Moelis (MC) Q3 2026 Earnings Call Transcript

DATE

Thu, Nov. 5, 2026

CALL PARTICIPANTS

• Chief Executive Officer and Co-Founder - Navid Mahmoodzadegan
• Chief Financial Officer - Christopher Callesano

TAKEAWAYS

• Revenue -- $425.6 million in the third quarter, representing 13% growth driven by the M&A business and capital structure advisory.
• Year-to-Date Revenue -- $1.15 billion for the first nine months, a record high reflecting momentum across the expanded platform.
• M&A Revenue Growth -- 40% in the third quarter, fueled by strong demand in the strategic M&A sector.
• Business Mix -- 70% M&A and 30% non-M&A for the first nine months, demonstrating the diversification of the firm.
• Adjusted Compensation Ratio -- 65.8% in the third quarter, down from 66.2% due to improved revenue performance.
• Adjusted Pre-Tax Margin -- 21.4% for the quarter, compared with 22.2% in the prior year period.
• Non-Compensation Expenses -- $61.3 million, resulting in a 14.4% ratio reflecting higher occupancy and technology costs.
• Full-Year Non-Compensation Expense Guidance -- Projected to grow approximately 19% over last year as the firm invests in office space and AI.
• Pipeline Expansion -- New business origination and announced pipeline up approximately 20%, with total pipeline at a record high.
• Managing Director Recruiting -- 24 hires year to date, with 13 having already joined the firm, representing the most active recruiting year on record.
• Sponsor Transaction Volume -- Increasing approximately 30% during the first nine months despite broader market activity trailing expectations.
• Share Repurchases -- 2.6 million shares for a total cost of $159.5 million during the first nine months.
• Cash Position -- $658.7 million in cash and short-term investments with no funded debt on the balance sheet.
• Quarterly Dividend -- $0.65 per share declared, consistent with the prior period.
• GAAP Diluted EPS -- $0.74 for the third quarter, compared with $0.67 in the prior year period.
• Adjusted Diluted EPS -- $0.75 for the third quarter, compared with $0.68 in the prior year period.
• First Nine Months Adjusted EPS -- $1.87, compared with $1.86 including tax benefits from share-based awards.
• Average Fee Per Transaction -- Reaching record levels for both the quarter and first nine months as the firm advises on larger, more complex assignments.

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RISKS

• Mahmoodzadegan stated, "while we are mindful of risks such as higher market volatility, geopolitical tensions, higher rates, and uncertainty surrounding AI infrastructure financing, our client activity remains strong," identifying potential macro headwinds.
• Callesano warned that the Section 162(m) tax provision could add a few points to the effective tax rate starting next year, reflecting preliminary findings of an ongoing evaluation.
• Mahmoodzadegan noted that increased lender selectivity is making refinancing more challenging for lower-quality credits, which may impact the timing of capital structure advisory completions.

SUMMARY

Moelis & Company (NYSE:MC) reported record revenues for the first nine months of the fiscal year, supported by significant growth in its M&A and capital structure advisory businesses. Management stated that the firm's total pipeline has reached a record high despite navigating market volatility and geopolitical uncertainty. The company continued its focus on talent acquisition, reporting its most active recruiting year to date with multiple managing directors committed to join through 2027. Management indicated that the diversification of the platform across strategic M&A, private capital advisory, and restructuring remains a key factor in its financial performance.

• CEO Mahmoodzadegan stated, "the underlying fundamentals for M&A remain very much intact," noting that companies continue to seek scale and growth through transactions.
• Management expects to demonstrate compensation leverage by the end of the year, intending to reduce the compensation ratio as revenues increase.
• The private capital advisory business is expanding with the integration of GP-led secondaries, LP-led secondaries, and co-investment teams.
• The firm is incorporating AI across workflows to enhance productivity and generate more transaction opportunities.
• CFO Callesano indicated that non-compensation expense growth was driven by higher occupancy costs in New York and London, technology investments, and increased deal-related travel.
• Management noted a softer performance in capital markets following a record first half, citing the impact of market volatility on deal timing.

INDUSTRY GLOSSARY

• PCA: Private Capital Advisory, a business segment focusing on secondary market transactions and primary fundraising for private funds.
• CSA: Capital Structure Advisory, a service involving corporate recapitalizations, liability management, and restructurings.
• DPI: Distributed to Paid-In capital, a ratio used in private equity to measure the amount of capital returned to investors relative to the capital invested.
• GP-led Secondaries: Transactions initiated by a general partner to provide liquidity to existing investors or extend the holding period for specific assets.
• LP-led Secondaries: Transactions where a limited partner sells their interest in a private equity or venture capital fund to a third party.
• Liability Management: Strategic financial actions taken by a company to improve its balance sheet or address debt maturities.
• TMT: Technology, Media, and Telecommunications, a specific industry coverage group within the investment bank.

Full Conference Call Transcript

Operator: To begin, I will turn the call over to Mr. Matt Tsukroff. Please go ahead.

Matthew Tsukroff: Good afternoon, and thank you for joining us for Moelis & Company's Q3 2026 Financial Results conference call. On the phone today are Navid Mahmoodzadegan, CEO and Co-Founder, and Chris Callesano, 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 factor 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 Navid.

Navid Mahmoodzadegan: Thank you, Matt. Great to be with everyone. Certainly an interesting afternoon to be doing an earnings call, but it is great to be with you. We had another active quarter advising clients and continue to build on the momentum in our business. We reported Q3 revenues of $426 million, up 13% from the prior year period. Our revenue increase for the quarter was driven by substantial growth in our M&A business and strong performance in capital structure advisory. For the first nine months of 2026, our revenues of $1.15 billion increased 10% year-over-year and represented a record first nine months.

Our average fee earned per completed transaction was also a record for both the quarter and first nine months as we continue to advise clients on larger and more complex assignments. These include a number of notable transactions announced since our last earnings call. Our leading special committee advisory practice has been very active, having recently advised on several assignments, including Meta's establishment of a new class of common stock, Penske Automotive's $16 billion take private, and Surgery Partners' $5.7 billion sale to HealthSpan Partners. We also advised QIAGEN on its EUR 10.8 billion sale to EQT and Marathon Petroleum on its $4.2 billion divestment of certain assets to CVR Energy.

In capital markets, we advised Sequence Holdings and DFO Management in connection with $3.7 billion of financing for the acquisition of The Baldwin Group. In capital structure advisory, we advised Medical Properties Trust on its $2.4 billion liability management transactions. Finally, in PCA, we advised BlackRock on the capitalization of a private credit continuation vehicle. Moving to the market, we continue to have a constructive outlook for transaction activity as the underlying fundamentals for M&A remain very much intact. Companies recognize that standing still is not an option. The need to build scale, strengthen market positioning, and enhance growth continues to create demand for M&A.

While we are mindful of risks such as higher market volatility, geopolitical tensions, higher rates, and uncertainty surrounding AI infrastructure financing, our client activity remains strong. As of today, both new business origination and our announced pipeline are up approximately 20% year over year, and our total pipeline is at a record high. Turning to our product areas, our M&A business continues to perform very well. Q3 M&A revenue grew 40% year over year, driven by strong growth in strategic M&A. Our investments in talent and expanded capabilities, as well as the continued maturation of our platform, are translating into a growing number of assignments advising large corporate clients on significant transactions.

Additionally, our sponsor M&A business has also performed well this year, despite broader sponsor market activity trailing expectations. Notably, the number of sponsor M&A transactions on which we advised increased approximately 30% during the first nine months of the year, underscoring the strength of our longstanding relationships and continued engagement across this important client base. Our capital structure advisory business delivered one of its strongest quarters on record, with year-to-date revenue growth in line with the broader firm. The current market themes are consistent with what we discussed last quarter. Liability management solutions continue to account for much of the activity, while increased lender selectivity is making refinancing more challenging for lower-quality credits.

Looking ahead, as lenders become less willing to extend upcoming maturities, we expect traditional restructurings to increase over time. Additionally, the recent rise in interest rates, as well as continued dislocation across a number of industries, could further expand the opportunity set for our CSA business. In capital markets, our Q3 revenues were softer following a record H1, primarily reflecting the impact of increased market volatility on transaction timing. Despite this, our capital markets pipeline continues to grow, with both the number of transactions and associated fees at record levels. Underlying client demand remains strong across both public and private markets, as unprecedented CapEx related to AI and digital infrastructure and other high-growth sectors continue to drive issuance activity.

We remain confident in the outlook for the business, although the timing of completions remains dependent on market conditions. Finally, private capital advisory. The secondaries market continues to experience strong growth, supported by significant pressure to increase DPI across private market portfolios and growing investor demand for established high-quality assets. Our PCA team is very active in this market, winning new mandates and building a significant pipeline. We continue to make substantial progress in expanding our PCA capabilities. All seven of our Managing Directors focused on GP-led secondaries are now on our platform. Our recently hired LP-led secondaries and promoted co-investment teams are off to a good start.

Since our last earnings call, we have hired three Managing Directors focused on primary fundraising who will join us over the coming months. With the team we are assembling and our deep sponsor relationships, we believe we are well on our way to establishing a best-in-class PCA business that supports clients across the private capital ecosystem. This brings me to our investment in talent. Attracting and promoting top talent remains a key strategic priority. Year to date, we have hired 24 Managing Directors, making this our most active recruiting year on record. 13 MDs have already joined the firm, including seven since our last earnings call.

The remaining 11 are expected to join over the remainder of 2026 and into 2027, strengthening our capabilities in TMT, financial institutions, and industrials, all large fee pools where we see attractive long-term growth opportunities, as well as in primary fundraising within PCA, as previously mentioned. We remain active in the recruiting market and continue to engage with exceptional bankers who can be difference makers on our platform. Before I conclude, I want to highlight the significant progress we are making incorporating AI across our business. I am particularly excited about the collaboration of our teams as they develop new use cases and incorporate these tools into workflows that can be deployed firm-wide.

While we are still in the early stages, we believe AI will significantly enhance productivity, allowing us to generate more ideas, deliver better advice, and ultimately create more transaction opportunities for our clients. In closing, our franchise is performing at a very high level despite a complex market backdrop. We have a strong and diversified pipeline with the best talent serving more clients than at any point in our history. Having a broad set of capabilities enables us to best advise our clients through periods of market volatility. We remain focused on delivering exceptional advice, investing in the long-term growth of our business, and creating lasting value for our shareholders.

With that, I will pass the call to Christopher to review our financial results in more detail.

Christopher Callesano: Thanks, Navid, and good afternoon, everyone. As Navid noted, Q3 revenues were $426 million, up 13% from the prior year period, with growth driven primarily by M&A and capital structure advisory, partially offset by lower capital markets. Revenues in the first nine months of the year were a record $1.15 billion, up 10% year-over-year. The year-to-date increase in revenues was primarily attributable to M&A, capital structure advisory, and a growing contribution for PCA. For the first nine months of the year, our business mix was approximately 70% M&A and 30% non-M&A. Turning to expenses. Our adjusted compensation ratio for both the Q3 and first nine months of 2026 was 65.8%, compared with 66.2% and 68% in the prior year period.

As we have stated previously, we expect to reduce our compensation ratio over time, with the magnitude of improvement depending on revenues and the competitive market for talent. Adjusted non-compensation expenses were $61.3 million in the Q3, resulting in a 14.4% non-compensation expense ratio. For the first nine months of the year, our adjusted non-compensation expenses were $195 million, an increase of 19% year-over-year, representing a non-compensation expense ratio of 16.9%. The primary drivers of the expense growth in both current year periods are higher occupancy costs associated with our New York and London offices, increased technology and data expenses, including investments in AI, and increased business and client activity, including higher deal-related travel and client conferences.

For the full year, we expect growth in non-comp expenses to be approximately 19% over last year. Our adjusted pre-tax margin was 21.4% for the Q3 and 18.6% for the first nine months of 2026, compared with 22.2% and 18.2% respectively in the prior year period. Our effective tax rate for the quarter was 29%, roughly in line with the Q3 of 2025. Turning to capital allocation. The board declared a regular quarterly dividend of $0.65 per share, consistent with the prior period. In the Q3, we repurchased 278,000 shares on the open market, including net settlement, for a total cost of approximately $19 million.

During the first nine months of the year, we have repurchased 2.6 million shares for a total cost of approximately $160 million. Including the dividend declared today, we will have returned approximately $318 million of capital to shareholders with respect to the first nine months of 2026. Finally, we ended the quarter with a strong cash position of $659 million and no debt. With that, we can open the line for questions.

Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Devin Ryan with Citizens JMP. Your line is open. Please go ahead.

Devin Ryan: Hi, Navid. Hi, Chris. How are you?

Navid Mahmoodzadegan: Hi, Devin.

Devin Ryan: I want to ask a question about the pipeline and the connection to revenue conversion. Appreciate some of the color just on the new business origination and announced pipeline being up 20% year over year, and I think total pipeline, you said, is at a record. You are also doing some larger deals, and the market conditions are, as we saw today, pretty complicated. Can you talk about the pace of conversion, how that has been evolving just over the past few months? Assuming we are on the other side of the midterms here, having to rethink certain verticals, and there is obviously ripples around that.

Do these types of events substantially lengthen transaction timing, or do you think it will really be just sector-specific and deal-specific? I am just curious. You have been through these volatile moments before, so curious what you think will happen. Thanks.

Navid Mahmoodzadegan: Sure. Thanks, Devin. I appreciate the question. Look, I know every firm looks at pipelines differently. I just want to make sure you understand how we think about pipelines. When new business comes into our firm and we are actively working on an assignment, on a deal, obviously, if we're spending time on it, we think it has a reasonable chance of happening, that's what gets added to our pipeline. When I say that, obviously a deal either happens, or it dies, or it's still in process, and that's what impacts the overall pipeline.

Then within the overall pipeline, if we announce a deal, if we announce to the world a deal is happening, then usually those convert at a very, very high level. Typically, the only thing that will impact that is regulatory, if there's a regulatory problem. An announced pipeline has very high conversion, and then within our overall pipeline, obviously there's different conversion metrics that we look at, and things like market volatility impact some of those businesses differently than others. A CSA mandate, for instance, typically has a very, very high conversion, because a lot of that business is retainer-based, something will happen. You don't always know the timing of that. That's maybe on one end of the spectrum.

A CSA mandate or even a PCA mandate typically has very, very high conversion on deals in the pipeline. Capital markets may be more at the other end of that, because it is market-dependent, and market volatility could impact that. Then M&A, depending upon if it's strategic M&A or sponsor M&A, somewhere in between, right? But as I said, all of the key metrics, all of the key KPIs that we look at, overall activity, stuff coming into our pipeline, and certainly announcements are at very, very strong levels. We're obviously processing the events of the last 48 hours. It's been an interesting last 48 hours, and we're still getting our head around that.

But look, I do think the one theme here is having a broad-based set of capabilities to be able to pivot depending upon market conditions, to be able to advise our clients and make sure we have the right advice and the right set of capabilities to help them navigate through periods of market volatility is really key, and we're really happy that we're in a position to be able to do that.

Devin Ryan: Got it. Thanks, Navid. Appreciate it. A quick follow-up on the private capital advisory platform and the scaling you're seeing there. It sounds like that's just continuing to contribute at an increasing level. Just to put a finer point on it, can you just talk a little bit about how that's, I guess, on its own becoming more impactful to the firm, and if there's anything else you can share around the contribution? But then also, whether that's driving more opportunities in the M&A side with sponsors, and is that playing a role in doing some of these larger fee deals?

Just curious, with the momentum as you've added numerous bankers since 2023, the contribution there and then the network effect across the firm.

Navid Mahmoodzadegan: Sure. Well, look, the PCA build is still relatively early. Matt Wesley, who runs that business for us, got here earlier last year, so he's been on the platform a little bit over the year. He's been actively building the team. As I said on the prepared remarks, the GP-led secondaries team is the most developed at this point. Seven MDs working on active mandates. Revenues are already seeing the recognition of deal closings and some revenue. It's not meaningful this year or this quarter, but as we look into next year, there's certainly a meaningful pipeline that's building, and we feel awesome about that business.

The two other businesses where we have people who've hit the ground are the promoted co-investment business and the LP secondary business, and they're very nascent. So those people are just getting going, but off to a good start so far. As I mentioned, the primary fundraising team, which is a little bit of a longer lead time business generally, those teams won't really get here. The senior people of those teams won't get here until next year, and then it will take some time for primary fundraising to get mandates and get capital raised and to see real revenue. So, feel great about the team. I think we made absolutely the right set of hires.

The opportunity is as good as I ever thought it was going to be, so very much on track there. I think you're absolutely right. We've already seen mandates where we went in both with our M&A team and our PCA team. We weren't really sure, the sponsor really wasn't really sure whether they were doing M&A or they were going to do a continuation vehicle. If we didn't have that PCA capability, I think there's a chance we may not have had those mandates, and some of those mandates are staying PCA, others are pivoting to M&A, and again, having both of those capabilities. Sometimes it doesn't even show up in PCA.

It'll show up in M&A, but it'll have been an opportunity lost if you didn't have the PCA capability. So we're definitely seeing that real time.

Devin Ryan: Yeah, exactly. I was looking for it. Thanks, Navid. Appreciate it.

Navid Mahmoodzadegan: Thanks, Devin.

Operator: Your next question comes from the line of James Yaro with Goldman Sachs. Your line is open. Please go ahead.

James Yaro: Good afternoon, and thanks for taking the question. I was hoping you might be able to comment a little bit further on the restructuring cadence from here. As you think about the outlook from here, is there a handoff between liability management to traditional restructuring, or is that more of a seamless growth trajectory potentially? Then maybe just over what potential that handoff or shift from one type of mandate to another could occur?

Navid Mahmoodzadegan: Great question, James. All of that, both liability management, traditional restructuring, is processed through our CSA capability. It is not a handoff from one part of the firm to another. One of the things, again, that is really unique about our go-to-market strategy is, there are also sector bankers and sometimes sponsor coverage bankers if it is a sponsor deal, who are all part of those teams. So we have a very collaborative, very integrated approach, which is very differentiated in the world of CSA. It is pretty unique, and one of the things that I think has enabled us to create a top CSA franchise.

Whether it is a liability management flavor of transaction or it ends up being a restructuring flavor of transaction, the professionals from the CSA team that are working on that are the same professionals. They're very, very well-versed in all the different gradations of CSA transactions. The deal teams don't change. Because we typically also have sector teams there, if the pivot is to M&A, either as part of that transaction, because sometimes you see that, you see M&A out of restructuring, or you see M&A on the back heels of restructuring, because we have a collaborative approach to that, those handoffs are super seamless in our firm.

James Yaro: Okay, thanks. That makes sense. Maybe just one more on the restructuring side of things. How would you think about the impacts of potential stress on parts of the AI financing complex, and how could this potentially impact your restructuring business, or your CSA business, I should say?

Navid Mahmoodzadegan: If there's stress anywhere in the system, if there's disruption happening in any sector, especially where there's been lots of capital formation, clearly our CSA team is well-positioned to take advantage of that. Yes, AI infrastructure has been an area of massive capital formation. It's really been the dominant theme of the capital markets here for the last few years.

If some of these situations should tip in, or if a broad base set of these situations should tip in to more liability management, restructuring, workout, et cetera, certainly, again, the combination of the fact that we have a very strong data center and emerging telecom team that has been working and is working on many of these financings and M&A transactions, and a strong CSA team, certainly we'd be well-positioned to take advantage of that.

James Yaro: Okay. Thanks a lot, Navid.

Operator: Your next question comes from the line of Alex Bond with KBW. Your line is open. Please go ahead.

Alex Bond: Hey, good afternoon, everyone. Thanks for taking the questions. I wanted to drill down a little bit more on the sponsor side and the outlook there. You mentioned the number of sponsored transactions you have advised on year to date is about 30%. If you could maybe speak to where the strength has been coming from there, whether that is contributions from specific sector teams or anything else, really, and also how the movement in interest rates has impacted activity levels here more recently, and also on your outlook for sponsored volumes to grow from here on out.

Navid Mahmoodzadegan: The data I cited was not just M&A, it was sponsor transaction generally. I do think that, again, more of the broad-based nature of our capabilities has really helped us capture more sponsor wallet share. That has been an important part, again, of having capital markets and having PCA to pair with CSA and restructuring and M&A to make sure that we are really front and center with sponsors as a solution provider. In this particular year, obviously, sell side is always a big part of our franchise, but we do from time to time, and this year we have had a fair number of buy side work with sponsors.

One of the things I am really proud of is the more and better sector teams we have focused in more areas, the more capabilities we have to advise sponsors, the more wallet share we are going to take. We are definitely seeing that in a year like this, where generally sponsor activity is a little sluggish, a little muted. It is improving, but it is not where everybody wants it to be. Yet, our share of sponsor wallet we think is improving.

Alex Bond: Got it. That makes sense. Maybe as a follow-up, just wanted to ask around comp expectations for Q4. Just given where the year-to-date revenue numbers stand, can you just maybe speak to how confident you are in being able to drive additional leverage here in the Q4, and how should we be thinking about comp kind of more generally as we start to think about 2027 as well? Just any additional color there would be great. Thank you.

Navid Mahmoodzadegan: Look, I think we entered the year with the expectation that we would get some comp leverage. We haven't adjusted the compensation ratio, as you can see, for the first nine months of the year, but our expectation continues to be that by the time the year finishes up, we will be able to exhibit some comp leverage and a reduction in the compensation ratio. So, that still continues to be our expectation.

Alex Bond: Great. Thanks, Navid.

Navid Mahmoodzadegan: Thank you, Alex.

Operator: Your next question comes from the line of Steven Chubak with Wolfe Research. Your line is open. Please go ahead.

Steven Chubak: Hi, good afternoon, and thanks for taking my questions.

Navid Mahmoodzadegan: Hi, Steven.

Steven Chubak: Hi. To start, wanted to ask on the non-comp outlook beyond this year. You spoke of some of the factors that are driving the growth in non-comps. Just try and gauge how we should be thinking about the duration of the AI investment cycle, given the heavy investments you and some of your peers are making on the technology side, and whether you would be able to bend the cost curve beyond 2026, or if that heavy pace of investment is going to need to be sustained, just given the duration of this AI cycle.

Christopher Callesano: Yeah, thanks for the question. It's going to be difficult to start by forecasting 2027 at this time. We are currently going through our bottoms-up budgeting process, right? We closely review what's needed, what opportunities we have for savings. We'll continue to focus on improving cost savings and pre-tax margins. I would say, if you're looking in particular on technology, that's a line item that I can imagine continue to grow in 2027. Whereas, for instance, other line items that won't grow as much would be real estate.

At this time, I think we are not going to provide any real direction for 2027, except that we'll be in a position to probably provide more information at our next earnings call.

Navid Mahmoodzadegan: Let me add something to that. Look, you're right, Steven. There's increased technology spend because of AI and other things. Like everybody else, we're adopting, as I mentioned, adopting AI, experimenting with AI. We're excited about what we think it could do for our business. Those costs will continue to increase. Having said that, we're laser-focused on making sure that we're being most efficient in how we utilize these tools. I think as we move more towards token-based consumption, which is likely around the corner for us and our peers, making sure we're being very, very focused on efficiency and using the right tools for the right task is going to be very, very important.

Secondly, at some point, we're going to have to get efficiencies in our organization and drive efficiencies in our organizational structure, and most importantly, in terms of productivity. We do believe that there will be a positive return over time on the AI spend, and we're very, very focused on making sure that we can track that and can demonstrate that once we get through this uptake period.

Steven Chubak: No, that's really helpful color. For my follow-up, did want to ask on the Section 162(m) tax provision that's expected to go into effect beginning next year. It looks like for you and some of your peers, it could have a pretty material impact on the go-forward tax rate, and was hoping you could speak to at least some of your preliminary findings based on the work that you've done thus far.

Christopher Callesano: Yeah, thanks for that. Yes, we are currently evaluating the impact. There are, as you can imagine, many variables that will affect the rates as we head into year-end. However, for a start, we can imagine adding a few points to our tax rate. Then for what we will be able to, again, provide more information at our next earnings call, and then, of course, the first earnings call when it is finalized.

Steven Chubak: Are you putting guardrails around that?

Christopher Callesano: I think at this point, there are too many variables that are open, so I think we are going to stick with a few points is probably, give or take, a point or two on either side.

Steven Chubak: Understood.

Operator: Your next question comes from the line of Gabriel Angelini with Bank of America. Your line is open. Please go ahead.

Gabriel Angelini: Hi, good afternoon, and thanks for taking the question. Obviously, activity was quite strong this quarter. I think revenue growth actually accelerated modestly year-over-year compared to the Q2, which was nice to see. I appreciate the pipeline is up 20% year-over-year, but I think it is a little lower than the 80% mark you discussed last quarter. Given that, can you talk to us around where you think we are in the current M&A cycle, and is it fair to say that we are no longer in the early innings there? Thank you.

Navid Mahmoodzadegan: Yeah, look, I am not sure those two data points have any relevance to the concept of where we are in the M&A cycle. Look, M&A cycles are very, very hard to predict. Everything we see into the foreseeable future is really strong demand for M&A, both from strategics and from financial sponsors. In the prepared remarks, we did talk about some of the headwinds that we have to navigate in order to make M&A pipeline turn into M&A completions. Certainly, we do not take any of those things for granted. There are, whether it is geopolitical risk or some of the volatility you are seeing in the marketplace, there are factors that could impact the pacing of M&A completions.

But the underlying fundamentals, the need for scale, the need for growth, the need to deal with technology disruption, the sponsor need to get DPI, all of those things suggest a healthy level of M&A demand for a long period of time. Typically, these cycles you can only predict in hindsight when an event happens, and that is the end of the cycle. It is very hard to predict those on a go-forward basis.

Gabriel Angelini: Got it. That is helpful. Thank you. Then maybe as a quick follow-up, it sounds like the business mix may have shifted slightly more toward M&A this quarter versus the typical sort of two-thirds, one-third. Just wondering if that was driven by more strength in M&A this quarter. I understand you do not break out the non-M&A businesses, but maybe any color you could provide there on the relative strengths between them would be helpful. Thanks.

Navid Mahmoodzadegan: I just think in a business like ours, especially now that we have expanded capabilities, it's hard to extrapolate too much on any one quarter or two. But we, as I said before, I think we have a healthy and vibrant M&A business, demonstrated by the continued growth in that business. CSA has had a good year and a very good past quarter. We had a softer quarter in capital markets, despite the fact that they had a record year last year and a record first six months of the year.

I think when you're looking at any specific quarter or two, there are vagaries of client activity and impact to timing and very client-specific things, and sometimes market-specific things that impact some of the composition of the revenue in any one period. I'm not sure I'd extrapolate too much on any quarter or two.

Gabriel Angelini: Thank you very much.

Navid Mahmoodzadegan: Thank you, Gabriel.

Operator: Your next question comes from the line of Nathan Stein with Deutsche Bank. Your line is open. Please go ahead.

Nathan Stein: Hey, everyone. Thanks so much for taking the question. Markets sold off today on pretty broad-based AI concerns. While that's obviously just one day and a singular data point, I wanted to ask, what would a major slowdown or delay in AI-related CapEx or data center build-out mean to your business and pipelines?

Navid Mahmoodzadegan: Yeah, look, it's a good question. I think, yeah, look, we're still processing the events of the last 48 hours. Coming out of the blue wave of Tuesday, I think the market's interpretation of that yesterday was very different than the market's interpretation of that today, despite the fact that there wasn't a lot of news between yesterday and today.

I think in a sense, you could look at some of the political changes and draw an optimistic picture about the likelihood of continued war in the Middle East and what impact there could be on rollback of tariffs and potentially getting inflation under control and some of the checks and balances that might be super helpful in terms of helping M&A activity and financing activity. At the same time, there's certainly increased political risk to the system on the development of data centers and things of that nature, and the market was captivated by that today. Look, again, I keep coming back to this theme of having a broad-based business.

It's absolutely critical to be able to pivot depending upon market conditions. A lot of the market for the last year or two, certainly the financing markets and the public equity markets, have been driven by all the capital formation around AI and digital infrastructure, and we've certainly taken advantage of that. If there's a shift there, it could hurt parts of our business on financing and M&A and some of those markets, but help other parts of our business.

I do think one of the things that has happened over the last 12 to 18 months is there's been so much focus and so much emphasis on the AI trade and capital formation around that it's really crowded out capital formation in other areas that where there is growth happening and there is vibrancy. There's been just so much attention going to and so much capital going to the hot sector that it's been a little bit more challenging to raise money for companies that aren't growing at the same magnitude, but still are very healthy companies and very vibrant.

One of the silver linings, if there is a blip or a major blip on the AI infrastructure side, is there could be a recalibration back to more traditional businesses that are worthy of capital. So we'll see. We're monitoring all this carefully. All of this is real time, but it's a very good question.

Nathan Stein: Thanks. Appreciate the color there. I did want to ask really quickly on the non-comp expense dollars. Back in July, you had talked about the non-comp being in the mid to high $60 million range in both Q3 and Q4 of this year. It came in lower than that this quarter, but based on the full year comments, it sounds like Q4 levels will be near the high end of the range. I wanted to ask, was there a lumpy cost that maybe was taken out or pushed into Q4? Longer term, is that mid to high $60 million range a good way to think about non-comp dollars? Thanks.

Christopher Callesano: Yeah. I would say that this quarter, Q3, was a little lighter due to some seasonality with lower travel during the summer months. There also was less underwriting syndication costs associated with capital markets business. However, as you can imagine, costs do shift from one quarter to the next, so it's probably best to look at non-comp on a full year basis. As I said in the prepared remarks, we expect it to grow approximately 19%. I think we were pretty consistent from the beginning of the year that we thought it was going to grow in the high teens, and it looks like that's probably where we'll end.

Nathan Stein: Thank you.

Operator: Your next question comes from the line of Mike Brown with UBS. Your line is open. Please go ahead.

Michael Brown: Thanks for taking my question. I just wanted to ask on the software M&A trends, and just wanted to touch base on how that is trending this year. Obviously, that was really constrained earlier this year around a lot of the AI uncertainty in the market. Have you started to see more activity coming through in that sector? It seems like we've seen a couple of larger deals, but wondering if that's starting to broaden out and you're seeing any more of that activity start to come through your pipeline. Thank you.

Navid Mahmoodzadegan: Sure. Yeah, great question, Michael. Look, I think when SaaSpocalypse kind of happened earlier in the year, I think, when we got on that next call, we talked a little bit about how the market had painted a very broad brush on anything that was software-related. And we at least felt that was an exaggeration, that over time, there would really be differentiation between different types of software companies, some of which would adapt and thrive in the AI world and really adopt AI to transform their businesses and be super vibrant. And others would struggle, and potentially there was impacts to their business model and impacts to their terminal value.

So, I think now that we're a few quarters removed from that, I think we're seeing that certainly in the public markets. Some of the cohorts, the software companies in that cohort are, notwithstanding the events of the last couple days, the public market valuations have essentially fully recovered. In the M&A world, we're definitely seeing in certain parts of the software sector, cyber being a good example, both take private activity and private company M&A. So there is some M&A happening in pockets of the software industry, certainly. It's not broad-based yet. I still think there's a healthy part of the ecosystem where people just aren't sure.

Even though they're not seeing business model impact yet from AI, there's still concerns around terminal value and terminal multiples and things of that nature. And for a sub-segment of those companies that have a heavy amount of leverage, there's certainly dialogue and work that our teams are doing around thinking through opportunistic liability management for some of those companies. It's keeping our CSA team busy on some of those names. I think there's some differentiation happening, but it's still early days.

Michael Brown: Okay, great. Maybe just a quick clarification on your last point there. Is the team starting to see some of the software restructuring or liability management exercises coming through at this point? If not, what's your view, best guess on timing? Is that something that's more of a 2027 event or later in the H2 of 2027? Any views there would be helpful.

Navid Mahmoodzadegan: We're seeing some, but it's still, I would say, pre-liability management work, advice, and conversations. I still think it's going to take a little bit more time for some of those conversations to ripen. It's hard to say whether the bulk of that'll happen in 2027 or 2028, although I would note that starting in 2028, 2029, there's a fair amount of debt maturities that are coming due, and software is a very healthy portion of some of those debt maturities. I think you're likely to see a fair amount of liability management happen over the next 12 to 18 months.

Michael Brown: Okay, great. Thanks for taking my questions.

Navid Mahmoodzadegan: Thanks, Michael.

Operator: There are no further questions at this time. I will now turn the call back to Navid for closing remarks.

Navid Mahmoodzadegan: Thank you all for your time this afternoon. We look forward to speaking with you all again soon. Have a great evening.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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