Perella Weinberg Partners — Q3 2022 Form 10-Q
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2022, compared with the corresponding 2021 periods. PWP is a global independent advisory firm operating as one reportable segment. Its Up-C structure means consolidated results include income allocated to non-controlling owners of PWP OpCo; accordingly, consolidated net income and income attributable to PWP shareholders differ.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $145.4m | $177.4m | $448.4m | $602.7m |
| Operating income (loss) | ($8.8m) | ($10.3m) | ($28.2m) | $67.2m |
| Operating margin | (6.1%) | (5.8%) | (6.3%) | 11.2% |
| Consolidated net income (loss) | ($12.9m) | ($9.5m) | ($9.1m) | $22.0m |
| Net income (loss) attributable to PWP | $1.1m | $3.5m | $19.3m | ($9.0m) |
| Class A EPS, basic / diluted | $0.03 / ($0.19) | $0.08 / ($0.09) | $0.44 / ($0.19) | ($0.21) / ($0.40) |
Q3 total operating expenses were $154.2m, or 106% of revenue; compensation and benefits, including equity-based compensation, were $123.3m. For the nine months, operating expenses were $476.5m, also 106% of revenue. Equity-based compensation was $37.0m in Q3 and $114.3m for the nine months; the nine-month figure rose 123% year over year. Basic and diluted EPS differ materially because diluted EPS reflects assumed exchanges of PWP OpCo units and the resulting income reallocation.
At September 30, cash and cash equivalents were $142.9m, restricted cash $2.7m, and short-term U.S. Treasury securities $138.9m. Total liabilities were $357.4m, including $159.6m of lease liabilities and $23.8m due under the tax receivable agreement. No borrowings were outstanding on the $50m revolving credit facility. Total equity was $274.2m. Nine-month operating cash flow was an outflow of $98.7m, investing cash flow an outflow of $147.4m, and financing cash flow an outflow of $102.6m. Cash, cash equivalents and restricted cash declined $359.3m to $145.5m.
Material changes versus prior comparable periods
- Revenue declined 18% in Q3 and 26% for the first nine months, principally reflecting fewer M&A transaction completions and lower average fees. Q3 capital solutions activity, including restructuring and liability management, partly offset the decline.
- Q3 revenue came from 78 advisory clients versus 90 a year earlier; clients paying at least $1m in fees fell to 24 from 38. Average fee size decreased to $1.8m from $1.9m. For nine months, advisory clients fell to 151 from 188 and average fee size to $2.9m from $3.2m.
- Nine-month operating results moved from $67.2m income to a $28.2m loss. Compensation costs fell, but equity compensation increased, and total expenses equaled 106% of revenue versus 89% a year earlier.
- The nine-month comparison includes $39.4m of debt-extinguishment loss in 2021, when PWP redeemed its convertible notes in connection with the 2021 Business Combination. PWP had no outstanding debt at September 30, 2022.
- Cash and restricted cash fell substantially, reflecting operating outflows, Treasury purchases, share repurchases, partner distributions, dividends and award-related withholding. The company held $138.9m in Treasury securities as a separate balance-sheet line.
Outlook, commentary, risks and unusual items
- Management reported that global M&A volumes were down by more than one-third in the first nine months of 2022 versus 2021, citing rising rates and inflation, antitrust policy, supply-chain disruption and geopolitical risks. It said near-term conditions may continue to weigh on M&A and financing volumes, while advisory dialogue remained active and it expects long-term demand for independent advice. No quantified earnings or revenue guidance was provided.
- Management believes cash, Treasury securities, operating cash generation and available facility capacity will meet operating needs and commitments for the next 12 months; it may seek additional financing if those sources prove insufficient. Advisory revenue is transaction-dependent, volatile and affected by completion timing, approvals and client activity.
- The company repurchased 7.7m Class A shares for $53.8m in the first nine months under a $100m authorization; $46.2m remained. It declared $0.21 per share in dividends for the nine-month period. On November 2, 2022, the board declared a further $0.07 per share dividend, payable December 9, 2022.
- All outstanding warrants were exchanged or converted into Class A shares in Q3; no warrants remained at quarter-end. The exchange resulted in $1.3m of professional fees and ended future warrant-liability fair-value changes.
- New and amended New York, Los Angeles and London office leases increased right-of-use assets and lease liabilities; total lease liabilities were $159.6m. Management said lease expansion would require more than $50m of construction-related capital contributions, partly offset by rent-free periods.
- Foreign exchange movements produced a $10.8m transaction gain for the nine months, while foreign-currency translation resulted in a $13.4m comprehensive loss. PWP does not hedge these currency exposures.
- A long-running New York litigation matter remains pending, including defendants’ counterclaims seeking at least $60m plus interest; summary-judgment motions have not been decided. Management considers a material adverse effect from current proceedings not probable or reasonably possible, but notes litigation outcomes are uncertain.
- Other exposures include the $23.8m tax receivable agreement obligation, regulatory limits on the availability of some subsidiary capital, and $1.6m of guarantees of partners’ loans; no guaranteed loans were in default. Two clients represented $50m of Q3 revenue in aggregate.
Important facts for investors to verify
- Whether transaction activity and fee size recover, particularly in M&A, and whether restructuring and capital solutions work can offset weaker deal volumes.
- How operating cash flow and liquid resources evolve after annual bonus payments, partner distributions, dividends, repurchases and lease-related spending.
- The composition and economic impact of equity-based compensation, including the difference between basic and diluted EPS and the allocation of earnings to non-controlling interests.
- Progress and potential exposure in the pending litigation, tax receivable agreement payments, and the execution costs of expanded office leases.
- Whether client concentration, foreign-exchange movements and transaction-dependent revenue create material volatility in future results.