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Moelis & Company (NYSE:MC)
Q2 2019 Earnings Call
Jul 30, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Moelis & Company Second Quarter Earnings Call and Webcast. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Ms. Michele Miyakawa, Head of Investor Relations. Please go ahead.

Michele Miyakawa -- Head of Investor Relations

Great. Thank you, and good afternoon everyone and thank you for joining us for Moelis & Company's second quarter 2019 financial results conference call. On the phone today are Ken Moelis, Chairman and CEO; and Joe Simon, Chief Financial Officer. Before we begin, I'd like to note that the remarks made on this call may contain certain forward-looking statements including regarding future performance, which are subject to various risks and uncertainties, including those identified from time-to-time in the Risk Factors section of the 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 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 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'll now turn the call over to Joe.

Joseph Simon -- Chief Financial Officer

Thanks, Michelle and good afternoon everyone. On today's call, I'll go through our financial results and then Ken will discuss our business further.

We recorded $154 million of revenues in the second quarter, down 30% from the prior year period, but up 11% sequentially. This compares with the overall M&A market in which the number of global M&A completions greater than $100 million declined 22% from the prior year, while our M&A related activity was down for the quarter our restructuring business continue to be a strong contributor. In the second quarter, Moelis was ranked number one in global and US restructuring completions by value.

Moving to expenses, adjusted compensation expense was accrued 52.4% in our first half of 2019 ratio was 58.3%. Our quarter two, non-compensation expenses of $35 million were down 4% versus the prior year period.

At the current head count levels. We expect our quarterly non-compensation expenses to be near our underlying run rate of $37 million to $38 million next quarter. Going forward, and likely starting in the fourth quarter, we expect our underlying non-compensation expenses to increase to $39 million to $40 million per quarter. The increase is the result of taking more space in our New York City headquarters and building it out to support our growth.

Our underlying corporate tax rate is 25.1% before the $8.6 million discrete tax benefit related to our equity compensation award deliveries, including the excess tax benefit, we reported an effective tax rate of 3.1% for the quarter.

As a reminder, our adjusted net income presentation reflects all the firm's income tax that are calculated effective corporate tax rate. Lastly, regarding capital allocation. Over the last six-months and including today's declared dividend, we will have distributed over $200 million to shareholders through buybacks and dividends. We repurchased a little more than 350,000 shares during the quarter, which when added to the first quarter activity aggregates to a little more than 970,000 shares bought back to this year. This helped contribute to a sequential decline in diluted weighted average share count for the quarter.

We ended the quarter with a strong financial position with no debt and $108 million of cash and liquid investments.

I will now turn the call over to Ken.

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Thanks, Joe and good afternoon. Looking at ahead we feel confident about our business given our activity levels across all of our products. As we stated on our last call, we expect our second half performance to be much stronger than the first half of the year. Our strategic dialog with both middle market and large cap companies is robust and financial sponsor coverage, which has been an important pillar of our business since our founding continues to drive M&A, restructuring and capital markets activity.

Restructuring continues to be a major contributor achieving year-over-year growth in the second quarter. For the first six-months, Moelis was involved in seven of the top 10 global completed restructuring transactions. Our outlook is positive on the macro-economic environment and the Fed's recent reversal in policy with potential cuts starting maybe tomorrow will both extend -- we believe we'll both extend and amplify the current M&A cycle.

We are well positioned given our ability to collaborate and deliver diverse resources from around the world to our clients. This is a unique differentiator to our platform and combined with the leading restructuring franchise creates a powerful model.

We also have a healthy pipeline of talented external bankers to fill a large amount of white space across many of our sectors. Since our last earnings call, we announced the veteran Managing Director hired in the US, will answer our used in oil and gas expertise and with talent development of core focus we also currently have a large internal pipeline of future Managing Directors already excelling on our platform.

In conclusion, we are encouraged by the increased pace of client activity. We've experienced in the past several months by remaining focused on our number one goal which is servicing our clients and building long-term relationships. We will continue to execute on our organic growth strategy, and with that, I'll now welcome any questions you have.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Ken Worthington with J.P. Morgan. Please go ahead.

Ken Worthington -- J.P. Morgan -- Analyst

Hi, good afternoon. Two questions from me. I'd say, first, given the industry has seen weaker activity in the first half. Does that in any way make it easier to hire experienced talent or because of deferred comp, et cetera, does it really make no difference at all that the first part of the year was still weaken, maybe bonus accruals are down early in the year?

Joseph Simon -- Chief Financial Officer

Is that -- I think you have two. Should I wait for your second, or is that both of them?

Ken Worthington -- J.P. Morgan -- Analyst

That's one. And I got a completely different one for number two, but --

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Okay, let me start with that. So it's a good point, Ken. I think if you go back nine-months ago, we actually expected a slightly different world than we're facing today. The fourth quarter was sharply down in the stock market and the fed was saying they were going to raise rates, and we probably felt like we would see a, an opportunistic time to hire.

I think -- I've been in the business 40 years. I'm not sure I've ever seen the Fed change direction 180 degrees as fast as they have. So I think the, there was a week beginning, but I think there's a lot of optimism going forward. And so we are seeing it kind of balance out that look it's probably why we got off to a bit of a slow start, because on hiring external, we thought we might have with the Fed raising a chance to hire a lot at an opportunistic time, that has changed and I think it's, we're kind of balanced I believe there are some companies having issues making people available, and -- but the general industry I think is looking forward and seeing a pretty optimistic M&A market.

Ken Worthington -- J.P. Morgan -- Analyst

Okay. Okay, fair enough. And then, and I'm sorry, this is sort of a sell-side-ish question, so hopefully you can adapt to it. The first half of the, the year is weaker in terms of activity levels relative to prior years for you industry, et cetera. To what extent are the deals and business that didn't happen in the first half of the year.

Are those actually recoverable in the second half of the year. So, if the first half of the year was weaker. Does the second half of the year, which is seasonally stronger anyway become even stronger than it would normally be just because there is some, like pent-up demand for M&A and deal activity.

In other words, do you think you can make up what you've not had in the first half of the year by seeing those transactions kind of come to market in the second half of the year, does that, does that sort of makes sense. I'm sure, you don't think about it that way, but we modelers [Phonetic] I think do?

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Okay. So there's a couple of answers. So there are some specific deals you can't make up they either went a different direction or on a specific thing it's deal by deal. I do think that in a better environment things accelerate faster than you think. It's -- when people see the downside and you're looking at stock markets off 20% or 15% in the first -- fourth quarter and the Fed raising, I would say this people are in the middle of a deal. There's always a bump in the road in the middle of a deal. While there's never deal that goes completely smoothly often. When things are kind of negative that pebble becomes bolder and when people are optimistic bolder become pebbles and people just go through them and find ways and I find right now you are.

We are finding deals that, when they hit their bump right now, people want to get around it. They have optimism and I don't know if that answers your question, but I do think you can see an acceleration, but that doesn't mean an individual deal that didn't happen have to come back. It's just that in the aggregate. I think you'll see more transactions reach the finish line and it could accelerate.

I'm starting to feel that with -- again with the indications by the Fed stock market where it is. I think you could see an acceleration of that part of the market.

Ken Worthington -- J.P. Morgan -- Analyst

Okay, perfect. Yeah, you've got the intent to the question, you answer it better than I asked it. So, thank you very much.

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Thanks.

Operator

Thank you. Your next question comes from Michael Brown with KBW. Please go ahead.

Michael Brown -- Keefe, Bruyette, & Woods Inc. -- Analyst

Hi, good afternoon.

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Hi.

Michael Brown -- Keefe, Bruyette, & Woods Inc. -- Analyst

So, I just wanted to dive in a little bit deeper to kind of your expectations for -- kind of the back half, so I understand the results are either syncretic but we've heard some commentary from some peers at July has been off to a strong start. And we've also heard from some management teams that they're expecting a stronger fourth quarter. So could you kind of give us a rough guide as to how you think about the difference between the third quarter and in the fourth quarter and I'm sympathetic, obviously there's deal closing dates that can shift, but any color there would be helpful. Thank you.

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Look, that's really hard to do and to me always, the third quarter if I have more visibility within the fourth quarter. But the world is getting better, it seems like animal spirits and the world and the desire for people to do transactions is improving weekly I'd say or marginally every week.

So, I could see the fourth quarter being stronger. We see a very strong second half but dividing it up in the quarters is such a tough, it's just a, it's a game, I don't want to play because it's almost impossible to get it right.

Michael Brown -- Keefe, Bruyette, & Woods Inc. -- Analyst

Appreciate that. And then in the press release, there was reference to a clawback benefit this quarter. Could you just share a little bit more color about that transaction and is that something that was just a one-off, I'm just trying to understand that a little bit better?

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Joe, I will turn that over to Joe.

Joseph Simon -- Chief Financial Officer

Sure. So this just goes back to our clawback policy for managing directors who go to compete. So we had one managing director who left the clawback amounts come back, some in the form of income, some in the form of forfeiture. But in the part -- in the case of a claw back those economics for our adjusted GAAP are basically reclass from the other income line to comp because the whole point of the policy is to recapture comp to higher replacement.

Michael Brown -- Keefe, Bruyette, & Woods Inc. -- Analyst

Okay. Thank you.

Operator

Thank you. Your next question comes from Brennan Hawken with UBS. Please go ahead.

Brennan Hawken -- UBS Investment Bank -- Analyst

Hey, good afternoon and thanks for taking the question. Ken, I think in your prepared remarks you had indicated that you think a Fed cut would amplify the M&A cycle, so just kind of curious to get a little bit more color on that comment, it seems like most short-term rates such as LIBOR have already dropped so simplistically would think that the impact of lower rates has already clear in the market, right. And wouldn't be a cut by a central bank run a risk of even weighing on some of the confidence that you see rebuilding. Can you maybe help me understand that comment a little better?

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Well, I think going into the fourth quarter of last year, we were seeing markets respond to a prediction of kind of four hikes and you just saw everybody -- people worried about the economy, they're worried about valuations, they're worried about everything. The Fed reversal of first, we're not going to raise anymore and then move into cuts. I think it's changed dramatically, valuations, confidence. And you're, right, a lot of that might be in there. So, I might be stating the obvious that if they don't cut, you might undercut all the build up confidence that they're going to cut. As you said, it might be in the market, but by the way, it has been about a 20% rise in the S&P since the beginning of the year.

Rates are lower, capital is highly available and -- and Brennan, I agree with you that the rate cut might indicate that the economy is slowing, that might be true. But I will tell you that I think the underlying economy might be slowing generating that, but that means you still see companies trying to get larger, take out costs, executing on digitizing their processes and making the investments, and it doesn't hurt when the S&P is at 3,000 to get that done and rate too low. So, yeah, it might have been priced in over the last month and a half, but that doesn't mean if the Fed doesn't do it, it might get priced out. So and that's probably what I'm pointing out is, they're going to -- which will confirm what the markets have been, I think trying to discount and that is good for M&A.

Brennan Hawken -- UBS Investment Bank -- Analyst

Yeah, that's really fair, Ken. Thanks. Do you think that some of, given the importance of rates such as LIBOR and some of the short-term rates that have kind of moved in anticipation of a more dovish [Phonetic] Central Bank.

Do you think -- that might have, has that contributed to some of the improvement that you've seen and you referenced that you're seeing week-to-week or is it a combination of financing markets and financing rates, plus the animal spirits and the positivity from the market. Is it just a mix of these things or it does one factor drive more than the other?

Joseph Simon -- Chief Financial Officer

It's really not that, that's why he said the level of rates isn't the key. I mean it's not that rates needed to go down 50 to make things work. It is and I think I've said this in one of the calls, nine-months ago, a while back. For the first time we started to see about sometime in the fourth quarter.

Let's say financial sponsors putting in recession years into their models, which changes valuation pretty significantly.If you put one year pick one that would be your recession and all of a sudden you get a bid ask differentials. I think a lot of people are starting to get the confidence that we may not have one maybe the fed will aggressively lower rates instead of raise and cause one. Availability of capital when you raise rates will happen. The dollar might not -- the strength in the dollar has been a problem for global companies and emerging markets.

And I think all of that plays in effect, the only one that I wouldn't say it's really -- No, I mean, I don't think people -- it's not the lowering of a coupon that makes the difference. It's the booing of a market and maybe the fed will get in front of the 2020 recession.

Brennan Hawken -- UBS Investment Bank -- Analyst

Okay, thanks for humoring the macro-oriented questions there. Quick one on the balance sheet, you guys have as you referenced a strong balance sheet. You've got cash that's built from last quarter, but at this point you guys have, I think it's $108 million in cash and short-term investments which versus the last three years -- is on the low end for how you normally have been running by 2Q. Is how should we think about the cash build in the year-end? And how do you guys think about the dividend the regular dividend that you've set? It's a decently high level versus earnings at -- and really we've had soft patch, but it's still at, at OK market cycle here. So how should we think about those things as both as we come into year-end and maybe a little bit longer term too. Should we think maybe the dividend is going to grow little more slowly going forward?

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Well, first of all, we probably slightly low on cash, as I said, our first half hasn't been our best first half, we expect to have a very good second half. So we've not changed anything in response to a three-month period or short periods. We're not managing the company that way and but it does, it does affect the timing of your buildup in cash, so we expecting a strong second half.

On dividend, we feel very comfortable obviously, we've been doing specials and I think we did $1.25 a special in the first four, five months ago. So we've given back $200 million of our cash in the last six-months, but let me be clear on this, we will not, we do not want to leverage the balance sheet. We want to run with excess capital. We believe that opportunities present themselves very unpredictably in financial markets. We think those are unique opportunities and we want to be able to grow and bounce on them and not be in a bad situation, so we will maintain a completely repristine balance sheet and I think the cash will build quicker in the back half to the opposite of building slower in the first half.

Brennan Hawken -- UBS Investment Bank -- Analyst

Yeah, -- that makes a lot of sense. Thanks for the color, Ken.

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from Manan Gosalia with Morgan Stanley. Please go ahead.

Manan Gosalia -- Morgan Stanley -- Analyst

Hi, good afternoon. I'm sorry if I missed this, but do you still expect your comp ratio to be between 57% and 58% for the full year?

Joseph Simon -- Chief Financial Officer

Yeah, that's our target. We think we'll be able to we think given a strong back half will be able to maintain that.

Manan Gosalia -- Morgan Stanley -- Analyst

So does that depend on revenues improving materially from here or would that be just a little bit of an improvement in the back half of the year?

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Well, we think we have a strong back half of the year. So we're not worried about it, but that's our target and we intend to keep it and I can't, I can't do hypotheticals on every possible outcome, but we intend to keep it, do you think it's -- the only thing we can and we think we have a strong enough view on the back half to continue to target that.

Manan Gosalia -- Morgan Stanley -- Analyst

Got it. And secondly, I know you mentioned there was a good quarter for restructuring and revenues were up year-on-year. I know you don't give a dollar number, but maybe you can talk about a range of what percentage of revenues came from restructuring in the first half of this year and whether you're on track for it to be. I guess another record year given that 2018 was a record year and revenues are up year-on-year?

Joseph Simon -- Chief Financial Officer

If they continue to be, I think we've given the percentage is 20% to 25% depending on specific quarters et cetera but it's figure it to be 20% to 25% of our revenue. And again, I think, yes, I think this could be an exceptional year. I don't know if it will be a record, but it's trending well and I think it's in good shape to have a very good year.

Manan Gosalia -- Morgan Stanley -- Analyst

Got it. Thank you.

Operator

Thank you. Your next question comes from Jim Mitchell with Buckingham Research. Please go ahead.

James Mitchell -- The Buckingham Research Group -- Analyst

Hey, good morning, or afternoon, sorry. Maybe a question on just dividend versus buyback philosophy at these levels is it, is the focus here with the stock where it is more on the buyback as cash builds after the first quarter. Do we see that buyback pick up a little bit, how do we think about the pace from here?

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

As of right now, we have obviously, if you look at the structure of what we've done, we started to buyback and use our capital to do stock buybacks more aggressively than we've ever done. I mean we hadn't really done them, we were doing specials. I think it will be a blend, Jim, as to where the value and what we can do with the start to what price and how quickly we build cash flow, but will make those decisions. Look, our goal is to return 100% of our excess capital and do it in a manner that we think is most efficient and not leverage the balance sheet not get anybody make sure we're a 100% able to, to take advantage of markets when they give us an opportunity and that does important as anything. I think having been in this business for 40 years, markets show up and give you opportunities with no warning and it pays to be liquid and enable to take care of that. And because they don't come again as I said we, we took advantage of the crisis to grow pretty quickly 10 years ago, I thought we haven't really had an opportunity like that in a while. And my gut tells me one might come. So we're going to stay pretty pristine.

James Mitchell -- The Buckingham Research Group -- Analyst

Right. Fair enough. And maybe just, just sort of a big picture. Well, a bigger than a redbox [Phonetic] question around. I'll try, I'll try again, but some others have tried as we think about back half revenues, is there a shot. I think most people are thinking, you still have pretty tough comps year-over-year. Is there a possibility that it could be up on a year-over-year basis, which you expected to be down. Obviously, it's a little hard to tell. As you get through -- closer to fourth quarter. But just trying to think, if there's any kind of how you're thinking about it? How we should think about the potential in the back half?

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Generally to make that assessment. So, I don't want to get. Look, that would be -- given the start. It would be quite a -- it would be quite an achievement, but look, we have a lot of good things going on here, and I don't want to discount it, but I also don't want to, I don't want to get everybody focused, but that's, that would be, that would be a big hill to climb given where we are, I'd say to have an up year-on-year.

James Mitchell -- The Buckingham Research Group -- Analyst

Well, not for full year. I was just talking about second half, but all right.

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

No, well, I think you're saying for the full year. Yeah, sure. All right. Okay, look, I want to stay away from that -- that's, look, let's just put it this way, we feel like we have a strong second half and I thought you were looking at year-on-year could we, I said, not just feed climb.

James Mitchell -- The Buckingham Research Group -- Analyst

Yes.

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

That's affected. But what we feel very good about where our year is strong and I don't want to get into it. Yeah, we don't run the business on a three-month basis and it's too far out for me to project markets in all kinds of things. But look, we have a lot of activity and I think we're back on stride to -- where we feel very confident we're going to be have a good year. Good second half of the year.

James Mitchell -- The Buckingham Research Group -- Analyst

Okay, thanks. Fair enough.

Operator

Thank you. The next question comes from Devin Ryan with JMP Securities. Please go ahead.

Devin Ryan -- JMP Securities -- Analyst

Thanks, good afternoon guys. I have come a moment late here. So I apologize if this was covered, but just on the restructuring business which continues to be a strong contributor, if the Fed were to cut three to four times as the forward curve is suggesting would that relieve notable stress out there or the situations that you're seeing restructuring right now not really being driven by the rate as much as maybe more structural business issues. So a little bit lower rates wouldn't broad change the outlook there too much?

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Look, I'm not a macro-economist, but I did stay at a holiday in last night. So I'll try to answer your question. I think the forward curve is actually like 50 basis points two cuts over the next year. My three to four, but interestingly I do amount theory that if the Fed did cut three to four times. It would probably be a response to a much weaker economy than is being handicapped right now -- and that much weaker economy tends to be in kind of the middle market, the russell [Phonetic], were high-yield bonds are, and so it's an interesting well up. I could see the fed cut three to four times and have the S&P 500 respond pretty positively on just valuation to a very low 1% interest rate world. I'm not sure you see the big caps respond poorly to that, but you might see a lot of stress in jump on land and middle market companies that just don't have the same opportunities as -- look these large, the large tech companies right now go from strength-to-strength every day, but I'm not sure if you're five times levered.

I'm looking forward and saying the Fed's going to cut rates three to four times. That's an economy that might not do great for you. So I think you could see both happen. A restructuring cycle in middle market high yield land and, but not a bad reaction in S&P 500 bigger cap valuation world. So again, I think that's my guess, take that for what it's worth, I'm not a macro-economist.

Devin Ryan -- JMP Securities -- Analyst

Well, it was good macro answer. So, appreciate it. And obviously a lot of experience in the business as well. So I guess the follow-up here would be just on some of the ancillary advisory capabilities you've added in recent years, it's kind of beyond M&A and restructuring, obviously, there has been a big build out and just let me get a little bit more flavor for whether it be shareholder activism or some of the newer areas like data analytics. How those are driving business either directly or you feel like when you go in for a pitch, you're able to differentiate the firm. Any anecdotes or your thoughts there because obviously there is a whole slew of kind of newer capabilities. So just trying to think about how additive. Those are to the platform today.

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Well, look, I think activism has become a cornerstone and -- but I call it the tip of the spear in a lot of places right now, which is a leading edge into corporate boards. And that's, that's been very important and we're spending a lot of time on it as a, as that, which is, hey, its what people become worried about a year and a half before an M&A transaction happens or something happens and it is often an introduction of the firm. I still think the thing we do best on this is deliver four or five Managing Directors because we're not on this, one is one bonus pool structure and I do think the complex large cross-border transactions when people get to see and we get to introduce the whole team. I think we stand out and that's really where we're trying to do, whether it'd be capital markets advisory IPO advisory I then put somebody in for activism. There are companies with divisions that we're working on when we're doing transactions that parents with divisions in restructuring. So we're doing M&A restructure, and the teams work together and they work as one team and people like that, we don't like the competition within silos of firms. So look, that's where I think data analytics such early, we are starting to put together processes and ways to look at data that we think will help us be at the forefront of calling on clients and giving them information, but I'd say that's early. I mean we really just started that at the beginning of the year and more to be -- more for me to even discover on that as we go forward.

Devin Ryan -- JMP Securities -- Analyst

Got it. Okay, great. I'll leave it there. Thank you, Ken.

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Thanks.

Operator

Thank you. [Operator Instructions] Your next question comes from Jeffery Harte with Sandler O'Neill. Please go ahead.

Jeffery Harte -- Sandler O'Neill & Partners -- Analyst

Hey, good afternoon guys. Just a couple of cleanups from me. Have you said or will you say what the current MD count is?

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

I think it's 129. 129.

Jeffery Harte -- Sandler O'Neill & Partners -- Analyst

Okay. And you mentioned, earlier about a tougher or maybe hiring environment with forward optimism and only announcing two hires year-to-date is historically slow for you guys. As we look forward, I mean you talk just a little bit about hiring appetite in the talent availability. And I guess relative to -- at some point in time. Are we looking at promotions becoming the main MD growth driver.

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Well, first of all, let me clarify. I don't, I didn't want to say it was tough to hire MD's. I just said, I thought there might have been an opportunity on the fourth quarter into the first that it would become a better opportunity. They said it might have been a real opportunistic thing for an unlevered liquid company to step into the fray. I think the Fed put us back on the same level. All right. It did not yet higher. It's just, I thought there might have been an opportunity to again to use our liquidity and the strength of our balance sheet. If the world continued like it did in -- looked like in the fourth quarter and the Fed raised rates into a week cycle. That didn't happen. I think we're about the same as we were 12-months ago in terms of attracting people. We might have been weak in the first three or four months because of my view look I blame myself that if the Fed continues to raise rates,

We should probably wait and be more opportunistic. So, I play myself on that. Right now we have a, we've changed that over the last three, four months. I mean, we've gotten the message that the Fed is going aggressively support the economy here and we've got a pretty good backlog now. So, no, the answer is that people are hireable. There are firms having issues. Especially some of the multi -- the bigger financials to have issues in European firms, et cetera. There is a lot -- there is availability. We are talking to them and if anything, the slow start, I'll take the blame for -- just for being a little conservative in the fourth quarter in the first quarter.

Okay. Just expense outlook wise you mentioned the non-comp rate kind of ramping its way out toward maybe forty million a quarter, how quickly should we expect that to happen. Is that going to be a step function in the fourth quarter or over multiple quarters give Joe.Joe, would you take that.

Jeffery Harte -- Sandler O'Neill & Partners -- Analyst

Okay. Just expense outlook lies. You mention the non co-operate kind of ramping its way up toward maybe 40 million a quarter. How quickly should we except that to happen? Is that going to be, a step function in the fourth quarter or over multiple quarters?

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

I'll give it to, Joe. Joe, if you take that.

Joseph Simon -- Chief Financial Officer

So, we expect it to happen in the fourth quarter because we except to take possession of the space early in the fourth quarter. So that should be a step function in your words. I think the important thing is, as you know, non-comp costs are driven primarily by headcount, and I think the progress that we've made. If you look at last year, the first half our quarterly cost per head was about 48,000 to 49,000. The average quarterly cost for the first half of this year is about 43,000 and going into this whole taking on additional space it should come back to about 44,000 to 45,000. So we're getting pretty good leverage on our non-comp costs as we scale and I thought it was important to and I think we are also quite competitive with some of our larger peers.

Jeffery Harte -- Sandler O'Neill & Partners -- Analyst

Okay, thank you.

Joseph Simon -- Chief Financial Officer

Hope that helps.

Jeffery Harte -- Sandler O'Neill & Partners -- Analyst

Yeah.

Operator

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Moelis for any closing remarks.

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Thank you for all joining us, and I look forward to talking next quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Michele Miyakawa -- Head of Investor Relations

Joseph Simon -- Chief Financial Officer

Kenneth Moelis -- Chairman of Board of Directors and Chief Executive Officer

Ken Worthington -- J.P. Morgan -- Analyst

Michael Brown -- Keefe, Bruyette, & Woods Inc. -- Analyst

Brennan Hawken -- UBS Investment Bank -- Analyst

Manan Gosalia -- Morgan Stanley -- Analyst

James Mitchell -- The Buckingham Research Group -- Analyst

Devin Ryan -- JMP Securities -- Analyst

Jeffery Harte -- Sandler O'Neill & Partners -- Analyst

More MC analysis

All earnings call transcripts

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