Perella Weinberg Partners — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparative periods are the corresponding 2020 periods. Unless noted otherwise, financial amounts below are in millions of dollars. The June 24, 2021 business combination created the public-company Up-C structure. Historical results reflect PWP OpCo, the accounting predecessor; 2021 periods include pre- and post-combination results, so comparisons and per-share data require care.
Business context and results
PWP is a global independent advisory firm operating as one reportable segment. Its services include M&A and other strategic advice, restructuring, capital markets advisory, underwriting, research and related services. Revenue is transaction-sensitive and often depends on milestones or successful transaction completion.
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $177.4 | $122.8 | $602.7 | $329.8 |
| Operating income (loss) | $(10.3) | $1.5 | $67.2 | $(22.8) |
| Net income (loss), consolidated | $(9.5) | $(1.1) | $22.0 | $(27.3) |
| Operating margin | (5.8%) | 1.2% | 11.1% | (6.9%) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $126.0 | $(51.6) |
Revenue grew 44% in Q3 and 83% for the nine-month period. Management attributed growth primarily to strong M&A activity, across sectors and geographies, and recovery from COVID-19-related weakness in the prior-year period. The number of clients paying fees of at least $1 million increased to 38 from 28 in Q3 and to 106 from 68 for nine months; average fee size rose to $1.9 million from $1.4 million and to $3.2 million from $2.3 million, respectively.
Q3 total expenses rose 55% to $187.8 million, exceeding revenue; nine-month expenses rose 52% to $535.5 million, growing more slowly than revenue. Compensation and benefits, including equity-based compensation, were 85% of Q3 revenue versus 74% a year earlier, and 73% for nine months versus 75%. Q3 equity-based compensation was $38.1 million versus $6.1 million; nine-month expense was $51.3 million versus $18.5 million. Higher bonuses and transaction-related awards were key drivers. Non-compensation expenses were $36.4 million in Q3, up 20%; nine-month non-compensation expense fell 7% to $97.1 million, partly because 2020 included a $14.8 million offering-cost write-off.
Consolidated Q3 net loss differs from net income attributable to PWP: the filing reports $3.5 million attributable to PWP, with a $12.9 million loss attributable to non-controlling interests. For the post-combination period through September 30, PWP-attributable loss was $9.0 million; the filing reports basic and diluted Class A EPS of $0.08 and $(0.09) for Q3 and $(0.21) and $(0.40) for that post-combination period. Pre-combination EPS is not presented.
Cash, debt and liquidity
- Cash and cash equivalents were $415.8 million at September 30, 2021, versus $329.1 million at December 31, 2020; including restricted cash, the cash-flow statement balance was $417.7 million.
- Nine-month operating cash flow was $126.0 million, compared with cash used of $51.6 million in 2020. Investing activities used $1.7 million and financing activities used $34.7 million. Financing included $355.0 million of business-combination/PIPE proceeds, debt repayment, partner distributions, dividends and the $12.0 million share repurchase.
- No borrowings were outstanding at quarter-end. PWP repaid its $150.0 million convertible notes and $27.7 million revolver balance in connection with the business combination. The amended revolving facility has a $50 million commitment, with up to $20 million of incremental commitments permitted; the filing says no incremental commitments were drawn.
- Total liabilities were $401.7 million and equity was $262.0 million. Lease liabilities were $47.9 million. The tax receivable agreement liability was $14.1 million; PWP agreed to pay 85% of qualifying realized tax savings.
- Management believes cash, operating cash generation and revolver availability will meet operating needs and commitments for the next 12 months, while noting additional financing could be sought if these sources prove insufficient.
Material changes, outlook and risks
- The business combination brought $355.0 million in cash proceeds, redeemed all outstanding debt and generated a $39.4 million loss on debt extinguishment, including a $10.9 million premium and $28.5 million of unamortized discounts and issuance costs.
- Management said M&A dialogue remained strong and expected activity to remain robust in the medium term, supported by strategic growth and capital deployment. The filing provides no quantified financial guidance.
- Large transaction-related incentive awards increased reported equity compensation. Unrecognized expense at September 30 included $39.8 million for Transaction Pool PSUs, $75.4 million for Transaction Pool RSUs and $82.3 million for Management PSUs, before considering other awards. Management noted this accounting could contribute to operating losses in future periods.
- Revenue is volatile: engagement-by-engagement fees may be contingent on events outside PWP’s control, and failed or delayed transactions can reduce or defer fees. Q3 revenue included $54.1 million from two clients each exceeding 10% of quarterly revenue; one client represented $26.5 million of receivables at quarter-end, all subsequently collected.
- A long-running lawsuit remains unresolved. Defendants seek at least $60 million plus interest; summary-judgment motions were argued in May 2021, with no decision reported. Management considers its claims and defenses meritorious but acknowledges litigation uncertainty and possible material adverse effects.
- Other risks include competition and retention of partners, regulatory and tax matters, conflicts, cybersecurity and operational risks, foreign-currency exposure, and dependence on client payments. The company reported $46.6 million of non-U.S.-dollar cash balances and stated it did not hedge currency exposure. Management reported disclosure controls were effective and no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Whether elevated M&A activity and revenue growth persist, given contingent fees and quarterly revenue concentration.
- How compensation—including the substantial unrecognized equity-award expense—affects future profitability and cash distributions.
- Available revolver capacity, liquidity needs, and the timing and amount of partner distributions, dividends and tax receivable agreement payments.
- Developments in the unresolved litigation, including potential outcomes and collectability of any judgment.
- How the Up-C structure, non-controlling interests, exchange rights, warrants and share-based awards affect ownership, voting control and per-share results.