Perella Weinberg Partners (NASDAQ:PWP) Q3 2023 Earnings Call Transcript

Perella Weinberg Partners (NASDAQ:PWP) Q3 2023 Earnings Call Transcript November 7, 2023

Perella Weinberg Partners beats earnings expectations. Reported EPS is $0.12, expectations were $0.05.

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 opened 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 Reinhardt, Head of Investor Relations and Corporate Communications. Please go ahead.

Taylor Reinhardt: Thank you, operator, and welcome to our third quarter 2023 earnings call. Joining me today are Andrew Bednar, Chief Executive Officer; and Gary Barancik, Chief Financial Officer. A replay of this call will be available through the Investors page on the company’s website approximately 2 hours following the conclusion of the slide broadcast through November 14, 2023. 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, 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 PWPs expectations of future financial and business performance and conditions and industry outlook.

Forward-looking statements are inherently subject to risks, 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 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 today’s Form 8-K, which can be found on the company’s website.

I will now turn the call over to Andrew Bednar to discuss our results.

Andrew Bednar: Thank you, Taylor, and good morning. Today, we reported third quarter revenues of $139 million, down 4% from a year ago, and year-to-date revenues of $436 million, down 3% from a year ago. Our results, produced against the backdrop of a slowly recovering global M&A market, demonstrate the resiliency and the strong foundation of our trusted adviser business model. During the third quarter, 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&A market broadly is flat to 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 the elongated time lines causing a calendar adjustment in our backlog.

Our energy, health care and technology franchises, in particular, contributed favorably to M&A revenue in the quarter. And within our financing and capital solutions business, we had an increase in restructuring revenue that partially offset a decline in capital raising revenue. Our restructuring business remains very active. We continue to be a lead adviser 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.

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.

The upside from simply executing on what’s in front of us is very strong. In 2023, we added six advisory partners and seven managing directors, and we have an additional two partners committed to join the firm. Today, we have about a third of our partners in their seats for less than three years, so the growth potential already embedded in our platform is substantial. Here at Perella Weinberg, we are laser-focused on execution, and we’re seeing our efforts bear fruit. Our announced backlog is trending up ahead of the broader M&A market recovery, and we are continuing to deliberately and 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 adviser 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 in transitioning the CFO role to Alex Gottschalk. Gary, thank you, and now over to you.

Gary Barancik: 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, as 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&A partner since PWP was founded, it’s been incredibly rewarding to take the firm public as a CFO, and 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. As Andrew already spoke to the top line performance in his remarks, I’ll begin with a review of our expenses. Our adjusted compensation expense represented 67% of revenues in both the third quarter and the year-to-date period, reflecting our best annual estimate as of quarter end.

Our adjusted non-compensation expense was $34 million for the third quarter and $105 million for the nine months. Adjusted non-compensation spend is up 16% year-to-date compared to the same period last year, tracking within our previously communicated guidance range about 15% to 20% for 2023, reflecting investment needed to support growth. Year-to-date, we’ve returned a total of $57 million 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. We continue to maintain a strong capital position and are committed to returning capital to shareholders that is not earmarked for strategic investment or needed to support our business operations.

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

See also 14 Best Beauty Stocks To Buy Now and 25 Best Nursing Homes in the U.S..

Q&A Session

Operator: [Operator Instructions] And our first question will come from Devin Ryan with JMP Securities. Your line is open.

Devin Ryan: Hi. Thank you so much. Good morning. Andrew and Gary, how are you guys?

Andrew Bednar: Good morning, Devin. Thanks. How are you?

Devin Ryan: Good. I want to echo the sentiment 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 things in the future for you. So hopefully, stay in touch.

Gary Barancik: Thanks, Devin.

Devin Ryan: I want to start just on the environment. Andrew, you talked about the backlog turning up, I think, ahead of the M&A market. So just dig in a little bit on that. Like what is going on with the backlog currently? Are deals — I appreciate the macro backdrop is 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 hearing from clients and kind of the willingness to start to move forward on transactions that have maybe been in the backlog for some time. Thanks.

Andrew Bednar: Yeah. Thanks, Devin. I think the macro backdrop continues to be challenging, no question about that. And I think increasingly complex 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, 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 waiting 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&A market because of our size. So we can continue to have outsized gains relative to the broader market just given our scale relative to the size of the market.

Devin Ryan: Got it. Okay. That’s helpful. And then just another 1 here on advisory on the restructuring business. I appreciate that 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 Perella 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 for you guys is much more of a kind of a 2024 kind of contribution?

Andrew Bednar: Yeah. 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 1 of the largest bankruptcies in the market. Those are long-term assignments where the revenue does lag the engagement and initial activity that we see. So we do expect that, that revenue will be into ’24, less about in the near term, but more into ’24 as we see our activity increase today.

Devin Ryan: Got it. That make sense. Okay. I’ll leave it there, but thank you so much. Appreciate it.

Andrew Bednar: Thanks, Devin.

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