce in the light of what was a very significant deal stream. So – and then what happened in 2022 is I think everybody wanted to keep their quality people. We worked really hard to keep them. And there is been some softening, but not much. The inflationary impact on the non-managing director workforce is – I would just say that compensation level is much stickier than it is for people who are promoted and our equity partners in the outcome of the firm as managing directors. And when you were talking about the comp ratio, I just want to be clear that we do expense this and it must go in the time period it is in from what I understand, what we call retirement-eligible equity. It just happens to hit in that quarter. And it’s – we expect our comp ratio to be back in line. It’s not dependent solely on revenue. There is a significant one-time sort of comp charge that we get hit with on retirement-eligible equity awards in the first quarter.

[Joe Simon, Chief Financial Officer]

Right. And it’s that combined with potentially a more challenging revenue that will give rise to the comp ratio issue that we described earlier. But I – we have talked about it in the past. We used to disclose fixed, but none of our competitors do. We are at a competitive disadvantage and we really don’t want to start sharing that detail. We don’t disclose it.

[Brennan Hawken, UBS]

Yes. That’s why I was trying to ask for a growth rate rather than an absolute number. I get it. And is the cadence of the quarterly dynamic similar to how it was at least proportionally when you used to disclose it, so we could think about it at least from that seasonal pattern?

[Joe Simon, Chief Financial Officer]

I think you are probably – I think that would probably be difficult. I am not sure that you would be able to extrapolate that maybe on a full year basis. But again, you would have to embed some inflation in that as well.

[Brennan Hawken, UBS]

Alright. I will stop trying to poke around here, because I don’t think you guys want to play Pat-a-Cake with me. Shifting gears a little bit here, Ken, your comments, you recognized the short-term environment is somewhat cautious, but you are optimistic over the long run, that’s fair. What – based on what you can see today and what your expectations are, do you think it’s – 2023 will be a year where you can grow revenue, or do you think that the challenges are pretty significant and it’s kind of hard to make that call at this stage?

[Ken Moelis, Chairman and Chief Executive Officer]

I hope it is. But it’s almost impossible. I think anybody making that call would have to be sitting somewhere in the Fed Chairman’s brain at this point. And I think, by the way, that’s – my view is that’s an unhealthy economy. We never had this commentary. I don’t remembering sitting there wondering, will the Fed Chair smile at the next meeting or what will his intonations be. For the first 7 years, we were a public company. So, again, I am optimistic because I think there is such a pent-up demand to do things. The economy is – it’s a dynamic economy and there are great CEOs and the private equity guys have a lot of capital and they also own a lot of companies. They need to realize value on. There have to be transactions at some point. And how quickly that happens is a little out of my control. But I want to be there when it happens because you – I was just at a pitch today where we are talking to a client, six managing directors in the room. And I would say the average experience that we have – most of those people were together for 15 years or 20 years, partners. That comes across the client relationship, the culture of the firm being that deep and knowledgeable about each other and being able to finish each other’s sentences and know what we want to accomplish. In my mind, that’s worth keeping. You can’t – to the extent you want to be smaller for a couple of minutes, that’s a really bad decision when you give up that asset, the asset of a culture and an ability to communicate with 20 years of knowledge of each other. So, again, that’s a long answer because I really don’t know. But I am fairly optimistic that when it stops, when I think the economy or the markets and feel people get a feeling that the Fed has stopped, I think you will see a spring uncoiled that will be pretty dramatic.

[Brennan Hawken, UBS]

Okay.

[Ken Moelis, Chairman and Chief Executive Officer]

I just don’t know what that date…

[Brennan Hawken, UBS]

Sure. Fair enough. Thanks for the color. Appreciate it.

[Operator]

Thank you for your question. The next question is from the line of Matt Moon with KBW. Your line is now open.

[Matt Moon, KBW]

Hi, good afternoon.

[Ken Moelis, Chairman and Chief Executive Officer]

Good afternoon.

[Matt Moon, KBW]

Good afternoon. Just a couple of clarifying questions for me. Previously, you have talked about kind of the contribution from restructuring being kind of anywhere between 20% to 25% of revenues, just kind of curious as to where that stood in the fourth quarter and kind of given your commentary just given the backdrop in the environment, is it possible to see that kind of trend higher than the upper bound of that range kind of in the near-term?

[Ken Moelis, Chairman and Chief Executive Officer]

Yes. So, I think the restructuring, again, it’s hard for us to break out totally, but we think it was closer to 10% in the fourth quarter than 20% or 25%. And that’s probably – I think that’s the full year that I gave you. Sorry, 10% for the full year and the fourth quarter might be up a little bit. Look, it is possible. But this feeling that there was an immediate wave coming, the company results are not that bad yet. And the financing markets are showing a little bit of blue sky. And so again, we continue to have a lot of conversations at firms that are talking to us about how to negotiate problems they are in. Some of those might be just to refinance their debt at some point, because the results are good enough and the financing markets open up at a new interest rate. That’s not good. If you are a private equity firm, look, that’s not perfect for your rate of return on the equity. But it is what it is and they will refinance rather than restructure, which is smart. So, we will see where that all goes. And if the market – to your point, if the market has another serious downturn or we are all wrong and the Fed has to go to 6% instead of 5%, yes, I do think you will see a rather significant kick-up in restructuring and it can become that big a force. But I just want to be clear as of right now. This market doesn’t feel like that’s happening in the short-term.

[Matt Moon, KBW]

Understood. Makes sense. And then shifting gears, Joe, just a couple for you as well, just curious on the comments just related to kind of the one-time step-up in the first quarter related to the comp ratio of 6 to 8 percentage points. Is that off of the full year 2022 number, or was that after the first quarter of last year? And then once we get to the first quarter when we received that comp ratio, is it fair to think about the full year expectation at that point just excluding that 6% to 8% figure?

[Joe Simon, Chief Financial Officer]

Yes. So, the first question is what’s the base? And I would say it’s the end of year, the 63% is the base on which I would take the 6% to 8% spike. And then over the course of the year, we would expect, again, revenue dependent to get back to the kind of low to mid-60.

[Matt Moon, KBW]

And then last one…

[Joe Simon, Chief Financial Officer]

For the full year.

[Matt Moon, KBW]

Yes. Understood. And then last one is just related to the buybacks. It seemed pretty minimal in the quarter. So, just curious, just in terms of after a strong year for buyback activity if we should assume given the environmental comments that should be a little bit more cautious on that front kind of at least for the next couple of quarters.

[Joe Simon, Chief Financial Officer]

I don’t know. I can’t predict the next couple of quarters, but I would say for the next quarter given the current environment, I would be cautious. But of course, we have this February, we have a vesting event and part of the vesting event is a buyback that’s embedded in that. So, that’s already kind of factored in.

[Matt Moon, KBW]

Understood. Thank you for taking my questions.

[Joe Simon, Chief Financial Officer]

Sure.

[Operator]

Thank you for your question. The next question is from the line of Steven Chubak with Wolfe Research. Your line is now open.

[Brendan O’Brien, Wolfe Research]

Good evening. This is Brendan O’Brien filling in for Steven. So, to start, I guess I wanted to ask on the non-comp expense. It came in lighter than what we were anticipating this quarter. But based on the guidance, it sounds like you are expecting a pretty meaningful step-up sequentially here. So, I was hoping you could unpack what is driving that sequential increase and how we should be thinking about the trajectory in non-comps for the remainder of the year?

[Joe Simon, Chief Financial Officer]

Yes. So, I would not consider that as – I mean as a sequential increase math-wise, but I think I have been communicating or guiding that 39 to 40 is our underlying run rate. I don’t see much of a change to that. And what happened in the fourth quarter was just a series of small non-recurring benefits that basically added up to a fairly meaningful change. But it’s not something that I would be counting on. It’s – the run rate is still the same kind of 39, 40, again, prior to any transaction-related charges that happen episodically.

[Brendan O’Brien, Wolfe Research]

Got it. Thanks for that color. And then I guess, Ken, I believe it was last quarter that you indicated that you believe activity would accelerate once there was greater certainty around the path of interest rates. Given we are getting closer to the end of the rate hiking cycle, I want to get a sense as to whether you still expect the Fed pause will serve as a catalyst potentially, or do we need to see how the environment or the impacts through the macro economy kind of play out before you feel like strategics and sponsors will feel comfortable dipping their toes back in?

[Ken Moelis, Chairman and Chief Executive Officer]

No, I think look, if you get – if the Fed paused today, if there was a breaking newsflash on CNN, Fed announces it’s done. I think you would see activity rip. I really believe that. Remember, what you are seeing now, though, and I keep – is our fourth quarter, which we are announcing today, is probably transactions that at best started their earth in September, October. The first quarter is a reflection of the activity in the conversations you probably had in October and November or maybe September, on some strategic deals, it could go back as far as a year ago. So, when we announced our quarter, I need to say we are almost reporting on the activity of ancient history. It just takes that long to get to the revenue line. So, the first quarter is going to reflect November, December or October, November, December, some point like that. If – as you said, if you could – if you told me that the Fed announced today that was done, I would say we don’t have enough people. We need a bigger boat. I think it would move very rapidly. Now, I am not expecting that, but you asked the question.

[Brendan O’Brien, Wolfe Research]

Got it. Thanks for the color again.

[Operator]

Thank you for your question. There are currently no further questions registered. [Operator Instructions] There are no additional questions waiting at this time. So, I will pass the conference back to Ken Moelis for any closing remarks.

[Ken Moelis, Chairman and Chief Executive Officer]

Alright. I appreciate everybody’s time and we will talk to you after the first quarter. Thank you.

[Operator]

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.