Moelis & Company (MC) Q1 2015 Earnings Report, Transcript and Summary

Good day and welcome to the Moelis & Company First Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kate Pilcher, Head of Investor Relations. Please go ahead.

Thank you and good afternoon. With me today are Ken Moelis, Chairman and Chief Executive Officer; and Joe Simon, Chief Financial Officer. Earlier today we issued a press release announcing our firm's first quarter 2015 results, which can be found on our Investor Relations website at investors.moelis.com. This conference call is being webcast live on the Investor Relations section of our website and archive recording will be available approximately one hour after the conclusion of this call. Before we begin, I would like to note 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 Securities and Exchange Commission. Actual results could differ materially from those currently anticipated. Our comments today include references to certain adjusted Pro Forma or non-GAAP financial measures. We believe these measures when presented together with comparable GAAP measures are useful to investors to compare our results across several periods and better understand our operating results. The reconciliation of these adjusted Pro Forma financial measures with the relevant GAAP financial information and other information required by Regulation G is provided in the firm's earnings release, which as I mentioned is posted on our Investor Relations website at investors.moelis.com. Following today's prepared remarks, we will open up the call for questions. I will now turn the call over to Ken.

Thanks, Kate. And welcome everyone to our first quarter 2015 earnings call. Since going public a year ago, I'm pleased with the progress we have made in building our franchise. We've continued to enhance our global platform by adding seasoned team members in areas of strategic importance and expertise. We have maintained our intense focus on retaining and developing our talent and have continued to establish deep long-term relationships with clients around the globe. Today I'm going to begin with comments on the quarter, then address our outlook for the firm and finally touch on what we’re seeing in the market. Looking at the first quarter when compared to last year's first quarter, we had a slower start to the year. Revenues were down 13% from what was a record first quarter in 2014. As a result, we reported a decrease in earnings per share as well. While we continue to see significant growth in activity levels with clients, and we are confident in our long term trajectory, our first quarter results were impacted by really three factors. First, the last quarter of last year was a tough comp for us, included several notably large fee events that contributed to a 91% increase in revenues over the prior year. These large fee events also contributed to a somewhat unusual pattern of seasonality last year. Our first quarter 2014 revenues comprised 22% of our full year revenues as compared with prior years where our first quarter has historically been in the mid to high teens of our full year revenue. In the first quarter of 2015, we had a more balanced mix of fees consistent with how our business typically performs. Second, we began to see an extended timeline for certain M&A processes during the quarter particularly with regards to credit sensitive deals such as financial sponsor M&A where we have a very strong franchise. We believe higher multiples and active pressure on regulated banks to tighten the availability of credit was one of the major causes leading to these extended processes and I'm going to touch a little more on this trend later in my remarks. But the good news is that it feels like these issues have worked their way through the system and buyers and sellers have adjusted to what are some of the new capital requirements and issues in transactions. Despite longer completion times, the number of our completed M&A transaction actually increased from quarter 1 2014, and M&A comprised a larger percentage of our total revenues which leads me to a third factor and that is a more subdued restructuring environment. Default rates continue to, I think surprise on the downside and went from 3% to 2% last year and restructuring activities comprises a smaller percentage of our revenues. We estimate approximately 20% of our 2014 revenues were restructuring related, and expect this percentage to decrease through 2015 as our M&A activity continues to grow. We are encouraged by the steadily improving M&A market and our strong and growing of bench senior talent which are driving increased overall activity with clients. We typically look at fees greater than a $1 million as a proxy for transaction closings and had 28 clients paying fees equal to or greater than $1 million in this year's first quarter as compared to 24 clients in the prior period. We are also pleased with the power of our differentiated globally integrated model. The best signal to mean at this, that our model is working is how it resonates with clients around the globe. Just to give you a feel, we are currently advising Hutchison Whampoa, a Hong Kong client on its £10 billion acquisition of O2 in the U.K., the largest transaction announced in Europe in the first quarter. In Australia, we are advising a consortium of investments on the 8.2 billion Aussie acquisition of GE Capital in Australia and New Zealand consumer finance. And that was a second largest transaction announced in Australia in the first quarter. We recently advised Dubai Ports on a $3.5 billion acquisition in Dubai, one of the largest ever public company transaction in Middle East which we wrapped up in the first quarter. In China, we worked on the second largest IPO in Asia-Pacific last year, the 3.7 billion IPO of Dalian Wanda Commercial Properties. And recently our newly opened office in Brazil advised Petrobras on a $127 billion assignment to provide capital markets and debt markets strategies related to liability management, as well as - that wrapped up in the first quarter and as well we had significant transactions for clients in India, Japan and Africa. In only eight years, I think we have built one of the most successful broad and diversed global platforms. So, we feel good about current activity levels and expect to generate continue revenue growth in 2015. Given the longer lead time we have experienced in recent M&A processes, we expect to see this growth manifest itself in the second half of the year and that will be driven by two key areas; First, M&A activity. M&A activity continues to steadily improve and we all participating. All of the fundamentals for a long term steadily improving cycle remain in place. And second, we are growing and developing our team. We continue to invest in our talent and to enhance our global franchise. Today, we have 99 Managing Directors which is up from 87 Managing Directors at the time of our IPO. And we have recently hired another four who will join this summer and strengthen our capabilities in sectors that we expect to be active. For the full year we believe we could have a similar number of Managing Directors as we did last year. Just to remind you, we think of hiring in two ways. One, just opportunistically. When we see a creative talent become available, we are prepared to move quickly. And two, strategically. Over the past few years we invested in our team in Europe where we now have almost 70 bankers, including 19 Managing Directors. We also recently hired two Managing Directors in Europe who will join us this summer and will cover chemicals and oil and gas. We believe we are well positioned to capture market share as European activity improves and it is improving. The dollar volume and number of announced transactions over 100 million was up 9% and 8% respectively over the first quarter in 2014. And our team generated continued revenue growth this quarter. We also continue to be focus on enhancing our coverage of the energy sector where we expect restructuring M&A and other strategic activity to pick up towards the end of the year. Additionally, we are exploring incremental distribution talent for our private funds advisory business and we will probably look to add senior M&A expertise in the U.S. So in summary, we’re confident about our growth prospects for the year. We expect to achieve revenue growth in 2015 and we believe this growth will manifest itself in the second half of the year. While some of the trends that contributed to a slower first quarter have continued into the second quarter, it does feel like the market is beginning to adjust and buyers and sellers are getting back in sync. With that, let me turn the call over to Joe, to discuss the financial results in more detail.

Thanks, Ken. I'll take a few minutes to highlight some key points and metrics contained in the press release. Compensation and benefits expenses on an adjusted Pro Forma basis were $53.9 million for the first quarter of 2015 down from $60.1 million in the prior year period consistent with the decrease in revenues. This resulted in a compensation expense ratio of 54% for the quarter, which was higher than the 52% reported in the prior year period primarily due to an additional tranche of equity amortization expense beginning to accrue in 2015. As a reminder, we report a lower than targeted total comp run rate expense due to the incentive equity reset that occurred last year when we accelerated the vest of MD equity, which we've discussed in previous quarters. First quarter adjusted Pro Forma non-comp expense were $22.6 million, which is up 12% from the $20.1 million reported in the first quarter of 2014. The increase over the prior year period reflects increased headcount and greater recruiting and business development expenses. Our first quarter non-comp ratio increased to 23% in the first quarter of 2015 up from 18% in the prior year period as a result of a 12% increase in operating expenses and 13% decline in revenues. Non-comp expense is largely a function of headcount. Last year our average cost per head was approximately $175,000 per year. We expect that 2015 average cost per head to be broadly consistent with 2014 and we continue to target our non-comp ratio to be 15% to 18% each year. Our equity investment line reflects two investments which were both positive contributors to net income. Our Australia JV contributed approximately $300,000 in earnings, while on equity interest obtained as part of an innovative advisory of assignment fee structure resulted in $2.5 million contribution for the current period. On an adjusted Pro Forma basis, we assume that all partnership units have been converted to shares so that 100% of the firm's income is presented as if tax is a cooperation at a current effective tax rate of 40%. This compares with last year's tax rate of 40.5%. The resulting adjusted net income for the first quarter of 2015 was $0.28 per share as compared with $0.36 in the prior year period. On April 23, our Board declared a quarterly dividend of $0.20 per share consistent with previous quarters to be paid on June 9 to stockholders of record as of May 26. During the first quarter we bought back approximately 135,000 share equivalents at an average share price of $31.84. Our goal at this limited buyback was to neutralize the basic share count accrete associated with actual and projected employee RSU vesting this year. It’s important to note that we intend to keep basic share count flat. Until we begin a more aggressive repurchase program, you should expect to see an increase in diluted share count given the new tranche of annual equity awards we just issued together with the prior year's awards, which continue to vest. Finally, we ended the quarter with the strong financial position with $107.9 million of cash and short-term investments and no debt. I’ll now turn it back to Ken.

Thanks Joe. I want to spend just a few minutes on the market and our outlook and conclude with the investment teams that will drive the company. As I have articulated since our IPO, we believe it’s going to be a long and steadily improving cycle. I think this is evident based on our conversation with clients and when you look at the data. The dollar volume of global announced M&A transactions over $100 million is up 14% over the first quarter of 2014. But as we have discussed, we believe the number of transactions is more indicative of revenue potential and this number is up only 3% from the prior year period. But that's not the whole picture, when you look more closely at the day the different trends emerge for large cap and mid cap activity, while the number of transactions of over $5 billion almost doubles versus the first quarter of last year, the number of deals between $100 million and $5 billion was basically flat. So while the M&A market is improving, some of the headline deals are suggesting a more pronounced rebound than what we’re seeing in broader markets. And to be candid we were surprised by this trend as relative to last year does feel like deals are taking longer to get to the finish line, particularly with regards to credit sensitive M&A. Again, we attribute this to a few factors. Last earnings call I think I spoke about M&A activity being driven by the seller, stock prices increased and sellers become confident that they can receive value for their company and M&A begins to pick up. This was the dynamic last year, which led to an acceleration of activity and high valuations achieved for sellers. Today, the seller's expectations continue to be high, but we’re seeing a bit of mismatching terms of what buyers especially credit sensitive buyers are able and willing to pay. And by being able to pay one of the key ingredients is financing packages. The big banks are feeling regulatory pressure on leverage transactions, which means financing packages and buyer's ability to pay on credit sensitive deals are being impacted. And by willing to pay, we mean buyers are generally being more disciplined as they face either lower levels of leverage when they evaluate opportunities or higher interest cost as many of them are now tapping the shadow of banking system in the unregulated sectors, which are charging more money. I do think that most of these deals cross the finish line as buyers and sellers are becoming more willing to adjust, and we will continue to see the M&A environment improve in the second half of the year. With regards to restructuring, we're more muted on the near-term opportunity given micro trends. Absent activity in certain sectors like energy, the continuation of low interest rates and low default rates means activity will remain relatively soft. I believe we have the leading restructuring franchise globally and it includes about 12% of our managing director population. We’re going to keep the team in place for when the cycle comes back. I’m pretty convinced that it isn’t a question of if, but when, given the tremendous amount of debt issued in recent years. And if you look back on the last cycle, I don’t think in 2006 or early 2007, it was apparent how hard the cycle would hit in 2008 and 2009. So I don’t think they will give you a lot of warning, but we want to be ready for it. So what does this mean for Moelis. In looking out over the rest of 2015, we expect that M&A will continue to drive our revenue growth and will offset the low level of restructuring activity. As we look longer term which we believe is the best way and really the only way to evaluate our business, four key investment things will continue to drive our value. These are our number one, we operate with a singular and intense focused on clients and relationships. Clients are at the center of everything we do whether M&A or restructuring, our goal is to retain our clients through the cycles. Number two, the strong market trends I think it's easy to create opportunity here for us. We think M&A upticks, which we expect to continue for a while and what I feel will be a restructuring uptick, which is just a matter of time. We're well positioned to capture these opportunities. Our globally integrated one firm model is unique and I think the clients appreciate it. And finally, with over 60% of our firm owned by employees we operate these owners with extraordinary financial discipline. And every decision we make, our interest are aligned with our share holders. With that I want to thank my colleagues for their continued hard work and dedication and our clients for the continued confidence in our capabilities and our shareholders for your strong support. And now, I’ll open it up for questions.

[Operator Instructions] Our first question comes today from Brennan Hawken with UBS.

Good afternoon. So Ken, just a quick question on MDs, I think you had said that you expect it to add the same number as last year. But just to math on where you’re today with 99 plus the four coming in the summer, I think that would put you above next year. Would you not being overly precise in your numbers or were you telling us that there’s - that there might be some turnover?

No I think, Brennan, not overly precise in the numbers I think we will add a couple of more this year and I don’t see a lot of turnover, no.

Okay. Because I just wanted to verify, because I remember there was somewhat episodic reasons that you had highlight in the past, why MD turnover was happening after the IPO and just to verify were you through that noise?

Yes. I think last year, right. I think last year as you said, we had some people that - we had some turnover that was planned for a long time and this year, one of the things I see within the firm which is, I’m very proud of is enormous stability in the workforce. And I think that’s very good for the firm and our workforce has been extremely stable. I do not think, I’m not going to say this because it will jinx me. So I won’t - I’m going to say when I was about the say, well just say it’s been very stable.

Got it, all right. And given some of the investments you guys made in Taiwan, is there the potential to put upward pressure on the comp ratio this year?

I think we would be able to hold our comp ratio, we feel, Joe you want to talk to them?

Yes, again I think the overall - we’re relatively comfortable with the comp ratio obviously it’s a function of a number of things but we think that we will hit the 54 plus.

Okay, great. And then last one for me, you had highlighted and talked a little about the credit sensitive deals in your comments Ken but given regulatory pressure on leveraged lending there, do you think that there is the potential that there just might be less availability of this credit particularly at this stage in the cycle, and it actually might do more than just draw the timelines but might actually result in less volume in that part of the market?

Probably on the margin it would, maybe that's why the number of accounts was flat, maybe on the margin it would but we’re seeing the shadow on regulated banking systems step in pretty actively. I mean a lot of these companies that are being created by the private equity firms and the credit hedge funds are stepping into provide it. The interesting point is, it’s more expensive. Those prices are different on interest rates and terms and that ultimately does affect a buyer's willingness to step up to the level of price that was expecting us. Look as I said, some of these processes they get rolling in September, October, November they don’t happen immediately. And so when the market changes a little bit it’s like you would have a bit of a mismatch on expectations and I think it just takes a little time and it comes together. And we’re seeing that. Now, I think on the margin maybe you’re right, maybe some transaction doesn’t get done that would have, but I think most of them will find a way to happen. And that is why one of the reasons you’re seeing some of the big private equity firms put together credit, shadow banking credit opportunities and the opportunities have such growth orientation because there is a real need it for right now.

Terrific. Thanks for the color.

Your next question is from Devin Ryan with JMP Securities.

Hi thanks, good afternoon. So it sounds like just based on the comments that the year seems like it is shaping up to be bit more backend loaded, and I think that's consistent with what we’ve heard from some others. So just trying to dig into that comment a little bit and then get a sense of how much visibility do you guys have into the back half of the year now, meaning should we take those comments as kind of a view of the current backlog of announcements and then the backlog suggesting that or more just a general comment based on the overall tone of the M&A market and some other factors that you mentioned are kind of cleaning up that were holding up deals?

Well look, I hold myself to high bar when I have these calls and I wouldn't say it if I didn’t think we had looked at our activity level and feel we can make that statement. As I said, which I hope it answers your question, not hope we can make it, but I will say this – it is - this business is tough even on this quarter as we got through it. It's interesting to me how difficult it is to know where you stand two months into a three months quarter, it’s not a quarterly business and I don’t - and I hate to talk about it on any three months basis. But a short answer to what you asked me is, I wouldn’t say we expect growth and have it backend unless, I expected it and wasn't hoping for it.

Yes, got it. Very helpful. And then just with respect to Europe, we have been hearing some better commentary, I think this earning season just around Europe and QE seems to be having evaluations and confident seems to be improving a bit, so I know there is still plenty of issues but based on what you’re seeing, it sounds like also a better view there and so if that’s the case, what type of ramp do you think we could see in Europe just based on your conversations and then also with respect to cross border M&A activity into Europe with the weaker Euro, how do you see that playing out as well?

I think we might see that, look the 8% or 9% I talked about on number deals and I think that’s kind of what we’re going to see again. It is hard to predict, we are seeing a pick-up in cross border Europe and activity levels then what will be interesting is with the drop in the euro do you just have a higher level of business. Will European business would they should, I mean there is a 30%, 40% decline relative to U.S. dollar, will they start to just generate business, feel more optimistic and start to do more and more M&A. I think yes, the idea of the U.S. going into buy European business, I think the answer to that is probably but again these things are episodic, they’re very specific to the company that you’re talking about and I really find it hard to give these global predictions when most transactions are done through very firm specific reasons.

Okay got it and just lastly speaking of episodic, we’ve had some deals canceled here recently for antitrust reasons and there always seems to be some whether that is impacted but do you see as an increasing impediment for large deals or does the story do you feel kind of overplayed with respect to the impact on the overall M&A market?

On the overall M&A market, I don’t see it being a tremendous, but that deal alone was a tremendous impact. So by definition it impacted the statistics. That was a very specific deal, again there maybe deals that are being contemplated but it does affect. I’m not in every board room. So there could be somebody who is contemplating doing something on that order of market share that you might not read about but it is hard for me to report to you the dogs that doesn’t bark. So I don’t know.

Got it. Okay. Thanks for taking my questions.

Our next question is from Ashley Serrao with Credit Suisse.

Good morning, Ken.

Good morning.

Sorry good afternoon. So it looks like some of your private peers are also investing to expand, so curiously hear your thoughts on the competitive landscape here, just both for talents and deals?

So on talent, I think it’s not, it is has not gotten a lot harder, it has not gotten a lot easier. I should think what has happened is a lot of the people you wanted to go after have settled in, I’m not sure the pool to go look after is what it was in 2009, 2010, and 2011 when we were gone out there looking in a lot of people were looking to changing career. You might have Ashley maybe slightly more lead behind as people’s competition and stocks have gone up. But it’s not, it’s not enough to chill the order of doing a higher if it’s a quality person. And I don’t see it being affected really by the number of players because I find that the world just kind of shifts around. Some banker leaves one place and puts up a single, doesn’t sell. So it’s kind of the same amount of things going on under different roofs in lot of those places. Same with the clients, look I think the key on that is going to be and where I feel very good is the key is going to be do you have a culture in an environment that can create talent and that can repeat and create new clients over long cycles. That’s actually the question that I think if you’re – because I think you’re referring to sort of the number of people who had said they are going to go out and create new investment banks or boutiques and I do think there is a lot of great bankers but I think the ability to create a long-term cohesive culture around a system that can create clients, new clients around the globe like we talked about earlier in the presentation is a very different thing than having a great banker, can’t be a great banker.

Thanks for all the color there. And then as you think about the your vision for the franchise, want to hear your thoughts on where are we in that investment for growth that you mentioned Europe and private fund placement but how you thinking about the overall size of the firm and investment opportunities beyond some of the things you mentioned on this call?

I feel like there is a lot of growth, I will say this because I say it inside the firming wake up couple of times on some Monday mornings and we’re not in every deal. It’s amazing but we’re not and so I think there is a lot of room for us to add talent, we are very busy working, we’re working hard at places on fully loaded on its work effort. And I think with interest rates, I believe interest rates will stay low longer than people think. I do believe people have to, I think about how they’re going to consolidate expenses in a very low growth environment, I think the GDP report of today was it today I think yes, continues to show that you’re not going to get your EPS through top line which means that throughout the world you’re seeing people but they’re not doing a transaction, they’re thinking about, they’re thinking about it. There is a lot of activity and lot of conversation. So I believe that we have a long way to grow and it goes again to you’re the answer I gave before, I believe there is a lot of great bankers in the world but to create an institution that can replace itself train people, b on all those – in all those offices when I went around the world and talked about our transactions and follow your clients so that they can stay with you and grow with you and not just transact with you once, twice is very more difficult than people think. And I think that, and I think we want to continue to be that firm and build that firm.

Thanks for taking my questions.

The next question is from Vincent Hung of Autonomous.

Could you talk a little bit more about the equity interest you received as far as this advisory assignment, is that unique or is it something that is going to become more prevalent?

I am going to let Joe talk about it but it was unique, it was good idea but of course it causes a question. So Joe?

Yes the background is what we received a cash fee and we also took an equity participation and the performance of our pool of assets which we did alongside our client. So far it’s worked out well. But it’s not something that we would see as being something that you should expect quarter-after-quarter.

We have an innovative banker on the transaction and that’s the way he structured his comp by the way there was a substantial comp fee that you remembered, want to share it Joe?

Well it is basically it was over two years, so some of that was last year, some of it’s this year, I missed out this element of obviously struck this year.

Okay. And what does the year-on-year in restructuring?

Again we don’t break it out. But I think if you look at the default rate, it kind of gives you a flavor.

Okay. And you said last year was 20% revenues approximately?

Yes overall -

We heard from several investors that it would be helpful to kind of broadly to mention it, again this is broad it is approximation, we don’t have an internal process to capture this information in a systematic way. We think overall there would be some issues what’s kind of coming up with more specific definitions and putting that infrastructure in place and so we thought it would be helpful for the investors to at least have an understanding in a broad way what the dimension looks like last year and basically the direction that that we see it happening going into 2015?

Okay just lastly on your comments around the issues around leverage financing the transaction. Are the rating agencies above high yield versus leverage lending that is that when you get weakness in leverage lending sometimes you get handle into high yield, so why do we see that in the circumstances?

You could be – you look you could be seeing that but that is – that is usually much higher, I mean in the capitalization if you’re going to try to pay a 11 times EBITDA for company and you want to borrow seven whatever the number is A, you can borrow seven in regulated environments but I am speaking very broadly so there maybe exceptions but second the interest rate will be vastly different between LIBOR floating bank first lien or second lien and a high yield fixed rate longer term instrument. And that will affect the models on returns which will affect the price, which will cause a process to result in a better not being where you thought they would be before the bank market tightens up. So it can happen but it also takes an adjustment because somebody is going to pay a higher interest rate.

Okay, thanks a lot.

The next question is from Betsy Graseck with Morgan Stanley.

Hi thanks good afternoon. Couple of questions one about the outlook for the backend activity moves higher just wondering is that more a function of completion of currently announced deals or is it more a function of new expected announcements that in the pipeline?

I think what I said earlier is a combination of because there is a lot of things that we are involved with it is not announced but are in process. And so what I said earlier and I will stay with this, it seems that we can and expect and not things that we hope show up in the future. We have a real but the reason we’re saying is because we at this point have reason to expect it.

Okay. And then the second quarter was just on the European rate environment, I know you mentioned quite – on Europe and probably just wondering specifically on their rate environment an how that is impacting the share?

Well I think there is a couple of things by the way on international, we talked about in restructuring, if we see any level of restructuring that is coming about some of the energies as could be it depends where oil ultimately settles out but it is interesting there are places around the world that are have debt in U.S. dollar denomination, you talked about rate and currency and that might be that where that has happened remember that sort of results in a 30%, 40%, 50% increase in obligation just on currency and if you haven’t hedged it correctly, there could be some restructuring around that. Look again I think we are seeing the rate environment, probably the rate environment is helping business as I said there is I would like to be in the room when certain companies decide how much debt they issue and negative interest rate environment but I think the low level of interest rate and really more currencies than interest rates, I think you’re seeing because the sovereigns is really Europe. The kind of outrageous let me say outrageous the negative interest rates are really around the sovereigns, I think it has to do with ECB buying of debt and capital charges against sovereigns being banks being able to buy sovereigns in that type of thing. So I don’t really view the interest rate as much as the currency is being a large driver of European activity versus the U.S.

Okay got it and then just last from a you mentioned that world is obviously on the drive or the restructuring, could you give us a sense as to how far through the restructuring that you anticipate this will happen on the back of this oil price define you’re through.

In the energy sector or in the world? You mean just the energy sector?

Energy sector yes.

I think it haven’t even began. I don’t think it has even began. Look it happened rapidly, the decline was rapid, there are many, many firms who hedge at least six months to a year out, not unusual at all to not even the feeling yet, the cash flow, the real cash flow decline of the oil price. And the first thing people do is you do anything to avoid default, you will sell your quality assets, you will sell your – first you sell your non-essential, then you will try to sell some assets even if it’s quality to keep current on your interest rates. So look I don’t think it’s even really gotten started, I mean it started I know there are a few firms out there, but if oil would have settle in and call it $50 a barrel for long period of time, I think you see substantially more restructuring than we have seen.

Okay, acceleration begin, we are backend loaded.

In energy look I think energy where cannot – we are focused on building up, we think the volatility in all market the volatility makes decision making very important at the Board and this management level, that's where we want to be. And those decision could be asset sales, it could be M&A and it could be restructuring, depends how it plays out but I do think that you’ve not seen - if oil were to stay, call it at 50, you’ve not seeing the meat of the energy restructuring environment yet.

Thanks. Well done.

[Operator Instructions] Our next question comes from Ken Worthington with JPMorgan.

Hi, good afternoon. So first on credit, have you seen the big banks yet better leverage credit in the balance sheet either win business that they might not have won six months ago or have they started to take a bigger size of advisory fees yet. And I assume the answer is no, but if they haven’t yet how do you and Moelis make sure that such pressure on your firm is minimized?

We know two different markets, so that’s a good question. I do think we’ve seen them use size as a winning tool. So on some of these big transactions where you need to write a check, even though it's not – remember when I say leverage, it’s usually on the high end of the leverage ratios and the bigger public deals don’t have high leverage ratios. But they do need a sized check at the close something Moelis - not one of our highest calls that we provide. So, I think that – they are using that as an advantage and in those particular deals, I do think they’re able to get prior bigger slice of the M&A fee than they would get if there was a pure third-party financier and the M&A was up for grab, that’s my got at least on those types of transactions. On the deals where credit is actually an integral part of the transaction, which happens more in those 100 billion to 5 billion or maybe even slightly smaller than that transactions, I don’t think they’re actually competing anymore on credit, I think they’ve been - I think that was happening right through September, October, November of last year I think the regulators got very strict on extending more credit or less covenants or a whole bunch of things inside of leveraged credits is not a way to finance your M&A business. And so it's a bifurcated market to your question.

Okay, great. So next common theme cross border M&A. What I’m trying to figure out is the stronger dollar better for Moelis in your advisory business or is it a headwind. I guess historically have you participated more on the U.S. to Europe side of the business or the Europe to U.S. side of the business or is there another way to think about whether or how currency either benefits or hinders your business?

I don’t think I can make a statement on that. We try to pay people in their local currency. So we have a natural hedge, well I mean - Joe is looking at me, we don't - we pay them, we size their compensation package to the market that they’re in. So, we do have a natural offset they’re having if we do revenues around the world we have the people there, now like some people have a manufacturing facility in the United States and their sales and in China we have our people usually where our sales are. So I'm trying to think if - I don’t see it, I can't make an observation on it. I think it would be very specific to a transaction where that deal came in and whether - so I don’t see a trend that I can point out to you.

Okay, fair enough. And you're hitting my next question anyway, so for Joe the FX impact on the P&L, how big was it lot of companies that have business outside the U.S. we’ll say, this is the impact of revenue and expenses, so we were hurt by X amount. Were you hurt by the changes in the U.S. dollar? Is there anything unique on how you are paid in business outside the U.S. Are you seeing they're paid on local currencies, you pay your people on local currency so anything unusual there?

So broadly, you’re actually - you’re absolutely right, it’s really a very little impact with respect to the fees that we’re generating, because of the cost that we ultimately have effectively matching that. There was one FX item that went through our non-comp that was relatively manageable and had to do with the capital structure that we've set up - where we set up Brazil with the element of debt, and because the Brazilian currency moved a little bit, it was slightly negative we went though non-comp, but otherwise no particular impact.

Okay, great. Thank you very much.

The next question is from Joel Jeffrey with KBW.

Good afternoon, guys. So most of my questions were asked, but just curious and I apologize if I missed this earlier. In the first quarter were there any deals that that slipped into the second quarter that you would have expected to close in the first quarter?

The answer is yes, but that happens every quarter. So I don't want you to read too much into it, I think – I'd have to say yes, but I'd have to say there might have been in the fourth that slipped in the first and the third just slipped into the fourth, and then probably be one in the second that slips into the third.

Okay. I appreciate the color you guys gave on everything being sort of back half weighted. But in terms of thinking about the second quarter should we think about it on sort of a comparable decline to what we saw in the first quarter in terms of revenues or is it just the impact of 1Q more waiting the first half of the year towards the negative side?

I think I'd rather stay again, this is so - it's too difficult to do one three month basis, and I would like to stay away from it and stay with my full year - that's the way we run the business we really run it on longer term than that. I’m not sure Joel if I gave you an answer to that question, I feel very comfortable that I’ll be right. So I don’t want to stay away from it. As you said, one or two things move one way or the other and you could be - its big percentages. So I feel very comfortable with what I’m telling about 2015 and I’d like to leave it at that.

Fair enough. Thanks for taking my questions.

This concludes our questions and answer session. I would like to turn the conference back over to Ken Moelis, for any closing remarks.

Thanks for all for all your time this afternoon and your effort in covering us and the analyst and shareholders support. We look forward to speaking with you and please call us if you have any questions that we can help you out. Thanks.

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