Perella Weinberg Partners Q3 2023 Earnings Call Transcript

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November 7, 2023

There are 7 speakers on the call.

Operator

Good morning, and welcome to the Perella Weinberg Third Quarter 2023 Earnings Conference Call. During today's discussion, all callers will be placed in a listen only mode. And following management's prepared remarks, The conference call will be open for questions from the research community. This conference call is being recorded. At this time, I'd like to turn the conference over to Taylor Reinhart, Head of Investor Relations and Corporate Communications.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and welcome to our Q3 2023 earnings call. Joining me today are Andrew Bednar, Chief Executive Officer and Gary Barrantzak, Chief Financial Officer. A replay of this call will be available through the Investors page on the company's For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, November 7, 2023, 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 TWP's expectations of future financial and business performance and conditions and industry outlook.

Speaker 2

Forward looking

Speaker 1

statements are inherently subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those in the forward looking statements and are not guarantees of future events or performance. Please refer to PWP's most recent SEC filings for a discussion of certain of these risks and uncertainties. The 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 in the press release filed with

Speaker 3

Thank you, Taylor, and good morning. Today, we reported 3rd quarter revenues of $139,000,000 down 4% from a year ago and year to date revenues of $436,000,000 down 3% from a year ago. Our results produced against the backdrop of a slowly recovering global M and A market demonstrate the resiliency and the strong foundation of our trusted advisor business model. During the Q3, we experienced an increase in announced activity across our sectors With our backlog up meaningfully both year over year and quarter over quarter, while announced volume in the M and A market broadly is flat Down slightly for the same periods. Our revenue booked in the quarter does reflect a lag effect from lower announced volumes in prior periods with elongated timelines causing a calendar adjustment in our backlog.

Speaker 3

Our Energy, Healthcare and Technology franchises in particular contributed favorably to M and A revenue in the quarter. And within our Financing and Capital Solutions business, we had an increase in restructuring revenue that partially offset the decline In capital raising revenue, our restructuring business remains very active. We continue to be the lead We are on the largest bankruptcy in the market today. And on our other key mandates, we are assisting clients with navigating through an increasingly complex Credit market on exchanges, amendments and extensions of existing indebtedness. In our Capital Markets Advisory business, we are seeing more clients Seek independent financing advice in connection with transactions as well as on a regular way basis.

Speaker 3

We recently made investments in debt advisory And shareholder engagement, analytics and activism, and we are very encouraged by the early returns. Moreover, The dramatic shift toward private credit is a once in a generation move. It has been and we believe will continue to be A tailwind for our business, both for our corporate clients as well as for sponsors. On investment, We focus on areas of secular growth that leverage our platform of expertise in industries, products and regions in order to capture more non linear growth opportunities. Ongoing investments in our current businesses and adjacencies position us well to best serve our current clients and grow our client base Without the need to diversify away and distract from our core business of providing strategic and financial advice.

Speaker 3

The upside from simply executing on what's in front of us is very strong. In 2023, we added 6 advisory partners And 7 Managing Directors, and we have an additional 2 partners committed to join the firm. Today, we have about a third of our partners in their seats for less than 3 years. So the growth potential already embedded in our platform is substantial. Here at Perella Weinberg, we are laser focused on execution We're seeing our efforts bear fruit.

Speaker 3

Our announced backlog is trending up ahead of the broader M and A market recovery, and we are continuing to deliberately prudently invest across the cycle to enhance our capabilities to reach and serve more clients globally. As we approach the holidays, I want to say how thankful I am for three things: the hard work and dedication of our teams around the globe, The deep and loyal relationships we've built with our clients and the continuing support we have from all of you, our investors and analysts. Before I turn the call over, Gary, on behalf of Perella Weinberg, I want to thank you for your years of service to your colleagues and to the firm And for your partnership, strategic counsel and your friendship. You have been a tremendous leader and colleague, Including as an invaluable resource and advisor both through our transition to a public company and in my transition to CEO. We are well positioned for the future because of your disciplined approach to financial leadership and as a result of the excellent job you did And transitioning the CFO role to Alex Gotchalk.

Speaker 3

Gary, thank you. And now over to you.

Speaker 4

I'd like to start by taking a moment to thank you, Andrew, and also Joe and Peter and the rest of my incredible colleagues here at PWP, This is my final earnings call. I'm immensely grateful for the 17 years I've spent working with all of you and the opportunities this firm has provided along the way. After serving as an M and A partner since PWP was founded, it's been incredibly rewarding to take the firm public as CFO. Over the past few years, it's also been a great pleasure to get to know our research analysts and investors. Now turning to our results.

Speaker 4

As Andrew already spoke to the top line performance in his remarks, I'll begin with a review of our expenses. Our adjusted compensation represented 67% of revenues in both the Q3 and the year to date period, reflecting our best annual estimate as of quarter end. Our adjusted non compensation expense was $34,000,000 for the 3rd quarter and $105,000,000 for the 9 months. Adjusted non compensation spend is up 16% year to date compared to the same period last year, Year to date, we've returned a total of $57,000,000 to investors through repurchases, net settlement in lieu of share issuances, Common stock dividends and pro rata distributions. Additionally, this morning, we declared a quarterly dividend of $0.07 a share.

Speaker 4

We continue to maintain a strong capital position and are committed to returning capital to shareholders that is not earmarked for

Operator

And our first

Speaker 2

Thanks so much. Good morning, Andrew and Gary. How are you guys?

Speaker 3

Yes. Good morning, Devin. Thanks. How are you?

Speaker 2

Good. Yes, I want to echo And then to Gary, it's been a pleasure to get to know you and working with you and you did a terrific job. So you'll be missed, but hopefully better Thanks in the future for you. So hopefully stay in touch. Thank you, Devin.

Speaker 2

I want to Yes, absolutely. Want to start just on the environment. Andrew, you talked about the backlog turning up, I think, ahead of the M and A market. So Dig in a little bit on that. Like what is going on with the backlog currently?

Speaker 2

Are deals I appreciate the macro backdrop still pretty complicated, but Are deals that are in the backlog moving forward to announcements? And just any other kind of sense of the tone in what you guys are from clients and kind of their willingness to start to move forward on transactions that have maybe been in the backlog for some time. Thanks.

Speaker 3

Yes. Thanks, Devin. I think the macro backdrop continues to be challenging. No question about that. And I think increasingly for decision makers and what we have seen from our client base is rather than waiting for a better or different environment That may be more conducive to strategic moves.

Speaker 3

I think our client base and probably others Out there are accepting the conditions as they are today and making decisions in the context of today's environment. So I think the Leading game is over. People have to move on with their business and with their planning and with, in some cases, strategic changes, in some cases, financing changes. Broadly for our business, as you know, we're less tethered to the overall M and A market because of our size. So we can continue to have Outsize gains relative to the broader market just given our scale relative to the size of the market.

Speaker 2

Got it. Okay. That's helpful. And then just another one here on advisory on the restructuring business. Appreciate that.

Speaker 2

There was a little bit more contribution from that business this quarter. Some of your peers have really seen kind of an acceleration in year to date revenues Based on kind of the type of business they're doing in restructuring, when you look at the mandates that you guys are on in restructuring, because we're tracking more mandates for Parler Weinberg as well. Have the revenues come through yet kind of to the degree of the mandate increase? Or do you feel like the restructuring story you guys, it's much more of a kind of a 2024 kind of contribution.

Speaker 3

Yes, thanks. We are seeing an increase in Activity for our restructuring team, we had an increase in revenue period over period, as I mentioned in my upfront remarks, And that did offset some decline in our financing business. I think a lot of the mandates are longer term. As I mentioned, we're involved in one of the largest bankruptcies in the market. Those are longer term assignments where the revenue does lag The engagement and initial activity that we see.

Speaker 3

So we do expect that that revenue will be into 2024 Less about in the near term, but more in 2024 as we see our activity increase today.

Speaker 2

Got it. That makes sense. I will leave it there, but thank you so much, Bill. Appreciate it. Thanks, Evan.

Operator

Thank you. Our next question comes from James Yarrow with Goldman Sachs. Your line is open.

Speaker 5

Good morning. Thanks for taking my questions. Firstly, Gary, It's been great working with you and good luck in the future. Maybe we can just turn to the M and A trends here. So a longer term one and then a shorter term one.

Speaker 5

The longer term one is just how you're thinking about the cadence of the Sure. Industry M and A recovery. And then in the short term, just how you're thinking about the seasonality for the Q4, typically that is obviously the strongest Order across the industry. So is that something that we should expect for you as well?

Speaker 3

Yes. I think on the broader M and A market, we have seen flashes of light that have been quite positive, but they haven't been as steady As I think I and the rest of the industry would like to see, so we've had speed bumps along the way. We've had moments where we thought We were getting into a more sustained recovery, but I think we've been met with some obstacles along the way. That being said, as I mentioned earlier in response Devin's question, we are seeing a change in the client receptivity and in client reaction to those market conditions Being more about let's get on with our business and get on with key decisions rather than waiting. So I think that It's a healthy sign that people are willing to travel through choppy waters because it doesn't seem like the choppy waters will abate.

Speaker 3

I think with respect to your question on seasonality, historically, we and the industry have had stronger 4th quarters relative to other quarters. I think we are starting to see some of that emerge again and get back to that pattern of stronger 4th quarters and I do expect that to be the case.

Speaker 4

Okay. That's super helpful.

Speaker 5

And then on the comp ratio, I think you generated very strong comp discipline this quarter. It's better than expected, it's better than most peers despite your strong hiring over the course of the year. So maybe you could just talk The ability to generate comp leverage over the next few years and any reason why we shouldn't be able to get To more normalized level of comp ratio over the next couple of years in a more normal environment.

Speaker 3

Yes. So first, we put out our comp ratio based on quarter end. That is our estimate. We have a very close look At 4th quarter, that's usually when we determine what the annual comp ratio will be. So all the action really is in the 4th quarter, Not in the lead up to the Q4 and given the scale of our business and the potential for significant fee events to move from period to period, We have to watch that closely as we head into year end.

Speaker 3

As I've said historically, that in part comp is really CapEx And we got to make sure that we are keeping our assets in place and incentivize properly for the long term. And I know that A lot of investors and analysts like to think quarter to quarter, but we have to think much longer term and we're kind of playing cricket more than we are baseball. So We look out many, many years in thinking about our assets and making sure that we've got our best people in place and incentivized to keep driving our business. So I think there's no reason to think there's a structural change in compensation ratios In our business or across the sector, but we are when we do go through turbulence, you do have to make sure that again you're investing behind the team And also taking advantage of opportunities to grow the team appropriately and we've had a very disciplined approach to growing our partnership. We want the best people.

Speaker 3

We don't want to simply add to the partnership just to say we've grown it and we will continue to be disciplined around that. But we'll have moments where we have to Invest behind the team and again in turbulent conditions, you will see the comp ratio jump around a bit. Okay. That's very clear.

Speaker 5

Thanks so much.

Speaker 6

Thank you.

Operator

Our next question comes from Steven Chubak with Wolfe Research. Line is open.

Speaker 6

Good morning. This is Brendan O'Brien filling in for Steven. I guess to start, Gary, congrats On the new role and best of luck. It's been a pleasure working with you. I guess turning over to My question to start I want to just ask on Europe.

Speaker 6

From what we can see in the public data, it seems like activity in the region has been running at similar levels The U. S, however, we've seen some bifurcation in the strength of the U. S. And European economies. Given these trends, I was hoping you could compare your dialogues with U.

Speaker 6

S. And European clients and whether there's any differences in the tone of dialogues following the conflict in the Middle East?

Speaker 3

Thanks for the question. Broadly on volumes, of course, you could see the data as much as we see it. Europe is a bit weaker than the U. S. In terms of what we see as a recovery in place, albeit Not as strong as we'd like to see it.

Speaker 3

European activity is lagging. I think in terms of the conversations that we see Both through the course of the recovery, but also post the events of October, we don't see a material difference in the nature of the dialogue at all. If anything, in times of complexity and increasing range of uncertainty in the marketplace, that's when our business thrives. And it sometimes takes time to see the revenue effects from those types of activities. But when decision makers are Pressed with having to move forward of business and make critical strategic and financial decisions in the midst Of geopolitical risks of credit market, which is still quite challenging.

Speaker 3

And generally, Just this widening over the range of uncertainty as people think about their scenario planning, that's when advisors get called. And so We feel good about the nature of the dialogue. We feel good about our franchise and complexity in our case is a friend to the business.

Speaker 6

That's helpful color. I guess for my follow-up, I wanted to ask on energy, which is an area of strength For you through TPH, you've seen a flurry of activity in the energy space over the past couple of months. So it seems like these firms are Returning capital to shareholders to investing in the business through inorganic growth. I wanted to get a sense as to what you're hearing from your clients in the sector and if think this trend of elevated activity could persist?

Speaker 3

Yes, that's a good We do think that there is a change in thinking about how to deploy capital in the energy patch. And We do think that there will be additional transactions that follow on from the 2 or 3 significant transactions that occurred in the last quarter. And so we are getting prepared for that and getting positioned for that and believe that there's more to come.

Speaker 6

Great. Thanks for taking my questions.

Speaker 3

Thank you.

Operator

That concludes the question and answer portion of today's call. So I'd like to turn the floor back over to Andrew Bednar for closing remarks.

Speaker 3

Great. Thank you, operator. And again, thank you, Gary, and Wishing you best of luck on your next endeavor. Obviously, the support from the analyst community is very clear and thank you all for Your continuing support of Perla Weinberg and because we won't talk again until 'twenty four, I want to wish everyone Happy holiday season and a reflective one for all of you and look forward to speaking again in early 2024. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's Perella Weinberg 3rd quarter 2023 earnings conference call. You may disconnect at any time.

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