PERELLA WEINBERG PARTNERS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the forward-looking statements below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled "Risk Factors" and elsewhere in this Form 10-K.
Executive Overview
We are a leading global independent advisory firm that provides strategic and financial advice to clients across a range of the most active industry sectors and international markets. We provide advisory services to a wide range of clients globally, including large public multinational corporations, mid-sized public and private companies, individual entrepreneurs, private and institutional investors, creditor committees and government institutions. We were founded inJune 2006 with the opening of offices inNew York andLondon , led by a team of ten seasoned advisory partners who previously held senior management positions at large global investment banks. Our mission is helping clients address complex strategic and financial challenges. The foundation of our Company was rooted in a belief, among other considerations, that clients would increasingly seek out deeply experienced advisors who offer independent strategic thinking and who are not burdened by the complicated conflicts that large investment banking institutions may face due to their various businesses. The 2008 global financial crisis reinforced this hypothesis and contributed to the early growth of our Company. Today, we believe that our independence is even more important. For clients and for us independence means freedom from the distractions that dilute strategic thinking and a willingness and candor to share an honest opinion, even if at times it is contrary to our clients' point of view. We believe that our clients choose to engage us because they value our unbiased perspective and expert advice regarding complex financial and strategic matters. Our business provides services to multiple industry sectors and geographic markets. We believe that our collaborative partnership and integrated approach combining deep industry insights, significant technical, product and transactional expertise, and rigorous work ethic create a significant opportunity for our Company to realize sustainable growth. We seek to advise clients throughout their evolution, with the full range of our advisory capabilities including, among other things, advice related to mission-critical strategic and financial decisions, M&A execution, capital markets advisory, shareholder and defense advisory, capital raising, capital structure and restructuring, specialized underwriting and research services for the energy and related industries. Since our inception, we have experienced significant growth in our business, driven by hiring professionals who are highly regarded in their fields of expertise, expanding the scope and geographic reach of our advisory services, deepening and expanding our client relationships and maintaining a firm culture that attracts, develops and retains talented people. In addition to our hiring and internal development of individual professionals, inNovember 2016 , we completed the TPH Business Combination with TPH, an independent advisory firm, focused on the energy industry. As ofDecember 31, 2021 , we serve our clients with 422 advisory professionals, including 60 advisory partners (which numbers include two advisory partners who retired from the Company inJanuary 2022 ), based in ten offices, located in five countries around the world.
We generate and recognize revenues when earned, primarily from providing advisory services on transactions that are subject to individually negotiated engagement letters, which set forth our fees.
Upfront fees are recognized over the estimated period that the related services
are performed. Transaction-related fees are recognized when or as services for a
transaction are provided and specified conditions or certain milestones have
been achieved, which are often outside of our control. Underwriting revenues are
recognized when the offering is deemed complete. As a result, revenues and net
income in any period may not be indicative of full year results or the results
of any other period and may vary significantly from year to year and quarter to
quarter. The performance of our business depends on the ability of our
professionals to build relationships with clients over many years by providing
trusted advice and exceptional transaction execution.
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On June 24, 2021 , Perella Weinberg Partners consummated the Business Combination
whereby (i) FTIV acquired certain partnership interests in PWP OpCo, (ii) PWP
OpCo became jointly-owned by Perella Weinberg Partners , Professional Partners
and certain existing partners of PWP OpCo, and (iii) PWP OpCo serves as the
Company's operating partnership as part of an umbrella limited partnership
C-corporation (Up-C) structure. The Business Combination was structured as a
reverse recapitalization. The historical operations of PWP OpCo are deemed to be
those of the Company. Thus, the consolidated financial statements included in
this Annual Report on Form 10-K reflect (i) the historical operating results of
PWP OpCo prior to the Business Combination and (ii) the combined results of the
Company following the Business Combination. The Company shareholders are
entitled to receive a portion of PWP OpCo's economics through their ownership
interests in shares of Class A common stock of Perella Weinberg Partners , which
holds PWP OpCo Class A partnership units. The non-controlling interest owners of
PWP OpCo receive a portion of its economics through their ownership of PWP OpCo
units. See Note 3-Business Combination and Note 11-Stockholders' Equity in the
notes to consolidated financial statements included elsewhere in this Form 10-K
for additional discussion related to the transaction.
Business Environment and Outlook
Worldwide announced M&A volumes in 2021 increased significantly as compared to 2020. While the overall level of mergers and acquisitions globally declined in 2020, heavily influenced by the impact of the COVID-19 pandemic, M&A activity began to recover in the third quarter of 2020, accelerated in the fourth quarter of 2020, and continued to reflect a strong performance for 2021. The level of M&A advisory dialogue remains strong across all our industries and geographies of focus and among our large cap, middle market and sponsor clients. As companies continue to focus on strategic growth and capital deployment, we expect these considerations and the overall business environment will keep activity elevated in the medium term. However, we also see various factors which we believe could make our markets more volatile and 2022 a less active year in M&A than 2021 including rising interest rates and inflation, shiftingU.S. anti-trust policy, potential tax law changes, geopolitical developments, international hostilities and other factors. More broadly, our core advisory services benefit from changes which impact our client base and lead them to consider business combinations, acquisitions and divestitures, capital raises and restructurings. These changes can include a broad range of economic factors in global or local markets, technological advancements which alter the competitive landscape, regulatory and political policies, globalization, changing consumer preferences, commodity and financial market movements, among many other factors. As our team of advisory professionals expands and continues to gain traction, and as we continue to expand our advisory services, we expect our sector-focused global team collaboration will deepen and continue to resonate with clients. We expect to continue to experience growing global demand for independent advice. Economic and global financial conditions can materially affect our operational and financial performance. See "Part I - Item 1A. Risk Factors" included elsewhere in this Form 10-K for a discussion of some of the factors that can affect our performance. 60
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Results of Operations
The following is a discussion of our results of operations for the respective
periods indicated.
Year Ended December 31,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Revenues $ 801,662 $ 518,986 $ 533,297 54 % (3) %
Expenses
Compensation and benefits 504,364 374,332 349,819 35 % 7 %
Equity-based compensation 96,330 24,815 193,299 288 % (87) %
Total compensation and benefits 600,694 399,147 543,118 50 % (27) %
Non-compensation expenses 134,384 134,435 145,298 - % (7) %
Total operating expenses 735,078 533,582 688,416 38 % (22) %
Operating income (loss) 66,584 (14,596) (155,119) NM 91 %
Non-operating income (expenses)
Related party income 7,516 9,263 8,810 (19) % 5 %
Other income (expense) 761 185 108 311 % 71 %
Change in fair value of warrant
liabilities (4,897) - - NM NM
Loss on debt extinguishment (39,408) - - NM NM
Interest expense (7,606) (15,741) (15,395) 52 % (2) %
Total non-operating income
(expenses) (43,634) (6,293) (6,477) (593) % 3 %
Income (loss) before income taxes 22,950 (20,889) (161,596) NM 87 %
Income tax benefit (expense) (18,927) (3,453) (2,423) (448) % (43) %
Net income (loss) $ 4,023 $ (24,342) $ (164,019) NM 85 %
Less: Net income (loss) attributable
to non-controlling interests 13,444
Net income (loss) attributable to
Perella Weinberg Partners $ (9,421)
NM = Not meaningful
Revenues
We operate in a highly competitive environment. Each revenue-generating
engagement is separately solicited, awarded and negotiated, and there are
limited long-term sources of revenue in the form of recurring retainers.
Therefore, our fee-paying client engagements are not predictable, and high
levels of revenues in one quarter are not necessarily predictive of continued
high levels of revenues in future periods. To develop new business, our
professionals maintain an active business dialogue with a large number of
existing and potential clients. We expect to add new clients each year as our
advisory professionals continue to expand their relationships, as we hire senior
advisory professionals who bring their client relationships and as we receive
introductions from our relationship network of senior executives, board members,
attorneys and other third parties. We also lose clients each year as a result of
the sale or merger of clients, changes in clients' senior management,
competition from other financial services firms and other reasons.
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In many cases, revenue is not recognized until the successful completion of an
underlying transaction. Complications that may terminate or delay a transaction
include failure to agree upon final terms with the counterparty, failure to
obtain regulatory consents, failure to obtain board or stockholder approvals,
failure to secure financing, adverse market conditions or unexpected operating
or financial problems related to either party to the transaction (or their
customer base). While transactions typically close within a 12-month period
post-announcement of such transaction, they can occasionally extend longer. Such
delays often occur with larger transactions and can contribute to
unpredictability in the timing of such revenues. In other circumstances, we
often do not receive the same level of advisory fees that would have been
received if the transaction had been completed, and in some cases we may receive
no advisory fee despite the fact that we may have devoted considerable time and
resources to the transaction. Other barriers to the completion of a
restructuring transaction may specifically include a lack of anticipated bidders
for the assets or securities of our client, the inability of our client to
restructure its operations, the absence of court approval in a bankruptcy
proceeding, or a failure to reach agreement with a client's creditors. In these
circumstances, our advisory fees are generally limited to monthly retainer fees
(if any). In the case of bankruptcy engagements, fees are subject to approval by
the applicable court. In most cases, even if a transaction is not successfully
completed, we are reimbursed for certain out-of-pocket expenses incurred in
connection with the engagement.
We do not present our revenue by the type of advice we provide because of the
complexity of the transactions on which we may earn revenue and our holistic
approach to client service. For example, (i) a restructuring engagement may
evolve to require a sale of all or a portion of the client, (ii) M&A assignments
can develop from relationships established on prior restructuring engagements,
(iii) capital markets expertise can be instrumental on both M&A and
restructuring assignments, and (iv) capital markets revenue can be generated
through the provision of capital markets advisory work, capital raising
assignments or the issuance of focused equity research services. We dedicate the
resources and expertise needed on any given assignment regardless of product
lines and focus on achieving the desired outcome for our clients. Such an
approach does not lend itself to tracking the type of advisory service offered
in each instance.
Year Ended
Revenues were$801.7 million for the year endedDecember 31, 2021 as compared with$519.0 million for the year endedDecember 31, 2020 , representing an increase of 54%. The increase in revenues can be attributed to both an increase in the number of advisory clients and the average fee size per client as M&A activity increased year over year, partially offset by a reduction in restructuring and liability management fees as compared to the prior year. For the years endedDecember 31, 2021 and 2020, we earned revenues from 232 and 175 advisory clients, respectively. The number of advisory clients who paid fees equal to or greater than$1.0 million increased to 142 advisory clients for the year endedDecember 31, 2021 compared to 99 advisory clients for the year endedDecember 31, 2020 . The average fee size increased to$3.4 million for the year endedDecember 31, 2021 from$2.9 million for the year endedDecember 31, 2020 .
Year Ended
Revenues were$519.0 million for the year endedDecember 31, 2020 as compared with$533.3 million for the year endedDecember 31, 2019 , representing a decrease of 3%. The decrease in revenues was primarily driven by a decline in mergers and acquisitions activity during the start of COVID-19 pandemic, offset partially by an increase in capital structure and restructuring activity. For the years endedDecember 31, 2020 and 2019, we earned revenues from 175 and 179 advisory clients, respectively. The number of advisory clients who paid fees equal to or greater than$1 million decreased to 99 advisory clients for the year endedDecember 31, 2020 compared to 100 advisory clients for the year endedDecember 31, 2019 . The average fee size remained unchanged from 2019 to 2020 at$2.9 million . 62
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Operating Expenses
The following table sets forth information relating to our operating expenses:
Year Ended December 31,
(Dollars in thousands) 2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Expenses
Compensation and benefits $ 504,364 $ 374,332 $ 349,819 35 % 7 %
% of Revenues 63 % 72 % 66 %
Equity-based compensation $ 96,330 $ 24,815 $ 193,299 288 % (87 %)
% of Revenues 12 % 5 % 36 %
Total compensation and benefits
$ 543,118 50 % (27 %) % of Revenues 75 % 77 % 102 % Non-compensation expenses$ 134,384 $ 134,435 $ 145,298 - % (7 %) % of Revenues 17 % 26 % 27 % Total operating expenses$ 735,078 $ 533,582 $ 688,416 38 % (22 %) % of Revenues 92 % 103 % 129 % Income (loss) before income taxes$ 22,950 $ (20,889) $ (161,596) NM 87 % % of Revenues 3 % (4 %) (30 %) Our operating expenses are classified as (i) total compensation and benefits expenses including equity-based compensation and (ii) non-compensation expenses. Headcount is the primary driver of the level of our operating expenses. Compensation and benefits expenses account for the majority of our operating expenses. Compensation expenses also include expense associated with hiring which has been a significant focus of the Company in all of the historical periods described herein. Non-compensation expenses, which include the costs of professional fees, travel and related expenses, technology and infrastructure, rent and occupancy, depreciation and amortization, and general, administrative and other expenses generally have been less significant in comparison with compensation and benefits expenses.
Year Ended
Operating expenses were$735.1 million for the year endedDecember 31, 2021 and represented 92% of revenues, compared with$533.6 million for the year endedDecember 31, 2020 , which represented 103% of revenues. The increase in operating expenses was primarily driven by an increase in total compensation and benefits expenses, which were$600.7 million for the year endedDecember 31, 2021 compared to$399.1 million for the year endedDecember 31, 2020 . Non-compensation expenses were$134.4 million for the year endedDecember 31, 2021 and represented 17% of revenues, compared to$134.4 million for the year endedDecember 31, 2020 , which represented 26% of revenues.
Year Ended
Operating expenses were$533.6 million for the year endedDecember 31, 2020 and represented 103% of revenues, compared with$688.4 million for the year endedDecember 31, 2019 , which represented 129% of revenues. The decrease in operating expenses was driven by a decrease in both total compensation and benefits and non-compensation expense from the prior year. Total compensation and benefits was$399.1 million for the year endedDecember 31, 2020 compared to$543.1 million for the year endedDecember 31, 2019 . Non-compensation expense was$134.4 million for the year endedDecember 31, 2020 , representing 26% of revenue compared to$145.3 million for the year endedDecember 31, 2019 , representing 27% of revenue. 63
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Compensation and Benefits Expenses
Our compensation and benefits expenses are determined by management based on revenues earned, the competitiveness of the prevailing labor market and anticipated compensation requirements for our employees, the level of recruitment of new partners, the amount of compensation expense amortized for equity awards and other relevant factors. Such factors can fluctuate, including headcount, and as a result, our compensation expenses may fluctuate materially in any particular period. Accordingly, the amount of compensation expenses recognized in any particular period may not be consistent with prior periods or indicative of future periods. Our compensation expenses consist of base salary, benefits, payroll taxes, annual incentive compensation payable as cash bonus awards, deferred compensation awards, profit sharing arrangements and amortization of equity-based compensation awards. Compensation expenses also include signing bonuses and compensation paid pursuant to guarantees for new hires. These amounts have historically been significant. Base salary and benefits are paid ratably throughout the year. Depending on the plan, deferred compensation and profit-sharing awards vest immediately, at future dates, or upon the occurrence of certain events. Cash bonuses, which are accrued each quarter, are discretionary and dependent upon many factors, including the performance of the Company, and are generally paid during the first quarter of each calendar year with respect to prior year performance. Equity awards are measured at fair value on the grant date and recognized on a straight-line basis over the vesting period. The awards are subject to a service vesting condition, and in some cases a market-based performance vesting condition, and vest ratably on a graded vesting schedule of up to five years. The awards are recorded within equity as they are expensed. The vesting of certain equity-based awards granted byProfessional Partners to partners providing services to PWP OpCo prior to the Business Combination and the variousProfessional Partners value capital units ("VCUs") and alignment capital units ("ACUs") (collectively, the "Professional Partners Awards") issued in connection with the Business Combination have no economic impact on, and do not dilute, PWP shareholders relative toProfessional Partners . The awards do not change the economic allocations betweenProfessional Partners and PWP shareholders, nor do they change theProfessional Partners' interest in PWP OpCo. As a result, all of the compensation expense and corresponding capital contribution associated with theProfessional Partners Awards is allocated to non-controlling interests on the Consolidated Statements of Operations and Consolidated Statements of Financial Condition. Beginning in the third quarter of 2021, the Company granted incentive compensation awards in accordance with thePerella Weinberg Partners 2021 Omnibus Incentive Plan (the "PWP Incentive Plan" or "Incentive Plan"). The Company uses shares of PWP Class A common stock to satisfy vested awards under the plan. The vesting of these awards for employees are recorded as equity-based compensation expense and awards for non-employees are recorded as professional fees at PWP OpCo forU.S. GAAP accounting purposes. The accounting for this equity-based compensation expense, and potentially other factors as well, may cause the Company to experience operating losses in future periods. We intend to compensate our personnel competitively in order to continue building our business and growing our Company. Certain awards were granted in conjunction with the Business Combination and directly related to this transaction milestone event. These awards were outside the Company's normal and recurring compensation processes. Total future amortization which will be recognized over the next five years before accounting for forfeitures is$97.2 million for restricted stock units out of the Transaction Pool Share Reserve (as defined below) consisting of (a) performance restricted stock units ("PSUs") that only vest upon the achievement of both service and market conditions and (b) restricted stock units ("RSUs") that vest upon the achievement of service conditions and$76.6 million for PSUs out of the aggregate number of shares of Class A common stock reserved for issuance under the PWP Incentive Plan for general purposes to certain executives that vest upon the achievement of both service and market conditions granted in conjunction with the Business Combination. 64 --------------------------------------------------------------------------------
Year Ended
For the year endedDecember 31, 2021 , total compensation and benefits expenses of$600.7 million represented 75% of revenues, compared with$399.1 million of compensation-related expenses, which represented 77% of revenues for the year endedDecember 31, 2020 . Included in total compensation-related expense was$96.3 million and$24.8 million amortization of equity awards for the years endedDecember 31, 2021 and 2020, respectively. The increase in total compensation and benefit expenses was due to a larger bonus accrual associated with the increase in revenue despite a lower compensation margin as well as increased equity-based compensation due principally to awards granted in connection with the Business Combination.
Year Ended
For the year endedDecember 31, 2020 , total compensation-related expenses of$399.1 million represented 77% of revenues, compared with$543.1 million of compensation-related expenses, which represented 102% of revenues for the year endedDecember 31, 2019 . Included in total compensation-related expense was$24.8 million and$193.3 million amortization of equity awards for the years endedDecember 31, 2020 and 2019, respectively. The decrease in compensation expenses was due to equity-based compensation awards granted byProfessional Partners in connection with the TPH Business Combination fully vesting in 2019, which had no economic impact on PWP OpCo. This decrease was offset in part by certain severance expenses incurred in connection with a restructuring in the spring of 2020 and increased bonus compensation, including public company transaction-related incentive compensation.
Non-Compensation Expenses
Our non-compensation expenses include the costs of professional fees, travel and related expenses, technology and infrastructure, rent and occupancy, depreciation and amortization and general, administrative and other expenses including certain co-advisory fees and expenses reimbursed by our clients. Any expenses reimbursed by clients and the co-advisory fees are also presented within revenues on our Consolidated Statements of Operations. Historically, our non-compensation expenses associated with business development have increased as we have increased our headcount. These costs include costs such as travel and related expenses. Growth in our headcount has increased rent and occupancy expenses as well as professional fees related to recruiting expenses, while geographic expansion has increased regulatory expenses. This trend may continue as we expand into new sectors, geographies and products to serve our clients' growing needs, domestically and internationally. Additionally, travel and related expenses may increase as COVID-19 pandemic related travel restrictions ease.
Year Ended
For the year endedDecember 31, 2021 , non-compensation expenses of$134.4 million represented 17% of revenues, compared with$134.4 million , which represented 26% of revenues, for the year endedDecember 31, 2020 . Non-compensation expenses for the year endedDecember 31, 2021 included a$1.0 million decrease in professional fees. This reduction is largely due to elevated professional fees during the year endedDecember 31, 2020 as previously deferred offering costs of$14.8 million were expensed due to the termination of a public company transaction process inMay 2020 . Excluding this write-off, professional fees during the year endedDecember 31, 2021 increased$13.8 million , including approximately$9.6 million increase in consulting fees and approximately$3.8 million increase in recruiting expenses. Non-compensation expense for the year endedDecember 31, 2021 also included a$1.9 million increase in general and administrative and other expense primarily driven by increased public company costs such as directors and officers insurance and a$1.1 million increase in technology and infrastructure expenses related to certain new initiatives which were partially offset by a$1.6 million decrease in rent and occupancy expenses as a result of a lease modification whereby the Company vacated a portion of theHouston office space. 65
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Year Ended
For the year endedDecember 31, 2020 , non-compensation expenses of$134.4 million represented 26% of revenues, compared with$145.3 million , which represented 27% of revenues, for the year endedDecember 31, 2019 . The decrease in non-compensation expenses was largely due to lower travel and related expenses offset partially by an increase in professional fees. Travel and related expenses decreased by approximately$13.9 million , or 71%, due to the COVID-19 pandemic and related work-from-home policies. Professional fees for the year endedDecember 31, 2020 were$3.6 million higher than the previous year; however, they included the write-off of approximately$14.8 million in previously deferred offering costs as a result of the delay of the Company's pursuit of becoming a public company. This write-off was largely offset by lower executive search fees due to the impact of the COVID-19 pandemic as well as lower legal and consulting fees. Legal and consulting fees were lower as a number of projects, including the PWP Separation, were completed in 2019.
Non-Operating Income (Expenses)
Non-operating income (expenses) includes the impact of income and expense items that we consider to be non-operational in nature, including related party income, interest expense, change in the fair value of warrant liabilities, loss on debt extinguishment and other income (expense). For the year endedDecember 31, 2021 , non-operating income (expenses) was$43.6 million of expense compared to$6.3 million of expense for the year endedDecember 31, 2020 . The most significant component and change from the prior year period was the$39.4 million loss on debt extinguishment which was related to the redemption of the$150.0 million aggregate principal of PWP's 7.0% Subordinated Unsecured Convertible Notes due 2026 (the "Convertible Notes") concurrent with the Business Combination. The loss is composed of the$10.9 million premium and$28.5 million of unamortized debt discount and issuance costs. Additionally, the increase in non-operating expense during the year endedDecember 31, 2021 was also driven by the change in the fair value of warrant liabilities. These increases were partially offset by a decrease in interest expense related to the repayment of all indebtedness in connection with the Business Combination
Income Tax Benefit (Expense)
Prior to the Business Combination, the Company operated as a partnership, and therefore, was generally not subject toU.S. federal and state corporate income taxes. Subsequent to the Business Combination, PWP is a corporation and is subject toU.S. federal and state corporate income taxes on its proportionate share of taxable income generated by the operating partnership, PWP OpCo, as well as any standalone income (or loss) generated at the PWP parent-entity level. The Company's income tax provision and the corresponding annual effective tax rate are based on projectedU.S. GAAP income and the currently enacted statutory tax rates in the various jurisdictions in which the Company operates. For interim reporting, the Company estimates the annual effective tax rate based on projected income for the full year and records a quarterly tax provision in accordance with the annual effective tax rate. The Company's effective tax rate is dependent on many factors, including the estimated amount of income subject to tax. Consequently, the effective tax rate can vary from period to period. The Company's overall effective tax rate in each of the periods described above varies from theU.S. federal statutory rate primarily because (i) the Company was not subject toU.S. federal corporate income taxes prior to the Business Combination, (ii) a portion of compensation expense is non-deductible, both prior to the Business Combination and for the subsequent period (iii) the Company has recorded unrecognized tax benefits related to a potential double inclusion of income on its foreign tax returns and (iv) a portion of the Company's income is allocated to non-controlling interests held in PWP OpCo in which the majority of any tax liability on such income is borne by the holders of such non-controlling interests and reported outside of the consolidated financial statements. 66 --------------------------------------------------------------------------------
Year Ended
The Company's income tax expense and effective tax rate were$18.9 million and 82.5%, respectively, for the year endedDecember 31, 2021 compared to income tax expense and effective tax rate of$3.5 million and (16.5)%, respectively, for the year endedDecember 31, 2020 .
Year Ended
The Company's income tax expense and effective tax rate were$3.5 million and (16.5%), respectively, for the year endedDecember 31, 2020 compared to income tax expense and effective tax rate of$2.4 million and (1.5%), respectively, for the year endedDecember 31, 2019 .
Cash Flows
Our operating cash flows are primarily influenced by the amount and timing of receipt of advisory fees, which generally have net terms of 30 days, and the payment of operating expenses, including payments of incentive compensation to our employees. We pay a significant portion of incentive compensation during the first quarter of each calendar year with respect to the prior year's results. Our investing and financing cash flows are primarily influenced by purchases of fixed assets, debt payments and distributions to partners, and during the year endedDecember 31, 2021 , the proceeds and distributions related to the Business Combination. A summary of our operating, investing and financing cash flows is as follows: Year Ended December 31, (Dollars in thousands) 2021 2020 2019 Cash Provided By (Used In) Operating Activities Net income (loss)$ 4,023 $ (24,342) $ (164,019) Non-cash charges and other operating activity adjustments 171,886 63,825 229,814 Other operating activities 58,999 46,424 (171,902) Total operating activities 234,908 85,907 (106,107) Investing Activities (2,440) (5,522) (7,267) Financing Activities (55,021) (21,989) (30,213) Effect of exchange rate changes on cash, cash equivalents and restricted cash (3,580) 5,930 1,638 Net increase (decrease) in cash, cash equivalents and restricted cash 173,867 64,326 (141,949) Cash, cash equivalents and restricted cash, beginning of period 330,908 266,582 408,531
Cash, cash equivalents and restricted cash, end of period
$ 504,775 $
330,908
Year Ended
Cash and restricted cash were$504.8 million as ofDecember 31, 2021 , an increase of$173.9 million from$330.9 million as ofDecember 31, 2020 . Operating activities resulted in a net inflow of$234.9 million largely attributable to changes in working capital and net income generated during the year endedDecember 31, 2021 . Net income included$171.9 million of non-cash charges including a$39.4 million loss on debt extinguishment related to the redemption of the Convertible Notes concurrent with the Business Combination. Investing activities resulted in a net outflow of$2.4 million attributable to the Company's purchases of fixed assets and the deconsolidation ofPFAC Holdings I LLC . Financing activities resulted in a net outflow of$55.0 million primarily related to the transactions associated with the Business Combination, the payoff of all outstanding debt and tax distributions to limited partners of PWP OpCo, the repurchase of Founder Shares held as treasury shares, withholding payments for vesting of incentive awards and the payment of dividends. 67 --------------------------------------------------------------------------------
Year Ended
Cash and restricted cash were$330.9 million as ofDecember 31, 2020 , an increase of$64.3 million from$266.6 million as ofDecember 31, 2019 . Net cash provided by operating activities was$85.9 million . While the Company reported a net loss of$24.3 million for the year, this net loss included$64.4 million of non-cash charges, largely comprised of equity-based compensation and depreciation and amortization and non-cash operating lease expense. Accounts receivable balances (which includes accrued revenue) decreased by$27.5 million due to a reduction in revenue, combined with timing of collections. Accrued compensation and benefits increased by$19.3 million primarily for discretionary bonuses that are paid annually. Discretionary bonus compensation is correlated with the Company's annual revenue and as such will vary period to period. While revenue decreased for the year endedDecember 31, 2020 compared toDecember 31, 2019 , discretionary bonus compensation increased, as a percentage of revenue, and included public company transaction-related incentive compensation and certain severance expenses incurred in connection with a restructuring in the spring of 2020. Investing activities resulted in a net outflow of$5.5 million attributable to purchases of fixed assets. Financing activities resulted in a net outflow of$22.0 million largely as a result of a net$10.0 million paydown of the Revolving Credit Facility and distributions to limited partners of PWP OpCo of$12.0 million .
Year Ended
Cash and restricted cash were$266.6 million as ofDecember 31, 2019 , a decrease of$141.9 million from$408.5 million as ofDecember 31, 2018 . The Company reported a net loss of$164.0 million for the year, which included$229.1 million of non-cash charges, largely composed of the equity-based compensation. This was offset by a decrease in accrued compensation and benefits of$148.4 million stemming from lower bonus accrual compared to the prior year due to the decrease in revenue fromDecember 31, 2018 to 2019. Discretionary bonus compensation is correlated with the Company's annual revenue and as such will vary period to period. Investing activities resulted in a net outflow of$7.3 million primarily attributable to purchases of fixed assets. Financing activities resulted in a net outflow of$30.2 million largely as a result of$38.4 million of distributions to limited partners of PWP OpCo, partially offset by$10.0 million net proceeds of the Revolving Credit Facility.
Liquidity and Capital Resources
General
We regularly monitor our liquidity position, including cash and cash equivalents, working capital assets and liabilities, commitments and other liquidity requirements. Our primary sources of liquidity are our cash balances and net cash generated from operations.
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Our current assets are primarily composed of cash, receivables related to fees
earned from providing advisory services and due from related parties. Our
current liabilities are primarily composed of accounts payable, accrued
expenses, accrued and deferred employee compensation and due to related parties.
Due from related parties primarily includes amounts due from PWP Capital . We pay
a significant portion of our annual incentive compensation, in the form of cash
bonuses, during the first quarter of each calendar year with respect to the
prior year's results. Therefore, levels of cash generally decline during the
first quarter of each year after our annual incentive compensation has been paid
to our employees. Accrued compensation and benefits as of December 31, 2021 and
2020 was $311.5 million and $213.5 million , respectively. Cash then typically
builds over the remainder of the year. The Company makes quarterly partner tax
distributions as required under the partnership agreement of PWP OpCo. These
distributions totaled $65.9 million , $12.0 million and $38.4 million during the
years ended December 31, 2021 , 2020 and 2019. Additionally, as a public company,
we intend to pay dividends throughout the year and may consider share or warrant
repurchases as well. During the year ended December 31, 2021 , the Company paid
$6.0 million in cash dividends and repurchased 1,000,000 shares at a purchase
price of $12.00 per share for a total purchase price of $12.0 million , which are
being held in treasury stock. The Company has the option to net settle vesting
RSUs in order to remit required employee withholding taxes using cash on hand.
During the year ended December 31, 2021 , the Company paid $10.5 million in
withholding payments for vested RSUs. Additionally, on February 16, 2022 , the
Board authorized a $100 million Class A common stock repurchase program, with no
expiration date, whereby the Company's Class A common stock may be repurchased
from time to time in open market transactions. The timing and actual number of
shares repurchased will depend on a variety of factors, including legal
requirements and regulatory restrictions as well as market conditions.
We evaluate our cash needs on a regular basis in light of current market
conditions. Cash and cash equivalents include short-term highly liquid
investments that are readily convertible to known amounts of cash and have
original maturities of three months or less from the date of purchase. The
Company had no cash equivalents as of December 31, 2021 and 2020. As of
December 31, 2021 and 2020, the Company had cash balances of $502.8 million and
$329.1 million , respectively, maintained in U.S. and non-U.S. bank accounts, of
which most bank account balances exceeded the U.S. Federal Deposit Insurance
Corporation ("FDIC") and U.K. Financial Services Compensation Scheme ("FSCS")
coverage limits.
Our liquidity is highly dependent upon cash receipts from clients, which
generally require the successful completion of transactions. Accounts receivable
generally have net terms of 30 days. Accounts receivable was $46.9 million , net
of $1.9 million of allowance for credit losses balance as of December 31, 2021 .
Accounts receivable was $40.8 million , net of $1.0 million of allowance for
credit losses balance as of December 31, 2020 .
Line of credit
The Company has the Revolving Credit Facility with Cadence Bank. Upon consummation of the Business Combination, the Company repaid all of the outstanding borrowings under the Credit Agreement, which included$27.7 million principal amount plus accrued and unpaid interest. As of the Closing Date, the Credit Agreement was amended such that (i) the maturity was extended fromApril 1, 2022 toJuly 1, 2025 , (ii) interest accrues at LIBOR plus a fixed rate of 2.00% per annum (with a 0.25% LIBOR floor) with an alternate base rate option equal to Cadence Bank's prime rate minus 1.00% (with a 3.25% floor), (iii) up to$15.0 million of the Revolving Credit Facility may be used for the issuance of letters of credit, (iv) up to$20.0 million of incremental revolving commitments above the$50.0 million commitment amount may be incurred under the Credit Agreement, and (v) certain financial covenants were amended. As ofDecember 31, 2021 , the Company had no outstanding balance related to the Revolving Credit Facility and no incremental revolving commitments were incurred. For further information on the Revolving Credit Facility, refer to Note 10-Debt in the notes to consolidated financial statements included elsewhere in this Form 10-K. Based on current market conditions, we believe that the cash we retain post-transaction, the net cash generated from operations and the available borrowing capacity under our Revolving Credit Facility will be sufficient to meet our operating needs and commitments for the next twelve months; however, if these sources of liquidity are not sufficient, we may seek additional debt or equity financing. 69
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Share Repurchase Program
OnFebruary 16, 2022 , the Company's board of directors approved a stock repurchase program under which the Company is authorized to repurchase up to$100.0 million of the Company's Class A common stock with no requirement to purchase any minimum number of shares. Shares may be repurchased under the new repurchase program through open market purchases, privately negotiated transactions, block trades, accelerated or other structured share repurchase programs, or other means. The manner, timing, pricing and amount of any transactions will be subject to the Company's discretion.
Other Commitments
We actively monitor our regulatory capital base. Our principal subsidiaries are subject to regulatory requirements in their respective jurisdictions to ensure general financial soundness and liquidity. This requires, among other things, that we comply with certain minimum capital requirements, record-keeping, reporting procedures, experience and training requirements for employees and certain other requirements and procedures. These regulatory requirements may restrict the flow of funds to and from affiliates. Refer to Note 7-Regulatory Requirements in the notes to consolidated financial statements included elsewhere in this Form 10-K for further information. These regulations differ inthe United States ,United Kingdom ,Canada ,France and other countries in which we operate a registered broker-dealer or regionally similar construct. The license or regulatory framework under which we operate in each such country is meant to comply with applicable laws and regulations to conduct an advisory business. We believe that we provide each of our subsidiaries with sufficient capital and liquidity, consistent with their business and regulatory requirements to effectively operate in each jurisdiction.
Exchange Rights
In accordance with the PWP OpCo LPA, PWP OpCo unitholders (other than the Company) may exchange these units for (i) shares of Class A common stock on a one-for-one basis or (ii) cash from an offering of shares of Class A common stock with the form of consideration determined by the Company.
The PWP OpCo LPA contains restrictions on the ability to exchange PWP OpCo class A partnership units for shares of Class A common stock or cash from an offering of shares of Class A common stock, for the following periods: (i) PWP OpCo class A partnership units held byProfessional Partners will be subject to a restriction for time periods that are fully back-to-back with the lock-up periods contemplated in the amended and restated limited partnership agreement ofProfessional Partners (generally speaking, such lock-up periods (a) for former Working Partners, the lock up period expired onDecember 24, 2021 ; and (b) forWorking Partners , will be between three to five years after the Closing), (ii) the restriction on PWP OpCo class A partnership units held by ILPs existing at the time of the Business Combination expired onDecember 24, 2021 , and (iii) any other outstanding PWP OpCo class A partnership units not previously covered by clauses (i) and (ii) above will be subject to such restriction for a period of twelve months to five years after the Closing. PWP GP may waive, and in certain cases has waived, the foregoing restrictions for any single holder with respect to all or a portion of such holder's units, with no obligation to do so for any other holder. 70 --------------------------------------------------------------------------------
Sponsor Share Surrender and Share Restriction Agreement
Concurrent with the Business Combination Agreement, FTIV, PWP OpCo and certain other parties entered into the Sponsor Share Surrender and Share Restriction Agreement with the Sponsor, which was amended onMay 4, 2021 . Pursuant to this agreement, if, prior to the fourth anniversary of the Closing, the closing share price is greater than$12.00 per share or$15.00 per share for any 20 trading days out of 30 consecutive trading days (each a "Trigger Date"), then, during the 15 day period following such Trigger Date, the Company shall have the right to purchase from the Sponsor up to an aggregate of 1,000,000 Founder Shares per Trigger Date for a purchase price of$12.00 per share or$15.00 per share, respectively, by providing written notice of such repurchase election to the Sponsor.
On
Guarantees
PWP OpCo has also unconditionally guaranteed, through a wholly-owned subsidiary, certain loans to limited partners ofProfessional Partners ("Limited Partners") with First Republic Bank (the "Program Lender"), whereby PWP OpCo will pay the Program Lender upon the occurrence of a default event. Refer to Note 17-Related Party Transactions and Note 18-Commitments and Contingencies in the notes to consolidated financial statements included elsewhere in this Form 10-K for further information.
Tax Receivable Agreement
In connection with the Business Combination, the Company entered into the TRA with,Professional Partners and certain other persons under which the Company agreed to payments of 85% of the amount of savings, if any, that the Company realizes inU.S. federal, state, local and foreign income taxes as a result of (a) the Business Combination and related transactions, (b) exchanges of interests in PWP OpCo for cash or stock of the Company and certain other transactions and (c) payments made under the TRA. See Note 17-Related Party Transactions in the notes to consolidated financial statements included elsewhere in this Form 10-K for further information as well as the expected timing of payments.
Contractual Obligations
We have various non-cancelable operating leases in connection with the leases of our office spaces and equipment. The related lease agreements, which range from non-cancelable to month-to-month terms, generally provide for fixed monthly rentals and can also include renewal options. See Note 5-Leases in the notes to consolidated financial statements included elsewhere in this Form 10-K for further information as well as the expected timing of payments. OurLondon andNew York office leases expire inDecember 2022 andSeptember 2023 , respectively, and given our significant historical growth, we anticipate expanding our square footage meaningfully in both locations which will increase our contractual obligations, including capital expenditures for leasehold improvements. In addition, PWP OpCo sponsors certain deferred compensation arrangements whereby portions of compensation related to employees (includingWorking Partners ) providing services to the Company are deferred and paid in later periods. The deferred compensation amounts are charged to expenses over the period that each employee (includingWorking Partners ) is required to provide services in order to vest in the payment. Refer to Note 14-Other Compensation and Benefits in the notes to consolidated financial statements included elsewhere in this Form 10-K for further information.
Market Risk and Credit Risk
Our business is not capital-intensive and we do not invest in derivative instruments. We are not subject to significant market risk (including interest rate risk and commodity price risk) or significant credit risk.
71
--------------------------------------------------------------------------------Risks Related to Cash and Cash Equivalents
Our cash and cash equivalents include any short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less from the date of purchase. Cash is maintained inU.S. and non-U.S. bank accounts. MostU.S. andU.K. account balances exceed theFDIC and FSCS coverage limits. We believe our cash and cash equivalents are not subject to any material interest rate risk, equity price risk, credit risk or other market risk. Credit Risk We regularly review our accounts receivable and allowance for credit losses by considering factors such as historical experience, credit quality, age of the accounts receivable, and the current economic conditions that may affect a client's ability to pay such amounts owed to the Company. We maintain an allowance for credit losses that, in our opinion, provides for an adequate reserve to cover current expected credit losses. Refer to Note 2-Summary of Significant Accounting Policies in the notes to consolidated financial statements included elsewhere in this Form 10-K for further information.
Exchange Rate Risk
The Company is exposed to exchange rate risk as a result of entering into transactions that are not denominated in the functional currency of its operating subsidiaries, as well as having foreign subsidiaries with non-U.S. dollar functional currencies. For the years endedDecember 31, 2021 , 2020 and 2019, the net impact of non-functional currency-related transaction gains and losses recorded in Other income (expense) on our Consolidated Statements of Operations was a$0.2 million loss, a$0.2 million loss, and a$0.9 million loss, respectively. In addition, the reported amounts in our consolidated financial statements may be affected by movements in the rate of exchange between the pound sterling, Euro, and Canadian dollar and our reporting currency, theU.S. dollar, resulting in translation gains and losses. For the years endedDecember 31, 2021 , 2020, and 2019, the net impact of the fluctuation of foreign currencies recorded in Foreign currency translation gain (loss) within our Consolidated Statements of Comprehensive Income (Loss) was a$1.5 million loss,$3.5 million gain, a$0.8 million gain, respectively. We have not entered into any transactions to hedge our exposure to these foreign currency fluctuations using derivative instruments or other methods but may do so if we deem appropriate in the future.
As of
Critical Accounting Policies
We believe that the critical accounting policies included below represent those that are most important to the presentation of our financial condition and results of operations and require management's most difficult, subjective and complex judgment. The preparation of our historical consolidated financial statements and related disclosures in conformity withU.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our historical consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period for which they are determined to be necessary.
Revenue and Expense Recognition
The services provided under contracts with clients include transaction-related
advisory services, fairness opinion services, research and trading services, and
underwriting services, each of which are typically identified as a separate
performance obligation in contracts that contain more than one type of service.
Additionally, the Company is typically reimbursed for certain professional fees
and other expenses incurred that are necessary in order to provide services to
the client. These fees and related reimbursements are recorded when incurred to
the relevant expense item and Revenues, respectively, in the consolidated
statements of operations.
72
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The Company recognizes revenue from providing advisory services when or as its
performance obligations are fulfilled. The majority of the Company's advisory
revenue is recognized over time. However, certain performance obligations may be
recognized at a point in time if the performance obligation represents a
singular objective that does not transfer any notable value until formally
completed, such as when issuing fairness opinions. The Company provides its
advisory services on an ongoing basis, which, for example, may include
evaluating and selecting one of multiple strategies. During such engagements,
the Company's clients continuously benefit from its advice as the Company is
providing financial and strategic advice throughout the engagement, and
accordingly, over time revenue recognition matches the transfer of such
benefits.
Although the Company's transaction-related advisory services meet the criteria
for over time revenue recognition, the fee structures often involve an "all or
nothing" consideration amount and the associated fees are predominantly
considered variable as they are often based on the ultimate transaction value or
the outcome ultimately achieved and/or are susceptible to factors outside of the
Company's influence, such as third-party negotiations, regulatory approval,
court approval, and shareholder votes.
Accordingly, a large portion of the fees associated with these services is constrained until substantially all services have been provided, specified conditions have been met and/or certain milestones have been achieved, and it is probable that a significant revenue reversal will not occur in a future period.
In some cases, a portion of the variable fees may be deferred based on the
services remaining to be completed, if any (e.g., when announcement fees are
earned but additional services are expected to be provided until the transaction
closes). The determination of when and to what extent to recognize variable fees
may require significant judgment, particularly when milestones are met near the
end of a reporting period and in cases where additional services are expected to
be provided subsequent to the achievement of the milestone. Fixed fees specified
in the Company's contracts, which may include upfront fees and retainers, are
recognized on a systematic basis over the estimated period in which the related
services are performed.
The Company provides research on the energy and related industries and related
equity and commodity markets. The Company's research clients continuously
benefit from the research provided throughout arrangements between the Company
and such clients, and accordingly, over time revenue recognition matches the
transfer of such benefits. Because fees received for research services, and any
associated trading services, are typically at the complete discretion of the
client and are based on the value the client perceives in the research services
provided, the entire transaction price associated with such services is
variable.
Accordingly, because of the broad range of possible outcomes and the inability
to predict the value the client will ascribe to such services, the Company fully
constrains the revenue associated with research services, and any associated
trading services, until the uncertainty associated with the variable
consideration is subsequently resolved, which is typically upon the earlier of
receiving an invoice request from the client or receiving payment from the
client.
Revenue associated with underwriting services includes management fees, selling
concessions and underwriting fees attributable to public and private offerings
of equity and debt securities. The nature of the Company's underwriting services
is raising capital on behalf of an issuer and therefore is typically accounted
for as a single performance obligation. A separate performance obligation is
identified in instances in which the contract with the client includes an
over-allotment option. The Company's underwriting services generally do not meet
any of the requirements for revenue to be recognized over time and, therefore,
the Company typically recognizes underwriting revenue on the pricing date of the
offering, which is when the Company receives the pricing wire communication from
the lead underwriter detailing the underwriting fees to which the Company is
entitled. Similarly, the performance obligation associated with the
over-allotment is satisfied at the point in time at which the option is
exercised.
73
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The Company's role in underwriting commitments is usually as a co-manager or
passive bookrunner, rather than as the lead underwriter. Accordingly, the
Company estimates its share of transaction related expenses incurred by the
underwriting syndicate on the pricing date of the offering and presents these
expenses gross within Travel and related expenses in the consolidated statements
of operations. Such amounts are adjusted to reflect actual expenses in the
period in which the Company receives the final settlement, typically within 90
days following the closing of the transaction.
Incremental costs of obtaining a contract are expensed as incurred as such costs
are generally not recoverable. Costs to fulfill contracts consist of
out-of-pocket expenses that are part of performing transaction-related advisory
services and are typically expensed as incurred as these costs are related to
performance obligations that are satisfied over time. The timing of revenue
recognition may differ from the timing of payment. The Company records a
receivable when revenue is recognized prior to payment and the Company has an
unconditional right to payment. The Company records deferred revenue (otherwise
known as contract liabilities) when it receives fees from clients that have not
yet been earned or when the Company has an unconditional right to consideration
before all performance obligations are complete (e.g., receipt of certain
announcement, retainer or upfront fees before the performance obligation has
been fully satisfied).
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are presented net of allowance for credit losses based on the Company's assessment of the collectability of client accounts. The Company maintains an allowance for credit losses account that, in management's opinion, provides for an adequate reserve to cover estimated losses on accounts receivable. The Company determines the adequacy of the allowance by estimating the probability of loss based on the Company's historical credit loss experience of its client receivables and taking into consideration current market conditions and supportable forecasts that affect the collectability of the reported amount. The Company also regularly reviews the age of the receivables, credit worthiness of the client and the current economic conditions that may affect a client's ability to pay such amounts owed to the Company and as a result may recognize a specific credit loss reserve. Accounts receivable also includes accrued revenue which represents amounts due from clients and recognized as revenue in accordance with the Company's revenue recognition polices, but unbilled as of the date of the consolidated financial statements.
Income Taxes
Prior to the Business Combination, PWP operated as a partnership, and therefore, was generally not subject toU.S. federal and state corporate income taxes. Subsequent to the Business Combination, PWP is a corporation and is subject toU.S. federal and state corporate income taxes on its proportionate share of taxable income generated by the operating partnership, PWP OpCo, as well as any standalone income (or loss) generated at the PWP parent-entity level. PWP OpCo is treated as a partnership, and as a result, taxable income (or loss) generated by PWP OpCo flows through to its limited partners, including PWP, and is generally not subject toU.S. federal or state income tax at the partnership level. The Company primarily conducts business through disregarded entities held by PWP OpCo, as well as non-U.S. subsidiaries which generally operate as corporate entities in various non-U.S. jurisdictions. Certain non-U.S. subsidiaries are subject to income taxes in their respective local jurisdictions, and therefore, the related income tax provision is reported in the Consolidated Statements of Operations. Taxes are accounted for using the asset and liability method of accounting pursuant to ASC 740, Income Taxes ("ASC 740"). Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases, using tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent on the amount, timing and character of the Company's future taxable income. When evaluating the realizability of deferred tax assets, all evidence - both positive and negative - is considered. This evidence includes, but is not limited to, expectations regarding future earnings, future reversals of existing temporary tax differences and tax planning strategies. 74 -------------------------------------------------------------------------------- The Company analyzes its tax positions for allU.S. federal, state and local tax jurisdictions where it is required to file income tax returns in accordance with the provisions of ASC 740. This standard establishes consistent thresholds for recognizing the benefits of tax return positions in the financial statements as more-likely-than-not to be sustained by the relevant taxing authority upon audit. This standard requires a two-step process in which (i) determination is made whether it is more-likely-than-not that the tax position will be sustained based on the technical merits of the position, and (ii) those tax positions that meet the more-likely-than-not threshold are recognized as the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority. If upon performance of an assessment pursuant to ASC 740 the Company determines that uncertainties in tax positions exist that do not meet the minimum threshold for recognition of the related tax benefit, a liability is recorded in the consolidated financial statements. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as Interest expense and General, administrative and other expenses in the Consolidated Statements of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are set forth above in "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Market Risk and Credit Risk."
75
--------------------------------------------------------------------------------Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
77
Consolidated Statements of Financial Condition as of
Consolidated Statements of Operations for the Years Ended
79
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended
80
Consolidated Statements of Changes in Equity for the Years Ended
81
Consolidated Statements of Cash Flows for the Years Ended
82
Notes to Consolidated Financial Statements 83
76
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition ofPerella Weinberg Partners (the "Company") as ofDecember 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period endedDecember 31, 2021 , and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company atDecember 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2021 , in conformity withU.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) (PCAOB) and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
We have served as the Company's auditor since 2007.
77
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Perella Weinberg Partners
Consolidated Statements of Financial Condition
(Dollars in Thousands, Except Per Share Amounts)
December 31,
2021 2020
Assets
Cash and cash equivalents $ 502,773 $ 329,063
Restricted cash 2,002 1,845
Accounts receivable, net of allowance 46,914 40,802
Due from related parties 4,225 289
Fixed assets, net of accumulated depreciation and amortization 10,362
17,189
Intangible assets, net of accumulated amortization 32,352 38,932
Goodwill 34,383 34,383
Prepaid expenses and other assets 24,313 25,792
Right-of-use lease assets 39,912 53,444
Deferred tax asset, net 21,091 1,214
Total assets $ 718,327 $ 542,953
Liabilities and Equity
Accrued compensation and benefits $ 311,500 $ 213,524
Deferred compensation programs 11,221 17,208
Accounts payable, accrued expenses and other liabilities 31,048 22,246
Deferred revenue 7,845 10,598
Lease liabilities 43,448 58,229
Debt, net of unamortized debt discounts and issuance costs - 146,965
Warrant liabilities 27,805 -
Amount due pursuant to tax receivable agreement 14,108 -
Total liabilities 446,975 468,770
Commitments and Contingencies (Note 18)
Class A common stock, par value
$
4 $ -
Class B common stock, par value
5 -
Additional paid-in-capital 158,131 -
Retained earnings (accumulated deficit) (18,075) -
Accumulated other comprehensive income (loss) (1,746) (2,326)
(12,000) -
Partners' capital - 76,509
Total Perella Weinberg Partners equity / Partners' capital 126,319 74,183
Non-controlling interests 145,033 -
Total equity 271,352 74,183
Total liabilities and equity $ 718,327 $ 542,953
The accompanying notes are an integral part of these consolidated financial
statements.
78
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Perella Weinberg Partners
Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Amounts)
Year Ended December 31,
2021 2020 2019
Revenues $ 801,662 $ 518,986 $ 533,297
Expenses
Compensation and benefits 504,364 374,332 349,819
Equity-based compensation 96,330 24,815 193,299
Total compensation and benefits 600,694 399,147 543,118
Professional fees 41,891 42,880 39,265
Technology and infrastructure 28,355 27,281 27,070
Rent and occupancy 26,406 27,958 27,802
Travel and related expenses 6,261 5,725 19,656
General, administrative and other expenses 16,982 15,060 15,653
Depreciation and amortization 14,489 15,531 15,852
Total expenses 735,078 533,582 688,416
Operating income (loss) 66,584 (14,596) (155,119)
Non-operating income (expenses)
Related party income 7,516 9,263 8,810
Other income (expense) 761 185 108
Change in fair value of warrant liabilities (4,897) - -
Loss on extinguishment of debt (39,408) - -
Interest expense (7,606) (15,741) (15,395)
Total non-operating income (expenses) (43,634) (6,293) (6,477)
Income (loss) before income taxes 22,950 (20,889) (161,596)
Income tax benefit (expense) (18,927) (3,453) (2,423)
Net income (loss) 4,023 $ (24,342) $ (164,019)
Less: Net income (loss) attributable to
non-controlling interests 13,444
Net income (loss) attributable to
$ (9,421)
Net income (loss) per share attributable to Class A common shareholders (1) Basic
$ (0.22) Diluted$ (0.66) Weighted-average shares of Class A common stock outstanding (1) Basic 42,595,712 Diluted 92,749,911 (1)For the year endedDecember 31, 2021 , net income (loss) per share of Class A common stock and weighted-average shares of Class A common stock outstanding is representative of the period fromJune 24, 2021 throughDecember 31, 2021 , the period following the Business Combination, as defined in Note 1-Organization and Nature of Business. For more information, refer to Note 15-Net Income (Loss) Per Share Attributable to Class A Common Shareholders. The accompanying notes are an integral part of these consolidated financial statements. 79
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Perella Weinberg Partners
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in Thousands)
Year Ended December 31,
2021 2020 2019
Net income (loss) $ 4,023 $ (24,342) $ (164,019)
Foreign currency translation gain (loss) (1,481) 3,494 837
Comprehensive income (loss) 2,542 $ (20,848) $ (163,182)
Less: Comprehensive income (loss) attributable to
non-controlling interests 12,883
Comprehensive income (loss) attributable to
$ (10,341) The accompanying notes are an integral part of these consolidated financial statements. 80
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Perella Weinberg Partners
Consolidated Statements of Changes in Equity
(Dollars in Thousands)
Shares
Retained Accumulated
Class A Class B Class A Class B Additional Earnings Other Non-
Partners' Common Common Treasury Common Common Treasury Paid-In (Accumulated Comprehensive Controlling Total
Capital Stock Stock Stock Stock Stock Stock Capital Deficit) Income (Loss) Interests Equity
Balance at December 31, 2018 $ 99,176 - - - $ - $ - $ - $ - $ - $ (6,657) $ - $ 92,519
Net income (loss) (164,019) - - - - - - - - - - (164,019)
Equity-based compensation 193,299 - - - - - - - - - - 193,299
Distributions to partners (38,376) - - - - - - - - - - (38,376)
Other (2,355) - - - - - - - - - - (2,355)
Foreign currency translation gain (loss) - - - - - - - - - 837 - 837
Balance at December 31, 2019 $ 87,725 - - - $ - $ - $ - $ - $
-
(188) - - - - - - - - - - (188)
Net income (loss) (24,342) - - - - - - - - - - (24,342)
Equity-based compensation 24,815 - - - - - - - - - - 24,815
Distributions to partners (11,989) - - - - - - - - - - (11,989)
Other 488 - - - - - - - - - - 488
Foreign currency translation gain (loss) - - - - - - - - - 3,494 - 3,494
Balance at December 31, 2020 $ 76,509 - - - $ - $ - $ - $ - $
-
- - - - - - - - - - 59,857
Equity-based compensation prior to Business
Combination 11,761 - - - - - - - - - - 11,761
Foreign currency translation gain (loss) prior to
Business Combination - - - - - - - - - 526 - 526
Distributions to partners prior to Business
Combination (47,389) - - - - - - - - - - (47,389)
Other, prior to Business Combination 374 - - - - - - - - - - 374
Effect of Business Combination (101,112) 42,956,667 50,154,199 - 4 5 - 133,832 - 974 154,619 188,322
Net income (loss) after Business Combination - - - - - - - - (9,421) - (46,413) (55,834)
Equity-based awards after Business Combination - - - - - - - 45,594 - - 39,678 85,272
Distributions to partners after Business
Combination - - - - - - - - - - (18,542) (18,542)
Liability awards reclassification to equity - - - - - - - 3,912 - - - 3,912
Issuance of Class A common stock for vested RSUs - 692,652 - - - - - - - - - -
Withholding payments on vested RSUs - - - - - - - (10,462) - - - (10,462)
Dividends declared ($0.14 per share of Class A
common stock) - - - - - - - 230 (8,654) - - (8,424)
Foreign currency translation gain (loss) after
Business Combination - - - - - - - - - (920) (1,087) (2,007)
Other, after Business Combination - - - - - - - 870 - - 933 1,803
Treasury stock purchase - - - (1,000,000) - - (12,000) - - - - (12,000)
Change in ownership interests - - - - - - - (15,845) - - 15,845 -
Balance at December 31, 2021 $ - 43,649,319 50,154,199 (1,000,000) $ 4 $ 5 $ (12,000) $ 158,131 $ (18,075) $ (1,746) $ 145,033 $ 271,352
The accompanying notes are an integral part of these consolidated financial
statements.
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Perella Weinberg Partners
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Year Ended December 31,
2021 2020 2019
Cash flows from operating activities
Net income (loss) $ 4,023 $ (24,342) $ (164,019)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Loss on debt extinguishment 39,408 - -
Equity-based awards vesting expense 97,033 24,815 193,299
Depreciation and amortization 14,489 15,531 15,852
Amortization of debt discounts and deferred
financing costs 2,087 3,964 3,386
Change in fair value of warrant liabilities 4,897 - -
Non-cash operating lease expense 17,361 17,069 14,462
Deferred taxes (3,716) (564) 692
Bad debt expense 646 2,991 2,270
Other (319) 19 (147)
Decrease (increase) in operating assets:
Accounts receivable, net of allowance (7,127) 27,527 (2,684)
Due from related parties (3,612) 1,537 (1,249)
Prepaid expenses and other assets (15,205) 3,089 (1,267)
Increase (decrease) in operating liabilities:
Accrued compensation and benefits 103,851 19,348 (148,421)
Deferred compensation programs (5,939) 2,756 2,667
Accounts payable, accrued expenses and other
liabilities 7,780 2,966 (5,555)
Deferred revenue (2,667) 8,717 23
Lease liabilities (18,082) (19,516) (15,416)
Net cash provided by (used in) operating activities 234,908 85,907 (106,107)
Cash flows from investing activities
Distributions from company-owned life insurance
policies - - 150
Purchases of fixed assets (1,462) (5,522) (7,417)
Other (978) - -
Net cash provided by (used in) investing activities (2,440) (5,522) (7,267)
Cash flows from financing activities
Proceeds from Business Combination, including
355,021 - -
Payment of Business Combination costs (23,895) - -
Draw down of Revolving Credit Facility - 22,000 20,000
Principal payment on Revolving Credit Facility (27,690) (32,000) (10,000)
Redemption of Convertible Notes (160,930) - -
Redemption of partners' interests (104,540) - -
Distributions to partners (65,931) (11,989) (38,376)
Dividends paid (5,990) - -
Withholding payments for vested RSUs (10,462) - -
Treasury stock purchases (12,000) - -
Debt issuance costs (361) - -
Proceeds from Partner Promissory Note 1,757 - -
Other - - (1,837)
Net cash provided by (used in) financing activities (55,021) (21,989) (30,213)
Effect of exchange rate changes on cash, cash
equivalents and restricted cash (3,580) 5,930 1,638
Net increase (decrease) in cash, cash equivalents
and restricted cash 173,867 64,326 (141,949)
Cash, cash equivalents and restricted cash,
beginning of period 330,908 266,582 408,531
Cash, cash equivalents and restricted cash, end of period
$ 504,775 $ 330,908 $ 266,582 Supplemental disclosure of non-cash investing activity Liability awards reclassification to equity$ 3,912 $ - $ - Dividends declared and unpaid$ 2,664 $ - $ - Lease liabilities arising from obtaining right-of-use lease assets$ 4,111 $ 14,192 $ 2,314 Net assets of deconsolidated affiliate$ 394 $ - $ - Supplemental disclosures of cash flow information Cash paid for income taxes$ 12,547 $ 2,242 $ 1,680 Cash paid for interest$ 5,515 $ 11,777 $ 11,758 The accompanying notes are an integral part of these consolidated financial statements. 82
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Perella Weinberg Partners
Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Note 1-Organization and Nature of Business
Perella Weinberg Partners and its consolidated subsidiaries, includingPWP Holdings LP ("PWP OpCo") (collectively, "PWP" and the "Company"), is a global independent advisory firm that provides strategic and financial advice to a wide range of clients. The Company's activities as an investment banking advisory firm constitute a single business segment that provides a range of advisory services related to mission-critical strategic and financial decisions, mergers and acquisitions advice and execution, capital markets advisory, shareholder and defense advisory, capital structure and restructuring, underwriting, equity research and private capital raising.Perella Weinberg Partners (formerly known asFinTech Acquisition Corp. IV ("FTIV")) was incorporated inDelaware onNovember 20, 2018 as a special purpose acquisition company for the purpose of acquiring through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business transaction, one or more businesses or assets. OnJune 24, 2021 (the "Closing Date" or "Closing"), the Company consummated a business combination pursuant to that certain Business Combination Agreement, dated as ofDecember 29, 2020 , by and among FTIV,FinTech Investor Holdings IV, LLC ,FinTech Masala Advisors, LLC (together withFinTech Investor Holdings IV, LLC , the "Sponsor"), PWP OpCo,PWP GP LLC ,PWP Professional Partners LP ("Professional Partners "), andPerella Weinberg Partners LLC ("Professionals GP") (the "Business Combination Agreement"). As contemplated by the Business Combination Agreement, (i) FTIV acquired certain partnership interests in PWP OpCo, (ii) PWP OpCo became jointly-owned byPerella Weinberg Partners ,Professional Partners and certain existing partners of PWP OpCo, and (iii) PWP OpCo serves as the Company's operating partnership as part of an umbrella limited partnership C-corporation (Up-C) structure (collectively with the other transactions contemplated by the Business Combination Agreement, the "Business Combination"). See Note 3-Business Combination for additional discussion related to the transaction. The operations of PWP OpCo are conducted through a wholly-owned subsidiary,Perella Weinberg Partners Group LP ("PWP Group "), and its subsidiaries which are consolidated in these financial statements.PWP GP LLC is the general partner that controls PWP OpCo. The limited partner interests of PWP OpCo are held byInvestor Limited Partners (the "ILPs") andProfessional Partners . The Company shareholders are entitled to receive a portion of PWP OpCo's economics through their direct ownership interests in shares of Class A common stock of PWP. The non-controlling interest owners of PWP OpCo receive economics through ownership of PWP OpCo Class A partnership units ("PWP OpCo Units"). See Note 11-Stockholders' Equity for additional information.
Historical Transactions
PWP OpCo was formed underDelaware law onNovember 30, 2016 in conjunction with a business combination betweenNoCo A L.P. andTudor, Pickering, Holt & Co., LLC (the "TPH Business Combination"). Prior toFebruary 28, 2019 , PWP OpCo owned and operated two distinct businesses: investment banking advisory ("Advisory business") and asset management ("Asset Management business"). OnFebruary 28, 2019 (the "Separation Date"), a reorganization of the existing Advisory and Asset Management businesses ofPWP Holdings LP was effected which resulted in the spin-off of its Asset Management business (the "Separation").PWP Holdings LP was divided into (i) PWP OpCo, which holds the former Advisory business and (ii)PWP Capital Holdings LP , which holds the former Asset Management business. In connection with the Separation, the net assets primarily related to the Asset Management business were allocated toPWP Capital Holdings LP and the net assets primarily related to the Advisory business were allocated to PWP OpCo. Subsequent to the Separation, theILPs and Professional Partners hold equity in bothPWP OpCo and PWP Capital Holdings LP .
Note 2-Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements reflect the financial condition, results of operations and cash flows of the Company and have been prepared in accordance with generally accepted accounting principles inthe United States ("U.S. GAAP"). All intercompany balances and transactions between the consolidated subsidiaries comprising the Company have been eliminated in the accompanying consolidated financial statements. 83 --------------------------------------------------------------------------------Perella Weinberg Partners Notes to Consolidated Financial Statements (Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) The Business Combination was treated as a reverse recapitalization transaction between entities under common control, whereby PWP OpCo was considered the accounting acquirer and predecessor entity and therefore recognized the carrying value of the net assets of FTIV as an equity contribution with no incremental goodwill or intangible assets. The historical operations of PWP OpCo are deemed to be those of the Company. Thus, the consolidated financial statements included in this Annual Report on Form 10-K reflect (i) the historical operating results of PWP OpCo prior to the Business Combination and (ii) the combined results of the Company following the Business Combination. See Note 3-Business Combination for additional discussion related to the transaction. Prior to the Separation inFebruary 2019 , assets and liabilities held byPWP Group were for both the Advisory and Asset Management businesses. Based on an evaluation of the guidance under SAB Topic 5.z.7, Accounting for the spin-off of a subsidiary, it was determined that the Separation should be reflected as a change in reporting entity. As such, the accompanying consolidated financial statements of the Company retroactively reflect the Separation, including all distributions and transactions in conjunction therewith, and exclude the Asset Management business for the year endedDecember 31, 2019 . Assets and liabilities associated with the Asset Management business that historically were held atPWP Group were specifically identified and allocated to the Asset Management business using the same methodology applied at the time of the Separation and therefore were removed from these consolidated financial statements along with their related cash flows. The Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss) reflect the Advisory business' share of certain corporate functions and shared services, including, but not limited to, executive oversight, accounting, treasury, tax, legal, compliance, human resources, rent and occupancy, procurement, information technology, and other shared services. Where feasible, the expense allocations were made on a specific identification basis, and in other cases, these expenses were allocated based on a pro-rata basis of headcount, relative usage or another basis depending on the nature of the expense. Refer to Note 17-Related Party Transactions for further information.
Use of Estimates
The preparation of the consolidated financial statements and related disclosures in accordance withU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and the assumptions underlying these estimates are reviewed periodically, and the effects of revisions are reflected in the period in which they are determined to be necessary.
In preparing the consolidated financial statements, management makes estimates regarding the following:
•measurement of amount due pursuant to the tax receivable agreement;
•measurement and timing of revenue recognition;
•adequacy of the allowance for credit losses;
•measurement and realization of deferred taxes;
•measurement of equity-based awards;
•evaluation of goodwill and intangible assets;
•fair value measurement of financial instruments; and
•other matters that affect the reported amounts and disclosures of contingencies in the consolidated financial statements.
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Perella Weinberg Partners
Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents includes cash and highly liquid investments with
original maturities of three months or less from the date of purchase. As of
Restricted cash represents cash that is not readily available for general purpose cash needs. As ofDecember 31, 2021 and 2020, the Company had restricted cash of$2.0 million and$1.8 million , respectively, maintained as collateral for letters of credit related to certain office leases.
A reconciliation of the Company's cash, cash equivalents and restricted cash as
of
December 31,
2021 2020
Cash $ 502,773 $ 329,063
Cash equivalents - -
Restricted cash 2,002 1,845
Cash, cash equivalents and restricted cash as shown on
statements of cash flows $ 504,775 $ 330,908
Accounts Receivable
Accounts receivable are presented net of allowance for credit losses based on
the Company's assessment of collectability. The Company regularly reviews its
accounts receivable for collectability and an allowance is recognized for credit
losses, if required. As of December 31, 2021 and 2020, $2.5 million and $5.1
million of accrued revenue, respectively, was included in Accounts receivable,
net of allowance for credit losses on the Consolidated Statements of Financial
Condition. These amounts represent amounts due from clients and recognized as
revenue in accordance with the Company's revenue recognition policies but
unbilled at the end of the period.
Accounts receivable represents amounts due from clients from various industry
and geographic backgrounds. As of December 31, 2021 , certain accounts receivable
in the aggregate amount of $13.6 million , were individually greater than 10% of
the Company's gross accounts receivable and were concentrated with two clients.
Of that amount, $6.7 million was subsequently received after year end. As of
December 31, 2020 , no accounts receivable were individually greater than 10% of
the Company's total gross accounts receivable.
Allowance for Credit Losses
OnJanuary 1, 2020 , the Company adopted Accounting Standards Update ("ASU") No. 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") under the modified retrospective approach. This new standard replaces the incurred loss impairment methodology for financial instruments with the current expected credit loss ("CECL") model which requires an estimate of future credit losses. 85
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Perella Weinberg Partners
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
The Company maintains an allowance for credit losses that, in management's
opinion, provides for an adequate reserve to cover estimated losses on accounts
receivable. The Company determines the adequacy of the allowance by estimating
the probability of loss based on the Company's historical credit loss experience
of its client receivables and taking into consideration current market
conditions and supportable forecasts that affect the collectability of the
reported amount. The Company updates its average credit loss rates periodically
and maintains a quarterly allowance review process to consider current factors
that would require an adjustment to the credit loss allowance. In addition, the
Company periodically performs a qualitative assessment to monitor risks
associated with current and forecasted conditions that may require an adjustment
to the expected credit loss rates. The Company also regularly reviews the age of
the receivables, credit worthiness of the client and the current economic
conditions that may affect a client's ability to pay such amounts owed to the
Company and as a result may recognize a specific credit loss reserve. Changes to
expected credit losses during the period are included in General, administrative
and other expenses in the Consolidated Statements of Operations. After
concluding that a reserved accounts receivable is no longer collectible, the
Company reduces both the gross receivable and the allowance for credit losses.
Consolidation
The Company's policy is to consolidate entities in which the Company has a
controlling financial interest and variable interest entities where the Company
is deemed to be the primary beneficiary. The Company is deemed to be the primary
beneficiary of a variable interest entity ("VIE") when it has both (i) the power
to make the decisions that most significantly affect the economic performance of
the VIE and (ii) the obligation to absorb significant losses or the right to
receive benefits that could potentially be significant to the VIE. PWP is the
primary beneficiary of and consolidates PWP OpCo, a VIE. As of December 31, 2021
and December 31, 2020 , the net assets of PWP OpCo were $268.5 million and $74.2
million , respectively. As of December 31, 2021 and December 31, 2020 , the
Company did not consolidate any VIEs other than PWP OpCo that were deemed
material to the consolidated financial statements.
Equity Method Investments
When the Company does not have a controlling financial interest in an entity but exerts significant influence over the entity's operating and financial decisions, the Company applies the equity method of accounting. The investment balance related to an equity method investee reflects the Company's share of contributions made to, distributions received from, and the equity earnings and losses of the investee. Equity method investments are included within Prepaid expenses and other assets on the Consolidated Statements of Financial Condition. The Company reflects its share of income and losses of the investee in Other income (expense) on the Consolidated Statements of Operations using the most recently available earnings data for the reporting period.
Fair Value of Financial Instruments
The carrying values of the Company's financial instruments approximate their fair value as ofDecember 31, 2021 and 2020 due to their short-term nature or the bearing of market interest rates. Refer to Note 16-Fair Value Measurements and Investments for discussion on the fair value of the Company's assets and liabilities that qualify as financial instruments under Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurement ("ASC 820").
Fixed Assets
Fixed assets include furniture and fixtures, equipment, software development
costs and leasehold improvements, which are all stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are determined
using the straight-line method over the estimated useful lives of the assets,
including (i) five years for furniture, fixtures and equipment; (ii) the lesser
of the estimated life of the improvement or the remaining term of the lease for
leasehold improvements; and (iii) three years for software development costs.
The Company evaluates fixed assets for impairment whenever events or changes in
circumstances indicate that an asset's carrying value may not be fully
recovered.
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Perella Weinberg Partners
Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Prepaid Expenses and Other Assets
Generally, the majority of Prepaid expenses and other assets consists of prepaid expenses. Prepaid expenses relate to various services, including subscriptions, software licenses and insurance, which are amortized over the life, related service period or policy. When applicable, deferred offering costs are also presented within Prepaid expenses and other assets. As ofDecember 31, 2020 , cumulative offering costs of$9.1 million were deferred in relation to the Business Combination and were netted against proceeds of the Business Combination on the Closing Date. Prior to the Business Combination, the Company had deferred$14.8 million of costs associated with its pursuit of a traditional initial public offering, but upon termination of this process inMay 2020 , expensed this amount to Professional fees on the Consolidated Statements of Operations. As ofDecember 31, 2021 , Prepaid expenses and other assets included deferred offering costs of$0.9 million related to a primary offering of shares of its Class A common stock. Refer to Note 20-Subsequent Events for additional information regarding this offering.
Warrants
The Company evaluated the public and private warrants under ASC Topic 815,
Derivatives and Hedging ("ASC 815"), and concluded that they do not meet the
criteria to be classified as equity in the Consolidated Statements of Financial
Condition. Since the public and private warrants meet the definition of a
derivative under ASC 815, the Company recorded these warrants as liabilities at
fair value upon the closing of the Business Combination in accordance with ASC
820, Fair Value Measurement, with subsequent changes in their respective fair
values recorded in Change in fair value of warrant liabilities on the
Consolidated Statements of Operations and on the Consolidated Statements of Cash
Flows.
Tax Receivable Agreement
In connection with the Business Combination as described in Note 3-Business
Combination, PWP entered into a tax receivable agreement with PWP OpCo,
Professional Partners and ILPs under which PWP agreed to payment of 85% of the
amount of savings, if any, that PWP realizes in U.S. federal, state, local and
foreign income taxes as a result of (i) the Business Combination and related
transactions, (ii) exchanges of interests in PWP OpCo for cash or stock of the
Company and certain other transactions and (iii) payments made under the tax
receivable agreement. Management's best estimate of the amounts expected to be
owed in connection with the tax receivable agreement at each reporting date are
reported within the Amount due pursuant to tax receivable agreement on the
Consolidated Statements of Financial Condition.
Goodwill is recorded for the excess of the fair value of consideration transferred over the fair value of identifiable net assets, including other intangibles, acquired at the time of an acquisition.Goodwill is periodically reviewed, and tested at least annually, for impairment, and when certain events or circumstances indicate impairment may exist.Goodwill is tested for impairment at the reporting unit level. A reporting unit is a component of an operating segment for which discrete financial information is available that is regularly reviewed by management. In accordance with ASC Topic 350, Intangibles-Goodwill and Other ("ASC 350"), the Company can opt to perform a qualitative assessment to test goodwill for impairment to determine whether it is more likely than not (a likelihood of more than 50 percent) that an impairment has occurred. If it is determined that it is more likely than not that the reporting unit's fair value is less than its carrying value, a quantitative assessment is performed to (i) calculate the fair value of the reporting unit and compare it to its carrying value; and (ii) if the carrying value exceeds its fair value, an impairment loss is recognized for the excess. Alternatively, the Company can forego the qualitative assessment and only perform the quantitative assessment to test goodwill for impairment. 87 --------------------------------------------------------------------------------Perella Weinberg Partners Notes to Consolidated Financial Statements (Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Intangible assets are derived from customer relationships, trade names and trademarks. Identifiable finite-lived intangible assets are amortized on a straight-line basis over the estimated useful lives of ten years, reflecting the average time over which such intangible assets are expected to contribute to cash flow. The Company reviews intangible assets for impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Deferred Compensation The Company enters into certain deferred compensation arrangements whereby portions of compensation related to certain employees and partners are deferred and paid in later periods. The deferred compensation amounts are charged to expenses over the period that each employee and partner is required to provide services in order to vest in the payment. Refer to Note 14-Other Compensation and Benefits for further information.
Leases
See Note 5-Leases for further information regarding leases that fall under ASC Topic 842, Leases ("ASC 842").
Income Taxes
Prior to the Business Combination, the Company operated as a partnership, and therefore, was generally not subject toU.S. federal and state corporate income taxes. Subsequent to the Business Combination, PWP is a corporation and is subject toU.S. federal and state corporate income taxes on its proportionate share of taxable income generated by the operating partnership, PWP OpCo, as well as any standalone income (or loss) generated at the PWP entity level. PWP OpCo is treated as a partnership, and as a result, taxable income (or loss) generated by PWP OpCo flows through to its limited partners, including PWP, and is generally not subject toU.S. federal or state income tax at the partnership level. The Company primarily conducts business through disregarded entities held by PWP OpCo, as well as non-U.S. subsidiaries which generally operate as corporate entities in various non-U.S. jurisdictions. Certain non-U.S. subsidiaries are subject to income taxes in their respective local jurisdictions, and therefore, the related income tax provision is reported in the Consolidated Statements of Operations. Taxes are accounted for using the asset and liability method of accounting pursuant to ASC Topic 740, Income Taxes ("ASC 740"). Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases, using tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent on the amount, timing and character of the Company's future taxable income. When evaluating the realizability of deferred tax assets, all evidence - both positive and negative - is considered. This evidence includes, but is not limited to, expectations regarding future earnings, future reversals of existing temporary tax differences and tax planning strategies. The Company analyzes its tax positions for allU.S. federal, state and local tax jurisdictions where it is required to file income tax returns in accordance with the provisions of ASC 740. This standard establishes consistent thresholds for recognizing the benefits of tax return positions in the financial statements as more-likely-than-not to be sustained by the relevant taxing authority upon audit. This standard requires a two-step process in which (i) determination is made whether it is more-likely-than-not that the tax position will be sustained based on the technical merits of the position, and (ii) those tax positions that meet the more-likely-than-not threshold are recognized as the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority. If upon performance of an assessment pursuant to ASC 740 the Company determines that uncertainties in tax positions exist that do not meet the minimum threshold for recognition of the related tax benefit, a liability is recorded in the consolidated financial statements. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as Interest expense and General, administrative and other expenses in the Consolidated Statements of Operations.
Refer to Note 9-Income Taxes for further information.
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Perella Weinberg Partners
Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Debt Discounts and Issuance Costs
The Company presents its outstanding debt principal, net of the unamortized debt discounts and issuance costs on the Consolidated Statements of Financial Condition. Debt discounts and issuance costs are amortized using the effective interest method to determine interest expense over the life of the underlying debt instrument. Foreign Currencies In the normal course of business, the Company may enter into transactions not denominated inU.S. dollars. Foreign exchange gains and losses arising from such transactions are included in Other income (expense) in the Consolidated Statements of Operations. In addition, the Company consolidates its foreign subsidiaries that have non-U.S. dollar functional currencies. Non-U.S. dollar denominated assets and liabilities are translated toU.S. dollars at the exchange rate prevailing at the reporting date and income, expenses, gains and losses are translated using the average exchange rate throughout the period. Cumulative translation adjustments arising from the translation of non-U.S. dollar denominated operations are included as a component of Accumulated other comprehensive loss in the Consolidated Statements of Changes in Equity.
Revenue and Expense Recognition
See Note 4-Revenue and Receivables from Contracts with Customers for further information on contracts within the scope of ASU 2014-09.
Interest Income
The Company typically earns interest on cash at banks, which is recorded on an accrual basis.
Compensation and Benefits Compensation and benefits expense consists of salaries, bonuses (discretionary awards and guaranteed amounts), severance, deferred compensation, as well as payroll and related taxes and benefits for the Company's employees. In all instances, compensation expense is accrued over the requisite service period. Refer to Note 14-Other Compensation and Benefits for further information. Equity-based compensation relates to equity-based awards granted to employees and partners of the Company. In all instances of equity-based awards, compensation expense is recognized over the requisite vesting period in an amount equal to the fair value of the awards at the grant date. Equity-based compensation expense for employees and partners is included in Equity-based compensation on the Consolidated Statements of Operations and equity-based compensation expense for non-employees is included in Professional fees on the Consolidated Statements of Operations. Refer to Note 13-Equity-Based Compensation for detail of amounts included in each financial statement line item. The Company accounts for forfeitures of awards as they occur rather than applying an estimated forfeiture rate. For an award with service-only conditions that has a graded vesting schedule, the Company recognizes the compensation cost for the entire award on a straight-line basis over the requisite service period, ensuring that the amount recognized is at least equal to the vested portion of the award at each reporting date.
Non-Controlling Interests
For entities that are consolidated but not 100% owned, a portion of the income
or loss and equity is allocated to holders of the non-controlling interest. The
aggregate of the income or loss and corresponding equity that is owned by the
holders of the non-controlling interest is included in non-controlling interest
in the consolidated financial statements. Non-controlling interests are
presented as a separate component of equity on the Consolidated Statements of
Financial Condition. Net income (loss) includes the net income (loss)
attributable to the holders of the non-controlling interests on the Consolidated
Statements of Operations. Profits and losses of PWP OpCo are allocated to the
non-controlling interests in proportion to their ownership interest regardless
of their basis, with an exception for certain equity-based compensation expense
which are fully attributed to non-controlling interests. Refer to Note
13-Equity-Based Compensation for further information.
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Perella Weinberg Partners
Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) attributable to Class A common shareholders by the weighted-average shares of Class A common shares outstanding without the consideration for potential dilutive securities. Diluted net income (loss) per share represents basic net income (loss) per share adjusted to include the potentially dilutive effect of outstanding unvested share awards, warrants, and PWP OpCo Units that are exchangeable into shares of Class A common stock on a one-for-one basis. Diluted net income (loss) per share is computed by dividing the net income attributable to Class A common shareholders by the weighted-average number of shares of Class A common stock outstanding for the period determined using the treasury stock method and if-converted method, as applicable.
Contingencies and Litigation
The Company records loss contingencies if (i) information available prior to issuance of the consolidated financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the consolidated financial statements; and (ii) the amount of loss can be reasonably estimated. If one or both criteria for accrual are not met, but there is at least a reasonable possibility that a loss will occur, no accrual for a loss contingency is recorded. However, the Company describes the contingency and provides detail, when possible, of the estimated potential loss or range of loss. If an estimate cannot be made, a statement to that effect is made. Costs incurred with defending matters are expensed as incurred. Accruals related to loss contingencies are recorded in Other income (expenses) in the Consolidated Statements of Operations. Comprehensive Income (Loss)
Comprehensive income (loss) consists of Net income (loss) and Other comprehensive income (loss). The Company's Other comprehensive income (loss) is comprised of foreign currency cumulative translation adjustments.
Recently Adopted Accounting Pronouncements
Leases-EffectiveJanuary 1, 2019 , the Company adopted the new lease accounting standard, ASU 2016-02, Leases ("ASU 2016-02") which requires lessees to recognize on its Balance Sheet (Statement of Financial Condition), assets and liabilities for all leases, other than the leases that meet the definition of short-term leases, at the option of the lessee. The Company used the alternative transition approach which allows the guidance to be applied initially at the adoption date without restating comparative periods. The Company did not have a cumulative-effect adjustment to retained earnings as of the date of adoption. The Company elected the transition package of practical expedients to alleviate certain operational complexities related to the adoption, but has not elected the use of hindsight practical expedient. Following the adoption of the lease standard, the present value of the Company's lease commitments for leases with terms of more than one year and related assets are reflected as Lease liabilities and Right-of-use lease assets on the Consolidated Statements of Financial Condition. The impact of adoption of the lease guidance as ofJanuary 1, 2019 did not have any material impact on the Consolidated Statements of Operations or Consolidated Statements of Cash Flows, but had the following impact on the Consolidated Statements of Financial Condition: Adoption December 31, 2018 Adjustments January 1, 2019 Right-of-use lease assets $ -$ 70,199 $ 70,199 Lease liabilities - 78,394 78,394 Deferred rent 8,927 (8,927) - Prepaid expenses and other assets 28,959 (732) 28,227
See Note 5-Leases for additional information regarding the Company's leases.
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Perella Weinberg Partners
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
Credit Losses on Financial Instruments-In June 2016 , the FASB issued ASU
2016-13. ASU 2016-13 provides amendments to ASC Topic 326, Financial Instruments
- Credit Losses, which amend the guidance on the impairment of financial
instruments and adds an impairment model (the current expected credit loss
(CECL) model) that is based on expected losses rather than incurred losses.
Entities recognize an allowance for its estimate of expected credit losses as of
the end of each reporting period. On January 1, 2020 the Company adopted ASU
2016-13 using the modified retrospective approach by means of a
cumulative-effect adjustment to decrease retained earnings by $0.2 million as of
January 1, 2020 .
Future Adoption of Accounting Pronouncements
No changes to
Note 3-Business Combination
OnJune 24, 2021 , the Company consummated a business combination pursuant to the Business Combination Agreement dated as ofDecember 29, 2020 , by and among the Company (previously FTIV), the Sponsor, PWP OpCo,PWP GP LLC , PWP GP,Professional Partners , and Professionals GP. Pursuant to the Business Combination Agreement, among other things, (i) FTIV acquired certain partnership interests in PWP OpCo, (ii) PWP OpCo became jointly-owned by PWP,Professional Partners and certain existing partners of PWP OpCo, and (iii) PWP OpCo now serves as the Company's operating partnership as part of an Up-C structure. The Business Combination was treated as a reverse recapitalization transaction between entities under common control, whereby PWP OpCo was considered the accounting acquirer and predecessor entity and therefore recognized the carrying value of the net assets of FTIV as an equity contribution with no incremental goodwill or intangible assets. OnDecember 29, 2020 , concurrent with the execution of the Business Combination Agreement, FTIV also entered into subscription agreements with certain private investors ("PIPE Investors "), pursuant to which thePIPE Investors collectively subscribed for 12,500,000 shares of the Company's Class A common stock for an aggregate purchase price equal to$125.0 million (the "PIPE Investment "), including$1.5 million subscribed by entities related to the Sponsor.The PIPE Investment was consummated concurrently with the Closing.
In connection with the consummation of the Business Combination, the following occurred:
•Pursuant to the Sponsor Share Surrender and Share Restriction Agreement executed concurrently with the Business Combination Agreement among the Sponsor, FTIV, PWP OpCo and certain other parties (the "Surrender Agreement"), which was amended onMay 4, 2021 , Sponsor surrendered and forfeited to FTIV 1,023,333 shares of Class B common stock, par value$0.0001 per share, of FTIV; •All outstanding shares of FTIV's Class B common stock (other than the 1,023,333 shares of FTIV Class B common stock that were forfeited by the Sponsor) were converted into shares of FTIV's Class A common stock, and FTIV's outstanding warrants were assumed by the Company and became exercisable for shares of Company Class A common stock on the same terms as were contained in the warrant agreements prior to the Business Combination; •FTIV acquired newly-issued common units of PWP OpCo in exchange for$355.0 million in cash and 42,956,667 shares of Class A common stock. The cash contributed equated to the proceeds from thePIPE Investment and the outstanding cash balances and marketable securities held in a trust account of FTIV as of Closing; •FTIV issued new shares of Class B-1 common stock, which have 10 votes per share, and Class B-2 common stock, which have one vote per share, to PWP OpCo, with the Class B-1 common stock being distributed to and owned byProfessional Partners and the Class B-2 common stock being distributed to and owned by ILPs, with the number of shares of such common stock issued to PWP OpCo equal the number of PWP OpCo Units that were held byProfessional Partners and ILPs, respectively, following the Closing; 91 --------------------------------------------------------------------------------Perella Weinberg Partners Notes to Consolidated Financial Statements (Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) •Professional Partners contributed the equity interests of PWP GP, the general partner of PWP OpCo, to FTIV; •PWP OpCo repaid all of its indebtedness including$150.0 million of Convertible Notes and$27.7 million of the Revolving Credit Facility, both as defined in Note 10-Debt, as well as accrued interest and applicable premium, resulting in a Loss on debt extinguishment of$39.4 million ; •PWP OpCo first redeemed PWP OpCo Units held by certain electing ILPs in the amount of$80.5 million , and second, redeemed PWP OpCo Units held by certain electing former working partners in the amount of$28.6 million ; and
•FTIV was renamed "
On the Closing Date, the Company recorded$22.2 million in public warrant liabilities and$0.7 million in private warrant liabilities, which represented their fair value on such date. See Note 12-Warrants for further information. In conjunction with the Business Combination, the Company incurred approximately$2.9 million in transaction expenses, which were recorded in Professional fees on the Consolidated Statements of Operations, as well as$27.6 million of offering costs which were offset against the proceeds of the Business Combination. At the time of the Closing, there were 42,956,667 shares of Class A common stock and 50,154,199 shares of Class B common stock outstanding. The number of shares of Class B common stock outstanding corresponds to the number of PWP OpCo Units attributable toProfessional Partners and the ILPs. Such PWP OpCo Units are exchangeable into shares of PWP's Class A common stock on a one-for-one basis and represent the non-controlling ownership interests in the Company. Class B-1 and B-2 common stock have de minimis economic rights. See Note 11-Stockholders' Equity for additional information.
Concurrent with the Closing, the Company entered into certain other related agreements which are discussed further in Note 11-Stockholders' Equity and Note 17-Related Party Transactions.
Note 4-Revenue and Receivables from Contracts with Customers
The services provided under contracts with clients include transaction-related
advisory services, fairness opinion services, research and trading services, and
underwriting services, each of which are typically identified as a separate
performance obligation in contracts that contain more than one type of service.
As discussed in detail below, each performance obligation meets the criteria for
either over time or point in time revenue recognition. The following table
disaggregates the Company's revenue between over time and point in time
recognition:
Year Ended December 31,
2021 2020 2019
Over time $ 749,067 $ 494,295 $ 503,052
Point in time 52,595 24,691 30,245
Total revenues $ 801,662 $ 518,986 $ 533,297
Additionally, the Company is typically reimbursed for certain professional fees
and other expenses incurred that are necessary in order to provide services to
the client. These fees and related reimbursements are recorded when incurred to
the relevant expense item and Revenues, respectively, in the Consolidated
Statements of Operations. Reimbursable expenses billed to clients was $5.0
million , $6.5 million , and $6.7 million for the years ended December 31, 2021 ,
2020, and 2019, respectively.
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Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Transaction-Related Advisory Services
The Company is contracted to provide different investment banking and advisory
services that vary depending on the nature of the contract with each individual
client. These transaction-related advisory services include, but are not limited
to, providing financial advice and assistance in analyzing, structuring,
planning, negotiating and effecting a transaction, providing financial advice
with regard to a restructuring of a client's capital structure, which may or may
not result in a court-approved bankruptcy plan, and providing certain ongoing
services, including research and analysis on potential targets, identifying
potential investors, and financial modeling for potential transactions.
Typically, the Company provides such advisory services to its clients to assist
with corporate finance activities such as mergers and acquisitions,
reorganizations, tender offers, leveraged buyouts, and the pricing of securities
to be issued. In most circumstances, the Company considers the nature of the
promises in its advisory contracts to comprise of a single performance
obligation of providing advisory services to its clients. Although there may be
many individual services provided in a typical contract, the individual services
are not distinct within the context of the contract; rather the performance of
these individual services helps to fulfill one overall performance obligation to
deliver advisory services to the client.
The Company recognizes revenue from providing advisory services when or as its
performance obligations are fulfilled. The majority of the Company's advisory
revenue is recognized over time. However, certain performance obligations may be
recognized at a point in time if the performance obligation represents a
singular objective that does not transfer any notable value until formally
completed, such as when issuing fairness opinions, which are further discussed
below. The Company provides its advisory services on an ongoing basis, which,
for example, may include evaluating and selecting one of multiple strategies.
During such engagements, the Company's clients continuously benefit from its
advice as the Company is providing financial and strategic advice throughout the
engagement, and, accordingly, over time revenue recognition matches the transfer
of such benefits.
Although the Company's transaction-related advisory services meet the criteria
for over time revenue recognition, the fee structures often involve an "all or
nothing" consideration amount and the associated fees are predominantly
considered variable as they are often based on the ultimate transaction value or
the outcome ultimately achieved and/or are susceptible to factors outside of the
Company's influence such as third-party negotiations, regulatory approval, court
approval, and shareholder votes. Accordingly, a large portion of the fees
associated with these services is constrained until substantially all services
have been provided, specified conditions have been met and/or certain milestones
have been achieved, and it is probable that a significant revenue reversal will
not occur in a future period.
In some cases, a portion of the variable fees may be deferred based on the
services remaining to be completed, if any (e.g., when announcement fees are
earned but additional services are expected to be provided until the transaction
closes). The determination of when and to what extent to recognize variable fees
may require significant judgment, particularly when milestones are met near the
end of a reporting period and in cases where additional services are expected to
be provided subsequent to the achievement of the milestone. Fixed fees specified
in the Company's contracts, which may include upfront fees and retainers, are
recognized on a systematic basis over the estimated period in which the related
services are performed.
Payments for transaction-related advisory services are generally due upon
completion of a specified event or, for retainer fees, periodically over the
course of the engagement. The Company recognizes a receivable between the date
of completion of the event and payment by the client.
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Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Fairness Opinion Services
Although the Company usually provides fairness opinion services in conjunction with and in the same contract as other transaction-related advisory services, fairness opinion services are considered to be a separate performance obligation in such contracts because they could be obtained separately, and the Company is able to fulfill its promise to transfer transaction-related advisory services independent from its promise to provide fairness opinion services. The Company typically charges a separate, fixed fee associated with fairness opinion services that represents the standalone selling price of the fairness opinion services. The fee is recognized at the point in time at which the fairness opinion is delivered rather than over the period of time during which the services are being performed because the client does not simultaneously receive and consume the benefit of the Company's performance to provide the fairness opinion but rather receives the benefit upon delivery of the fairness opinion itself. Payments for fairness opinion services are generally due upon delivery of the fairness opinion. The Company recognizes a receivable between the date of delivery of the fairness opinion and payment by the client.
Research and Trading Services
The Company provides research on the energy and related industries and related equity and commodity markets. The Company's research clients continuously benefit from the research provided throughout arrangements between the Company and such clients, and, accordingly, over time revenue recognition matches the transfer of such benefits. Recipients of this research compensate the Company for these market insights in two ways-either by direct payment (the amount of which is typically at the client's discretion based upon the perceived value of the research services provided) or through trades directed through the Company's trading desk (for commission generation) or through third-party commission sharing agreements. Generally, the Company does not provide trading services separate and apart from research services (i.e., clients do not typically execute trades through the Company in the normal course of business; rather, trade execution is used as a means to be compensated for research services). Because fees received for research services, and any associated trading services, are typically at the complete discretion of the client and are based on the value the client perceives in the research services provided, the entire transaction price associated with such services is variable. Accordingly, because of the broad range of possible outcomes and the inability to predict the value the client will ascribe to such services, the Company fully constrains the revenue associated with research services, and any associated trading services, until the uncertainty associated with the variable consideration is subsequently resolved, which is typically upon the earlier of receiving an invoice request from the client or receiving payment from the client.
Underwriting Services
Revenue associated with underwriting services includes management fees, selling
concessions and underwriting fees attributable to public and private offerings
of equity and debt securities. The nature of the Company's underwriting services
is raising capital on behalf of an issuer and therefore is typically accounted
for as a single performance obligation. A separate performance obligation is
identified in instances in which the contract with the client includes an
over-allotment option. The Company's underwriting services generally do not meet
any of the requirements for revenue to be recognized over time and, therefore,
the Company typically recognizes underwriting revenue on the pricing date of the
offering, which is when the Company receives the pricing wire communication from
the lead underwriter detailing the underwriting fees to which the Company is
entitled. Similarly, the performance obligation associated with the
over-allotment is satisfied at the point in time at which the option is
exercised.
The Company's role in underwriting commitments is usually as a co-manager or
passive bookrunner, rather than as the lead underwriter. Accordingly, the
Company estimates its share of transaction-related expenses incurred by the
underwriting syndicate on the pricing date of the offering and presents these
expenses gross within Travel and related expenses in the Consolidated Statements
of Operations. Such amounts are adjusted to reflect actual expenses in the
period in which the Company receives the final settlement, typically within 90
days following the closing of the transaction.
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Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Contract Costs
Incremental costs of obtaining a contract are expensed as incurred as such costs are generally not recoverable. Costs to fulfill contracts consist of out-of-pocket expenses that are part of performing transaction-related advisory services and are typically expensed as incurred as these costs are related to performance obligations that are satisfied over time.
Remaining Performance Obligations and Revenue Recognized from Past Performance
As ofDecember 31, 2021 , the aggregate amount of the transaction price allocated to performance obligations yet to be satisfied is$6.4 million and the Company generally expects to recognize this revenue within the next twelve months. Such amounts primarily relate to the Company's performance obligations of providing transaction-related advisory services and fairness opinion services. During the years endedDecember 31, 2021 , 2020, and 2019, the Company recognized revenue of$313.2 million ,$177.4 million , and$217.9 million , respectively, related to performance obligations that were satisfied or partially satisfied in prior periods, mainly due to constraints on variable consideration in prior periods being resolved for transaction-related advisory services.
Contract Balances
The timing of revenue recognition may differ from the timing of payment. The Company records a receivable when revenue is recognized prior to payment and the Company has an unconditional right to payment. The Company records deferred revenue (otherwise known as contract liabilities) when it receives fees from clients that have not yet been earned or when the Company has an unconditional right to consideration before all performance obligations are complete (e.g., receipt of certain announcement, retainer or upfront fees before the performance obligation has been fully satisfied). As ofDecember 31, 2021 and 2020, the Company recorded$7.8 million and$10.6 million , respectively, for these contract liabilities which are presented as Deferred revenue on the Consolidated Statements of Financial Condition. For the years endedDecember 31, 2021 , 2020, and 2019,$10.6 million ,$1.7 million and$1.6 million , respectively, of the respective beginning deferred revenue balance was recognized as revenue and was primarily related to the Company's transaction-related advisory services performance obligations that are recognized over time.
Allowance for Credit Losses
The allowance for credit losses activity for the years endedDecember 31, 2021 , 2020, and 2019 is as follows: Year Ended December 31, 2021 2020 2019 Beginning Balance(1)$ 1,045 $ 1,924 $ - Bad debt expense 646 2,991 2,270 Recoveries 710 - - Write-offs (551) (3,588) (540) Foreign currency translation and other adjustments 1 (282) 6 Ending Balance$ 1,851 $ 1,045 $ 1,736 __________________ (1)Beginning balance for the year endedDecember 31, 2020 includes the cumulative adjustment of approximately$0.2 million which reflects the increase in the Company's allowance for credit losses upon adoption of ASU 2016-13 and the CECL model onJanuary 1, 2020 . See Note 2-Summary of Significant Accounting Policies for further information. 95 -------------------------------------------------------------------------------- Perella Weinberg Partners Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Note 5-Leases
The Company leases office space and certain office equipment under operating lease agreements. The Company determines if an arrangement or contract is a lease at inception and does not separate lease and non-lease components of the contract. The Company records the present value of its commitments for leases with terms of more than one year on the Consolidated Statements of Financial Condition as a right-of-use asset with the corresponding liability. Right-of-use assets are subject to certain adjustments for lease incentives, deferred rent and initial direct costs. The Company elected the practical expedient not to separate lease components and non-lease components in calculating the net present value of the lease payments on office space and office equipment leases. Thus the measurement of the right-of-use asset and corresponding lease obligation use one single combined component. All leases were determined to be operating leases. Right-of-use assets represent the Company's right to use the underlying assets for their lease terms and lease liabilities represent the Company's obligation to make lease payments arising from these leases. The Company's lease agreements do not contain any residual value guarantees. Lease expense is recognized on a straight-line basis over the lease term for new leases and over the remaining lease term for existing leases already in place atJanuary 1, 2019 (date of adoption of ASC 842). The implicit discount rates used to determine the present value of the Company's leases are not readily determinable, thus, the Company uses its incremental borrowing rate to determine the present value of its lease payments. The determination of an appropriate incremental borrowing rate requires significant assumptions and judgement. The Company's incremental borrowing rate was calculated based on the Company's recent debt issuances and market conditions at the time of adoption or upon entering into a new lease, as applicable. The Company weights the rates appropriately depending on the term of the leases. Renewal and termination terms of the Company's leases vary depending on the lease. The Company estimates the expected lease terms by assuming the exercise of renewal options and extensions where an economic penalty exists that would preclude the abandonment of the lease at the end of the initial non-cancelable term and the exercise of such renewal or extension is at the sole discretion of the Company. Certain lease agreements are secured by security deposits, which are reflected in Prepaid expenses and other assets on the Consolidated Statements of Financial Condition. In conjunction with the Separation, the Company entered into sublease agreements for a portion of itsHouston andNew York office space withPWP Capital Holdings LP through 2027 and 2022, respectively. These subleases are considered operating leases. The subleases do not include renewal options and the Company has the right to terminate these subleases for any reason after giving 90 days prior written notice. Sublease income is recognized on a straight-line basis over the term of the lease. The Company elected the practical expedient not to separate lease components and non-lease components for these subleases. During the year endedDecember 31, 2021 , theHouston sublease was terminated, and theNew York sublease was modified to extend the term and reduce the subleased space. See additional information regarding these subleases in Note 17-Related Party Transactions.
Significant New Leases and Lease Modifications
InJuly 2020 , the Company modified the terms of itsNew York office space lease by shortening the lease term of certain floor space and extending the contractual lease term of other floor space. These contractual changes were treated as a modification of the original lease. The modified lease was reassessed and continues to be considered an operating lease. The lease liability was remeasured as of the modification date and resulted in an increase of$12.9 million and a corresponding increase to the right-of-use asset as well as a$0.1 million gain, which was recognized as Other income (expense) on the Consolidated Statements of Operations. InMay 2021 , the Company extended the term of itsNew York office lease by five months, which resulted in an increase to Lease liabilities and a corresponding increase to Right-of-use lease assets of$5.1 million . OnJuly 26, 2021 , the Company executed a lease amendment to vacate a portion of itsHouston office space, which resulted in a$1.9 million decrease to Right-of-use lease assets, a$2.4 million decrease to Lease liabilities and a$0.5 million gain recorded in Other income (expense) in the Consolidated Statements of Operations. 96 -------------------------------------------------------------------------------- Perella Weinberg Partners Notes to Consolidated Financial Statements (Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Other information as it relates to the Company's operating leases is as follows: Year Ended December 31, 2021 2020 Weighted-average discount rate - operating leases 2.45 % 4.07 % Weighted-average remaining lease term - operating leases 3.26 years 3.99 years Year Ended December 31, 2021 2020 2019 Operating lease cost$ 19,006 $ 19,486 $ 19,657 Variable lease cost 4,716 6,145 5,592
Sublease income - operating leases (2,957) (3,942) (3,366) Total net lease cost
$ 20,765 $ 21,689 $ 21,883
Cash paid for lease obligation
As of
Years Ending: Operating Leases Sublease Income Net Payments 2022 $ 19,119 $ 616$ 18,503 2023 13,670 307 13,363 2024 4,399 - 4,399 2025 2,864 - 2,864 2026 2,857 - 2,857 Thereafter 2,141 - 2,141 Total minimum lease payments 45,050 $ 923$ 44,127 Less: Imputed Interest (1,602) Total lease liabilities $ 43,448
Note 6-
In connection with the TPH Business Combination, the Company recorded goodwill in the amount of$34.4 million .Goodwill represents the Advisory business' portion of goodwill which is based on the relative fair value of the TPH Advisory business as of the date of the TPH Business Combination.Goodwill is primarily attributable to the in-place workforce, which allowed the Company to continue serving its existing client base, begin marketing to potential clients and avoid significant costs reproducing the workforce. No goodwill is expected to be deductible for tax purposes. Based on the Company's quantitative assessment for impairment, no goodwill impairment was recorded during the years endedDecember 31, 2021 , 2020, and 2019. 97 --------------------------------------------------------------------------------Perella Weinberg Partners Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Intangible Assets
Intangible assets related to the TPH Business Combination were recognized at
their estimated fair values, which was based on certain projected future
revenues and involved the use of significant judgment. Below is the detail of
the intangible assets:
December 31, 2021
Accumulated Net Carrying
Gross Amount Amortization Amount
Customer relationships $ 47,400 $ (24,095) $ 23,305
Trade names and trademarks 18,400 (9,353) 9,047
Total $ 65,800 $ (33,448) $ 32,352
December 31, 2020
Accumulated Net Carrying
Gross Amount Amortization Amount
Customer relationships $ 47,400 $ (19,355) $ 28,045
Trade names and trademarks 18,400 (7,513) 10,887
Total $ 65,800 $ (26,868) $ 38,932
The intangible assets are amortized over an average useful life of 10 years. For
each of the years ended December 31, 2021 , 2020, and 2019, intangible
amortization expense was $6.6 million , which is included in Depreciation and
amortization in the Consolidated Statements of Operations. Amortization of
intangible assets held at December 31, 2021 is expected to be $6.6 million for
each of the years ending December 31, 2022 , 2023, 2024, and 2025, and $6.0
million for the year ending December 31, 2026 . These intangible assets will be
fully amortized by November 30, 2026 .
Note 7-Regulatory Requirements
The Company has a number of consolidated subsidiaries registered as broker-dealers with regulatory agencies in their respective countries, including theSecurities and Exchange Commission ("SEC"), theFinancial Industry Regulatory Authority (FINRA), theInvestment Industry Regulatory Organization of Canada (IIROC), theFinancial Conduct Authority (FCA) of theUnited Kingdom (the "UK") and the Autorité de contrôle prudentiel et de resolution (ACPR) ofFrance . These subsidiaries are subject to various minimum net capital requirements as outlined below. None of theSEC regulated subsidiaries hold funds or securities for, or owe money or securities to, clients or carry accounts of or for clients, and as such are all exempt from the SEC Customer Protection Rule (Rule 15c3-3). As ofDecember 31, 2021 and 2020, all regulated subsidiaries were in excess of their applicable capital requirements. As a result of the minimum capital requirements and various regulations on these broker dealers, a portion of the capital of each subsidiary of the Company is restricted and may be unavailable to pay its creditors. 98 --------------------------------------------------------------------------------Perella Weinberg Partners Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Note 8-Fixed Assets
Fixed assets are recorded at cost less accumulated depreciation and amortization
and consist of the following as of
December 31,
2021 2020
Leasehold improvements $ 49,610 $ 49,718
Furniture and fixtures 8,188 8,606
Equipment 15,969 35,293
Software 8,581 14,395
Total 82,348 108,012Less: Accumulated depreciation and amortization (71,986) (90,823) Fixed assets, net
$ 10,362 $ 17,189 Depreciation expense related to fixed assets was$6.7 million ,$7.3 million , and$7.8 million for the years endedDecember 31, 2021 , 2020, and 2019, respectively. Amortization expense related to software development costs was$1.2 million ,$1.7 million , and$1.5 million for the years endedDecember 31, 2021 , 2020, and 2019, respectively.
During the year ended
Note 9-Income Taxes
The Company's income (loss) before income taxes is associated with activities in domestic and international jurisdictions, as follows:
Year Ended December 31,
2021 2020 2019
Domestic $ 256 $ (33,803) $ (176,157)
International 22,694 12,914 14,561
Income (loss) before income taxes
The Company's operations are generally comprised of entities that are organized as limited liability companies and limited partnerships. ForU.S. federal income tax purposes, taxes related to income earned by these entities represent obligations of their interest holders. The Company is subject to certain foreign, state and local entity-level taxes (for example, theNew York City Unincorporated Business Tax). These taxes have been reflected in the Company's consolidated financial statements and allocated between the Company and the non-controlling interest holders. In addition, the Company is subject toU.S. corporate federal, state and local income tax on its allocable share of results of operations from PWP OpCo. 99
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Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) The tax (provision) / benefit consists of the following:
Year Ended December 31,
2021 2020 2019
Current
Federal income tax $ (6,500) $ - $ -
State and local income tax (4,437) (1,427) (1,480)
Foreign income tax (11,641) (2,615) (252)Total current income tax benefit (expense) (22,578) (4,042)
(1,732) Deferred Federal income tax 1,462 - (627) State and local income tax 512 - (64) Foreign income tax 1,677 589 - Total deferred income tax benefit (expense) 3,651 589
(691)
(Provision)/benefit for income taxes
The Company's effective tax rate is dependent on many factors, including the amount of income subject to tax. Consequently, the effective tax rate can vary from period to period. The Company's overall effective tax rate in each of the periods described below varies from theU.S. federal statutory rate primarily because (i) the Company was not subject toU.S. federal corporate income taxes prior to the Business Combination, (ii) a portion of compensation expense is non-deductible, both prior to the Business Combination and for the subsequent period, (iii) the Company has recorded unrecognized tax benefits related to a potential double inclusion of income on its foreign tax returns and (iv) a portion of the Company's income is allocated to non-controlling interests held in PWP OpCo in which the majority of any tax liability on such income is borne by the holders of such non-controlling interests and reported outside of the consolidated financial statements. The Business Combination resulted in a$16.1 million increase to the Company's deferred tax asset primarily related to a step-up in the tax basis of certain assets that will be recovered as those assets are amortized. In connection with the step-up in tax basis generated on the day of the Business Combination, the Company recorded a payable of$14.1 million pursuant to the terms of the tax receivable agreement. The following table reconciles theU.S. federal statutory tax rate to the effective income tax rate: Year Ended December 31, 2021 2020 2019 Expected income tax expense at the federal statutory rate 21.0 % 21.0 % 21.0 % Partnership (income) loss not subject toU.S. corporate income taxes (21.4 %) (21.0 %) (21.1 %) Foreign income taxes, net of federal benefit 10.7 % (9.7 %) (0.2 %) State and local income taxes, net of federal benefit 15.7 % (6.8 %) (0.9 %) Non-deductible compensation expense 26.0 % - % - % Unrecognized tax benefits 26.7 % - % - % Other, net 3.8 % - % (0.3 %) Effective income tax rate 82.5 % (16.5 %) (1.5 %)
Current tax receivables and payables are included in Prepaid expenses and other assets and Accounts payable, accrued expenses and other liabilities, respectively, on the Consolidated Statements of Financial Condition.
Deferred income taxes reflect the net effect of temporary differences between
the tax basis of an asset or liability and its reported amount in the Company's
Consolidated Statements of Financial Condition. These temporary differences
result in taxable or deductible amounts in future years.
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Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
The significant components of deferred tax assets and liabilities included on
the Company's Consolidated Statements of Financial Condition are as follows:
December 31,
2021 2020
Deferred tax asset
Step-up in tax basis in PWP OpCo assets $ 16,090 $ -
Operating lease liabilities 6,601 52
Deferred compensation 6,912 604
Other 2,190 1,622
Deferred tax assets before valuation allowance 31,793 2,278 Valuation allowance
- (1,024)
Total deferred tax assets 31,793 1,254
Deferred tax liability
Operating right-of-use lease assets (5,969) (40)
Intangible assets (3,118) -
Other (1,615) -
Total deferred tax liabilities (10,702) (40)
Deferred tax asset, net $ 21,091 $ 1,214
The realization of deferred tax assets arising from timing differences and net
operating losses requires taxable income in future years in order to deduct the
reversing timing differences and absorb the net operating losses. The Company
evaluates the realizability of deferred tax assets on a jurisdictional basis at
each reporting date. Accounting for income taxes guidance requires that a
valuation allowance be established when it is more likely than not that all or a
portion of the deferred tax assets will not be realized. No deferred tax asset
has been recorded for the excess of tax basis related to the outside partnership
basis of its investment in PWP OpCo for the amount of the deferred tax asset
that is not expected to reverse. The Company believes it is more-likely-than-not
that the remaining net deferred tax asset recorded as of December 31, 2021 will
be recovered in the future based on all available positive and negative
evidence.
As of December 31, 2020 , as it relates to the deferred tax asset for the
Company's Canadian subsidiary, Tudor, Pickering, Holt & Co. Securities Canada ,
ULC ("TPH Canada"), the Company concluded that the weight of historical evidence
in the form of cumulative losses should be greater than the weight given to
projections of future income, which cannot be substantiated until earned. As
such, a full valuation allowance was recorded on the TPH Canada deferred tax
asset of $1.0 million . During the year ended December 31, 2021 , the Company
reevaluated the historical evidence and projections of future income in the
jurisdiction in which it operates and determined that the realization of the
deferred tax assets is probable. As such, the valuation allowance was reversed
and there was no valuation allowance related to the deferred tax asset of TPH
Canada as of December 31, 2021 .
The Company does not have excess basis in its foreign investments and has therefore not provided a deferred tax liability with respect to an outside basis difference in its investment in foreign subsidiaries.
The Company is subject to taxation inthe United States and various state, local and foreign jurisdictions. As ofDecember 31, 2021 , the Company is not generally subject to examination by the tax authorities for years before 2018. 101 --------------------------------------------------------------------------------Perella Weinberg Partners Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
A reconciliation of the changes in tax positions for the years ended
Year Ended
2021 2020 2019
Beginning unrecognized tax benefit $ - $ - $ -
Additions for tax positions of prior years 1,574 - -
Additions for tax positions of current year 4,564 - -
Ending unrecognized tax benefit $ 6,138 $ - $ -
The Company classifies interest relating to tax matters and tax penalties as components of income tax expense in its Consolidated Statements of Operations. As ofDecember 31, 2021 , there were$6.1 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. For the years endedDecember 31, 2021 , 2020, and 2019, no interest or penalties were accrued with respect to unrecognized tax positions.
Note 10-Debt
The following is a summary of the Company's debt as ofDecember 31, 2021 and 2020:December 31, 2021 2020
Revolving Credit Facility $ - $
27,690
Convertible Notes - 150,000
Total debt facilities - 177,690
Unamortized debt discount and issuance costs (1) (521) (30,725)
Total debt, net $ (521) $ 146,965 (1) As of
Credit Agreement - Revolving Credit Facility
The Company has a revolving credit facility (the "Revolving Credit Facility")
with
Prior to the Business Combination
OnNovember 11, 2020 , the Revolving Credit Facility was amended to extend the maturity date fromDecember 31, 2021 toApril 1, 2022 . OnDecember 28, 2020 , the agreement was further amended to expressly permit the transactions contemplated by the proposed Business Combination. During the years endedDecember 31, 2020 and 2019, the Company made principal payments on the Revolving Credit Facility of$32.0 million and$10.0 million , respectively, as well as drawdowns of$22.0 million and$20.0 million , respectively. 102 -------------------------------------------------------------------------------- Perella Weinberg Partners Notes to Consolidated Financial Statements (Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) For the period prior to the Business Combination, the Revolving Credit Facility bore interest at a rate per annum equal to either the variable Eurodollar Rate (or London Interbank Offered Rate, LIBOR) or a variable Base Rate (defined as the higher of the (i) Federal Funds Rate plus ½ of 1.0%; (ii) Cadence Bank prime rate; or (iii) Eurodollar Rate plus 1.0%) plus a rate which varies by the Company's leverage ratio, as noted in the table below. Applicable Rate Combined Leverage Ratio Eurodollar Rate Base
Rate
< 0.50 : 1.00 2.50% 1.50% ? 0.50 : 1.00, but < 1.50 : 1.00 2.75% 1.75% ? 1.50 : 1.00 3.00% 2.00% Business Combination Impact Upon consummation of the Business Combination, the Company repaid all of the outstanding borrowings under the Credit Agreement, which included$27.7 million of principal plus accrued and unpaid interest. In anticipation of the Closing, onJune 15, 2021 , the Credit Agreement was amended such that as of the Closing Date, (i) the maturity was extended fromApril 1, 2022 toJuly 1, 2025 , (ii) interest accrues at LIBOR plus a fixed rate of 2.00% per annum (with a 0.25% LIBOR floor) with an alternate base rate option equal to Cadence Bank's prime rate minus 1.00% (with a 3.25% floor), (iii) up to$15.0 million of the Revolving Credit Facility may be used for the issuance of letters of credit, (iv) up to$20.0 million of incremental revolving commitments may be incurred under the Credit Agreement, and (v) certain financial covenants were amended.
Average Interest rate, Effective Interest Rate and Interest Expense
The weighted average interest rate for the Revolving Credit Facility was 2.62% for the period fromJanuary 1, 2021 throughJune 24, 2021 (the Closing Date) and 3.02%, and 4.95% for the years endedDecember 31, 2020 and 2019, respectively. Debt Issuance Cost-Prior to the Business Combination, the Company incurred$1.8 million in issuance costs related to the Credit Agreement, which were amortized to Interest expense using the effective interest method over the life of the Revolving Credit Facility. The effective interest rate of the Revolving Credit Facility taking into account these issuance costs was 3.73% for the period fromJanuary 1, 2021 throughJune 24, 2021 and 3.93% and 6.48% for the years endedDecember 31, 2020 and 2019, respectively. The amendment that occurred with the Business Combination was accounted for as a modification as opposed to a debt extinguishment in accordance withU.S. GAAP. As such, the unamortized original debt issuance costs as well as the additional$0.4 million in fees incurred to amend the facility are being amortized using the effective interest method to Interest expense over the amended remaining term of the Revolving Credit Facility. Interest expense related to the Revolving Credit Facility was$0.7 million ,$1.6 million , and$1.6 million during the years endedDecember 31, 2021 , 2020, and 2019, respectively.
As of
Convertible Notes - Outstanding Prior to the Business Combination
The Company issued 7.0% subordinated unsecured convertible notes with an aggregate principal amount of$150.0 million (the "Convertible Notes") under a Note Purchase Agreement (as amended, the "NPA") executed in conjunction with the TPH Business Combination onNovember 30, 2016 (the "TPH Closing Date"). The Convertible Notes were due to mature onNovember 30, 2026 (the "Maturity Date"), unless earlier converted or repaid pursuant to the terms. Interest payments were due quarterly; however, until the fifth anniversary of the TPH Closing Date, the Company had the ability to elect to defer its payment of interest up to eight separate times but never exercised this election. 103 --------------------------------------------------------------------------------Perella Weinberg Partners Notes to Consolidated Financial Statements (Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Applicable only to the period after the Separation and before the Business Combination, the NPA namedPWP Capital Holdings LP as a guarantor of the Convertible Notes and required that financial covenants be determined on a combined basis with the results of both the Company andPWP Capital Holdings LP for the applicable periods ended. Debt Discount and Issuance Costs - A portion of the Convertible Notes was issued at a 5.0% original issue discount in the amount of$5.8 million coupled with a 3.0% commitment fee in the amount of$3.5 million . In addition to the discount and commitment fees, the Company incurred debt issuance costs of approximately$1.1 million in relation to the NPA. The debt discounts and issuance costs were amortized using the effective interest method over the term of the Convertible Notes prior to the Business Combination and redemption. Optional Conversion - In accordance with the NPA, each holder of Convertible Notes (each herein referred to as a "Holder") had the right at any time on or prior to the Maturity Date, to convert all or a portion of their portion of the Convertible Notes into the Company's common units at the conversion rate, plus an amount in cash equal to accrued and unpaid interest. The optional conversion was evaluated and deemed to be both beneficial and significant to require separation. The estimated intrinsic value of the Beneficial Conversion Feature ("BCF") was measured at the most favorable conversion terms and determined to be$32.7 million as of the Closing Date. The recognition of the BCF created a discount on the Convertible Notes with an offsetting increase to Partners' capital. Letter Agreements - InDecember 2020 , the Company entered into letter agreements (the "2020 Letter Agreements") with all Holders, which amended and restated any existing letter agreements, pursuant to which all of the Holders (the "Redeeming Holders") agreed to collectively tender for redemption$150 million aggregate principal amount of their Convertible Notes (such Convertible Notes, the "Redeemed Notes") for cash. Pursuant to the terms of the 2020 Letter Agreements, the Redeeming Holders agreed not to convert their Convertible Notes in connection with the Business Combination.
Business Combination Impact and Redemption
Upon consummation of the Business Combination, the Company redeemed the Convertible Notes for$161.6 million , which included the total outstanding$150.0 million aggregate principal, an applicable premium for Redeeming Holders owning at least$5.0 million of principal, and accrued and unpaid interest. The Company recognized a$39.4 million loss on extinguishment of the Convertible Notes composed of the$10.9 million premium and$28.5 million of unamortized debt discount and issuance costs. Each Redeeming Holder was entitled to receive a "top-up" payment if the redemption price was exceeded by the five-day volume weighted average price at which the Company's Class A common stock traded on the 30th calendar day following the Business Combination plus the aggregate amount of accrued and unpaid interest on such Redeemed Notes. No additional "top-up" payment was required to the Redeeming Holders.
Prior to the Business Combination and redemption, certain of the Redeeming Holders were partners. Refer to Note 17-Related Party Transactions for further information.
Effective Interest Rate and Interest Expense
The effective interest rate of the Convertible Notes, considering the cash coupon rate of 7.0% as well as amortization of the BCF discount, debt discount and issuance costs, was 11.95% for the period fromJanuary 1, 2021 throughJune 24, 2021 (the date such Convertible Notes were redeemed) and 11.95%, and 11.95% for the years endedDecember 31, 2020 , and 2019, respectively. The aggregate interest expense related to the Convertible Notes was$6.9 million ,$14.1 million , and$13.8 million during the years endedDecember 31, 2021 , 2020, and 2019, respectively. 104
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Perella Weinberg Partners
Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Note 11-Stockholders' Equity
Subsequent to the Business Combination as described in Note 3-Business Combination, the Company's authorized capital stock consists of 2,200,000,000 shares including (i) 1,500,000,000 shares of Class A common stock, par value$0.0001 per share (the "Class A common stock"), (ii) 300,000,000 shares of Class B-1 common stock, par value$0.0001 per share (the "Class B-1 common stock"), and (iii) 300,000,000 shares of Class B-2 common stock, par value$0.0001 per share (the "Class B-2 common stock" and together with the Class B-1 common stock, the "Class B common stock"), and (iv) 100,000,000 shares of preferred stock, par value$0.0001 per share (the "Preferred Stock"). Holders of Class A common stock and Class B common stock vote together as a single class on all matters submitted to the stockholders for their vote or approval, except as required by applicable law. Shares of Class A common stock and Class B common stock are not subject to any conversion right and holders of the Class A common stock and Class B common stock do not have preemptive or subscription rights. Additionally, the Company has 7,869,975 warrants outstanding as ofDecember 31, 2021 . See Note 12-Warrants for additional information.
Class A Common Stock
Holders of Class A common stock are entitled to one vote for each share on all matters submitted to the stockholders for their vote or approval. Additionally, holders of shares of Class A common stock are entitled to receive ratably, in proportion to the number of shares held by them, dividends and other distributions in cash, stock or property of PWP when, as, and if declared by the Board of Directors out of our assets or legally available funds.
Class B Common Stock
The Company has two classes of Class B common stock: Class B-1 common stock and Class B-2 common stock. Holders of Class B common stock are entitled to receive ratably, in proportion to the number of shares held, dividends of the same type as any dividends and other distributions in cash, stock or property of PWP payable or to be made on outstanding shares of Class A common stock in an amount per share of Class B common stock equal to the amount of such dividends or other distributions as would be made on 0.001 shares of Class A common stock. Additionally, the holders of shares of Class B common stock are entitled to receive on a pari passu basis with the holders of the Class A common stock, such dividend or other distribution on the Class A common stock when, as, and if declared by the Board of Directors out of our assets or legally available funds. Each holder of Class B-1 common stock shall be entitled to ten votes for each share of Class B-1 common stock held of record by such holder for so long as theProfessional Partners directly or indirectly maintain units that represent at least ten percent of issued and outstanding Class A common stock (the "10% Condition"). After the 10% Condition ceases to be satisfied, each share of Class B-1 common stock shall be entitled to one vote. Each holder of Class B-2 common stock shall be entitled to one vote for each share of Class B-2 common stock held of record by such holder. The Class B-1 common stock was distributed to and owned byProfessional Partners and the Class B-2 common stock was distributed to and owned by ILPs, with the number of shares of such Class B common stock issued equal to the number of PWP OpCo Units held byProfessional Partners and ILPs, respectively, at the Business Combination Closing. Preferred Stock The Board of Directors may establish one or more classes or series of preferred stock (including convertible preferred stock). Our Board of Directors may determine, with respect to any class or series of preferred stock, the terms and rights of such class or series. We currently do not have any preferred stock issued and outstanding. 105
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Perella Weinberg Partners
Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Dividends
OnAugust 3, 2021 , the Company's Board of Directors declared a cash dividend of$0.07 per outstanding share of Class A common stock that was paid onSeptember 21, 2021 to each of the holders of Class A common stock of record as of the close of business onSeptember 3, 2021 . OnNovember 3, 2021 , the Company's Board of Directors declared a cash dividend of$0.07 per outstanding share of Class A common stock that was paid onDecember 17, 2021 to each of the holders of Class A common stock of record as of the close of business onDecember 3, 2021 . Holders of Class B common stock also received dividends equal to the amount of dividends made on 0.001 shares of Class A common stock.
Rights upon Liquidation
In the event of any liquidation, dissolution or winding up of PWP, after payments to creditors of the corporation that may at the time be outstanding and subject to the rights of any holders of Preferred Stock that may then be outstanding, holders of shares of Class A common stock and Class B common stock shall be entitled to receive ratably, in proportion to the number of shares held by them, all remaining assets and funds of PWP available for distribution. For purposes of any such distribution, each share of Class B common stock shall be entitled to receive the same distribution as 0.001 shares of Class A common stock.
Non-Controlling Interests
Non-controlling interests represents the ownership interests in PWP OpCo held by holders other thanPerella Weinberg Partners .Professional Partners and the ILPs own 50,154,199 PWP OpCo Units as ofDecember 31, 2021 , which represent a 54.01% non-controlling ownership interest in PWP OpCo. These PWP OpCo Units are exchangeable into PWP Class A common stock on a one-for-one basis. Class B-1 and Class B-2 common stock have de minimis economic rights.
Registration Rights Agreement
In connection with the Closing, the Company entered into a registration rights agreement among the Sponsor,Professional Partners , the ILPs and other parties thereto from time to time pursuant to which the Company was required to file with theSEC a registration statement pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act") registering the resale of certain shares of its Class A common stock and certain of its other equity securities, which was filed by the Company with theSEC onJuly 15, 2021 . The Company bears the expenses incurred in connection with the filing of any registration statements filed pursuant to the registration rights agreement. The registration rights agreement does not contain any penalties associated with failure to file or to maintain the effectiveness of a registration statement covering the shares owned by individuals covered by such agreement.
Sponsor Share Surrender and Share Restriction Agreement
Concurrent with the Business Combination Agreement, FTIV, PWP OpCo and certain other parties entered into the Surrender Agreement with the Sponsor, which was amended onMay 4, 2021 , under which the Founder Shares owned by the Sponsor as of the Closing and certain shares of Class A common stock purchased by the Sponsor as part of private placement units in connection with FTIV's initial public offering were subject to transfer restrictions for six months following the Closing of the Business Combination, or untilDecember 24, 2021 , and certain of the Founder Shares owned by the Sponsor as of the closing continue to be subject to transfer restrictions that lapse in tranches based on share price targets or the 10 year anniversary of the Closing, whichever occurs first. Additionally, if, prior to the fourth anniversary of the Closing, the closing share price is greater than$12.00 per share or$15.00 per share for any 20 trading days out of 30 consecutive trading days (each a "Trigger Date"), then, during the 15 day period following such Trigger Date, the Company shall have the right to purchase from the Sponsor up to an aggregate of 1,000,000 Founder Shares per Trigger Date for a purchase price of$12.00 per share or$15.00 per share, respectively, by providing written notice of such repurchase election to the Sponsor. 106
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Perella Weinberg Partners
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
On August 9, 2021 , the Company repurchased 1,000,000 Founder Shares from the
Sponsor at a purchase price of $12.00 per share for a total purchase price of
$12.0 million . The share repurchase was recorded to Treasury stock, at cost, on
our Consolidated Statements of Financial Condition as of December 31, 2021 .
Stockholder Agreement
On the date of the Closing,PWP and Professional Partners entered into a Stockholders Agreement (the "Stockholders Agreement"), providing for certain approval and director nomination rights in favor ofProfessional Partners . The Stockholders Agreement provides that for so long asProfessional Partners or its limited partners as of the date of the Closing (or their permitted successors or assigns) continue to hold securities representing at least five percent of the Company's outstanding Class A common stock on an as-exchanged basis (the "5% Condition"), the Board of Directors may not approve, absent the prior consent ofProfessional Partners , any amendment to the certificate of incorporation or bylaws of the Company, or the limited partnership agreement of PWP OpCo, in each case, that would materially and adversely affect in a disproportionate manner the rights ofProfessional Partners or its limited partners. In addition, for so long as the 10% Condition is met, the Board of Directors may not approve, absent the prior consent ofProfessional Partners , a number of ordinary course operating activities in respect of the Company, PWP OpCo and PWP OpCo's subsidiaries. The effect of the agreement is thatProfessional Partners may maintain control over the Company's significant corporate transactions even if it holds less than a majority of the combined total voting power of the Class A and Class B common stock. The Stockholders Agreement will terminate once the 5% Condition is no longer satisfied.
PWP OpCo Limited Partnership Agreement
Governance and Voting and Economic Rights
On the date of the Closing, PWP OpCo adopted an Amended and Restated Agreement of Limited Partnership of PWP OpCo (as amended, restated, modified or supplemented from time to time, the "PWP OpCo LPA"). Through the Company's control of PWP GP, the general partner of PWP OpCo, the Company will have unilateral control (subject to the consent of PWP OpCo's partners on certain limited matters) over the affairs and decisions of PWP OpCo, including the appointment of officers of PWP OpCo. As such, including through such officers and directors, the Company will be responsible for all operational and administrative decisions of PWP OpCo and the day-to-day management of PWP OpCo's business. Furthermore, PWP GP cannot be removed as the general partner without the Company's approval. No holders of PWP OpCo Units (the "PWP OpCo Unitholders"), in their capacity as such, will have any authority or right to control the management of PWP OpCo or to bind it in connection with any matter. However,Professional Partners , which is ultimately managed by a committee of limited partners that manages Professionals GP, the general partner ofProfessional Partners , will have the ability to exercise majority voting control over the Company by virtue of its ownership of all outstanding shares of Class B-1 common stock. In accordance with the PWP OpCo LPA, the Company intends to use best efforts to cause PWP OpCo to make sufficient cash distributions to the PWP OpCo Unitholders to fund their tax obligations in respect of the income of PWP OpCo that is allocated to them. Generally, these tax distributions will be computed based on the Company's estimate of the net taxable income of PWP OpCo allocable to such holder of partnership units multiplied by an assumed tax rate equal to the highest effective marginal combinedU.S. federal, state and local income tax rate prescribed for an individual or corporation (taking into account the non-deductibility of certain expenses and the character of PWP OpCo's income). 107 --------------------------------------------------------------------------------Perella Weinberg Partners Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Exchange Rights
In accordance with the PWP OpCo LPA, PWP OpCo Unitholders (other than the Company) may exchange these units for (i) shares of Class A common stock on a one-for-one basis or (ii) cash from an offering of shares of Class A common stock with the form of consideration determined by the Company. Concurrently with an exchange of PWP OpCo Units for shares of Class A common stock or cash by a PWP OpCo Unitholder who also holds shares of Class B common stock, such PWP OpCo Unitholder will be required to surrender to the Company a number of shares of Class B common stock equal to the number of PWP OpCo Units exchanged, and such shares will be converted into shares of Class A common stock or cash (at our option) which will be delivered to such PWP OpCo Unitholder (at our option) at a conversion rate of 0.001. The PWP OpCo LPA contains restrictions on the ability to exchange PWP OpCo Units for shares of Class A common stock or cash from an offering of shares of Class A common stock, for the following periods: (i) PWP OpCo Units held byProfessional Partners are subject to a restriction for time periods that are fully back-to-back with the lock-up periods contemplated in the amended and restated limited partnership agreement ofProfessional Partners (generally speaking, such lock-up periods (a) for former working partners, was 180 days after Closing and expired onDecember 24, 2021 ; and (b) for working partners, is between three to five years after the Closing), (ii) PWP OpCo Units held by ILPs existing at the time of the Business Combination were subject to such restriction for 180 days after the Closing, which expired onDecember 24, 2021 , and (iii) any other outstanding PWP OpCo Units not previously covered by clauses (i) and (ii) above are subject to such restriction for a period of twelve months following the date on which such PWP OpCo Units were acquired. PWP GP may waive, and in certain cases has waived, the foregoing restrictions for any holder with respect to all or a portion of such holder's units, with no obligation to do so for any other holder. Note 12-Warrants Public Warrants Each public warrant entitles the registered holder to purchase one share of Class A common stock at an exercise price of$11.50 per share, subject to adjustment, and became exercisable onSeptember 29, 2021 , the one-year anniversary of FTIV's initial public offering. A warrant holder may exercise its warrants only for a whole number of shares of Class A common stock. This means that only a whole warrant may be exercised at any given time by a warrant holder. The warrants will expire five years after the Business Combination, or earlier upon redemption or liquidation. The Company will not be obligated to deliver any Class A common stock pursuant to the exercise of a public warrant and will have no obligation to settle such public warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A common stock underlying the public warrants is then effective and a current prospectus relating thereto is available, subject to the Company satisfying its obligations described below with respect to registration. No public warrant will be exercisable and the Company will not be obligated to issue any shares to holders seeking to exercise their public warrants, unless the issuance of the shares upon such exercise has been registered, qualified or deemed exempt under the securities laws of the state of residence of the exercising holder. The Company filed a registration statement under the Securities Act with theSEC onJuly 15, 2021 which was declared effectiveJuly 26, 2021 . It is the Company's responsibility to maintain the effectiveness of such registration statement and a current prospectus related thereto, until the expiration of the public warrants in accordance with the provisions of the warrant agreement. Notwithstanding the above, if the shares of Class A common stock are, at the time of any exercise of a public warrant, not listed on a national securities exchange such that they satisfy the definition of a "covered security" under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of public warrants who exercise their public warrants to do so on a "cashless basis" in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. 108
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Perella Weinberg Partners
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
The Company may call the warrants for redemption as follows: (i) in whole and
not in part; (ii) at a price of $0.01 per warrant; (iii) upon a minimum of 30
days' prior written notice of redemption to each warrant holder; and (iv) if,
and only if, the last reported sale price of the Class A common stock equals or
exceeds $18.00 per share (as adjusted for stock splits, stock dividends,
reorganizations, recapitalizations and the like) for any 20 trading days within
a 30-trading day period ending on the third day prior to the date on which the
Company sends the notice of redemption to the warrant holders.
If the Company calls the public warrants for redemption for cash, management
will have the option to require any holder that wishes to exercise the public
warrants to do so on a "cashless basis" as described in the warrant agreement.
The exercise price and number of shares of Class A common stock issuable upon
exercise of the warrants may be adjusted in certain circumstances including in
the event of a stock dividend, or recapitalization, reorganization, merger or
consolidation. Additionally, in no event will the Company be required to net
cash settle the warrants.
Warrant holders do not have the rights or privileges of holders of Class A
common stock and any voting rights until they exercise their warrants and
receive shares of Class A common stock. After the issuance of shares of Class A
common stock upon exercise of the warrants, each holder will be entitled to one
vote for each share held of record on all matters to be voted on by
stockholders. As of December 31, 2021 , the Company had 7,666,642 public warrants
outstanding.
Private Warrants
The private warrants are identical to the public warrants, except that the
private warrants and the Class A common stock issuable upon the exercise of the
private warrants were subject to certain restrictions on transfer, assignment or
sale until July 24, 2021 , 30 days after the completion of the Business
Combination. Additionally, the private warrants will be non-redeemable so long
as they are held by the Sponsor or its permitted transferees. If the private
warrants are held by someone other than the Sponsor or its permitted
transferees, the private warrants will be redeemable by the Company and
exercisable by such holders on the same basis as the public warrants. As of
December 31, 2021 , the Company had 203,333 private warrants outstanding.
Valuation of Warrants
The public and private warrants meet the definition of a derivative under ASC 815 and as such, the Company recorded these warrants as liabilities at fair value upon the closing of the Business Combination in accordance with ASC 820 with subsequent changes in their respective fair values recorded in Change in fair value of warrant liabilities on the Consolidated Statements of Operations. See Note 16-Fair Value Measurements and Investments for descriptions of the valuation methodology and further information.
Exercise of Warrants
On
109
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Perella Weinberg Partners
Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Note 13-Equity-Based Compensation
PWP Omnibus Incentive Plan Awards
Concurrent with the Business Combination, the Company adopted thePerella Weinberg Partners 2021 Omnibus Incentive Plan (the "PWP Incentive Plan"), which establishes a plan for the granting of incentive compensation awards measured by reference to PWP Class A common stock. Under the PWP Incentive Plan, the Company may grant options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), performance restricted stock units ("PSUs"), stock bonuses, other stock-based awards, cash awards or any combination of the foregoing. The maximum aggregate number of shares of Class A common stock reserved for issuance under the PWP Incentive Plan for general purposes (the "General Share Reserve") is 13,980,000 shares and will be increased on the first day of each fiscal year of the Company beginning in calendar year 2022 by the number of shares of Class A common stock equal to the excess, if any, of (i) 15% of the number of outstanding shares of Class A common stock and the outstanding PWP OpCo Units that are exchangeable for shares of Class A common stock, in each case, on the last day of the immediately preceding fiscal year, over (ii) the number of shares of Class A common stock reserved and available for issuance in respect to future grants of awards under the PWP Incentive Plan as of the last day of the immediately preceding fiscal year. In addition to the General Share Reserve, 10,200,000 shares of Class A common stock (the "Transaction Pool Share Reserve") are reserved for issuance under the plan through the one-year anniversary of the Business Combination, of which (i) up to 7,000,000 shares are reserved for Transaction Pool RSUs (defined below) and (ii) 3,200,000 shares are reserved for Transaction Pool PSUs (defined below). The Company intends to use newly issued shares of PWP Class A common stock to satisfy vested awards under the PWP Incentive Plan, with the exception of vested awards for certain employees inFrance which will be issued out of the Company's treasury shares. Certain employees inFrance andCanada receive dividend equivalents in the form of additional awards that have the same vesting terms as the original underlying awards. These additional dividend equivalent awards are granted from the General Share Reserve. Awards granted from the General Share Reserve that are subsequently forfeited, cancelled, exchanged, surrendered, terminated or expired are available for future grant. However, awards granted from the Transaction Pool Share Reserve that are subsequently forfeited, cancelled, exchanged, surrendered, terminated or expired are not available for future grant. As ofDecember 31, 2021 , 3,574,786 total shares remained reserved and available for future issuance under the PWP Incentive Plan.
Business Combination Awards
During the third quarter of 2021, in connection with the Business Combination,
the Company granted awards in the form of (i) restricted stock units out of the
Transaction Pool Share Reserve consisting of (a) PSUs that only vest upon the
achievement of both service and market conditions ("Transaction Pool PSUs") and
(b) RSUs that vest upon the achievement of service conditions ("Transaction Pool
RSUs") as well as (ii) PSUs out of the General Share Reserve to certain
executives that vest upon the achievement of both service and market conditions
("Management PSUs").
Transaction Pool PSUs - The service condition requirement with respect to the
Transaction Pool PSUs is generally satisfied over three to five years, with 20%
of the awards vesting on each of the 36, 42, 48, 54 and 60 month anniversaries
of the grant date. The market condition requirement will be satisfied in 25%
increments upon the publicly traded shares of Class A common stock achieving
closing share prices equal to $12 , $13.50 , $15 and $17 for any 20 trading days
out of any 30 consecutive trading days ending prior to the sixth anniversary of
the grant date. As of December 31, 2021 , the $12 and $13.50 market condition
requirements were satisfied.
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Perella Weinberg Partners
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
The following table summarizes activity related to unvested Transaction Pool
PSUs for the year ended December 31, 2021 :
Weighted Average
Grant Date Fair
Transaction Pool PSUs Value Per Share
Balance at January 1, 2021 - $ -
Granted (1) 3,208,126 12.74
Vested - -
Forfeited - -
Balance at December 31, 2021 3,208,126 $ 12.74
__________________(1)Includes dividend equivalents that have been awarded in the form of additional Transaction Pool PSUs that were granted from the General Share Reserve.
The grant date fair value of the Transaction Pool PSUs granted during the year endedDecember 31, 2021 was$40.9 million . As ofDecember 31, 2021 , total unrecognized compensation expense related to unvested Transaction Pool PSUs was$37.2 million , which is expected to be recognized over a weighted average period of 3.67 years. The Company estimated the fair value of the Transaction Pool PSUs on the grant date using a Monte-Carlo simulation valuation model with the following assumptions: Assumptions Risk-free interest rate 0.93 % Dividend yield 2.00 % Volatility factor 32.90 % Transaction Pool RSUs - The Transaction Pool RSUs generally vest in equal annual installments over the requisite service period of three years. The grant date fair value of the Transaction Pool RSUs granted during the year endedDecember 31, 2021 was$97.7 million , which was based on the PWP stock price on the date of grant. As ofDecember 31, 2021 , total unrecognized compensation expense related to unvested Transaction Pool RSUs was$60.0 million , which is expected to be recognized over a weighted average period of 2.44 years.
The following table summarizes activity related to unvested Transaction Pool
RSUs for the year ended
Weighted Average
Grant Date Fair
Transaction Pool RSUs Value Per Share
Balance at January 1, 2021 - $ -
Granted (1) 6,990,474 13.97
Vested (1,441,375) 13.97
Forfeited (98,495) 13.97
Balance at December 31, 2021 5,450,604 $ 13.97
__________________(1)Includes dividend equivalents that have been awarded in the form of additional Transaction Pool RSUs that were granted from the General Share Reserve.
Certain employee offer letter awards, that were previously accounted for as liability awards due to a cash settlement option, have been settled using Transaction Pool RSUs. This settlement was treated as a modification of the award, and as such, the liability balance of$3.9 million as of the Transaction Pool RSU grant date was reclassified from Accounts payable, accrued expenses and other liabilities to Additional paid-in capital on the Consolidated Statement of Financial Condition as ofDecember 31, 2021 . 111 --------------------------------------------------------------------------------Perella Weinberg Partners Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
Management PSUs - The service condition requirement with respect to the Management PSUs is generally satisfied in two equal installments subject to continued employment on the third and fifth anniversaries of the grant date. The market condition is satisfied upon the achievement of closing stock prices equal to$15 ,$20 ,$25 and$30 for any 20 trading days out of any 30 consecutive trading days prior to the fifth anniversary of the grant date, as measured on the last calendar day of each month, subject to linear interpolation between the applicable price points.
The following table summarizes activity related to unvested Management PSUs for
the year ended
Weighted
Average Grant
Date Fair
Value Per
Management PSUs Share
Balance at January 1, 2021 - $ -
Granted 9,500,000 8.86
Vested - -
Forfeited - -
Balance at December 31, 2021 9,500,000 $ 8.86
The weighted average grant date fair value of the Management PSUs granted during
the year ended December 31, 2021 was $84.2 million . As of December 31, 2021 ,
total unrecognized compensation expense related to unvested Management PSUs was
$76.6 million , which is expected to be recognized over a weighted average period
of 3.69 years.
The Company estimated the fair value of the Management PSUs on the grant date
using a Monte-Carlo simulation valuation model with the following assumptions:
Assumptions
Risk-free interest rate 0.77 %
Dividend yield 2.00 %
Volatility factor 32.41 %
General Awards
On
The General RSUs vest over the requisite service period, which is generally one to five years. The grant date fair value of the General RSUs granted during the year endedDecember 31, 2021 was$12.5 million , which was based on the PWP stock price on the date of grant. As ofDecember 31, 2021 , total unrecognized compensation expense related to unvested General RSUs was$10.2 million which is expected to be recognized over a weighted average period of 2.60 years. 112 --------------------------------------------------------------------------------Perella Weinberg Partners Notes to Consolidated Financial Statements (Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) The following table summarizes activity related to unvested General RSUs for the year endedDecember 31, 2021 : Weighted Average Grant Date Fair General RSUs Value Per Share
Balance at January 1, 2021 - $ - Granted 906,836 13.76 Vested (319) 13.97 Forfeited - - Balance at December 31, 2021 906,517 $ 13.76
Voting and Dividend Equivalent Rights
Grantees of the Company's RSUs and PSUs have no rights as stockholders with respect to the right to vote or the right to receive dividends prior to the date that the underlying shares are issued. If during the period commencing on the grant date and ending on the date the underlying shares are issued, the Company declares a dividend on its shares, then the grantee shall be eligible to receive such dividends on or about the date such shares are issued. Certain employees inFrance andCanada receive dividends in the form of award grants that match the underlying award from which the dividends were generated. The remaining employees receive such awards in the form of cash.
Legacy Awards and Professional Partners Awards
Professional Partner Awards
As more fully described below, prior to the Business Combination,Professional Partners granted certain equity-based awards to partners providing services to PWP OpCo (the "Legacy Awards"). In connection with the Business Combination and a related internal reorganization ofProfessional Partners , an ownership structure was implemented that includes a class of partnership units that allocates increases in value and income and distributions on a pro-rata basis to all holders of such partnership units in accordance with their ownership interests. Pursuant to the internal reorganization, existing Legacy Awards were canceled and replaced by converting each limited partner's capital interests inProfessional Partners attributable to PWP OpCo into a combination of original capital units ("OCUs"), value capital units ("VCUs"), and/or alignment capital units ("ACUs"). The OCUs are held by current limited partners ofProfessional Partners based on a pro-rata allocation of their existing capital and were fully vested upon recapitalization. The VCUs and ACUs (collectively, "Professional Partners Awards") are held by current working partners and require services to be performed on behalf of PWP OpCo.The Professional Partners Awards are generally subject to a service-based graded vesting schedule over a three to five-year period. Fully vestedProfessional Partners Awards are exchangeable for PWP OpCo Units and allow for their exchange into Class A common stock of PWP on a one-for-one basis. Holders ofProfessional Partners Awards and OCUs are entitled to participate in distributions made on PWP OpCo Units underlying theirProfessional Partners Awards during the vesting period. The Company accounted for the cancellation of the Legacy Awards and concurrent grant ofProfessional Partners Awards as a modification of the Legacy Awards. The fair value of theProfessional Partners Awards granted was determined to be incremental value conveyed to the holders of the Legacy Awards and will be accounted for under ASC Topic 718, Compensation-Stock Compensation, with the cost reflected in Equity-based compensation over the requisite service period. The Company will continue to amortize the unrecognized cost associated with the Legacy Awards over its original vesting schedule. The$301.5 million grant-date fair value of theProfessional Partners Awards is based on the closing price of PWP Class A common stock on the date of grant as units inProfessional Partners are ultimately exchangeable into shares of PWP Class A common stock on a one-for-one basis. 113 --------------------------------------------------------------------------------Perella Weinberg Partners Notes to Consolidated Financial Statements (Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) The vesting ofProfessional Partners Awards does not dilutePerella Weinberg Partners shareholders relative toProfessional Partners asProfessional Partners' interest in PWP OpCo does not change as a result of granting those equity awards to its working partners. As a result, all of the compensation expense and corresponding capital contribution associated with theProfessional Partners Awards, as well as the remaining compensation expense related to the Legacy Awards, is allocated to non-controlling interests on the Consolidated Statements of Operations and Consolidated Statements of Financial Condition. If anyProfessional Partners Award is forfeited, the value attributable to the forfeitedProfessional Partners Award will accrete to all limited partners inProfessional Partners based on relative ownership at the time of forfeiture. The accretion of value upon forfeiture reflects a reallocation of value attributable to the forfeitedProfessional Partners Award and does not result in an incremental grant. OnAugust 31, 2021 , certain Professional Partner ACUs and VCUs held by French partners were canceled, and an equal number of Transaction Pool PSUs were issued to such partners. The Company accounted for these transactions as a modification. The grant-date fair value of the Transaction Pool PSUs was based on the closing price of PWP Class A common stock on the date of grant. The total expense associated with the replacement awards will be amortized over the remaining service period for Transaction Pool PSUs. The canceled Professional Partner Awards were reallocated to certain other working partners onAugust 31, 2021 , and the Company accounted for these as a new grant of ACUs and VCUs. The grant date fair value of these awards was$11.5 million which was based on the closing price of PWP Class A common stock on the date of grant. As ofDecember 31, 2021 , there was$270.2 million of unrecognized compensation expense related to unvestedProfessional Partners Awards, which is expected to be recognized over a weighted-average period of 4.37 years.
Legacy Awards Prior to Business Combination
Concurrent with the TPH Business Combination, an initial tranche of Legacy Awards was granted to certain partners supporting the Company's operations. The initial tranche of the Legacy Awards generally vested over a three-year service period beginning on the grant date. Subsequent to the initial tranche, Legacy Awards were granted to partners on a periodic basis in accordance with the LPA and generally vested over four years. Prior to the Business Combination, in the event one of these partners was terminated or left at will before meeting their service requirement, all or a portion of their equity was forfeited and allocated to the other partners in accordance with the LPA.Professional Partners had a right but not an obligation to repurchase the awards upon certain termination events. During the years endedDecember 31, 2018 and 2017,Professional Partners granted Legacy Awards in the amount of$4.6 million and$37.6 million , respectively, which vested over a four year service period beginning on the grant date. The measurement of the grant-date fair value requiredProfessional Partners to make estimates about future operating results and the appropriate risk-adjusted discount rates. The methods used to estimate the fair value of equity-based compensation include the market approach and the income approach, each of which involve a significant degree of judgment. Under the market approach, fair value is determined by multiplying earnings before interest and taxes, depreciation and amortization ("EBITDA") and revenues by the relevant valuation multiple of comparable public companies-adjusted for differences that impact comparability. Under the income approach, fair value is determined by converting future projected cash flows to a single present value amount (discounted) using current expectations about those future cash flows. 114 -------------------------------------------------------------------------------- Perella Weinberg Partners Notes to Consolidated Financial Statements (Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) The following table presents the ranges of the significant assumptions used to develop the grant date fair value of these equity-based awards: Range for the Year Ended December 31, Valuation methodology Significant assumptions 2018 2017 Income approach Discount rate 9.90% - 10.80% 9.80% - 11.10% Market approach Income multiples 12.00 - 20.00 11.00 - 14.00 Revenue multiples 2.25 - 4.00 2.25 - 4.25 Growth rate 2.50% - 2.75% 2.50% - 2.75% OnOctober 1, 2018 , the Company modified certain of its existing Legacy Awards, and as a result of the modification, the Company was required to recognize incremental equity-based compensation expense of$74.6 million , which was subject to a graded vesting schedule over a five year service period beginning onOctober 1, 2018 . In connection with theOctober 1, 2018 modification, the Company utilized a Monte Carlo simulation, in addition to the market and income approaches, to estimate the fair value of the modification. The following table presents the ranges of the significant assumptions used to develop the fair value estimate of this modification: Valuation methodology Significant assumptions Range for October 1, 2018 Monte Carlo simulation Risk-free interest rate 2.98% Expected volatility 30% Expected term of the awards 5 granted during the period (years) Income approach Discount rate 9.90% - 10.80% Market approach Income multiples 12.00 - 20.00 Revenue multiples 2.25 - 4.00 Growth rate 2.50% - 2.75% The risk-free interest rate selected was based on a five-yearU.S. Treasury rate, which matched the expected term of the award. The stock price volatility selected was based upon an average of historical volatilities of comparable publicly traded companies in industries similar to theProfessional Partners , as theProfessional Partners did not have a basis for actual stock price volatility. Additionally, it was assumed that no dividends would be paid over the vesting period. During the year endedDecember 31, 2019 ,Professional Partners granted Legacy Awards with a grant date fair value of$14.7 million . The fair value of these awards was estimated using the income approach and assumed a range of discount rates between 3.6% and 12.1%. During the year endedDecember 31, 2020 ,Professional Partners granted Legacy Awards with a grant date fair value of$6.4 million . The fair value of these awards was estimated using the income approach and assumed a range of discount rates between 3.8% and 11.2%. During the year endedDecember 31, 2021 ,Professional Partners granted Legacy Awards with a grant date fair value of$9.3 million , which was estimated using the income approach and assume a range of discount rates between 2.0% and 9.8%. Under the income approach, fair value is determined by converting future projected cash flows to a single present value amount (discounted) using current expectations about those future cash flows. During the year endedDecember 31, 2020 , the Company modified certain Legacy Awards that were granted in 2016 by extending the vesting period and changing certain vesting provisions regarding termination, resignation or death/disability. The awards were considered probable of vesting both prior to and post modification and therefore the modification was considered a Type 1 modification. The award value at the time of modification was determined to be less than the original grant date fair value and as a result no additional compensation expense was recognized due to the modification. Additionally, the Company elected to continue to recognize Equity-based compensation expense over the original vesting period. 115
--------------------------------------------------------------------------------
Perella Weinberg Partners
Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
The Legacy Awards were cancelled in connection with the Business Combination, but the Company will continue to amortize the unrecognized cost associated with the Legacy Awards over the original vesting schedule. As ofDecember 31, 2021 , there was$22.9 million of unrecognized compensation cost associated with the Legacy Awards that is expected to be recognized over a weighted-average period of 1.74 years. The following table presents the expense related to awards that were recorded in Professional fees and components of Equity-based compensation included on the Consolidated Statements of Operations: Year Ended December 31, 2021 2020 2019 Professional fees PWP Incentive Plan Awards$ 703 $ - $ - Total Professional fees$ 703 $ - $ - Equity-based compensation PWP Incentive Plan Awards$ 44,891 $ - $ - Legacy Awards (1) 19,105 24,815 193,299 Professional Partners Awards (1) 32,334 -
-
Total Equity-based compensation$ 96,330 $ 24,815
Income tax benefit of equity-based awards
_________________
(1)The vesting of these awards does not dilute
Note 14-Other Compensation and Benefits
Compensation and benefits includes, but is not limited to, salaries, bonuses (discretionary awards and guaranteed amounts), severance and deferred compensation. In all instances, compensation expense is accrued over the requisite service period.
Deferred Compensation Programs
The Company has various deferred compensation plans. Some plans allow employees to defer cash payments for services performed in the past and some plans require future service. The Company recognizes compensation expense over the requisite service period. In addition, certain legacy plans required the Company to invest the deferred amounts into designated brokerage accounts at the employee's discretion, while others allowed employees to make hypothetical investments in which their deferrals were deemed to be invested. The designated brokerage balances are reflected in Prepaid expenses and other assets on the Consolidated Statements of Financial Condition. The Company maintains company-owned life insurance policies which are designed to offset a portion of the liability for the hypothetical investments of these legacy plans. The cash surrender value of these life insurance policies is also included in Prepaid expenses and other assets on the Consolidated Statements of Financial Condition. During the year endedDecember 31, 2019 , the Company granted deferred compensation to certainU.S. partners. These awards total approximately$8.8 million and vest on various dates betweenJanuary 1, 2022 andJanuary 1, 2023 or earlier upon the occurrence of certain events. Forfeiture of unvested grants occurs in the event of involuntary termination, and payment is due on various dates betweenApril 2022 andApril 2023 or earlier upon the occurrence of certain events. Also, during the year endedDecember 31, 2019 , the Company entered into deferred profit sharing arrangements with certainUK partners in the amount of$3.4 million . The deferred amounts will be paid to theseUK partners on various dates, commencing onDecember 31, 2020 throughApril 15, 2023 . No deferred compensation awards were granted during the years endedDecember 31, 2021 and 2020. 116 --------------------------------------------------------------------------------Perella Weinberg Partners Notes to Consolidated Financial Statements (Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Deferred compensation liabilities will be paid at various intervals through 2023 and are presented within Deferred compensation programs on the Consolidated Statements of Financial Condition. During the year endedDecember 31, 2019 ,$0.9 million of deferred compensation awards were forfeited. There were no forfeitures during the years endedDecember 31, 2021 and 2020. Compensation expenses related to these deferred compensation plans was$1.1 million ,$5.8 million and$5.5 million for the years endedDecember 31, 2021 , 2020, and 2019, respectively, and are presented within Compensation and benefits in the Consolidated Statements of Operations.
Benefit Plans
Certain employees participate in employee benefit plans, which consists of defined contribution plans including (i) profit-sharing plans qualified under Section 401(k) of the Internal Revenue Code and (ii) aUK pension scheme forUK employees and (iii) aGermany pension plan for employees inGermany .
For the years ended December 31, 2021, 2020 and 2019, expenses related to the Company's employee benefit plans were $5.0 million, $4.5 million, and $4.4 million, respectively, and are included in Compensation and benefits in the Consolidated Statements of Operations.
Separation and Termination Benefits
In the second quarter of 2020, the Company underwent a review of operations and headcount levels and the decision was made to reduce employee headcount. In conjunction with such reduction, affected employees were offered a combination of separation and transition benefits (the "termination cost"). The total termination cost was approximately $6.0 million which was included in Compensation and benefits in the Consolidated Statements of Operations for the year ended December 31, 2020. These termination costs were fully recognized once the service requirement of the affected employees was complete. The termination costs were substantially paid by December 31, 2020.
Note 15-Net Income (Loss) Per Share Attributable to Class A Common Shareholders
The Company analyzed the calculation of net income (loss) per share for periods prior to the Business Combination on June 24, 2021 and determined that it resulted in values that would not be meaningful to the users of the consolidated financial statements. Therefore, net income (loss) per share information has not been presented for periods prior to the Business Combination. The basic and diluted net income (loss) per share attributable to Class A common shareholders for the year ended December 31, 2021, as presented on the Consolidated Statements of Operations, represent only the period after the Business Combination to December 31, 2021.
The calculations of basic and diluted net income (loss) per share attributable to Class A common shareholders are presented below:
For the period from
June 24, 2021 through
December 31, 2021Numerator:
Net income (loss) attributable to
$ (9,421)
Dilutive effect from assumed exchange of PWP OpCo Units, net of tax
(51,904)
Net Income (loss) attributable to
$ (61,325)
Denominator:
Weighted average shares of Class A common stock outstanding - basic
42,595,712
Weighted average number of incremental shares from assumed exchange of PWP OpCo Units
50,154,199
Weighted average shares of Class A common stock outstanding - diluted
92,749,911
Net income (loss) per share attributable to Class A common shareholders
Basic $ (0.22)
Diluted $ (0.66)
117
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Perella Weinberg Partners
Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
Basic and diluted net income (loss) per share attributable to Class B common shareholders has not been presented as these shares are entitled to an insignificant amount of economic participation.
The Company uses the treasury stock method to determine the potential dilutive
effect of outstanding warrants and unvested RSUs and PSUs and the if-converted
method to determine the potential dilutive effect of exchanges of PWP OpCo Units
into Class A common stock. The Company adjusts net income (loss) attributable to
Class A common shareholders under both the treasury stock method and
if-converted method for the reallocation of net income (loss) between Class A
common shareholders and non-controlling interests that result upon the assumed
issuance of dilutive shares of Class A common stock as if the issuance occurred
as of the Closing Date. The Company also adjusts the net income (loss)
attributable to Class A common shareholders under the treasury stock method to
reverse the effect on earnings of classifying the warrants as liabilities. All
adjustments are net of any tax impact.
The following table presents the weighted average potentially dilutive shares
that were excluded from the calculation of diluted net income (loss) per share
under the treasury stock method or if-converted method, as applicable, because
the effect of including such potentially dilutive shares was antidilutive for
the period presented:
For the period from June 24, 2021 through December 31, 2021
Warrants 1,029,210
RSUs and PSUs 275,453
1,304,663
Note 16-Fair Value Measurements and Investments
Fair value is generally based on quoted prices, however if quoted market prices are not available, fair value is determined based on other relevant factors, including dealer price quotations, price activity for equivalent instruments and valuation pricing models. The Company established a fair value hierarchy which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of instrument, the characteristics specific to the instrument and the state of the marketplace (including the existence and transparency of transactions between market participants). Financial instruments with readily-available, actively-quoted prices or for which fair value can be measured from actively-quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs:
Level 1 - Unadjusted quoted prices are available in active markets for identical financial instruments as of the reporting date.
Level 2 - Pricing inputs are observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in active markets.
Level 3 - Pricing inputs are unobservable for the financial instruments and includes situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation.
In certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, the determination of which
category within the fair value hierarchy is appropriate for any given investment
is based on the lowest level of input that is significant to the fair value
measurement. The Company's assessment of the significance of a particular input
to the fair value measurement in its entirety requires judgment and considers
factors specific to the instrument.
118
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Perella Weinberg Partners
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
The fair values of cash, restricted cash, accounts receivable, due from related
parties, accounts payable and certain accrued liabilities approximate their
carrying amounts due to the short-term nature of these items. Due to the
variable rate nature of the Revolving Credit Facility, the carrying value as of
December 31, 2020 approximated the fair value.
Fair Value of Financial Instruments
The following table summarizes the categorization and fair value estimate of the
Company's financial instruments that are measured on a recurring basis pursuant
to the above fair value hierarchy levels as of December 31, 2021 and 2020:
December 31, 2021
Level 1 Level 2 Level 3 Total
Financial assets
Investments in mutual funds and other $ 500 $ - $ - $ 500
Cash surrender value of company-owned life
insurance - 565 - 565
Total financial assets $ 500 $ 565 $ - $ 1,065
Financial liabilities
Warrant liabilities - Public warrants $ 27,063 $ - $ - $ 27,063
Warrant liabilities - Private warrants - - 742 742
Total financial liabilities $ 27,063 $ - $ 742 $ 27,805
December 31, 2020
Level 1 Level 2 Level 3 Total
Financial assets
Investments in mutual funds and other $ 584 $ - $ - $ 584
Cash surrender value of company-owned life
insurance - 857 - 857
Total financial assets $ 584 $ 857 $ - $ 1,441
The Company had no transfers between fair value levels during each of the years ended December 31, 2021 and 2020.
As of December 31, 2021 and 2020, the Company held investments related to a
legacy deferred compensation program and securities. These amounts are included
in Prepaid expenses and other assets on the Consolidated Statements of Financial
Condition.
The cash surrender value of company-owned life insurance is included in Prepaid
expenses and other assets on the Consolidated Statements of Financial Condition
at the amount that could be realized under the contract as of December 31, 2021
and 2020, which approximates fair value.
The public warrants are valued using quoted market prices on the Nasdaq Global
Select Market under the ticker PWPPW and are included in Warrant liabilities on
the Consolidated Statements of Financial Condition. As of December 31, 2021, the
price per public warrant was $3.53.
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Perella Weinberg Partners
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
Management determines the fair value of the private warrants using the
Black-Scholes option pricing valuation model ("Valuation Model"). The private
warrants are classified as Level 3 as of December 31, 2021 because of the use of
significant unobservable inputs in the Valuation Model. The inputs into the
Valuation Model for the private warrants, including some significant
unobservable inputs, were as follows:
December 31, 2021
Risk-free rate of return 1.19 %
Expected volatility 35.06 %
Expected dividend yield 2.20 %
Expected term (years) 4.48
Exercise price per share $11.50
Asset price per share $12.86
The Company's use of the Valuation Model required the use of the following assumptions:
•The risk-free rate of return assumption was based on the continuously compounded, term-matching, zero-coupon rate derived from aU.S. Treasury yield curve on each valuation date. An increase in the risk-free interest rate, in isolation, would result in an increase in the fair value measurement of the warrant liabilities and vice versa. •The expected volatility assumption was based on the average of the implied volatility from the Company's publicly traded warrants and a leverage adjusted volatility of the Company's publicly traded industry peers. An increase in the expected volatility, in isolation, would result in an increase in the fair value measurement of the warrant liabilities.
•The dividend yield was based on the continuously compounded quarterly dividend the Company expects to pay during the term.
The resulting valuation for the private warrants were determined to be $3.65 per unit as of December 31, 2021. The Company had 203,333 private warrants outstanding as of December 31, 2021, resulting in a fair value of $0.7 million recorded within Warrant liabilities in the Consolidated Statements of Financial Condition.
The following table presents changes in Level 3 financial liabilities measured at fair value for the period from June 24, 2021 to December 31, 2021:
Private Warrants
Balance at Business Combination $ 675
Change in fair value 67
Balance at end of period $ 742
Other Investments
As of December 31, 2021, the Company applies the equity method of accounting to
its investment in PFAC Holdings I LLC ("PFAC Holdings"), an indirect parent of
PWP Forward Acquisition Corp. I ("PFAC"), a special purpose acquisition company.
As of December 31, 2021, the Company's investment in PFAC Holdings was $1.3
million. The Company's share of earnings of PFAC Holdings is included in the
Consolidated Statements of Operations for the year ended December 31, 2021.
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Perella Weinberg Partners
Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Note 17-Related Party Transactions
Asset Management Business / PWP Capital Holdings LP
Prior to the Separation, PWP Holdings LP paid for shared costs including compensation for corporate support functions and non-compensation costs such as rent, occupancy, professional services, information technology and communication costs. Such costs were paid on behalf of the Asset Management business and allocated to the Asset Management business on a specific identification basis or on a pro-rata basis of headcount, relative usage or another basis depending on the nature of the expense. TSA Agreement - In connection with the Separation, the Company entered into a transition services agreement (the "TSA") with PWP Capital Holdings LP under which the Company agreed to provide certain services to PWP Capital Holdings LP and PWP Capital Holdings LP agreed to provide certain services to the Company. Either party to theTSA may terminate the agreement solely as it applies to the services it receives under the agreement with 90 days prior written notice. The services provided under theTSA primarily relate to administrative services such as legal, human resources, compliance, information technology and certain finance functions. Additionally, the Company pays certain vendors for services that were previously contracted and are shared between PWP Capital Holdings LP and the Company until such time as separate terms can be reached with the vendors or theTSA terminates. Fees for services provided as well as a list of specified vendors are stipulated within theTSA . Sublease Income - In connection with the Separation, the Company subleases a portion of its office space at itsNew York location to PWP Capital Holdings LP. The Company also subleased a portion of its office space at itsHouston location to PWP Capital Holdings LP, but this sublease was terminated in August 2021. Sublease rent payments are due monthly and are based on PWP Capital Holdings LP's pro-rata portion of the underlying lease agreements including base rent as well as other lease related charges. See additional information regarding the subleases at Note 5-Leases. Compensation Arrangements - In addition, PWP Capital Holdings LP has entered into an arrangement with an employee of the Company related to services provided directly to PWP Capital Holdings LP. With respect to services provided to PWP Capital Holdings LP, the amounts paid and payable to the employee now and in the future are recognized by PWP Capital Holdings LP. All compensation related to services this employee provides to the Company are included in Compensation and benefits in the Consolidated Statements of Operations.
Amounts due from PWP Capital Holdings LP are reflected as Due from related parties on the Consolidated Statements of Financial Condition.
The following table shows the components of related party income and expenses
related to the
Year Ended December 31,
2021 2020 2019
Related party income
2,957 3,942 3,366
Total related party income $ 6,781 $ 9,263 $ 8,810
Related party expenses
TSA compensation expense(1) $ 134 $ 176 $ 588
TSA non-compensation expense(2) - 110 24
$ 134 $ 286 $ 612
__________________
(1)TSA compensation expense is included in Compensation and benefits in the Consolidated Statements of Operations. (2)TSA non-compensation expense is included in various financial statement line items in the Consolidated Statements of Operations. 121 --------------------------------------------------------------------------------Perella Weinberg Partners Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
Tax Receivable Agreement
In connection with the Business Combination, the Company entered into a tax receivable agreement with PWP OpCo, Professional Partners and ILPs under which the Company agreed to payment of 85% of the amount of savings, if any, that the Company realizes inU.S. federal, state, local and foreign income taxes as a result of (i) the Business Combination and related transactions, (ii) exchanges of interests in PWP OpCo for cash or stock of the Company and certain other transactions and (iii) payments made under the tax receivable agreement. As of December 31, 2021, the Company had an amount due of $14.1 million pursuant to the tax receivable agreement, which represents management's best estimate of the amounts currently expected to be owed in connection with the tax receivable agreement. The Company expects to make the following payments with respect to the tax receivable agreement, which may differ significantly from actual payments made: Years Ending: Estimated Payments Under Tax Receivable Agreement 2022 $ 432 2023 746 2024 757 2025 775 2026 791 Thereafter 10,607 Total payments $ 14,108 Partner Promissory Notes The Company loaned money pursuant to promissory note agreements (the "Partner Promissory Notes") to certain partners. The Partner Promissory Notes bear interest at an annual rate equal to the Federal Mid-Term Rate on an annual basis. The Partner Promissory Notes are due on various dates or in the event a partner is terminated or leaves at will. Repayment of the Partner Promissory Notes may be accelerated based on certain conditions as defined in the promissory note agreements and are primarily secured by the partner's equity interests in PWP OpCo or other affiliate. As the Partner Promissory Notes and associated interest receivable relate to equity transactions, they have been recognized as a reduction of equity on the Consolidated Statements of Financial Condition in the amounts of $6.0 million and $8.0 million as of December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, $1.8 million of principal and interest was repaid to the Company from partners. During the year ended December 31, 2019, $1.3 million of principal and interest was repaid to the Company from partners and $1.8 million of additional Partner Promissory Notes were issued to certain partners with terms similar to those previously described. No amounts related to the Partner Promissory Notes were repaid to the Company or newly issued by the Company for the year ended December 31, 2020. During the year ended December 31, 2019 and in connection with the Separation, certain Partner Promissory Notes in the amount of $1.6 million were transferred from the Company to PWP Capital Holdings LP.
Other Partner Loans and Loan Guarantees
In November 2021, PWP OpCo agreed to provide loans to certain partners in an aggregate amount of approximately $3.3 million. These loans are recognized in Due from related parties on the Consolidated Statements of Financial Condition.
The Company has unconditionally guaranteed certain of its partners' loans with First Republic Bank. Refer to Note 18-Commitments and Contingencies for additional information on the guarantees.
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Perella Weinberg Partners
Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Convertible Notes
Principal amounts of $8.7 million related to the Convertible Notes were held by partners prior to redemption upon closing of the Business Combination. Refer to Note 10-Debt for additional information on the Convertible Notes.
Revolving Credit Facility
An executive of the Company was an independent director on the board of Cadence Bank, the holder of the Revolving Credit Facility, until May of 2019 at which time he retired from that position. Refer to Note 10-Debt for additional information on the Revolving Credit Facility.
Other Related Party Transactions
The Company has a minority interest in PFAC Holdings, an indirect parent of PFAC. The Company earned an advisory fee related to PFAC's initial public offering of $0.6 million during the year ended December 31, 2021. In addition, the Company receives a fee of $10,000 per month for certain administrative services provided to PFAC.
During the year ended December 31, 2021, the Company earned $3.1 million in advisory fees from entities controlled by a member of the Board of Directors, which are included in Revenues on the Consolidated Statements of Operations. The Company may earn additional advisory fees from these related entities in future periods. In September 2021,Perella Weinberg UK Limited , Professional Partners and certain partners (including one partner who serves as a Company director and co-president) entered into a reimbursement agreement, pursuant to which such partners directed Professional Partners to pay distributions related to their ACUs first to a subsidiary of the Company, so that the subsidiary can make employment income tax payments on such distributions to the appropriate non-US authorities.
Note 18-Commitments and Contingencies
Loan Guarantees
The Company has unconditionally guaranteed certain of its partners' loans with
First Republic Bank ("Lender") whereby it will pay the Lender upon the
occurrence of a default event. The total guarantees related to partners was $3.3
million and $5.6 million as of December 31, 2021 and 2020, respectively. These
guarantees are secured by the partners' interests in Professional Partners. As
of December 31, 2021 and 2020, no loan was in default.
Indemnifications
The Company enters into certain contracts that contain a variety of indemnification provisions. The Company's maximum exposure under these arrangements is unknown. As of December 31, 2021 and 2020, the Company expects no claims or losses pursuant to these contracts; therefore, no liability has been recorded related to these indemnification provisions.
Legal Contingencies
From time to time, the Company is named as a defendant in legal actions relating
to transactions conducted in the ordinary course of business. Some of these
matters may involve claims of substantial amounts. Although there can be no
assurance of the outcome of such legal actions, in the opinion of management
and, after consultation with external counsel, the Company believes it is
neither probable nor reasonably possible that any current legal proceedings or
claims would individually or in the aggregate have a material adverse effect on
the consolidated financial statements of the Company as of December 31, 2021 and
2020 and for the years ended December 31, 2021, 2020, and 2019.
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Perella Weinberg Partners
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
On October 20, 2015, Perella Weinberg Partners LLC, PWP MC LP, PWP Equity I LP
and Perella Weinberg Partners Group LP (collectively, the "PWP Plaintiffs"),
filed a complaint against Michael A. Kramer , Derron S. Slonecker , Joshua S.
Scherer , Adam W. Verost (collectively, the "Individual Defendants") and Ducera
Partners LLC (together with the Individual Defendants, the "Defendants") in New
York Supreme Court, Commercial Division (the "Court"). The complaint alleges
that the Individual Defendants, three former partners and one former employee of
the PWP Plaintiffs, entered into a scheme while still at PWP to lift out the PWP
Plaintiffs' restructuring group to form a new competing firm that they were
secretly forming in breach of their contractual and fiduciary duties to the PWP
Plaintiffs. The complaint contains 14 causes of action, and seeks declaratory
relief as well as damages resulting from the Individual Defendants' breaches of
their obligations under the PWP Plaintiffs' partnership and employment
agreements, and from Defendants' unfair competition and tortious interference
with the PWP Plaintiffs' contracts and client relationships.
On November 9, 2015, the Defendants filed an Answer, Counterclaims, Cross-claims
and a Third-Party Complaint, which contained 14 causes of action. On July 17,
2016, the Court issued a decision, dismissing half of the Defendants'
counterclaims and cross-claims with prejudice. On August 18, 2016, the
Defendants filed an Amended Answer, Counterclaims, Cross-claims and Third-Party
Complaint, which contained only seven counterclaims and cross-claims. On
December 12, 2016, the Defendants appealed the dismissal of three of their
counterclaims and cross-claims to the New York Appellate Division, First
Department (the "First Department"). On August 29, 2017, the First Department
issued a decision denying the Defendants' appeal in its entirety other than
allowing only one Defendant to proceed with his breach of fiduciary duty
counterclaim. On October 27, 2017, the Defendants moved the First Department for
leave to appeal its decision to the New York Court of Appeals. On December 28,
2017, the First Department denied the Defendants' motion for leave to appeal to
the New York Court of Appeals. On April 24, 2018, the Defendants filed a Second
Amended Answer, Counterclaims, Cross-claims and Third-Party Complaint, which
contains eight counterclaims and cross-claims. The Defendants are seeking
declaratory relief and damages of no less than $60 million, as well as statutory
interest.
Discovery is complete. Both the PWP Plaintiffs and the Defendants subsequently
moved for summary judgment. As of March 20, 2020 the parties had completed
briefing their respective motions for summary judgment. The PWP Plaintiffs moved
affirmatively for summary judgment on each of their 14 claims and also moved for
dismissal of each of the Defendants' remaining eight counterclaims and
cross-claims. The Defendants moved affirmatively for summary judgment on four of
their eight counterclaims and cross-claims and also moved for dismissal of each
of the PWP Plaintiffs' 14 claims. The Court held oral argument on the motions
for summary judgment on May 27, 2021. The Court has yet to issue a decision on
the motions for summary judgement. In addition, on January 19, 2022, Defendants
filed a motion for leave to renew one of their counterclaims brought under the
New York Labor Law that the Court dismissed in 2016 (the dismissal of which was
affirmed by the First Department in 2017). That motion was fully briefed as of
February 3, 2022.
We believe that our 14 causes of action are meritorious. Further, we believe
that we have substantial meritorious defenses to the Defendants' remaining
counterclaims and cross-claims and plan to vigorously contest them. Litigation,
however, can be uncertain and there can be no assurance that any judgment for
one or more of the Defendants or other outcome of the case would not have a
material adverse effect on us. Additionally, even if we prevail in the
litigation and are awarded damages, we do not know if we will be able to fully
collect on any judgment against any or all Defendants.
During the years ended December 31, 2021, 2020, and 2019, the Company incurred $1.1 million, $1.4 million, and $4.0 million, respectively, in legal and professional fees, net of expected insurance reimbursement, related to this litigation. These litigation costs are included in Professional fees in the Consolidated Statements of Operations.
Other
In the ordinary course of business and in connection with hiring certain senior
employees, the Company entered into employment agreements whereby the Company
committed to grant equity awards to such newly hired employees contingent upon
certain events (including, but not limited to, the Company becoming a public
company). The Company settled these commitments in the third quarter of 2021
with a grant of awards approved by the compensation committee under our PWP
Incentive Plan.
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Perella Weinberg Partners
Notes to Consolidated Financial Statements(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted) Note 19-Business Information
The Company's activities of providing advisory services for
mergers-and-acquisitions, private placements and financial advisory, as well as
services for underwriting of securities offered for sale in public markets,
commissions for the brokerage of publicly traded securities and equity research
constitute a single business segment. The Company is organized as one operating
segment in order to maximize the value of advice to clients by drawing upon the
diversified expertise and broad relationships of its senior professionals across
the Company. The Company has a single operating segment and therefore a single
reportable segment.
There was no individual client that accounted for more than 10% of aggregate
revenues for the years ended December 31, 2021, 2020, and 2019. Since the
financial markets are global in nature, the Company generally manages its
business based on the operating results of the Company taken as a whole, not by
geographic region. The following tables set forth the geographical distribution
of revenues and assets based on the location of the office that generates the
revenues or holds the assets and therefore may not be indicative of the
geography in which the Company's clients are located.
Year Ended December 31,
2021 2020 2019
Revenues
United States $ 659,947 $ 387,038 $ 446,320
International 141,715 131,948 86,977
Total $ 801,662 $ 518,986 $ 533,297
December 31,
2021 2020
Assets
United States $ 552,865 $ 406,884
International 165,462 136,069
Total $ 718,327 $ 542,953
Note 20-Subsequent Events
The Company has evaluated subsequent events through the issuance date of these consolidated financial statements.
On January 1, 2022, the total shares reserved and available for future issuance
under the PWP Incentive Plan increased to 13.9 million in accordance with the
terms of such plan, and on March 4, 2022, the Company granted 6,322,746 RSUs to
certain employees and executive officers pursuant to such plan.
On January 21, 2022, the Company closed its public offering of 3,502,033 shares
of Class A common stock (the "Offering") at a public offering price of $10.75
per share for total gross proceeds of $37.6 million, before deducting
underwriting discounts and commissions. All proceeds from the Offering, net of
the underwriting discounts and commissions of $0.32 per share or an aggregate of
$1.1 million, were used by the Company to purchase from certain non-employee
holders (i) outstanding PWP OpCo Units and (ii) outstanding shares of the
Company's Class B common stock. As a result of the use of proceeds, the
non-controlling ownership interests in PWP OpCo decreased to 50.17%. Under the
terms of the underwriting agreement, directors, officers and certain significant
shareholders signed customary lockup agreements with respect to their ownership
of Class A common stock.
On February 16, 2022, the Company's Board of Directors declared a cash dividend
of $0.07 per outstanding share of Class A common stock. This dividend will be
payable on March 17, 2022 to each of the holders of Class A common stock of
record as of the close of business on March 3, 2022. Holders of Class B common
stock will also receive dividends equal to the amount of dividends made on 0.001
shares of Class A common stock.
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Perella Weinberg Partners
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts and Where Otherwise Noted)
On February 16, 2022, the Company's Board of Directors approved a stock
repurchase program under which the Company is authorized to repurchase up to
$100.0 million of the Company's Class A common stock with no requirement to
purchase any minimum number of shares. Shares may be repurchased under the new
repurchase program through open market purchases, privately negotiated
transactions, block trades, accelerated or other structured share repurchase
programs, or other means. The manner, timing, pricing and amount of any
transactions will be subject to the Company's discretion.
On February 18, 2022, the Company entered into a lease agreement related to the
relocation of its U.K. office to 80 Charlotte Street, London, United Kingdom .
The lease has an initial term of 12 years and is expected to commence in mid
2022.
On February 22, 2022, the Company entered into an amendment to its
On February 28, 2022, the Company settled an exchange of certain PWP OpCo Units
and certain shares of Class B common stock for 337,048 shares of Class A common
stock.
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