Perella Weinberg Partners — Q1 2022 Form 10-Q
Business context and reporting period
Global independent advisory firm; results cover the three months ended March 31, 2022, compared with Q1 2021. The company operates as a single advisory segment. Its June 2021 business combination created an Up-C structure, with substantial non-controlling ownership of PWP OpCo.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $151.9 million | $169.8 million; down 11% |
| Operating income (loss) | $(10.4) million | $28.0 million |
| Operating margin | (6.8)% | 16.5% |
| Net income | $1.1 million | $22.5 million |
| Net income attributable to PWP | $8.9 million | Comparable figure not clearly provided in the filing text |
| Basic / diluted EPS attributable to Class A | $0.19 / $0.00 | Not presented for Q1 2021 |
| Operating cash flow | $(248.4) million | $(121.2) million |
| Cash, cash equivalents and restricted cash | $225.1 million | $504.8 million at December 31, 2021 |
| Debt | No facility borrowings | $50 million revolving facility available; matures July 2025 |
Expenses totaled $162.2 million, up 14%; operating expenses were 107% of revenue versus 83% a year earlier. Compensation and benefits, including equity-based compensation, were $128.1 million (84% of revenue); non-compensation expenses were $34.1 million (22%). The $12.0 million gain from the change in warrant-liability fair value contributed to $14.4 million of non-operating income and partly offset the operating loss. The effective tax rate was 74.0%, which management attributed in part to significant permanent differences and comparatively low pretax income.
At March 31, 2022, total assets were $470.6 million and total liabilities $185.1 million. Lease liabilities were $40.2 million; the tax receivable agreement liability was $19.7 million. The $100 million share repurchase authorization was approved in February; 172,303 shares were repurchased for $1.6 million during the quarter. A $0.07-per-share dividend was paid in March.
Material changes versus the prior comparable period
- Revenue declined as fewer advisory transactions completed, particularly in the U.S.; non-U.S. M&A completions partially offset the decline. Advisory clients fell to 77 from 95, while average fee size rose to $1.9 million from $1.8 million.
- Equity-based compensation increased to $40.9 million from $6.2 million, primarily reflecting awards associated with the business combination. This drove total compensation and benefits higher despite a lower bonus accrual.
- Non-compensation costs increased 30%, with higher professional fees, travel, and public-company costs among the drivers.
- Operating cash outflow increased, largely due to annual incentive compensation payments and a $29.3 million cash-flow use from the increase in receivables. Cash and restricted cash fell by $279.6 million from year-end.
- Interest expense fell to $0.1 million from $3.9 million, reflecting repayment of debt in connection with the 2021 business combination.
Outlook, risks and unusual items
Management reported that global M&A volumes were down 30% sequentially and year over year in Q1, with deal activity declining through the quarter and closings taking longer. It cited rising interest rates, inflation, antitrust policy, supply-chain disruptions, and geopolitical risk related to Russia’s invasion of Ukraine as near-term headwinds. Management said advisory dialogue remained active and expects long-term demand for independent advice, but gave no quantified financial guidance.
Management believes cash, operating cash generation, and undrawn revolver capacity should meet operating needs and commitments for the next 12 months; it may seek additional financing if those sources prove insufficient. New London and New York office leases are expected to increase obligations and require more than $50 million of design and construction capital contributions, partly offset by free-rent periods. The New York lease was extended in April 2022 through December 2039.
Risks include volatile, transaction-dependent fee revenue; delays or cancellations of client transactions; talent retention and competition; foreign-exchange exposure; and regulatory, cybersecurity, and litigation risks. One client represented $26.1 million of Q1 revenue. At quarter-end, $7.8 million of receivables was concentrated with one client and had not been collected as of the financial-statement issuance date. Most U.S. and U.K. bank balances exceeded applicable deposit-insurance limits. A long-running lawsuit includes defendants’ claims for at least $60 million; summary-judgment motions remain undecided, and the company recorded no liability, believing a material loss was not probable or reasonably possible. All regulated subsidiaries were above minimum capital requirements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the quarter’s lower U.S. transaction completions and slower market activity persist, and how that affects fee revenue and cash receipts.
- Collection timing and credit risk for the $7.8 million concentrated receivable, and the status of the client representing $26.1 million of revenue.
- The ongoing expense and potential dilution effects of equity awards, including the substantial unrecognized compensation expense disclosed in the filing.
- Cash needs and funding for the planned office expansions, alongside dividends, repurchases, partner distributions, and tax receivable agreement payments.
- Developments in the litigation, the $60 million-plus counterclaims, and any resulting financial exposure.