Perella Weinberg Partners — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. PWP is a global independent advisory firm operating as one segment. The 2021 business-combination structure and timing affect comparability; the 2021 second-quarter per-share figures cover only June 24–30 after the Business Combination.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
| Revenue | $151.1M | $255.5M | $303.0M | $425.3M |
| Operating income (loss) | $(9.0)M | $49.5M | $(19.4)M | $77.5M |
| Operating margin | (6.0)% | 19.4% | (6.4)% | 18.2% |
| Consolidated net income | $2.7M | $9.0M | $3.7M | $31.5M |
| Net income attributable to PWP | $9.3M | $(12.5)M | $18.2M | $(12.5)M |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(145.2)M | $27.8M |
Margins and expenses: Total operating expenses were $160.1M in Q2 and $322.4M in H1, respectively 106% of revenue in both periods. Equity-based compensation was $36.4M in Q2 and $77.3M in H1, up sharply from $7.1M and $13.2M in the comparable periods. Compensation and benefits excluding equity-based compensation declined year over year, principally with lower bonus accruals as revenue fell.
Liquidity and debt: At June 30, cash was $150.3M and short-term U.S. Treasury securities were $114.8M; together these totaled $265.1M. Restricted cash was $2.7M. PWP had no borrowings outstanding on its $50M revolving facility. Cash, cash equivalents and restricted cash fell $351.8M from year-end, including operating outflows, treasury-security purchases, share repurchases, partner distributions and dividends. Lease liabilities were $102.2M.
Per-share and tax items: Basic Class A EPS was $0.21 for Q2 and $0.40 for H1; diluted EPS was $0.00 and $(0.01). The difference reflects, in part, assumed exchanges of PWP OpCo units and allocation of earnings to non-controlling interests. Effective tax rates were 54.1% for Q2 and 62.3% for H1.
Material changes versus prior periods
- Revenue fell 41% in Q2 and 29% in H1. Management attributed the declines to fewer advisory transaction completions and lower average fees, amid reduced M&A activity and a step-down in restructuring and liability-management advice.
- Q2 advisory clients declined to 77 from 106; clients paying fees of at least $1M declined to 32 from 46. Average fee size fell to $1.9M from $2.4M. For H1, advisory clients declined to 114 from 149 and average fee size to $2.6M from $2.8M.
- Operating results moved from profit to loss as revenue contracted and equity compensation increased. Reported net income includes non-operating gains from lower warrant liabilities: $10.1M in Q2 and $22.1M in H1.
- H1 operating cash flow turned negative, substantially reflecting working-capital needs including annual bonus payments. PWP invested $115.0M in short-term marketable debt securities.
- PWP repurchased 6.44M shares for $45.3M in H1 under a $100M authorization; $54.7M remained available at June 30. It also paid $0.07 per Class A share in dividends in each of Q1 and Q2.
Outlook, risks and unusual items
- Management said global M&A volumes in H1 2022 were down more than 20% from H1 2021. It cited rising rates, inflation, antitrust policy, supply-chain disruptions and geopolitical risks as near-term headwinds, while noting active advisory dialogue and expected long-term demand for independent advice. No numerical revenue or earnings guidance was provided.
- Management believes cash, Treasury investments, operating cash generation and available credit will meet operating needs and commitments for the next 12 months; it may seek additional financing if these sources prove insufficient. Liquidity depends heavily on client receipts and transaction completions.
- Longer-term New York and Los Angeles lease amendments increased lease obligations; the filing cites more than $50M of capital contributions toward design and construction of expanded office space, partly mitigated by free-rent periods.
- A long-running New York lawsuit remains unresolved. Defendants seek at least $60M plus interest; summary-judgment motions are pending, and a motion to renew a counterclaim was fully briefed. Management says it believes its claims and defenses are meritorious but cautions that the outcome is uncertain. No liability was recorded for this matter.
- Other risks include volatile, engagement-based advisory revenue; competition and talent retention; client payment and transaction-completion risks; foreign-exchange exposure (not hedged); regulatory and operational risks; and potential restrictions on regulated-subsidiary capital. Partner loan guarantees were $1.6M, with no defaults reported.
- After quarter-end, PWP filed an effective shelf registration allowing potential sales of up to 20M Class A shares, and began a warrant exchange offer and consent solicitation. The Board also declared a $0.07-per-share dividend payable in September 2022.
Important facts for investors to verify
- Whether advisory activity and fee sizes stabilize, and how contingent transaction timing affects quarterly revenue.
- How much of reported earnings reflects recurring operations versus noncash warrant revaluation, and the ongoing impact of equity-based compensation.
- Cash conversion, bonus-related working-capital swings, share repurchases and dividends relative to available liquidity and lease commitments.
- The status and potential financial impact of the litigation, tax receivable agreement obligations and any partner-loan guarantees.
- The potential dilution and capital effects of the shelf registration, warrant exchange, and exchange rights for non-controlling PWP OpCo units.