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. Our wide range of global clients include 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, 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, inNovember 2016 , we completed a business combination withTudor, Pickering, Holt & Co., LLC ("TPH"), an independent advisory firm, focused on the energy industry. As ofMarch 31, 2022 , we serve our clients with 62 advisory partners based in 10 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.
41
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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 condensed consolidated financial statements
included in this Quarterly Report on Form 10-Q 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 Class A partnership units ("PWP OpCo Units"). See Note
3-Business Combination and Note 11-Stockholders' Equity in the notes to
condensed consolidated financial statements included elsewhere in this Form 10-Q
for additional discussion related to the transaction.
Business Environment and Outlook
Global macroeconomic headwinds coupled with elevated geopolitical risks have caused a break in M&A momentum off of record 2021 levels. Announced global M&A volumes in the first quarter were down 30% both sequentially and annually, with activity falling steadily throughout the quarter. Closing volumes across the market also dropped more than 30% as timeframes from announcement to close experienced extensions. While the level of M&A advisory dialogue remains active across industries and geographies of focus, the tough macroeconomic environment may persist in the near-term and affect M&A and financing volumes. Headwinds which are likely to impact 2022 industry volumes include rising rates, record inflation, a more aggressive anti-trust policy stance, supply chain disruptions and elevated geopolitical risks associated withRussia's invasion ofUkraine , amongst others. Near-term headwinds aside, 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 over the long-term. 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. 42 --------------------------------------------------------------------------------
Results of Operations
The following is a discussion of our results of operations for the respective
periods indicated:
Three Months Ended
March 31,
(Dollars in thousands) 2022 2021 2022 vs. 2021
Revenues $ 151,876 $ 169,802 (11)%
Expenses
Compensation and benefits 87,245 109,470 (20)% Equity-based compensation 40,890 6,157 NM Total compensation and benefits 128,135 115,627 11% Non-compensation expenses 34,100 26,131 30% Total operating expenses 162,235 141,758 14% Operating income (loss) (10,359) 28,044 NM Non-operating income (expenses) Related party income 558 2,209 (75)% Other income (expense) 1,911 (1,854) NM Change in fair value of warrant liabilities 12,006 - NM Interest expense (68) (3,868) (98)% Total non-operating income (expenses) 14,407 (3,513) NM Income (loss) before income taxes 4,048 24,531 (83)% Income tax benefit (expense) (2,996) (2,024) 48% Net income (loss)$ 1,052 $ 22,507 (95)%
Less: Net income (loss) attributable to non-controlling interests
(7,842)
Net income (loss) attributable to Perella Weinberg Partners$ 8,894 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. 43 -------------------------------------------------------------------------------- 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.
Three Months Ended
Revenues for the three months endedMarch 31, 2022 were$151.9 million , a decrease of 11% from the firm's record first quarter in 2021 of$169.8 million . The period-over-period decline is primarily driven by a reduction in mergers and acquisition activity in our US business, partially offset by an increase in non-US mergers and acquisition completions. The decrease in revenue can be attributed to fewer advisory transaction completions despite a moderate increase in average fee size per client. For the three months endedMarch 31, 2022 and 2021, we earned revenues from 77 and 95 advisory clients, respectively. The number of advisory clients who paid fees equal to or greater than$1.0 million decreased to 28 advisory clients for the three months endedMarch 31, 2022 compared to 29 advisory clients for the three months endedMarch 31, 2021 . The average fee size increased to$1.9 million for the three months endedMarch 31, 2022 from$1.8 million for the three months endedMarch 31, 2021 . 44 --------------------------------------------------------------------------------
Operating Expenses
The following table sets forth information relating to our operating expenses:
Three Months Ended
March 31,
(Dollars in thousands) 2022 2021 2022 vs. 2021
Expenses
Compensation and benefits $ 87,245 $ 109,470 (20) %
% of Revenues 57 % 64 %
Equity-based compensation $ 40,890 $ 6,157 NM
% of Revenues 27 % 4 %
Total compensation and benefits $ 128,135 $ 115,627 11 %
% of Revenues 84 % 68 %
Non-compensation expenses $ 34,100 $ 26,131 30 %
% of Revenues 22 % 15 %
Total operating expenses $ 162,235 $ 141,758 14 %
% of Revenues 107 % 83 %
Income (loss) before income taxes $ 4,048 $ 24,531 (83) %
% of Revenues 3 % 14 %
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, technology and infrastructure, rent and occupancy, travel and
related expenses, general, administrative and other expenses and depreciation
and amortization generally have been less significant in comparison with
compensation and benefits expenses.
Three Months Ended
Operating expenses were$162.2 million for the three months endedMarch 31, 2022 and represented 107% of revenues, compared with$141.8 million for the three months endedMarch 31, 2021 , which represented 83% of revenues. The increase in operating expenses was primarily driven by an increase in total compensation and benefits which was$128.1 million for the three months endedMarch 31, 2022 compared to$115.6 million for the three months endedMarch 31, 2021 , as well as higher non-compensation expenses which were$34.1 million for the three months endedMarch 31, 2022 compared to$26.1 million for the three months endedMarch 31, 2021 .
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.
45
-------------------------------------------------------------------------------- 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 variousProfessional 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 Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Financial Condition. 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 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$76.2 million for the Transaction Pool RSUs and Transaction Pool PSUs and$67.4 million for the Long-Term Incentive Awards granted in conjunction with the Business Combination.
Three Months Ended
For the three months endedMarch 31, 2022 , total compensation and benefits expenses of$128.1 million represented 84% of revenues, compared with$115.6 million of compensation-related expenses, which represented 68% of revenues for the three months endedMarch 31, 2021 . Included in total compensation-related expense was$40.9 million and$6.2 million of amortization of equity awards for the three months endedMarch 31, 2022 and 2021, respectively. The increase in total compensation and benefit expenses was due to increased equity-based compensation due principally to awards granted in connection with the Business Combination, partially offset by a lower bonus accrual attributable to decreased revenue. Non-Compensation Expenses Our non-compensation expenses include the costs of professional fees, technology and infrastructure, rent and occupancy, travel and related expenses, 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 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. 46 --------------------------------------------------------------------------------
Three Months Ended
For the three months endedMarch 31, 2022 , non-compensation expenses of$34.1 million represented 22% of revenues, compared with$26.1 million , which represented 15% of revenues, for the three months endedMarch 31, 2021 . The increase in non-compensation expense was primarily driven by a$4.6 million increase in professional fees, principally related to consulting, recruiting and general legal expenses, a$1.6 million increase in travel related expenses as pandemic-related travel restrictions began to ease and an increase in general, administrative and other expenses of$3.1 million primarily due to increased public company costs including D&O insurance.
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, change in the fair value of warrant liabilities, interest expense, and other income (expense).
Three Months Ended
For the three months endedMarch 31, 2022 , non-operating income (expenses) was$14.4 million of income compared to$(3.5) million of expense for the three months endedMarch 31, 2021 . The most significant components and change from the prior year period was the$12.0 million gain on the change in fair value of warrant liabilities and a decrease of$3.8 million of interest expense related to the repayment of all indebtedness in connection with the Business Combination. Additionally, the net impact of non functional currency related transaction gains and losses recorded in Other income (expense) resulted in a$3.8 million change year over year as the three months endedMarch 31, 2022 included a$1.4 million gain as opposed to a$2.0 million loss for the three months endedMarch 31, 2021 . 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 entity level. The Company's income tax provision and the corresponding effective tax rate are based onU.S. GAAP income adjusted for permanent book-tax differences at the currently enacted statutory tax rates in the various jurisdictions in which the Company operates. For the period endingMarch 31, 2022 , the Company determined that the year-to-date actual effective tax rate represents the Company's best estimate of the annual effective tax rate. This is due to the Company's significant permanent differences as compared to estimated pre-tax income. 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 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 equity-based compensation expense is non-deductible, both prior to the Business Combination and for the subsequent period and (iii) 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 condensed consolidated financial statements.
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 the payment of dividends, distributions to partners, purchase of treasury shares and withholding payments for vesting of incentive awards in the three months endedMarch 31, 2022 . 47
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A summary of our operating, investing and financing cash flows is as follows:
Three Months Ended
March 31,
(Dollars in thousands) 2022 2021
Cash Provided By (Used In)
Operating Activities
Net income (loss) $ 1,052 $ 22,507
Non-cash charges and other operating activity adjustments 36,007 14,972
Other operating activities (285,432) (158,708)
Total operating activities (248,373) (121,229)
Investing Activities (1,389) (1,395)
Financing Activities (27,319) (9,816)Effect of exchange rate changes on cash, cash equivalents and restricted cash
(2,557) 557
Net increase (decrease) in cash, cash equivalents and restricted cash
(279,638) (131,883)
Cash, cash equivalents and restricted cash, beginning of period 504,775
330,908
Cash, cash equivalents and restricted cash, end of period $
225,137
Three Months Ended
Cash and restricted cash were$225.1 million as ofMarch 31, 2022 , a decrease of$279.6 million from$504.8 million as ofDecember 31, 2021 . The Company reported net income of$1.1 million for the three months endedMarch 31, 2022 which includes$36.0 million of non-cash charges, largely comprised of the equity-based compensation, depreciation and amortization and the change in fair value of warrant liabilities. This operating cash inflow was offset by working capital needs largely due to increased accounts receivable balances and the payment of the annual bonus compensation which occurs in the first quarter of each year, resulting in a net outflow to cash of$248.4 million during the three months endedMarch 31, 2022 . Investing activities resulted in a net outflow of$1.4 million attributable to the purchases of fixed assets. Financing activities resulted in a net outflow of$27.3 million primarily related to distributions to partners, withholding payments for vesting of incentive awards, payment of dividends and the repurchase of shares.
Three Months Ended
Cash and restricted cash were$199.0 million as ofMarch 31, 2021 , a decrease of$131.9 million from$330.9 million as ofDecember 31, 2020 . The Company reported net income of$22.5 million for the three months endedMarch 31, 2021 which includes$15.0 million of non-cash charges, largely comprised of the equity-based compensation, depreciation and amortization and non-cash lease expense. These positive operating results were offset by working capital needs largely due to increased accounts receivable balances and the payment of the annual bonus compensation which occurs in the first quarter of each year, resulting in a net outflow to cash of$121.2 million . Investing activities resulted in a net outflow of$1.4 million and financing activities resulted in a net outflow of$9.8 million primarily related to distributions to limited partners of PWP OpCo.
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.
48
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Our current assets are primarily composed of cash, receivables related to fees
earned from providing advisory services, certain prepaid expenses and amounts
due from related parties. Our current liabilities are primarily composed of
accounts payable, accrued expenses and accrued and deferred employee
compensation. 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. 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 $15.8
million and $9.8 million during the three months ended March 31, 2022 and 2021,
respectively. Additionally, as a public company, we intend to pay dividends
throughout the year and may consider share or warrant repurchases as well.
During the three months ended March 31, 2022 , the Company paid $3.4 million in
cash dividends. The Company has the option to net settle vesting RSUs in order
to remit required employee withholding taxes using cash on hand. During the
three months ended March 31, 2022 , the Company paid $6.1 million in withholding
payments for the net settlement of 559,403 shares on vested RSUs. Additionally,
during the three months ended March 31, 2021 , the Company purchased 172,303
shares at a cost of $1.6 million pursuant to the stock repurchase program
described below.
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 March 31, 2022 and December 31, 2021 . As
of March 31, 2022 and December 31, 2021 , the Company had cash balances of $223.1
million and $502.8 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 were $75.3 million , net
of a $1.4 million allowance for credit losses balance as of March 31, 2022 .
Accounts receivable were $46.9 million , net of a $1.9 million allowance for
credit losses balance as of December 31, 2021 .
Line of credit
The Company has the Revolving Credit Facility with Cadence Bank with an available line of credit of$50.0 million . 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% 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 ofMarch 31, 2022 , 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 condensed consolidated financial statements included elsewhere in this Form 10-Q. 49
-------------------------------------------------------------------------------- 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. 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. During the three months endedMarch 31, 2021 , the Company purchased 172,303 shares at a cost of$1.6 million pursuant to this stock repurchase program.
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 condensed consolidated financial statements included elsewhere in this Form 10-Q 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 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 class A partnership units held by ILPs existing at the time of the Business Combination were subject to such restrictions for 180 days after the Closing, which expired onDecember 24, 2021 , and (iii) any other outstanding PWP OpCo class A partnership 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 class A partnership 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. 50 --------------------------------------------------------------------------------
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 or its permitted transferees, as applicable, 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 or its permitted transfers, as applicable.
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 condensed consolidated financial statements included elsewhere in this Form 10-Q for further information. Tax Receivable Agreement In connection with the Business Combination, the Company entered into a tax receivable agreement withProfessional Partners and ILPs that provides for payment of 85% of the amount of cash savings, if any, inU.S. federal, state and local and foreign income taxes that the Company is deemed to realize as a result of (a) each exchange of interests in PWP OpCo for cash or stock of the Company and certain other transactions and (b) payments made under the tax receivable agreement. 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 condensed consolidated financial statements included elsewhere in this Form 10-Q for further information as well as the expected timing of payments. OurLondon andNew York office leases expire inDecember 2022 andSeptember 2023 , respectively. The Company signed new lease agreements inFebruary 2022 for theLondon office andApril 2022 for theNew York office spaces, which expand our square footage meaningfully in both locations in order to accommodate our anticipated growth. This expansion will increase our contractual obligations upon lease commencement and will require capital contributions towards the design and construction of these spaces in excess of$50 million , mitigated in part, by free rent periods at both locations. 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.
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.
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--------------------------------------------------------------------------------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 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-U.S. dollar functional currencies. For the three months endedMarch 31, 2022 and 2021, the net impact of non functional currency related transaction gains and losses recorded in Other income (expense) on our Condensed Consolidated Statements of Operations was$1.4 million gain and$2.0 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 three months endedMarch 31, 2022 and 2021, the net impact of the fluctuation of foreign currencies recorded in Foreign currency translation gain (loss) within our Condensed Consolidated Statements of Comprehensive Income (Loss) was a$2.1 million loss and$0.2 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
This Quarterly Report on Form 10-Q should be read together with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Annual Report on Form 10-K filed onMarch 11, 2022 regarding these critical accounting policies. For changes to our critical accounting policies during the three months endedMarch 31, 2022 , refer to Note 2-Summary of Significant Accounting Policies in the notes to condensed consolidated financial statements included elsewhere in this Form 10-Q.
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