Perella Weinberg Partners — 2021 Form 10-K
Business context and reporting period
For the fiscal year ended December 31, 2021, PWP operated as a global independent advisory firm focused on M&A and strategic advice, restructuring and capital structure advisory, capital markets, and related services. It reported one operating and reportable segment.
The Business Combination with FinTech Acquisition Corp. IV closed June 24, 2021 and was accounted for as a reverse recapitalization. Accordingly, 2021 includes PWP OpCo’s historical results before closing and the combined public-company structure thereafter; prior-year results are not fully comparable to those of a standalone public company. The audited financial statements received an unqualified opinion from Ernst & Young LLP.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $801.7 million | $519.0 million |
| Operating income (loss) | $66.6 million | $(14.6) million |
| Operating margin | 8.3% | (2.8)% |
| Net income (loss), consolidated | $4.0 million | $(24.3) million |
| Net income (loss) attributable to PWP | $(9.4) million | Not presented on a comparable basis |
| Operating cash flow | $234.9 million | $85.9 million |
| Cash, cash equivalents and restricted cash at year-end | $504.8 million | $330.9 million |
Revenue increased 54%, reflecting more advisory clients and higher average fees amid stronger M&A activity, partly offset by lower restructuring and liability-management fees. PWP served 232 advisory clients versus 175 in 2020; 142 clients generated fees of at least $1 million, compared with 99. Average fee size rose to $3.4 million from $2.9 million.
Total operating expenses were $735.1 million, or 92% of revenue, versus $533.6 million, or 103%, in 2020. Total compensation and benefits, including equity-based compensation, were $600.7 million (75% of revenue), compared with $399.1 million (77%). The filing reports basic and diluted Class A EPS of $(0.22) and $(0.66), respectively, for the post-combination period from June 24 through December 31 only.
Operating cash flow was $234.9 million, with working-capital movements and non-cash charges contributing materially. Year-end cash and restricted cash totaled $504.8 million, including $2.0 million of restricted cash. PWP had no outstanding borrowings at year-end and had a $50 million revolving credit facility maturing in 2025. It paid $0.14 per outstanding Class A share in 2021 dividends and repurchased $12 million of stock.
Material changes and unusual items
- Operating results improved substantially from 2020, when PWP reported an operating loss; revenue and advisory-client counts also increased. The 2020–2021 comparison is affected by the midyear Business Combination and changed public-company and tax structure.
- Non-operating expense included a $39.4 million loss on extinguishment of debt when $150 million of 7% convertible notes were redeemed at the Business Combination, and a $4.9 million loss from changes in warrant-liability fair value.
- Equity-based compensation expense was $96.3 million, up from $24.8 million in 2020, substantially reflecting transaction-related awards. Certain legacy and Professional Partners awards are allocated to non-controlling interests and, according to the filing, do not dilute PWP shareholders relative to Professional Partners.
- Income tax expense was $18.9 million, with an 82.5% effective rate. The filing attributes the elevated rate in part to the post-combination corporate tax structure, nondeductible compensation and unrecognized tax benefits.
Outlook, risks and contingencies
Management said advisory dialogue remained strong and expected strategic growth and capital deployment to support activity in the medium term, but cautioned that 2022 M&A could be less active than 2021. Risks cited include rising interest rates and inflation, changing U.S. antitrust policy, potential tax-law changes, geopolitical developments and international hostilities. PWP provided no numerical earnings or revenue guidance.
Revenue is largely engagement-based and transaction-contingent, making quarterly results volatile; failed, delayed or uncompleted transactions may generate little or no fees. Other key risks include retaining and recruiting partners, intense competition and fee pressure, conflicts of interest, client nonpayment, cybersecurity and operational disruptions, foreign-exchange exposure, and extensive regulation.
PWP is pursuing long-running litigation against former partners and an employee; defendants seek at least $60 million plus interest. Summary-judgment motions remained undecided, and defendants filed a motion to renew a counterclaim in January 2022. Management said it believes its claims and defenses are meritorious, but acknowledged an adverse outcome could materially affect the company. The financial-statement note says management did not consider current legal proceedings or claims probable or reasonably possible to have a material adverse effect on the statements.
The Up-C structure and tax receivable agreement warrant attention: PWP generally owes specified parties 85% of qualifying realized or deemed tax savings. The year-end estimated TRA liability was $14.1 million. Professional Partners held approximately 90% of voting power as of February 2022; PWP is a controlled company and uses Nasdaq governance exemptions. Management did not assess internal control over financial reporting for 2021 under the stated transition exemption; disclosure controls were deemed effective, and the filing states no material weakness was identified.
Subsequent events included a January 2022 offering of 3.5 million Class A shares at $10.75 per share for $37.6 million gross proceeds, a February authorization for up to $100 million in stock repurchases, and a declared $0.07-per-share dividend. The company also reported additional equity awards and office lease commitments in 2022.
Important facts for investors to verify
- Reconcile consolidated net income of $4.0 million with the $(9.4) million loss attributable to PWP and the post-combination-only EPS figures.
- Assess the sustainability of the exceptional 2021 advisory revenue and cash flow, given contingent fees, working-capital effects and management’s caution about 2022 M&A.
- Review the economics and potential dilution of incentive awards, exchangeable PWP OpCo units, outstanding warrants and the post-year-end share offering.
- Confirm liquidity needs and facility covenants, including partner tax distributions, compensation payments, leases, and future TRA payments.
- Monitor the former-partner litigation, related-party arrangements, concentrated voting control and progress toward a full internal-control assessment.