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. PWP OpCo serves as the Company's operating partnership as part of an umbrella limited partnership C-corporation (Up-C) structure and is jointly owned byPerella Weinberg Partners ,Professional Partners and certain other partners of PWP OpCo. 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 ofPerella Weinberg Partners , which holds PWP OpCo Units. The non-controlling interest owners of PWP OpCo receive a portion of its economics through their ownership of PWP OpCo Units. For further information regarding our business, refer to "Part I. Item 1. Business" and "Part I. Item1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2022 as filed with theSEC onFebruary 28, 2023 .
Business Environment and Outlook
While the level of M&A advisory dialogue remains active across our industries
and geographies of focus, a challenging macroeconomic environment may persist
and continue to adversely affect M&A and financing volumes. Headwinds currently
impacting industry volumes include rate outlook and inflation, credit spreads,
market volatility, lower liquidity and capital availability, recession risk and
geopolitical tensions, amongst others.
Notwithstanding near-term headwinds, our core advisory services benefit from
macroeconomic changes that 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.
Economic and global financial conditions can materially affect our operational
and financial performance. See "Risk Factors" included in our Annual Report on
Form 10-K for a discussion of some of the factors that can affect our
performance.
Key Financial Measures
Revenues
We operate in a highly competitive environment, and each revenue-generating
engagement is separately solicited and negotiated. Our fee-paying client
engagements are not predictable, and we may experience fluctuations in revenues
from quarter to quarter. To develop new business, we maintain an active business
dialogue with existing and potential clients, and we expect to add new clients
each year through expanding our relationships, hiring senior advisory
professionals, and receiving introductions from our relationship network.
However, we also lose clients each year due to various factors, such as sales or
mergers, changes in clients' senior management, and competition from other
financial services firms.
Our revenue recognition is often tied to the completion of a transaction, which
can be delayed or terminated due to various reasons, including failure to obtain
regulatory or board approval, failure to secure financing, or adverse market
conditions. Larger transactions may take longer to close, adding
unpredictability to the timing of revenues. Despite our efforts, we may receive
lower advisory fees or no fee at all if a transaction is not completed. Other
barriers to the completion of restructuring transactions include a lack of
anticipated bidders, failure to obtain court approval, or a failure to reach an
agreement with creditors. In such cases, our advisory fees may be limited to
monthly retainer fees plus the reimbursement of expenses.
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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 instance, a traditional M&A engagement may
require additional advisory services, such as capital markets or capital
solutions advice or a private capital raise, which may call for cross-functional
expertise from our professionals. We focus on dedicating the necessary resources
and expertise to each engagement, regardless of product lines, to achieve the
desired outcome for our clients. Consequently, tracking the type of advisory
service offered in each instance is not practical.
Operating Expenses
Our operating expenses are classified as (i) total compensation and benefits expenses including equity-based compensation and (ii) non-compensation expenses. Headcount is a 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 lower in comparison with compensation and benefits expenses.
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 revenues earned, 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 requisite vesting period or requisite service period. The awards are subject to a service vesting condition, and in some cases a market-based performance vesting condition, and generally vest ratably on a graded vesting schedule of up to five years. Certain awards are recognized over the expected service period for employees who are or will become retirement eligible prior to the stated vesting date. As such, over time, a greater number of employees may become retirement eligible and the related requisite service period over which we expense these awards will be shorter than the stated vesting. 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 three years before accounting for forfeitures, is$46.4 million for a) the Transaction Pool RSUs and b) the Transaction Pool PSUs and$49.7 million for the Long-Term Incentive Awards, in each case granted in conjunction with the Business Combination. 28 --------------------------------------------------------------------------------
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. Our non-compensation expenses include certain co-advisory fees and expenses reimbursed by our clients. Revenues related to co-advisory fees and expenses reimbursed by clients are 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 which have increased due to increasing headcount, increasing prices charged by travel vendors and an increased volume of travel as COVID-19 pandemic-related travel restrictions have eased and we return to more normalized travel levels. While there are temporary factors causing depreciation and amortization, as well as professional fees to be lower period over period, and while we expect to continue to reduce certain costs associated with being a newly public company, over the long term we expect our non-compensation expenses will trend upward with growth in headcount and inflation.
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 income and expense, and other income (expense), which includes gains (losses) on foreign exchange rate fluctuations. Prior to the completion of the Warrant Exchange Offer onAugust 23, 2022 , non-operating income (expenses) also included the change in fair value of warrant liabilities. The Warrant Exchange Offer resulted in the exchange of all outstanding warrants for shares of the Company's Class A common stock with a minimal cash settlement in lieu of partial shares. As a result, the warrant liabilities were removed from the Condensed Consolidated Statements of Financial Condition and the issuance of shares of Class A common stock was reflected within equity. There will be no future change in the fair value of warrant liabilities. Refer to Note 11-Warrants in the notes to condensed consolidated financial statements included elsewhere in this Form 10-Q for additional information.
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) 2023 2022 2023 vs. 2022
Revenues $ 131,426 $ 151,876 (13)%
Expenses
Compensation and benefits 69,963 87,245 (20)% Equity-based compensation 47,671 40,890 17% Total compensation and benefits 117,634 128,135 (8)% Non-compensation expenses 36,482 34,100 7% Total operating expenses 154,116 162,235 (5)% Operating income (loss) (22,690) (10,359) 119% Non-operating income (expenses) Related party income 273 558 (51)% Other income (expense) 283 1,843 (85)% Change in fair value of warrant liabilities - 12,006 NM Total non-operating income (expenses) 556 14,407 (96)% Income (loss) before income taxes (22,134) 4,048 NM Income tax benefit (expense) (5,286) (2,996) 76% Net income (loss) (27,420) 1,052 NM Less: Net income (loss) attributable to non-controlling interests (22,297) (7,842) 184% Net income (loss) attributable to Perella Weinberg Partners$ (5,123) $ 8,894 NM NM = Not meaningful 29
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Revenues
The following table provides revenue statistics for the three months endedMarch 31, 2023 and 2022: Three Months Ended March 31, (Dollars in millions) 2023 2022 Total Advisory Clients 83 77 Total Clients with Fees Greater than$1.0 million 30 28 Average Fee Size$ 1.5 $ 1.9 For the three months endedMarch 31, 2023 revenues declined 13% from the three months endedMarch 31, 2022 . Mergers and acquisition activity was largely flat period-over-period, while financing and capital solutions revenues decreased from the three months endedMarch 31, 2022 , which included a large restructuring fee event. During the three months endedMarch 31, 2023 , the geographic composition of revenue shifted to be even more weighted towardsU.S. business activity versus the three months endedMarch 31, 2022 . The decrease in revenues can also be attributed to a decrease in average fee size per client as well as fewer transactions with outsized fee events, despite a modest increase in the number of advisory transaction completions.
Operating Expenses
The following table sets forth information relating to our operating expenses:
Three Months Ended
March 31,
(Dollars in thousands) 2023 2022 2023 vs. 2022
Expenses
Compensation and benefits $ 69,963 $ 87,245 (20) %
% of Revenues 53 % 57 %
Equity-based compensation $ 47,671 $ 40,890 17 %
% of Revenues 36 % 27 %
Total compensation and benefits $ 117,634 $ 128,135 (8) %
% of Revenues 90 % 84 %
Non-compensation expenses $ 36,482 $ 34,100 7 %
% of Revenues 28 % 22 %
Total operating expenses $ 154,116 $ 162,235 (5) %
% of Revenues 117 % 107 %
Compensation and Benefits Expenses
The decrease in total compensation and benefit expenses for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 was due to a smaller bonus accrual associated with lower revenues, despite a higher compensation margin. This decrease was partially offset by an increase in equity-based compensation related to awards granted in the three months endedMarch 31, 2023 , as well as accelerated vesting of certain awards based on the terms applicable to such awards, with a large percentage tied to retirement eligible individuals whose expense was fully recognized at the time of grant. 30 --------------------------------------------------------------------------------
Non-Compensation Expenses
The increase in non-compensation expenses for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 included a$2.5 million increase in travel-related expenses due to the return to more normalized travel levels and increased headcount, a$1.7 million increase in rent and occupancy due to overlapping rent costs inNew York andLondon due to headquarters renovations and a$1.0 million increase in technology and infrastructure primarily related to increased headcount, inflation and certain investments. These increases were partially offset by a decrease in professional fees of$2.7 million related to a decrease in co-advisory consulting fees and recruiting fees relative to the three months endedMarch 31, 2022 . While depreciation and amortization was slightly lower for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 , certain new leasehold improvement activities have not yet been completed and therefore have not begun depreciating.
Non-Operating Income (Expenses)
The change in non-operating income (expenses) for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 is primarily related to the$12.0 million gain from the change in fair value of warrant liabilities in the three months endedMarch 31, 2022 as the warrant price fell prior to the Warrant Exchange Offer. Other income (expense) includes foreign exchange rate fluctuations which resulted in a$1.1 million loss for the three months endedMarch 31, 2023 as opposed to a$1.4 million gain for the three months endedMarch 31, 2022 , primarily related toU.S. dollar-denominated cash and intercompany receivables held by our foreign subsidiaries as theU.S. dollar value fluctuated period over period. This foreign exchange loss for the three months endedMarch 31, 2023 was offset by$1.3 million of interest income earned largely on cash and investments inU.S. Treasury securities.
Income Tax Benefit (Expense)
The Company's income tax expense and effective tax rate were$5.3 million and (23.9)%, respectively, for the three months endedMarch 31, 2023 compared to income tax expense and an effective tax rate of$3.0 million and 74.0%, respectively, for the three months endedMarch 31, 2022 . The change in the effective tax rate between the three months endedMarch 31, 2023 and 2022 was primarily due to the relative impact of permanent differences on changes in pre-tax income, particularly the year-over-year change from pre-tax income to a pre-tax loss. The Company's effective tax rate in each of the periods described above varies from theU.S. federal statutory rate primarily because (i) a portion of the Company's income is allocated to non-controlling interests held in PWP OpCo in which the majority of any tax liability on such income is borne by the holders of such non-controlling interests and reported outside of the condensed consolidated financial statements and (ii) a portion of the Company's compensation expense is non-deductible for tax purposes.
Cash Flows
Our operating cash flows are primarily influenced by the amount and timing of receipt of advisory fees, which generally have net terms of 30 days, and the payment of operating expenses, including payments of incentive compensation to our employees. We pay a significant portion of incentive compensation during the first quarter of each calendar year with respect to the prior year's results. Our investing and financing cash flows were primarily influenced by the payment of dividends, distributions to partners, purchases and maturities of treasury shares, purchase of fixed assets and withholding payments for vesting of PWP Incentive Plan Awards during the three months endedMarch 31, 2023 . 31 -------------------------------------------------------------------------------- A summary of our operating, investing and financing cash flows is as follows: Three Months Ended March 31, (Dollars in thousands) 2023 2022
Cash Provided By (Used In) Operating Activities
Net income (loss)$ (27,420) $ 1,052 Non-cash charges and other operating activity adjustments 55,547 36,007 Other operating activities (160,541) (285,432) Total operating activities (132,414) (248,373) Investing Activities 97,724 (1,389) Financing Activities (32,758) (27,319)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
863 (2,557)
Net increase (decrease) in cash, cash equivalents and restricted cash
(66,585) (279,638)
Cash, cash equivalents and restricted cash, beginning of period 174,166
504,775
Cash, cash equivalents and restricted cash, end of period $
107,581
Three Months Ended
The Company's cash and restricted cash were$107.6 million as ofMarch 31, 2023 , resulting in a decrease of$66.6 million fromDecember 31, 2022 . Cash, restricted cash and short-term market debt securities (U.S. Treasuries) were$132.5 million as ofMarch 31, 2023 , a decrease of$181.7 million fromDecember 31, 2022 . The Company's net loss for the three months endedMarch 31, 2023 included non-cash charges and other adjustments, largely comprised of equity-based awards vesting expense, depreciation and amortization, foreign currency revaluation and non-cash operating lease expense. The Company's net operating cash outflow was predominantly due to the payment of the prior year's annual bonus compensation. Accounts receivable, net of allowance balance declined from theDecember 31, 2022 balance due largely to the timing of collections as certain large balances were collected shortly afterDecember 31, 2022 as well as a year over year decline in revenues. Investing activities resulted in a net inflow as a result of the maturities of investments of certainU.S. Treasury securities. This inflow was partially offset by additional investments of excess cash inU.S. Treasury securities and the purchase of fixed assets largely related toNew York andLondon office space leasehold improvements. Financing activities resulted in a net outflow primarily related to the repurchase of shares pursuant to the stock repurchase program, withholding payments for vesting of PWP Incentive Plan Awards, distributions to partners, and the payment of dividends.
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 recorded 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. 32 --------------------------------------------------------------------------------
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, our investments in short-term marketable debt securities, the net cash generated from operations and the available borrowing capacity under our Revolving Credit Facility. Our current assets are primarily composed of cash, investments in short-term marketable securities, receivables related to fees earned from providing advisory services, certain prepaid expenses and certain amounts due from related parties. Our current liabilities are primarily composed of accrued employee compensation, accounts payable and other accrued expenses. We generally 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 and/or investments in short-term marketable securities generally decline during the first quarter of each year after our annual incentive compensation has been paid to our employees and typically builds over the remainder of the year. The Company makes quarterly partner tax distributions as required under the PWP OpCo LPA. Additionally, we intend to pay dividends throughout each year and intend to continue our share repurchases under the share repurchase program described below. The Company has utilized its option to net settle shares upon the vesting of PWP Incentive Plan Awards in order to remit required employee withholding taxes by using cash on hand as well as purchasing shares of Class A common stock pursuant to the stock repurchase program described below. We evaluate our cash needs on a regular basis in light of current market and business conditions and regulatory requirements. Cash includes both cash and interest-bearing money market accounts and cash equivalents are defined as short-term highly liquid investments that have original maturities of three months or less from the date of purchase. As ofMarch 31, 2023 andDecember 31, 2022 , the Company had cash balances of$105.0 million and$171.6 million , respectively, maintained inU.S. and non-U.S. bank accounts, of which most bank account balances exceeded theU.S. Federal Deposit Insurance Corporation ("FDIC") andU.K. Financial Services Compensation Scheme ("FSCS") coverage limits. Additionally, as ofMarch 31, 2023 andDecember 31, 2022 , the Company held investments in short-term marketable debt securities, consisting entirely ofU.S. Treasury securities, of$25.0 million and$140.1 million . 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$45.4 million , net of a$1.2 million allowance for credit losses balance as ofMarch 31, 2023 . Accounts receivable were$67.9 million , net of a$1.1 million allowance for credit losses balance as ofDecember 31, 2022 .
Line of credit
The Company has a Revolving Credit Facility with Cadence Bank with an available line of credit of$50.0 million . Additionally, up to$20.0 million of incremental revolving commitments above the$50.0 million commitment amount may be incurred under the Credit Agreement. As ofMarch 31, 2023 , 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. Based on current market conditions, we believe that our cash on hand, the investments in short-term marketable debt securities, 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. 33 --------------------------------------------------------------------------------
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. OnFebruary 8, 2023 , the Company's board of directors increased the Company's share repurchase authorization amount by an additional$100.0 million of the Company's Class A common stock. Shares may be repurchased under the 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, 2023 , the Company purchased 1.5 million shares, at a cost of$14.8 million , in the aggregate. As ofMarch 31, 2023 $116.6 million remains of the combined$200 million share repurchase authorization. Other CommitmentsRegulatory Capital 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 6-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. See Note 9-Stockholders' Equity in the notes to the condensed consolidated financial statements included elsewhere in the Form 10-Q for further information.
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 . See Note 11-Stockholders' Equity in the notes to the audited consolidated financial statements for the year endedDecember 31, 2022 included in the Company's Annual Report on Form 10-K for further information.
Tax Receivable Agreement
In connection with the Business Combination, the Company entered into a tax receivable agreement with PWP OpCo,Professional 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. See Note 16-Related Party Transactions in the notes to the condensed consolidated financial statements included elsewhere in the Form 10-Q for further information as well as the expected timing of payments.
Other Contractual Obligations
We have various non-cancelable operating leases in connection with the leases of our office spaces and equipment. See Note 4-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. The Company signed new lease agreements for theLondon office and theNew York office spaces, which expand our square footage meaningfully in both locations in order to accommodate our anticipated growth. This expansion increased our contractual obligations as well as required capital contributions towards construction of these spaces (mitigated in part by free rent periods at both locations). Construction of theLondon space was completed inFebruary 2023 and completion of theNew York space is expected by the end of 2023. As ofMarch 31, 2023 , the Company estimates spending approximately$16 million to complete the construction of theNew York space, net of tenant improvement allowances.
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.
34
--------------------------------------------------------------------------------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 3-Revenue and Receivables from Contracts with Customers in the notes to condensed consolidated financial statements included elsewhere in this Form 10-Q for further information.
With respect to investments, we manage our credit risk exposure by holding
investments primarily with investment grade credit quality. As of
Exchange Rate Risk
The Company is exposed to exchange rate risk as a result of having foreign subsidiaries with non-U.S. dollar functional currencies as well as from entering into transactions and holding monetary assets and liabilities that are not denominated in the functional currency of its operating subsidiaries. Specifically, 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. For the three months endedMarch 31, 2023 and 2022, 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 a$1.1 million loss and$1.4 million gain, respectively, primarily related toU.S. dollar-denominated cash and intercompany receivables held by our foreign subsidiaries as theU.S. dollar strengthened. For the three months endedMarch 31, 2023 and 2022, 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$1.6 million gain and$2.1 million loss, 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 Estimates
This Quarterly Report on Form 10-Q should be read together with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report on Form 10-K filed onFebruary 28, 2023 regarding these critical accounting estimates. For changes to our critical accounting estimates during the three months endedMarch 31, 2023 , 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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