Perella Weinberg Partners : Q2 Transcript

Perella Weinberg Partners

Q2 2021 Earnings Call Transcript - August 12, 2021

Operator:

Thank you for standing by. This is the conference operator. Welcome to the Perella Weinberg Partners Second Quarter 2021 Earnings Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on the telephone keypad, should you need assistance during the conference call you may signal an operator by pressing star then zero. I would now like to turn the conference over to Taylor Reinhardt, Investor Relations. Please go ahead.

Taylor Reinhardt,Head of Investor Relations:

Thank you operator and welcome to our Second Quarter 2021 earnings call. Joining me today are Peter Weinberg, Chief Executive Officer, and Gary Barancik, Chief Financial Officer. A replay of this call will be available through the investors page of the company's website approximately two hours following the conclusion of this live broadcast through August 26, 2021. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today August 12, 2021 and have not been updated subsequent to the initial earnings call. Before we begin, I'd like to note that this call may contain forward-looking statements including PWP's expectations of future financial and business performance, and conditions in industry outlook.

Forward-looking statements are inherently subject to risk, uncertainties and assumptions, that could cause actual results to differ materially from those discussed in the forward-looking statements and are not guarantees of future events or performance. Please refer to PWP's most recent SEC filings for discussion of certain of these risks and uncertainties. Forward-looking statements are based on our current beliefs and expectations and the firm undertakes no obligation to update any forward-looking statements. During the call, there will also be a discussion of some metrics which are non-GAAP financial measures, which management believes are relevant in assessing the financial performance of the business. PWP has reconciled these items to the most comparable GAAP measures, and the press release filed with today's Form 8-K which can be found on the company's website. I will now turn the call over to Peter Weinberg to discuss the results.

Peter Weinberg,Chief Executive Officer:

Great. Thank you, Taylor.

Good morning and thank you for joining us for our first earnings call as a public company.

Before I begin my formal remarks, I wanted to briefly recognize those who contributed to our journey as a private partnership over the past 15 years and also to welcome our new constituents as a public company. Many people contributed to what the firm is today, but none more than our team we have on the field right now. At all levels of the firm, I am enormously grateful for their dedication and commitment. And to the investors and analysts whom I know we will get to know quite well, welcome. I frequently say within the firm that when we became a public company, we crossed the starting line. We will work hard to make the next 15 years as rewarding as the first 15.

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Now on to my formal remarks regarding our quarter. While Gary will get into more financial detail in a minute, I am pleased to report that our firm in 2021 had a record second quarter and a record first half. Revenues for the quarter were $256 million and revenues for the first half were $425 million, resulting in a 123% increase and a 105% increase vs the respective prior period in 2020.

The firm's business was active across all industry groups, geographies, and product areas.

The dynamics that led to increased M&A activity in the latter half of 2020 have continued apace into 2021. We are seeing an unprecedented level of strategic dialogue and transaction flow. And while we are cognizant of a number of market concerns including the indigestion in the SPAC market, new anti-trust regulatory developments and tax policy, the level of market activity continues to be very strong. While our backlog remains extremely robust, we would be cautious about simply extrapolating our record first half performance for the balance of the year. We saw an elevated level of large fee realizations in Q2 which made this a particularly strong quarter.

Our restructuring and liability management business experienced moderate growth in the quarter relative to record levels in the back half of 2020. Overall activity in this business has been tempered by low interest rates and the wide availability of inexpensive capital. Our restructuring team has been able to pivot and focus on other corporate finance related mandates, a benefit of our flexible, client centric model.

In terms of our growth through the expansion of our partner base, year-to-date we have added three partners from internal promotions and another six have joined or agreed to join the firm in 2021. We believe this group will add significantly to our capability and footprint and we expect to announce more partner hires this summer and fall. We continue to see significant opportunities for growth across our platform and a plentiful supply of candidates who we believe fit not only our strategic needs but our culture, as well.

To wrap up, we feel very good about the momentum we continued to experience in the second quarter. Looking forward, we have the tailwinds of an extraordinarily active advisory market in which we operate and a strong brand presence in the industry. We believe we have a very simple, clear, client centric growth strategy in which to operate as a public company.

On that note, Gary, I'll turn it over to you.

Gary Barancik,Chief Financial Officer:

Thank you, Peter.

For our first earnings call as a public company, and given many of the accounting complexities of the transaction and our Up-C structure, I'm going to be a little more granular in my remarks today than I likely will be on future calls.

As Peter mentioned, we generated $256 million of revenues for the second quarter, an increase of 123% over the prior-year period. Our first half revenues were $425 million, an increase of 105% from the prior year. Adjusted net income totaled $62 million for the second quarter and $93 million for the first half of the year.

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Reported GAAP net income per share on both a basic and diluted basis of ($0.29) and ($0.32), respectively, for both the second quarter and first six months of 2021, reflect only the post transaction period of June 25 to June 30. Adjusted net income per share has not been presented for the three months or six months ended June 30, 2021 as it is not meaningful given the limited post-transaction period during which earnings per share is calculated, though we expect to provide that on a go-forward basis.

I will also note that our reported adjusted net income for these periods does not adjust for corporate taxes on an as-if converted basis due to the limited six-day period post transaction. However, in future periods, we intend to show adjusted net income reflecting taxes as if all partnership units had been converted to shares of Class A common stock.

As Peter mentioned in his remarks, we continue to see high levels of activity across substantially all service lines, sectors, and geographies, particularly in mergers and acquisitions advice. The increase in revenue can be attributed to both an increase in the number of advisory transaction completions and the average fee per client as compared to the same periods in 2020.

On the expense side, we present our expenses with certain non-GAAP adjustments which are more fully described in our press release filed this morning. In the second quarter, we accrued adjusted compensation expense at 64% of revenues, in-line with our previously communicated medium-term guidance. This is 1100 basis points lower than our adjusted comp ratio for the second quarter of 2020 when we operated as a private partnership.

Our GAAP compensation expense includes stock-based compensation expense related to amortization of certain partnership units which has no economic impact on PWP and therefore has been allocated to Non- Controlling Interests.

On August 3, 2021, the compensation committee of the Board of Directors approved certain previously announced transaction-related incentive compensation awards in the form of restricted stock units ("RSUs") that will be granted pursuant to the Perella Weinberg Partners 2021 Omnibus Incentive Plan. From the Transaction Pool Share Reserve, 10.2 million RSUs will be granted, and 9.5 million RSUs will be granted to certain members of management and certain other partners from the General Share Reserve. Of these 19.7 million RSUs, 12.7 million will be subject to market price-based vesting in addition to service- based vesting. Further details will be provided in our second quarter 10Q.

Such expenses relating to either amortization of partnership units or to certain transaction-related RSUs has been or will be excluded from our adjusted compensation expense while stock based compensation expense relating to future RSU issuances as a component of ongoing compensation will generally be included in our adjusted compensation expense.

Our adjusted non-compensation expense for the second quarter was $30.0 million, compared with $26.4 million for the same period a year ago. As a percentage of revenues, our adjusted non-compensation expense was 11.7% for the second quarter, down significantly from 23.0% in the same period last year.

This increase in non-compensation expenses on an adjusted basis was primarily driven by an increase in professional fees related to recruiting and co-advisory fees and technology expense as well as a small pickup in travel and entertainment related expenses relative to the low levels experienced in the second quarter of last year. For reference, for the second quarter of 2021, our travel and related expenses were $1.2 million, compared to $661,000 for the first quarter 2021 and $19.7 million for the full-year 2019.

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For the balance of 2021, we expect that our adjusted non-compensation expenses could be approximately 25 to 30 percent higher than the $54.5 million recorded in the first half of the year. This is due to several factors including increased public company costs including D&O insurance and temporarily higher legal and tax professional fees to support our transition to a public company, timing relating to certain IT projects and professional development expenses as well as some modest assumed increase in travel.

In connection with the transaction, we paid off all of our existing debt and incurred a one-time charge of $39.4 million associated with that retirement which is reflected in our second quarter GAAP Non- Operating income and is excluded from our adjusted results.

Turning to the balance sheet, as of June 30, 2021 we had $349.7 million of cash and cash equivalents, no debt and an undrawn revolving credit facility.

The Board declared a Class A Common Stock dividend of $0.07 payable on September 21, 2021 to holders of record as of September 3, 2021. In addition, on August 3, 2021, the Company exercised its sponsor share repurchase right of 1 million shares at a price of $12 per share, which is outlined in our proxy statement. Over time, we expect to return excess cash to shareholders through a combination of share repurchases and dividends.

Prior to the close of the business combination transaction on June 24, 2021, all of our operating income and taxes relating to that income were derived from the predecessor PWP entity. Pre-transaction income has been allocated to non-controlling interest. Corporate taxes have been applied to PWP's GAAP financials post-transaction close and only with respect to the public company's share of allocated income from PWP Holdings.

With that, we'll now turn the call back to the operator to open the line for questions. Operator?

Operator:

Thank you. We will now begin the question-and-answer session. [Operator Instruction] The first question is from Devin Ryan from JMP Securities. Please go ahead.

Devin Ryan,JMP Securities:

All right. Good morning, Peter and Gary. Congratulations on the transaction, and welcome to the public markets.

Peter Weinberg,Chief Executive Officer:

Thank you, Devin, and good morning.

Devin Ryan,JMP Securities:

Good morning. I guess first question here starting there. Often times when companies, advisory firms, move into the public markets post IPO, you tend to see kind of a jolt in the business, whether it be from the brand recognition in the momentum that you get and that can obviously help business, but also on the recruiting front. And I'm just curious kind of what you guys have been through the process through

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this SPAC now into the public markets. If there's any anecdotes you can share around momentum that you would maybe say is related or feels like a catalyst? And, also, on the recruiting side, you're clearly already tracking ahead of the five kind of external partners, recruits and just how you guys are feeling about that level as we look forward? Thanks.

Peter Weinberg,Chief Executive Officer:

Thanks, Devin. So firstly, I would just say that are being a public company is really, it's just a part of our capital structure. And so we've had a very specific plan, and a long-term plan, on growing the firm. And to that extent, really not much has changed in terms of our ambitions and our plans and our, you know how we really operate the business.

To your point, I will say that being public and the process of becoming public has been helpful to our brand more broadly. And, also, one of the reasons that we did go public is to be able to grow the firm really more efficiently through using our public currency.

Devin Ryan,JMP Securities:

Okay. Perfect. And maybe just a follow-up here. Clearly the balance sheet is in a great position. Can you just update us on capital management strategy? How you're thinking about managing potential dilution from performance shares that could enter the share count from the SPAC transaction over time?

Gary Barancik,Chief Financial Officer:

Yeah, Devin, I can take that question. As we said before, we anticipate the business will continue as it is now and will continue to generate excess cash flow, that we would anticipate returning to shareholders. I think our first priority and preference would be to do that through repurchases over the medium and long-term to moderate that dilution, but I also see us doing specials potentially from time-to-time in part because our partnership structure, our Up-C partnership structure, requires tax distributions, which could cause tax to build up at the PubCo level. So, I really see it kind of as a mix of the two over time, and we will kind of evaluate from time-to-time which is most appropriate.

Devin Ryan,JMP Securities:

Okay. Terrific. I'll leave it there. Thank you very much.

Peter Weinberg,Chief Executive Officer:

Thanks Devin.

Operator:

The next question is from Michael Brown from KBW. Please go ahead.

Michael Brown, KBW:

Hey, good morning guys. And congrats to joining the public markets.

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