Perella Weinberg Partners — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise stated. PWP is a global independent advisory firm operating through an Up-C structure. Amounts below are in U.S. dollars; financial statement amounts are converted to millions where shown.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparator |
|---|---|---|
| Revenue | $131.4 million | $151.9 million; down 13% |
| Operating expenses | $154.1 million | $162.2 million; down 5% |
| Operating income (loss) | $(22.7) million; margin (17.3%) | $(10.4) million; margin (6.8%) |
| Net income (loss), consolidated | $(27.4) million | $1.1 million |
| Net income (loss) attributable to PWP | $(5.1) million | $8.9 million |
| Basic / diluted EPS | $(0.12) / $(0.37) | $0.19 / $0.00 |
| Operating cash flow | $(132.4) million | $(248.4) million |
| Cash, cash equivalents and restricted cash | $107.6 million at March 31 | $174.2 million at December 31, 2022 |
| Cash plus short-term U.S. Treasuries | $132.5 million at March 31 | $311.7 million at December 31, 2022 |
| Debt | None outstanding; $50 million revolving facility undrawn | None outstanding |
Compensation and benefits, including equity-based compensation, were $117.6 million, or 90% of revenue, versus $128.1 million, or 84%. Non-compensation expenses rose 7% to $36.5 million, or 28% of revenue. The filing reports no segment-level margin beyond the consolidated operating result.
At March 31, total assets were $524.5 million and total liabilities were $275.5 million. Lease liabilities were $168.8 million, and the tax receivable agreement liability was $25.1 million. The company declared a $0.07-per-share dividend on May 3, payable June 9 to holders of record May 26.
Changes and management commentary
- Revenue fell as financing and capital-solutions fees declined from a prior-year quarter that included a large restructuring fee event. M&A activity was described as largely flat; PWP cited fewer outsized fee events and a lower average fee size ($1.5 million versus $1.9 million), despite more advisory clients (83 versus 77) and a modest increase in completed transactions.
- Revenue mix shifted further toward U.S. activity: U.S. revenue was $95.5 million versus $92.2 million; international revenue was $35.9 million versus $59.7 million.
- The consolidated operating loss widened despite lower total operating expenses, as revenue declined and equity-based compensation increased 17% to $47.7 million. Prior-year results also included a $12.0 million gain from changes in warrant-liability fair value; no warrants remained outstanding in Q1 2023.
- Operating cash outflow primarily reflected payment of prior-year annual incentive compensation. Investing cash inflow included maturities of Treasury securities; financing outflows included $14.8 million of share repurchases, award-related withholding payments, partner distributions and dividends.
- The Board added $100 million to the share repurchase authorization in February 2023. PWP repurchased 1.46 million shares for $14.8 million during the quarter; $116.6 million remained authorized at March 31.
Outlook, risks and contingencies
- No numerical revenue or earnings guidance is provided. Management said advisory dialogue remained active but warned that a challenging macroeconomic environment could continue to weigh on M&A and financing volumes. Cited headwinds include interest rates and inflation, credit spreads, volatility, reduced liquidity and capital availability, recession risk and geopolitical tensions.
- Management believes cash, short-term investments, operating cash generation and available revolving credit should cover operating needs and commitments for the next 12 months; additional financing could be sought if needed. Liquidity depends substantially on client fee receipts, often contingent on transaction completion.
- The company expects approximately $16 million of remaining New York office construction spending, net of tenant-improvement allowances; completion was expected by year-end 2023. Undiscounted lease payments totaled $248.8 million, partly offset by $0.2 million of sublease income.
- Equity compensation remains significant: equity-based compensation was $47.7 million for the quarter, and unrecognized compensation cost for the disclosed award categories was substantial. The filing notes that this accounting expense can contribute to operating losses.
- Client concentration warrants monitoring: two clients represented $15.5 million of gross receivables at quarter-end; $10.0 million was collected subsequently. No individual client generated more than 10% of Q1 2023 revenue.
- A long-running New York lawsuit remains unresolved, including defendants’ claims for at least $60 million plus interest. Management believes a material adverse effect from current proceedings is neither probable nor reasonably possible, but says litigation outcomes remain uncertain. No liability was recorded for contractual indemnifications; maximum exposure is unknown.
- Other risks include volatile, transaction-dependent revenue; reliance on key personnel; regulatory and conflict-of-interest risks; foreign-exchange exposure; and cash balances that mostly exceed applicable deposit-insurance limits. The filing reports no material changes to previously disclosed risk factors and effective disclosure controls.
Important facts for investors to verify
- Whether advisory fee activity and average fee size recover, particularly in financing and capital solutions.
- Whether cash conversion improves after the seasonal first-quarter bonus payments, and the ongoing effect of buybacks, dividends and office construction on liquidity.
- How equity compensation affects reported earnings, dilution and future compensation expense.
- Collections of concentrated receivables and the timing and amount of future tax receivable agreement payments.
- Developments in the pending litigation and progress on New York office construction and related lease costs.