PERELLA WEINBERG PARTNERS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q. 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-Q.
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 in
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, mergers and acquisitions ("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, in
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
Business Environment and Outlook
Worldwide announced M&A volumes in the first three quarters of 2021 increased
significantly as compared to the same period in 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 the nine months ended
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 robust in the medium term.
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 "Risk Factors" included elsewhere in this Form 10-Q for a discussion of some of the factors that can affect our performance.
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Results of Operations
The following is a discussion of our results of operations for the respective
periods indicated:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2021
vs. vs.
(Dollars in thousands) 2021 2020 2020 2021 2020 2020
Revenues $ 177,427 $ 122,844 44% $ 602,749 $ 329,841 83%
Expenses
Compensation and 113,322 84,785 387,196 229,550
benefits 34% 69%
Equity-based 38,050 6,120 51,272 18,484
compensation 522% 177%
Total compensation and
benefits 151,372 90,905 67% 438,468 248,034 77%
Non-compensation
expenses 36,382 30,407 20% 97,078 104,571 (7%)
Total operating
expenses 187,754 121,312 55% 535,546 352,605 52%
Operating income
(loss) (10,327 ) 1,532 NM 67,203 (22,764 ) NM
Non-operating income
(expenses)
Related party income 1,529 2,412 (37%) 5,303 7,183 (26%)
Other income (expense) 2,564 (126 ) NM 1,236 2,724 (55%)
Change in fair value
of warrant liabilities (3,006 ) - 100% (2,058 ) - 100%
Loss on debt
extinguishment - - (100%) (39,408 ) - (100%)
Interest expense (72 ) (3,913 ) 98% (7,536 ) (11,883 ) 37%
Total non-operating
income (expenses) 1,015 (1,627 ) NM (42,463 ) (1,976 ) NM
Income (loss) before
income taxes (9,312 ) (95 ) NM 24,740 (24,740 ) NM
Income tax benefit
(expense) (150 ) (974 ) 85% (2,695 ) (2,518 ) (7%)
Net income (loss) (9,462 ) $ (1,069 ) (785%) 22,045 $ (27,258 ) NM
Net income (loss)
attributable to
non-controlling
interests (12,938 ) 31,068
Net income (loss)
attributable to
Perella Weinberg
Partners $ 3,476 $ (9,023 )
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 specifically may 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.
Three Months Ended
Revenues were
For the three months ended
Nine Months Ended
Revenues were
For the nine months ended
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Operating Expenses
The following table sets forth information relating to our operating expenses:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2021
vs. vs.
(Dollars in thousands) 2021 2020 2020 2021 2020 2020
Expenses
Compensation and $ 113,322 $ 84,785 34% $ 387,196 $ 229,550 69%
benefits
% of revenues 64% 69% 64% 70%
Equity-based $ 38,050 $ 6,120 522% $ 51,272 $ 18,484 177%
compensation
% of revenues 21% 5% 9% 6%
Total compensation and $ 151,372 $ 90,905 67% $ 438,468 $ 248,034 77%
benefits
% of revenues 85% 74% 73% 75%
Non-compensation $ 36,382 $ 30,407 20% $ 97,078 $ 104,571 (7%)
expenses
% of revenues 21% 25% 16% 32%
Total operating expenses $ 187,754 $ 121,312 55% $ 535,546 $ 352,605 52%
% of revenues 106% 99% 89% 107%
Income (loss) before $ (9,312 ) $ (95 ) NM $ 24,740 $ (24,740 ) NM
income taxes
% of revenues (5%) (0%) 4% (8%)
Our operating expenses are classified as (i) compensation and benefits expenses and 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.
Three Months Ended
Operating expenses were
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Nine Months Ended
Operating expenses were
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
Legacy Awards granted prior to the Business Combination and the various
Beginning in the third quarter of 2021, the Company granted incentive
compensation awards in accordance with the PWP 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 for
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Three Months Ended
For the three months ended
Nine Months Ended
For the nine months ended
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 Condensed 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 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.
Three Months Ended
For the three months ended
Nine Months Ended
For the nine months ended
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).
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Three Months Ended
For the three months ended
Nine Months Ended
For the nine months ended
Income Tax Benefit (Expense)
Prior to the Business Combination, the Company operated as a partnership, and
therefore, was generally not subject to
The Company's income tax provision and the corresponding annual effective tax
rate are based on projected
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 the
Liquidity and Capital Resources
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, short-term liquid
investments, 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
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
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
In
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.
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 condensed consolidated financial statements
included elsewhere in this Form 10-Q for further information. These regulations
differ in
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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 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 by
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 on
On
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 debt payments
and distributions to partners, and in the nine months ended
A summary of our operating, investing and financing cash flows is as follows:
Nine Months Ended September 30,
(Dollars in thousands) 2021 2020
Cash Provided By (Used In)
Operating Activities
Net income (loss) $ 22,045 $ (27,258 )
Non-cash charges and other operating activity 118,945 48,709
adjustments
Other operating activities (14,949 ) (73,057 )
Total operating activities 126,041 (51,606 )
Investing Activities (1,662 ) (4,965 )
Financing Activities (34,670 ) (21,789 )
Effect of exchange rate changes on cash, cash (2,943 ) (162 )
equivalents and restricted cash
Net increase (decrease) in cash, cash 86,766 (78,522 )
equivalents and restricted cash
Cash, cash equivalents and restricted cash, 330,908 266,582
beginning of period
Cash, cash equivalents and restricted cash, end
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Nine Months Ended
Cash and restricted cash were
Nine Months Ended
Cash and restricted cash were
Commitments and Contingencies
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 and month-to-month terms, generally provide for fixed monthly
rentals and can also include renewal options. See Note 5 - Leases in the notes
to condensed consolidated financial statements included elsewhere in this Form
10-Q for further information. Our
In addition, PWP OpCo sponsors certain deferred compensation arrangements whereby portions of compensation related to employees (including working 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 (including working 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 condensed consolidated financial statements included elsewhere in this Form 10-Q for further information.
Guarantees
PWP OpCo has also unconditionally guaranteed, through a wholly-owned subsidiary,
certain loans to limited partners of
Tax Receivable Agreement
In connection with the Business Combination, the Company entered into a tax
receivable agreement with
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Off-Balance Sheet Arrangements
We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any activities that expose us to any liability that is not reflected in our condensed consolidated financial statements except for those described under "Commitments and Contingencies" above.
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.
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
in
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 condensed consolidated financial statements included elsewhere in this Form 10-Q 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-
For the nine months ended
As of
Critical Accounting Policies
This Quarterly Report on Form 10-Q should be read together with the discussion
within "Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained in the Current Report on Form 8-K filed on
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