Moelis & Company (MC) Q2 2020 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Moelis & Company Second Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chett Mandel, Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us for Moelis & Company’s Second Quarter 2020 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, 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 and in our earnings release. 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. A 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. Good afternoon, everyone. We are following the same strategy today that we did during the financial crisis, and that’s investing in the business at a time of disruption and positioning ourselves for future growth. Our strong balance sheet with no debt, liquid financial position and collaborative culture has allowed us to attract and retain exceptional talent throughout this dislocation. We’ve long discussed a few key areas that we believe would be important drivers of activity. Earlier this year, we strengthened our client coverage in the oil and gas sectors, deepened our financial sponsor relationship coverage and increased our capabilities and advising corporates on activist strategies. More recently, we announced the hiring of three additional Managing Directors and one Senior Advisor. One Managing Director based in Europe, advises clients in the healthcare sector, which we expect will be an area of innovation and transformation due to COVID-19 and following. We expanded the firm’s capital markets capabilities with two Managing Directors based in the U.S. will be vital in growing that product offering. And lastly, one Senior Advisor is joined to provide access and advice to companies in the media and telecom sector, an already strong power alley to the firm. So far in 2020, we’ve added 12 managing directors to our platform through external hires and internal promotions. And we will continue to be aggressive in recruiting the best talent for our platform. I know that we have the right talent strategy, capital structure and management team to navigate the current uncertain environment, be very active in the short-term, but also build earnings power over the long-term. I’ll now pass it to Joe who’ll walk you through our financial results. And then I’ll conclude with a few final thoughts on the environment and the business. Joe?

Thanks, Ken. We earned second quarter revenues of $160 million, up 4% from the prior year period. We were able to shift resources quickly to meet the demands of our clients during the quarter. The extraordinary flexibility of our model is highlighted by the fact that over one-third of our revenues were awarded and executed during the second quarter. These revenues primarily came from a strong increase in our capital markets activity and a meaningful uptick in retainer fees, primarily related to restructuring mandates. Moving to expenses. Our first half 2020 comp ratio was accrued at 78%. We’re managing the business for the long-term and believe that we have the right global footprint in place. And as Ken mentioned, we’re adding exceptional talent, so that we maximize current opportunities and are best positioned to quickly strike when broader activity rebounds. Our non-compensation ratio was 17% for the second quarter of 2020 versus 23% in the prior year period, absolute non-comp expenses declined 22% versus the prior year, largely driven by a significant reduction in travel and other business development related expenses. As long as, general travel limitations remain in place non-compensation expenses should remain at or below $30 million per quarter. Moving to taxes. Our normalized corporate tax rate was approximately 25% this quarter. Our taxes reflect a benefit from the current quarters’ operating results and a discrete benefit primarily related to the CARES Act. Regarding capital allocation, the Board of Directors declared a regular quarterly dividend of $0.255 per share. We remain committed to returning all of our excess capital to shareholders. Most importantly, we continue to maintain a fortress balance sheet with substantial liquidity and no debt. We ended the quarter with $194 million of cash and liquid investments and an undrawn revolver. I’ll now hand the call back to Ken.

Thanks, Joe. M&A is picking up and there is a tremendous amount of pent-up demand for high quality assets across both corporate clients and sponsors. Corporates are reevaluating their business models. And I think we could see waves of significant strategic consolidation activity coming. Sponsors have substantial funds to deploy as well as assets, they need to monetize it. And with the continued stability in markets, they will be active. For some highly leveraged companies, the recent liquidity issues were morphed into a solvency crisis. In these cases, our leading restructuring franchise will continue to win new assignments and be strong contributor revenues over the long-term. And perhaps most interestingly, during the quarter Moelis & Company advise on 14 capital raising transactions placing nearly $14 billion in capital across both equity and debt. We achieve this without the overhead of sales, research and trading platform. And in a disruptive environment like the one we were in today, we see a unique opportunity for our firm as companies favor the speed and discretion of our asset-light independent model. In conclusion, Moelis & Company is responding even better than we could have imagined during the early days of the pandemic. Our bankers are very busy and in fact, we have seen an increase in new business activity versus this time last year. As a result, I’m confident about the firm’s future growth outlook. And with that, let’s open it up to questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ken Worthington with JPMorgan. Please go ahead.

Good afternoon. Ken, just following up on your comments just now. M&A is slowed, restructuring has picked up based on what you’re seeing now and based on your knowledge of your pipeline. Is it fair to say that maybe 2Q is the bottom for Moelis revenue? Could it be 3Q does a weakness extend to 4Q, what are you seeing as sort of the outlook here for revenue versus the 2Q that we just saw and what are the factors that are going to determine if earnings further soften from 2Q levels or rebound in the quarters ahead?

Thanks, Ken. So look, we’ve tried in the most stable of markets. I have tried and succeeded. I hope in not giving guidance by the quarter. It’s really just too tough. Like I haven’t said a one-third of our revenue last quarter was awarded and executed within the quarter. So we don’t, these are volatile, volatile times. I’m going to give you this though, Ken. My sense is that the inactivity in the M&A market has definitely bottomed. I mean, I sent a very strong desire to participate in M&A. Especially for high quality assets, and then May start to get driven a lot by financial sponsor activity. But I thought it really started six, seven weeks ago, and then went on a slight pause as we had another biking COVID cases, which sort of made people, I’d say stutter a little bit. But as of today, we see a tremendous interest. People are saying, look, we need to buy quality assets. We are going to buy them. And if we have to over equitize for a while, we don’t mind, doing that, we want to own them for 10 years. We think the current environment is temporary. So I’m pretty bullish on the amount of activity that we have and that we are accumulating a backlog, it’s just too fragile environment. There are things that, like I said, this started six, seven weeks ago, and then a spike in cases in the South and West, which came out of the blue or let’s put it this way, it was not easy to predict. So I’m just not going to go quarters, Ken, because I think, there’s some – there’s also an election going on. So there’s lots of things I have no control over. But I do want to say, I feel strongly that people are getting back to business.

I think it’s fair enough. And then maybe as a follow-up, how do you see the money center banks as competitors for fees as we look forward in M&A, and some would suggest the banks have strengthened their relationships with their corporate clients with loans and other banking services, lifelines in some cases, and that this will result in more allocations of the M&A fee wallet to the bigger banks. Do you think bolus or the boutiques broadly will have to share more on M&A fees with the banks going forward over the next, I don’t know, year or a couple years, or is this sort of a thesis just complete garbage?

I haven’t heard to see this, but I don’t buy it. Number one early on in this crisis, there were some severe tensions actually. I wouldn’t call them a friendly were really severe tensions. We had a couple of clients that just couldn’t believe what happened in their bed. And I’m talking about, very early March, April till the fed opened up the spigot. But I can tell you that some – once you see a good friend of your show their teeth to you, I think, they have teeth forever. And that tone changed after the fed came around and all of a sudden money was available. So number one, or there may be some truly rescue financings that are on the hook, but those are few and far between, I think when the fed opens the spigot and there is just tremendous access to the bond market and finance. It’s your privilege to lend to the company not because, your company is real. It’s not the 2009 crisis, where people are desperate to get money. They’re getting it, and they’re getting it in the public markets. Some of the biggest loans right now are being made by what we call the shadow market, which has gotten fairly large. Some of the sponsors are actively competing on some fairly significant direct lending. And I continue to believe by the way that the middle market will run into significant trouble European banks in their credit quality, their capital ratios, this is not over, this is just starting, I think, in the real economy. Forget the S&P 500, even the Russell, there’s 10 million small mom-and-pop companies in the United States. They are not thriving and they don’t have access to this money. So the loan books against those assets, I think will continue to cause difficulties for some of the large banks. Now that’s a long answer to, I really don’t believe it. We raised $14 billion, some of it in common equity or some pretty significant companies. The fact is, I think we disintermediation – I think some of the large companies on some of their products. And we weren’t really – that wasn’t a strategic – it wasn’t a strategic decision by us, we just have sitting there and could execute it. So if it may become a strategic initiative as we go forward.

Thank you very much.

The next question is from Devin Ryan with JMP Securities. Please go ahead.

Great. Hi Ken, hi, Joe. First question here, just love to get a little more perspective on the compensation strategy this year, obviously, big uptick in the second quarter on the comp ratio and just like think about whether something changed on the full year view competitively or just on the revenue outlook. And I also appreciate the back half environment is pretty uncertain at this moment, but are there any parameters for us to at least think about the relationship between revenues and compensation in some different scenarios?

Yes. So that’s a fair question. When we last spoke to you, I think it was the second week of April. And I truly had no clue. I think if you go back and play the tape, I think I said, we truly have no clue what’s going to happen next. And it seemed pretty like there could be a dire outcome. So we didn’t accrue much bonus because we didn’t know whether would be a business? I mean, I assume there’d be a business, but I mean a healthy business. By the second quarter and this quarter, we feel pretty optimistic. This is – and I want to make sure, this is accrual for the first half of the year, what we now see as the run rate. We – it’s almost – it’s really a bullish statement that, hey, we do think that there’s money and we’re going to have to pay a bonus pool. In the first quarter, we weren’t sure. As to what the run rate of the businesses would be in an environment where everybody was locked in their homes, it’s almost there’s a catch up. The second quarter is a catch up, puts us on a run rate for the first half, which reflects the first half, what we see for the first half. I’m going to try. Because I have a feeling 10 people ask me this question. So I’m going to try to lay this out. We don’t see this year as a year of ratios. So I’m not going to answer this year. It’s a COVID year. This is a year I want to get to December 31, whatever bonus payment date is. And what I want to have is a strong balance sheet, the great client set, I want to retain our talent and I want to grow. I want to grow. And as you noticed, we have been hiring people. And I don’t think that the revenue run rate has anything to do with ratios. It’s just, this is a black swan event that is happening and we’re not going to live by a ratio to set ourselves up for 10 years of growth. This happened to us. We happen to be private in the last crisis. And I started by saying that. We took advantage of it because as a private company, we didn’t have to think about that. And then we set ourselves up for 10 years of spectacular value creation from 2009 to 2019. That’s what I see happening. And so I want to divide it into that period. If you’re paying attention to my – for the ratios this year, I’m really not. I’m paying attention to quality of the franchise, quality of the client base, quality of the balance sheet. Then we’ll have 10 years. And then after that, I do think we have a moment here, Devin, where we can a stepped function, grow the company, again. I continue to believe, life will be difficult for people who have bad balance sheets. And by the way too, to Ken’s question, no matter how strong you say you are, if you’re a major financial, you’re levered 10 to one, we are leveraged zero. I still think we can take advantage of that and hire and significantly expand our footprint in what I think will continue to be a difficult environment. So we may run into an elevated comp ratio even post this year. But then after that, we will settle back in. And I think we can run the business as we did for the five to six years post that expansion period of 2009, which was the old comp ratio sub 60%, and get back to that model, but do it in a format that I hope is twice the size of the franchise that we had coming into this crisis.

Great. I appreciate all the perspective there, Ken. And then maybe a follow-up just on some of your commentary on M&A recovering recently, I guess, I’m just trying to dig in a little bit more there, and I guess whether you’ve been surprised by the resumption in activity and engagement and really just is this normal kind, of course, of conversation where buyers and sellers are starting to kind of re-engage and move forward on an actual transaction where there’s a reasonable probability of getting to an announcement. Or is this kind of like the stage before, actually, we’re kind of doing the work meaning that, the backdrop is still pretty fragile. And so there needs to be a broader economic reopening and more confidence for prime. Many of these deals actually get to an announcement. I’m just trying to think about what it means that engagements kind of even ahead of where it was last year?

I think people are ready to transact. That’s – I think they got setback a little bit. There’s a lot of – look, we’re in a good part of this market I think. We’re in the high quality, a lot of our flow businesses and high quality sizeable assets in sponsor land drives a lot of our middle market business. And they’re higher quality. And we’ve had calls where people were looking at them in March, and then we went on hold and people come up and say, we’ve thought about it. We have to own that asset. If it’s a good asset, we’re going to underwrite it and we want to bid on it. And we’re starting to see that there was a pause in March and April, but it’s coming back and I think they’re ready. It’s not everything, but on quality assets that you’d want to hold for 10 years, there are financial institutions, especially, and by the way, we’re seeing sporadic corporate strategic. I think on the corporate strategic what’s happened is, people really did have to take care of certain things like their own people. There was a lot of distraction, I mean, I shouldn’t call it a distraction. I should call it focus on the health of their people worked from home. There were higher priorities than strategic M&A. But in the financial sponsor world, that is their basic business buying and selling companies and they’re ready to go. And I believe that we will start to see high quality assets execute. And fairly, rapidly as people get concerned that they’re missing the opportunity to have gotten the assets they wanted.

Yes. And just to put a finer point on that, just to kind of conclude the question. We’re working on different answers, I think from companies on earnings calls and this earning season around kind of their views of the outlook, and some are talking about green shoots, some expect it could remain slow throughout the remainder of the year. And I’m assuming it kind of depends on where you’re focused to the M&A markets or not. Obviously, one thing, and there’s a lot of nuance to different parts of the market geographies customer base, et cetera, I think, as you just mentioned so. Is that kind of the right way to think about it, that there are pockets of very active kind of buyers and sellers and there’s areas that are probably going to remain slower for an extended period of time? Is that the right read?

Yes, I think it’s going to be different. I think right now, what we see is kind of sizable high quality assets in industries that are not directly COVID related, like travel and leisure. Our people will find a way, since, how do you do due diligence? Well, if you can buy $1 billion or $2 billion asset, you think that asset is extraordinary, I’ve noticed people find a way it’s an entrepreneurial world, not everybody’s shutdown. People want to make money and they will find a way to get the diligence done. And those transactions are both large enough to attract the banking market. And they’re large enough to attract financial institutions that have funds to put to work and they are going to do it. I have a good think, that’s a good point, Devin. It might be the meat of the market might be in that very high-quality sponsor market right now. But I think corporates are starting to rev up and come back into it. Look, I think that’s probably where it’d be ended up, it’ll be different industries and different size. And right now it’s being led by quality assets first. People are almost calling us up and saying, remember the quality asset I want to bid on that. I like that process to start again. And I’m willing to go back to where I was – in terms of…

Okay, great. I’ll leave it. Great, I’ll leave it there. Thanks a lot, Ken.

The next question is from Manan Gosalia with Morgan Stanley. Please go ahead.

Good afternoon. Maybe if you can speak a little bit about restructuring, I think you’ve said before the restructuring activity can easily double somewhere it was pre-COVID. In a case, talk about how the environment and maybe your thinking has evolved after the fed actions earlier this year. And do you think that some activity has come out for good or has it just adding more leverage in the system and maybe expanded the way of restructuring that you could have over the next couple of years?

Well, that’s why we never break it out in a line item, because it does divert. So a lot of the capital market stuff, not all of it by the way, but some of it was started out as restructuring and went to capital markets that I talked about. I do think it’s restructuring and will continue – there is additional leverage in the system. I believe that most people, when they think of a recovery here, think of going back to – maybe revenues across are down 5%. I think a lot of people like right now, I would have been happy with that, after what I thought was going on. But remember a system that’s levered to EBITDA, if revenues go down 5% or 10%, most companies were built to grow revenues, not to even have flat revenues. And if your revenues are down 5%, that might mean your operating income is down 20%.

And if you’re levered on that and if you’ve levered that you’re going to go into a restructuring one day and the fact that you were able to obtain liquidity to get yourself through COVID buys you time. But if the ultimate run rate of revenue is down 5%, 7%, 8%, because the economy is suffering, you’ll end up in restructuring with more debt just later on. So I’m very bullish that we could actually see. I think we could see both of these. I’ve never had it in 40 years. I’ve always – it’s always been talked about like, could you have both businesses go at the same time. In 2008, 2009 now there was no M&A, it was all restructuring and then M&A came back in 2010, 2011. I think M&A is going to come back, I 100% feel that. And I don’t see how we don’t have a very long and protracted restructuring cycle as well. So I think both could hit.

Got it. And then I guess I was wondering if there’s any update on how you’re thinking about the dividend side. I mean you sound a lot more optimistic on the M&A side and as restructuring continues for maybe one, two years, it looks like you have a better line of sight into 2021. So is there an update on how you’re thinking about dividends? Is it still more congestive to take it on a quarter-by-quarter basis? Or do you think you can opt to the level of dividend maybe in a quarter or two?

Look, there’s one thing I hope I have a good record of is, given back money as quick as possible, we don’t need it. We don’t want to waste your money. I’m being very conservative because I still don’t believe I singularly control the future – not me, but our management team. I believe there’s externalities out there right now that I don’t understand. I’m not a doctor, I’m not an epidemiologist. So we’re just being conservative. And as soon as we can, we’ll give them – we want to give you all the money back. And because want to make sure that there’s a really strong company and that we take advantage of it and we don’t have to do something silly because we get tried to give the money back too quick. So yes, did we think about it? Yes. Do we think the coast is clear? No.

Got it. Thank you.

The next question is from Michael Brown with KBW. Please go ahead.

Thanks. Yes. So Ken I just wanted to start with question on the comp. I appreciate all the color that you gave there. But I guess COVID environment or not. I just like to try and put a finer point on the trajectory of the comp expense, not necessarily the ratio here. We don’t know how the back half will play out, but I’d say it’s probably fair to expect that this year could be a softer revenue environment. So that intuitively could imply a lower comp dollar for the full year. So relative to last year’s $470 million number, is it fair to expect that it could be lower? Or what are some of the puts and takes that I’m not really considering there. Thanks.

Well, yes, the answer is I have no idea. And the puts and takes you’re missing is, I can’t tell you plus or minus a big number, what our revenue will be. And it’s not just because of our backlog. We have good backlog. I don’t know what’ll happen. I don’t know what happens with the election, what happens with the fed, what happens with the virus. And so I’m being conservative on it and the answer is, yes, I do think it could be less. And that’s why in the first quarter, I reflected that in our accrual, I just felt like, hey, I didn’t know where the business was going and we were prepared to pay less. I think you should take it by our accrual this quarter that I actually think we are very confident in our business model. And so we see the probability that we’re going to pay a bonus pool, and we’re going to pay people to be here. And because – and this is the last point, and I know somebody had asked this question privately, who comes first, the employees or the stockholders. The stockholders come first. Every decision we make is for the stockholders, but you would not like Moelis & Company without its employees and without its talent and without people working hard and knowing that they’re motivated. So we’ve kept a great set of talent. We have hired tremendous people in the downturn. We are continuing – we want to do that, we want to be even more aggressive. This crisis has not made as much talent available because it didn’t hit the financial institutions first. The 2008 crisis first hit financials and secondarily hit mom and pop enterprises. My feeling is, this is first hitting smaller enterprises. It will hit the big financials over time. And so we’ve got to be patient, but we think there’s going to be an opportunity to significantly expand our talent base at the right time in the cycle and are excited by that opportunity. So I don’t know if that answers your question. But the best thing I can say is, if this year’s comp ratio is the reason you’re owning our stock, that’s a bad reason to own it.

Okay. And actually I just wanted to follow-up on the hiring side since you brought that up. It sounds like to drive that growth, you’re going to really need to increase your hiring activity. But really with the big banks this time around, they’re not really the problem and they’re actually putting up some impressive results on the institutional side. So what – I guess, where are you expecting to get a lot of your hiring from? And what’s going to be kind of the push in this time to help you drive some of that hiring to support the growth that you’re expecting from this cycle?

I think the banks put up great numbers because of volatility and they are in the trading markets. And the second quarter was a great place to be in the trading markets. And that might cover you for a while. I’m not even sure it’s maintaining that level or not. I’m not – I don’t do it for a day. But I do think loan books will deteriorate our restructuring backlog. Is there future reserves? And if, I think you’ve heard from all the boutiques, they think their restructuring cycle’s going to be large, that comes out of somebody’s lending book. And I think that is an opportunity and it will be there. Then I think, there’s been a lot of expansion where people decided that they would venture out into – they’re starting – do their own boutique, start their own boutiques. It’s going to be hard. I think that if you’ve started and you are – what used to be called a kiosk, you’re a small player and you have 10 people in your employ, I think it’s going to get tiresome to maintain that payroll, if your specialty is M&A, and there is no M&A. So look, I think there’ll be opportunities. This is the first four months of a crisis in which there’s now 30 million unemployment. I don’t think it’s over financially.

Okay. Thank you, Ken.

The next question is from Brennan Hawken with UBS. Please go ahead.

Yes. Good afternoon, Ken. How are you doing?

Good. How are you doing?

Good. Thanks. I just wanted to dig in a little bit on the deals that were both started and completed this quarter. Could you maybe help out with the composition of those? They’re not typical for your company for sure, they happen sometimes, but not often. Where they all capital markets? Where there may be some restructuring deals that you were able to get completed quickly? Even if not, quantitatively maybe give us a qualitative description of some of that if possible.

I think what I meant to describe, I’m going to ask Joe, if he knows if there’s a restructuring. I think they were mostly capital markets. They were, hey, we need – I think it was capital markets, which moved quickly. Joe, do you know if there any?

Yes. It’s primarily capital markets, but we also had an enormous uptick in restructuring and therefore the retainers, it’s not a question of completion. But it ultimately – it starts to develop retainer fees, which ultimately enhance the revenue picture for the quarter.

Sorry, Brennan. I think we included monthly revenue that started and because we get paid on a month, it’s executed by the month, so we probably included us.

Got it. Okay. That makes sense. And then understanding, this is not a year of ratios, as you said, so that’s very clear. And so we’ve got 2020 and 2021 where comp ratio is going to be elevated. That seems to be the message that I heard. And I get it that you are not interested in trying to understand in the middle of the year, what the bonus pool is going to look like at the end. That’s very loud and clear. But we’re still stuck trying to model you and your shareholders are trying to understand what the operating leverage is going to look like when we come out of this. And so, is the best way to think about it, it look – it sounds like what you’re saying is, this quarter wasn’t really about this quarter, but about the first half. And you wanted to try to accrue based upon your sense of what you would think an incentive pool would look like for the first half of revenues. I just want to confirm that that I’m hearing that correctly.

Yes.

Yes. Okay.

And I’ll just stop and say, you heard that exactly correctly. And the reason on the first quarter was – I really was concerned that the run rate on revenues could be way lower than what it appears to be now. And so we didn’t accrue because we weren’t sure, weren’t sure what the world would look like in a COVID world. So go ahead.

The end of March was very different.

Very difficult.

Yes, I know totally fair, totally fair. So then is it a good way to think about it, we can try and think about your fixed comp expense base. Think about what the revenue you produce, think about what that proportion would look like on the additional accrual and then use that as sort of a framework for how to think about the expenses as we make our way through the year.

I don’t know. I really don’t know how to project this year. I’m not trying to be difficult. I don’t know how to project this year, other than we’re going to make – we’re going to do everything we can to maximize the value for our shareholders in this franchise. And I don’t know exactly what the year looks like. And then, you talked about 2021. I want to say this, I expect elevated 2021, because I expect us to hire more people then we have, since – I’m not going to pick a date, but since the tail end of the last crisis. I want to be – I want to prepare people. We’d like to and we don’t want to do it through M&A, which we get to put an asset on the balance sheet. We do it transparent and clean and we do it as hires and it goes through our income statement. I know we have to answer for that, but that’s the way we’ve done it. By the way, we’ve done all of our personnel management, including reducing personnel when we do it without special charges. We do it – just do it right through the income statement on a clear transparent way. And so when you say elevated 2021, you’ll probably be able to tell that by our hiring, if we continue to grow, it’ll be elevated because we’re going to try to make an abnormal – we’re going to try to grow abnormally fast. We’re hoping to do that. Over the long haul, if you want to model the business on a long haul basis, I do think that when we get like last crisis, when we got to 2020, we ran the model at high 50’s comp ratio pretty consistently every single year from 2014 to 2018, right to the end of 2019. And I think we can get back to that once we level off from what I hope and what I think will be a unique opportunity to double the size of the franchise. And that’s the goal and we’re going to try to execute on that business plan.

Okay. Are you – does anything – does your experience through 2019 here so far in 2020, does it inform maybe how you might approach this manage to fixed comp expense base just given the potential volatility of the revenues. Maybe adjust the size of the deferrals, maybe change around some of the composition. Or is that too dramatic a change for to be considered at this point?

Fundamentally, I don’t know that we’ll change it. I liked their comp model. To some people that deferred comp is a liability, up to me, it’s a phenomenal asset. We’ve retained our workforce. There is significant hooks into the firm from our workforce. So I can plan on our team being here. It’s very valuable. They become owners of the company and I like it. And I think it aligns our interest in the length of service. Our length of service, I think is exceptional low volatility turnover. So yes, I mean, we’re adjusted on the margin and we’re always talking about our head count and keeping on top of that. But look, last year – for the first, we went public in 2014 and we had one year of difficult revenue and it led to an elevated comp ratio. By the way, comp ratio that was elevated, but not even above, I think what some of our peers run day in and day out. So I – that was – I think we can get back, grow the company, accelerate our growth in the short-term and then get back to what we did for five straight years, which was pretty effective. And it works.

Okay. Thanks for taking my questions, Ken. Appreciate the color.

Thanks.

The next question is from Jeff Harte with Piper Sandler. Please go ahead.

Good evening, guys. A couple left from me. One, when we look at the capital markets kind of activity strength in the quarter, and you’ve touched on this some. Can you put it into some kind of historical context kind of how this quarter was kind of compared to quarters you’ve seen before? And I guess maybe the follow-up on that would be, is it reasonable for us on the outside to look at kind of industry underwriting revenues, kind of the best leading indicator of how that business is doing in the future?

I don’t think so. Because we’re so idiosyncratic that it’s – but look, you should note that we hired two very senior capital markets people to join, one joined already. And I think one’s on the way, because we continue to believe. So I think this [indiscernible] let me say this, Joe stop me if I’m wrong. I think our quarter capital markets revenue was larger than all of last year.

Yes, it was about the same size if not larger. Yes.

So that kind of sizes how and what happened in capital markets. And I think it demonstrated to us that there’s a lot going on in capital markets around disintermediation of the markets. I think the rise of the stack market, I think is a real threat to the oligopoly of IPO market. I think that the stack market is the world rebelling against the – what I call the oligopolistic high expense difficultness of going public through seven or eight majors that take the vast majority of people public. And so I think the capital markets are ready. Like we’re all zooming from home. I think the capital markets might be ready to go to a different model, go to more entrepreneurial low capital investment and trading floors, et cetera. And I think – and we want to be at the forefront of helping to disrupt that.

Okay. And kind of housekeeping/accounting, second consecutive quarter with some CARES Act tax benefit in there. How should we look at the back half of the year? I mean, is 25% just kind of the right way to think? Are we going to see more CARES Act kind of related benefits potentially in the back half of the year as well?

Yes. It depends on where revenues land and where our income lands. But there are some substantial benefits that are coming as a result of some tax timing differences that create taxable losses subject to the carry back. So it’s not necessarily visible to you. But my expectation is that they’ll – that will likely persist into the back half of the year.

Okay. Thank you.

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 everybody. I appreciate you spending the time and trying to at least parse through it. It’s been a very difficult time and very volatile. And I hope you get something out of these calls. And I look forward to hopefully talking about how COVID is behind us on the next call. So that would be exciting. Thank you.

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