Perella Weinberg Partners — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. PWP is a global independent advisory firm operating as a single reportable segment. Figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $165.5M | $151.1M | $297.0M | $303.0M |
| Operating expenses | $187.3M | $160.1M | $341.4M | $322.4M |
| Operating income (loss) | $(21.8)M | $(9.0)M | $(44.4)M | $(19.4)M |
| Net income (loss), consolidated | $(18.3)M | $2.7M | $(45.7)M | $3.7M |
| Net income (loss) attributable to PWP | $0.4M | $9.3M | $(4.8)M | $18.2M |
| Operating cash flow | Not presented for quarter | $(50.8)M | $(145.2)M |
- Operating margin was approximately negative 13.1% in Q2 2023 versus negative 6.0% in Q2 2022; for the first half it was negative 15.0% versus negative 6.4%.
- Q2 revenue rose 10% year over year, supported by increased M&A activity and more transaction completions, despite a lower average fee size. First-half revenue declined 2%, as modestly higher M&A activity was offset by lower financing and capital solutions revenue and fewer outsized fees.
- Total compensation and benefits were $148.4M in Q2, up 17%; non-compensation expenses were $38.9M, up 17%. For the first half, total compensation and benefits rose 4% and non-compensation expenses rose 12%.
- Cash, cash equivalents and restricted cash were $132.4M at June 30, down $41.8M from year-end. Including $50.0M of short-term U.S. Treasury securities, cash and investments totaled $182.4M. Total assets were $582.1M and total equity was $258.3M.
- PWP had no outstanding debt and had a $50.0M revolving credit facility, with up to $20.0M in incremental commitments available. No incremental commitments were drawn. Lease liabilities were $171.3M.
Changes, outlook and notable items
- Quarterly losses widened as expenses increased faster than revenue. Q2 2022 included a $10.1M gain from the change in fair value of warrant liabilities; first-half 2022 included a $22.1M gain. PWP had no warrants outstanding in 2023.
- Management said market conditions improved in the most recent quarter and M&A advisory dialogue increased. It also cited industry headwinds including higher interest rates and inflation, credit spreads, market volatility, reduced liquidity and capital availability, recession risk and geopolitical tensions. Revenue remains volatile because advisory fees can depend on transactions closing. No specific revenue or earnings guidance was provided.
- A business realignment begun in Q2 included $3.8M of separation and transition costs and $1.3M of accelerated equity compensation. PWP expects about $18M of additional realignment expense in the second half of 2023 and estimates about $18M of remaining cash payments, expected by or soon after year-end. Estimates may differ from actual costs.
- Fixed-asset purchases were $34.8M in the first half, largely for New York and London office renovations and relocation. PWP estimated about $14M of additional net spending to complete the New York build-out. Management expects overlapping rent costs to ease in Q4 2023.
- Liquidity: management believes cash, short-term investments, operating cash generation and available credit will be sufficient for operating needs and commitments over the next 12 months, but said additional debt or equity financing may be considered if those sources prove insufficient. First-half operating cash outflow was primarily associated with payment of prior-year annual bonuses.
- The board authorized up to $200M of share repurchases. PWP repurchased 2.38M shares for $22.5M in the first half; $108.8M remained authorized at June 30. A $0.07-per-share dividend was declared August 2, payable September 12, 2023.
- A long-running dispute with former employees and Ducera Partners remains ongoing. On May 24, 2023, the court upheld the enforceability of PWP’s restrictive covenants but otherwise denied PWP’s summary-judgment motion and denied defendants’ motion; defendants appealed on July 25. Management believes its claims and defenses are meritorious, but notes litigation outcomes are uncertain and could have a material effect.
- After quarter-end, PWP announced CFO Gary Barancik will step down effective December 31, 2023, with Alexandra Gottschalk appointed CFO effective January 1, 2024. Barancik’s separation agreement provides for a $2.45M payment, subject to conditions, and continued equity vesting during a consulting period.
Investor verification priorities
- Review the drivers and sustainability of higher Q2 revenue, including transaction completions, fee size and revenue concentration; one client contributed over 10% of Q2 revenue.
- Assess compensation and equity-award costs, the expected $18M of additional realignment expense, and the timing and cash impact of related payments.
- Reconcile first-half operating cash use with bonus payments, capital spending, buybacks, dividends and the seasonal pattern of working capital.
- Monitor liquidity and commitments, including office construction spending, lease obligations, the tax receivable agreement liability of $25.1M, and available revolver capacity.
- Track the appeal and potential financial effects of the Ducera litigation, and review the CFO transition and associated separation and consulting terms.