Q3 2021 Perella Weinberg Partners Earnings Call

November 4, 2021

Ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily until that time your lines will be placed on hold until the conference speaking again, ladies and gentlemen. This is the operator did east conference is scheduled to begin momentarily until that time.

So the thesis on hold until the conference begin thank you.

[music].

Okay.

Good morning, and welcome to the Perella Weinberg partners third quarter 2021 earnings conference call. During todays discussion all callers will be placed in a listen only mode and following management management's prepared remarks, the conference call will be open for questions from the research.

Gummy bears.

This conference call is being recorded at this time I'd like to turn the conference celebrate the dealer Lienhard head of Investor Relations. Please go ahead.

Yeah.

Thank you operator, and welcome to our third quarter 2021 earnings call.

Joining me today are Peter Weinberg, Chief Executive Officer, and Gary Brian Smith, Chief Financial Officer.

A replay of this call will be available through the investors page at the company's website approximately two hours. Following the conclusion of this live broadcast Tuesday November 18 2021 for.

For those who listen to the rebroadcast of this presentation.

Can you that the remarks made herein are as of today November for 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 Pwc is expectations of future financial and business performance and conditions and industry outlook.

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 P. W. P. As 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 T. W. P has reconciled these items to the most comparable GAAP measures in the press release filed to 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 our results.

Yeah.

Thank you Taylor.

Good morning, and thank you all for joining us for our third quarter 2021 earnings call.

Before I get into our results I would like to share a few.

Observations that set the tone for a corner.

First of all our markets continued to be as active as I've ever seen them. The activity is sourced by continued macroeconomic and structural factors the increasing attraction of the independent advisory model to clients and what we are calling a liquidity super cycle, the enormous amounts of capital across.

Our financial system that will support the velocity of activity for some time.

Second Perella Weinberg partners as a growth company, we see very clear opportunities to grow the size and scope of the firm.

Two industry sub sectors and products in which we do not know participate and both clients and talented professionals around the world are embracing our platform as a place to higher end work respectively.

Third as of this past Monday, our firm is back to the office and while our team performed extremely well together remotely achieving record results for the firm we will certainly benefit from more in person interaction amongst our people.

The office will be the center of our work life, well, allowing more flexibility to our people than pre pandemic.

Now onto our financial performance.

I am pleased to report that our firm recorded revenues for the quarter of $177 million and revenues for the nine months ending September 30th of $603 million or.

A 44% increase and an 83% increase versus the respective prior periods in 2020.

Both of these revenue amounts were records for their respective periods.

Commensurate with the market, we saw a healthy M&A and financing advice fee realizations across our platform driven by very active levels of strategic dialogue and transaction flow, while fees from restructuring and liability management contracted to pre pandemic levels.

Diving a bit deeper on our M&A activity, we experienced strong results across our industry coverage universe, with particularly robust activity in the healthcare energy and industrial sectors.

The activity was driven by an array of clients spanning from large cap corporates to mid cap emerging growth companies and was reflective of a balance of both buy and sell side transactions.

These drivers of activity are in line with what we are seeing in the market where large cap companies are both considering how to be proactive coming out of the crisis and evaluating how they might use M&A to anticipate or respond to changes in their end markets, notably by investing in growth and technology transformation.

Separately emerging companies are seeking to grow their scale raise capital or are grappling with interest from larger companies.

More private and public financing markets are robust and the private equity community has experienced record activity showing again its importance to the strategic landscape across every sector.

Activity in the restructuring and liability management market continues but has dropped significantly relative to the peak levels seen in 2020.

The activity has been tempered by low interest rates the wide availability of capital and the impact of government stimulus.

It is possible that we will continue to see such dynamics through the medium term until some technical factors begin to turn.

Despite the decline in restructuring and liability management activity, both across the market and on our platform. We continue to believe that liability management services will contribute meaningfully to our business over the long term largely driven by the cyclicality of the market and expanded balance sheets, resulting from the pandemic.

Our restructuring and liability management pipeline for 2022 is healthy.

From a geographic perspective, we generated record results in our European business for the first nine months of 2021, while we do not look at our business on a regional basis, we believe our significant presence in attractive branding position in Europe differentiates us when compared to advisory peers and our strong performer.

Is commensurate with that differentiation.

We are well positioned to take advantage of the recent acceleration of activity in that region, and we continue to invest behind the business to support future growth.

Although third quarter revenues did not reach the record levels of the second quarter, where we experienced an unusually high level of completions in fee realizations by historic standards. We Nonetheless saw a continued heightened level of strategic dialogue and transaction flow.

While we recognize the revenue results can fluctuate quarter over quarter and that numerous macroeconomic factors could affect the trajectory of the currently favorable M&A and financing environment, we have yet to see any sign of a slowdown in dialogue with our clients.

Across market participants activity is healthy and the overall mindset of business leaders is quite positive.

Our backlog at the end of Q3 remained extremely strong and was close to an all time high.

We continue to add talent at all levels to support our strategic growth.

As of September 30, we had 58 advisory partners and year to date, we have added nine partners. This figure does not reflect an additional partner who has agreed to join the firm in 2021, and our recruiting pipeline remains strong.

Our 10, new partners, including three internal promotes brings significant expertise in tech and Fintech broadly as well as financial institutions industrials and healthcare both in the U S and in Europe. We are focused on further strengthening our partner base with individuals who will help expand our coverage.

And expertise from our sector product and geography standpoint, as well as those who we deem collaboratively franchise enhancing.

And a busy environment the market for talent is certainly more challenging we are confident that our platform and collaborative culture, along with being a growth company with momentum will continue to attract exceptional professionals.

We are encouraged by the level of interest that we are seeing and feel confident in our ability to successfully attract individuals who fit our strategic needs in our culture.

To wrap up we feel very good about the momentum we continue to experience in the third quarter, we are well positioned to take advantage of the currently favorable environment and we will continue to invest behind our simple clear client centric model to support future growth opportunities, we remain committed to <unk>.

Providing trusted and high quality strategic and financial advice to our clients and delivering long term value to shareholders.

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

Thank you Peter as Peter mentioned, we generated $177 million of revenues for the third quarter, an increase of 44% over the prior year period.

Our revenues for the nine months ended September 30 were $603 million, an increase of 83% from the prior year, we continue to see high levels of activity across our business, which translated into strong diversified revenue results for both the three month and nine month periods.

The increase in revenues can be attributed to both an increase in the number of advisory transaction completions and the average fee size per client, particularly in mergers and acquisitions advice as compared to the prior year periods.

The increase in third quarter, 2021, M&A and financial Advisory revenue was partially offset by a reduction in restructuring and liability management fees as compared to the prior year.

On the expense side in the third quarter, we accrued adjusted compensation expense at 64% of revenues in line with our previously communicated medium term guidance. This is 500 basis points lower than our adjusted comp ratio for the third quarter of 2020, when we operated as a private partnership.

Our adjusted non compensation expense for the third quarter was $33 1 million compared with $28 8 million for the same period, a year ago as a percentage of revenues our adjusted non compensation expense was 19% for the third quarter down from 23% in the same period last year.

The overall dollar increase in non compensation expenses out of an adjusted basis was primarily driven by an increase in professional fees related to consulting and recruiting increased public company costs, including D&O insurance and a modest increase in travel and related expenses as pandemic related travel restrictions ease.

As discussed on our last earnings call and as seen in our Q3 results. We expect that adjusted non compensation expense for the second half of 2021 will be at a higher level than the first half of the year for.

For the second half of 2021, we expect that our adjusted non comp expense are likely to be approximately 25% to 30% 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 tiny.

Timing related to certain projects in professional development expenses as well as some modest assumed increase in travel.

As we look beyond 2021, I want to call two other non compensation items to your attention.

First 2020, and 2021 year to date adjusted non compensation expense benefited from low levels of traveling and entertainment expenses due to the effects of the pandemic.

We have begun to see a modest increase in business travel and expect that this trend will continue.

While we expect that the experienced during the pandemic will allow us to continue to conduct much of our business remotely or virtually where a client focused business and anticipate that business travel will again be a meaningful portion of our non compensation spend.

But not quite at the levels per banker that we saw in 2019 and earlier.

Second our leases for our London, and New York headquarters expire in December of 'twenty, two and September of 'twenty, three respectively, and given our significant projected growth, we anticipate expanding our square footage meaningfully in both locations.

Although we expect that free rent and tenant improvement allowances will mitigate capital expenditure requirements for GAAP accounting purposes, we expect some period of noncash overlap between lease expense recorded on our existing and new leases.

Although we're not able to quantify these amounts at the current time, we will provide an update on subsequent earnings calls.

We're excited to have the opportunity to re imagine how we work and collaborate in a new work environment and we feel fortunate that due to the timing of our lease expirations, we're able to do so in the near future with our two largest offices.

Technology has become a much more important component of how we interact with our colleagues and our clients.

And designing our space in the post pandemic environment will allow us to create efficient effective and highly productive workspaces.

Adjusted net income totaled $29 million for the third quarter and $122 million for nine months ended September 32021 hour.

Our adjusted if converted net income for the third quarter was $24 million and presents our results as if all partnership units had converted to shares of common stock.

Adjusted diluted if converted net income per class a share was 26 for the three months ended September 32021.

And finally, turning to the balance sheet as of September 32021, we had $415 $8 million of cash and cash equivalents, no debt and an undrawn revolving credit facility.

The board has declared a class a common stock dividend of seven payable.

Payable on December 17, 2021 to holders of record as of December three 2021 over time, we expect to return excess cash flow to shareholders through a combination of share repurchases to moderate dilution and dividends.

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

Thank you participants.

To ask all of your question you will need to press star one on your telephone keypad again Thats Star then the number one on your telephone keypad to withdraw your question press the pound.

Your first question comes from the line of Devin Ryan from JMP Securities. Your line is now open.

Hey, great good morning, Peter and Gerry.

Your first question.

And here I, just wanted to talk a little bit about the recruiting outlook.

Obviously I think you mentioned you know it's competitive but you've got some idiosyncratic.

Wins, and there's a lot of white space for the firm right now.

No.

Kind of a rough target is to add five external partner of the year you're already at seven.

And for this year how are you.

Are you thinking about that five number going forward.

Just kind of with the cross currents that you mentioned.

Do you think you may be able to do a little bit better than that over the intermediate term like youre doing in 2021, and then Peter you also mentioned some I guess products and industries, you're not in today, what are the priorities and what are maybe some of the near term areas that you may enter.

Our recruiting.

Sure Good morning, Kevin.

We hired <unk>.

Seven partners from outside the firm last year or this year across product areas regions and industry groups and as you suggest it's competitive to get the best people.

The reason that we were able to hire that specific group of people is because of business fit because of culture and because of their compensation, meaning that.

It was fair to the partner to.

Cover foregone equity and compensation, but also attractive for the firm.

We believe that our competitive advantage really with respect to hiring partners is that they can come to our platform and create more value on it than their incumbent firm.

And we feel very positive about the prospects of hiring partners at that rate going forward.

With respect to your comment on product areas, indeed, or the <unk>.

Future hires and what the areas will be.

We have a very clear view on exactly who we want to hire.

For what positions for for each position.

We know that people in the market and we know people internally, who could potentially sit in those partner seats.

Well, we don't disclose that going forward.

You the best indication of that.

Is the people that we hired this year, we hired people and tech.

Technology, 40% of our people that we elevated to partner in this last year.

We're and technology.

Financial technology.

And also in health care industrials.

And in both in the U S and Europe.

Okay terrific.

Wanted to touch on Europe, a bit here.

You are having a record year there could be.

The European M&A broadly is recovering, but still well below kind of historical peaks. If you go back over a decade, the 2007 or so in that prior cycle.

With the recovery that we're seeing in Europe, how do you think about.

You know maybe the productivity upside from here you are having a lot of success, but is there a lot more upside banker productivity or how would you frame kind of where we are in the European recovery from the broad perspective.

I always start a conversation about Europe with the reference to the fact that we started in Europe 15 years ago at the same time that we started in the U S. Because that's an important framework in which to evaluate the firm over there.

As I said earlier and as you referenced we had a record year in Europe, but it is important to mention that this record applies also to productivity.

The partners in Europe matching USA metrics.

We're serving our clients from our three bases in Europe, London, Paris Munich.

Half of our partners that we hired this year were elevated our.

Resident in Europe.

And the forces really creating activity in Europe are very similar to those in the U S. In terms of the liquidity available in terms of the overall environment for four mergers and we're very optimistic about the business going forward.

Okay, great if I could just squeeze one more in for Gary question that we get from our clients just around.

You have a quantification of excess capital.

Clearly the firm.

With capital light and building capital.

Would you guys kind of recommend.

I was looking at that quantification of that and then capacity or potential buybacks and how you guys are thinking about the opportunity there as well.

Yes, thanks, Kevin.

Look I think that the messaging we grew in the Paas is still very much. The case, we'll be looking at a mix of both.

Repurchases.

Potentially specials as well as our ordinary dividends as a means of returning capital.

On the one hand, we will probably have a bias towards excess cash for repurchases because we do want to moderate the impact of dilution from share based comp.

But also our FC structure as you know.

Ken can create a bias for need for applications specials to balance out the cash between cash that's held at the public company. So it'll be a mix, we're not anticipating any specials or repurchases.

For the balance of this quarter, but it is something we expect to turn to in the new year.

Okay, great. Thanks for the color I'll leave it there. Thank you guys.

Thank you.

Your next question comes from the line of Richard Ramsden from Goldman Sachs. Your line is now open.

Okay. Good morning, Peter and Gerry So I wanted to ask a question on financial sponsors.

This corporate activity and I know, there's a continuum between serving corporates and financial sponsors, but if you take a step back and think about the contribution from financial sponsors to your franchise. This year would you consider it to be disproportionate relative to history, and perhaps you can touch on the sustainability and the risks that you see to the run rate.

In the sponsor business as we head into 2022.

Sure Good morning, Richard.

A number of the sell side analysts on the phone had referenced a.

Dealogic calculation that said that 49% of our business touched financial sponsors and we don't really look at it that way for reasons I'll explain in a second but that number didnt shocked me at all.

Our coverage of sponsors is ubiquitous every partner industry coverage partners product partners and regional partners have engagement with sponsors directly.

What sponsors want and that's that's what we provide.

We'll say that sponsors are attracted to our deep relationships with large corporates around the world and when appropriate we make those connections.

And that's how we think about the sponsor business is very much an integral part of our entire firm.

Okay. That's helpful. And then just more broadly can you just spend a couple of minutes Peter on what you think the biggest risks to the run rate of activity. So.

The interest rates higher inflation, the robust antitrust enforcement that we're seeing what type of impact do you think that will have on the environment as we head into next year and I'm also curious on the micro side are you seeing any issues around lawyers and accountants hitting capacity constraints, which is coming out the time it takes to get the deal.

Closed thanks a lot.

Sure.

On the macro side, there are always clouds on any horizon and as you correctly state we have no shortage of clouds today all of the points that you mentioned inflation interest rates you know.

Certainly supply chain labor shortages tax policy antitrust et cetera.

Would say that large multinational companies that we work with and I think others have shown.

That they have been very adaptive and resilient through many market dislocations over the past.

510, 15 years and more so today than they ever have been.

So theyre not wishing these risks away, but they include these risks.

And accommodate them in terms of how they think about corporate strategy and M&A.

One caveat I would make on the macro side is that companies and markets don't react well to shocks or spikes or significant changes versus market expectations. As you all know and so I think a very significant and sudden change in inflationary expectations.

Significant where sudden change in interest rates I think would dislocate the markets and would also slow activity I don't think thats likely.

That's my view on how that might happen.

With respect to micro.

It's a very busy market and the whole ecosystem.

Transactional world is very busy, but we have not felt any restraint or problem or unnecessary delays as it relates to working with lawyers and others across the system.

Okay, Alright, that's very helpful. Thanks, a lot.

Your next question comes from the line of Stephen Shellbark from Wolfe Research. Your line is now open.

Good morning, Peter Good morning, Gary.

So first off I wanted to start just a question on some of the commentary related to the backlog you noted that the backlog is near.

Record levels.

At the end of <unk> I was hoping you could speak given your the hiring that you've done this year I mean granted they won't necessarily be operating at full run rate productivity by 2022, but just your confidence level about your ability to grow revenues recognizing there are some clouds still looming over head Budd.

The fundamentals could not be stronger just for the M&A space broadly.

Noted earlier, Peter that the dialog remains incredibly active with both strategic sponsors.

Good morning, Steven.

We are indeed.

You know very committed to growth as I mentioned earlier and as you correctly state. The reason for that is that our roadmap for growth is so clear we have clear line of sight.

To the different areas of the business in which we want to grow.

I'll also add that we only have 60, approximately 60 partners and don't feel a constraint in terms of hiring.

Or on.

The clients that we work with them and seek to work with and so I think the backdrop is compelling in that regard we do have approximately a quarter.

Of our partners, who have been at the firm.

For less than three years and so those partners are gaining in productivity.

We will continue to have that dynamic as we hire people going forward.

Yeah.

Okay, that's great color, Peter and maybe just a couple of cleanup questions for Gary just the first on some of the non comp commentary.

But around that and just thinking about the trajectory heading into next year, you spoke about TNT normalization being a potential headwind certainly not exclusive to you guys. That's.

Was hoping you could just help frame or quantify the dollar of expense associated with the.

The cost of going public.

Trying to think.

Through appropriately some of the puts and takes as we think about the growth trajectory in non comps for next year.

Yes, I think.

I'm not going to be able to get too specific for you Stephen but just to kind of point to a few of the larger ones just to kind of give a sense of where they are.

Largely.

I flagged D&O before that's that's an expense that is not only.

Just because we're a public company, but because we went public through a transaction.

Is elevated for us relative to our peers and probably will remain so for a few years.

That's a pretty big component of it the other ones referenced some are sort of run rate public company costs that we just have additional folks in natural reporting for example, an additional audit and tax fees and things like that which is more ordinary course, but as a comparison to prior periods is somewhat elevated and then there are also some.

What ill referenced this shorter term call. It in the six to nine months from the date of the business combination items around legal and tax relating to just us needing some additional support from outside advisors.

Relating to various some of the capital markets transactions some of the our first our first couple of Qs and so forth and those are really the main the main types of things.

Understood.

Final cleanup.

Hoping for an update Gary on the on the lock ups when they're set to expire and maybe you could just speak to the comments around the buyback.

And not look to get a little bit more aggressive here given the constructive commentary that was cited on the call with regards to the outlook and the strength of your excess liquidity position as you noted in one of the earlier remarks.

Okay.

The first part of your question on <unk>.

On buybacks there excuse me on the on the Lockups.

Really kind of two two groupings of those to speak to when our sponsor shares.

Which are.

Which are subject to either a straight six month lockup from the time of the transaction or in some cases Theyre also stock price targets.

And.

So the six month anniversary coming up in late December.

Some of those will be released in addition.

We have partnership units, which will be released from lockup relating to our legacy partners not working partners, but just our legacy partners and to certain founding investors and the combination of that too that would be potentially available either for exchange or for sale at that anniversary wood.

On the order of 14 or 15 million shares or so that's sort of the ballpark.

That's kind of the six months I mean really the next the next milestone aside for meeting certain price targets.

That would be at the one year anniversary, where theres some additional units.

Come up.

On your question on buybacks it is.

Absolutely something that again subject to our board's approval, we would be very focused on its next year.

We're not we're not doing it this quarter just in part because we still have a frankly, just a lot of moving pieces will be getting through our first year as a public company with compensation.

We have the overlay of the special versus repurchase mix given the need for tax distributions.

And we just want to be very prudent in how we manage that and so that's why I'm, saying, it's something that we expect to turn to next.

Next year as opposed to this quarter.

Yes.

Helpful color. Thanks, so much for taking my questions.

Thank you.

Your next question comes from the line of Michael Brown from <unk>. Your line is now open.

Great. Thank you.

Gary how are you guys.

Good morning.

Okay.

Yes, I just wanted to follow up on the comments on the energy space, obviously that.

Part of the market has been very strong your tutor Pickering Holt business is really well positioned for that so could you just talk a little bit more about the outlook for that segment of the M&A market and is it fair to assume that that activity could accelerate from here just given the high oil and energy prices probably.

Sure Mike.

Yes, with respect to our energy business very much the focus of that business right now is energy transition energy technology and sustainability.

And while hydrocarbons are not going away tomorrow and of course, it's an enormous industry around the world. These are the themes that are very prominent in our client discussions and I would say that those extend into each of the areas of the whole energy ecosystem, including upstream midstream.

Downstream and services companies.

Okay great.

And then just two really quick cleanups for for Gary.

So Gary the tax rate that was used under the <unk>.

If converted method was 31%.

I'm not sure if I missed it but is that the right way to think about that going forward is that is that the tax rate, we should be using in our adjusted.

Yes.

Our forecast here.

Yes, Michael that's really our best view right now for the year.

I'm not in a position to sort of guide for the longer term than that but that is our best view for the current year and it's a bit higher than anticipated because our revenues were higher than anticipated, which is leading to some higher compensation expense some of which.

As is limited in its deductibility for the tax laws.

I should also mention and this is probably an obvious point, but that that non-GAAP tax rate is somewhat theoretical construct for a number of reasons. We're obviously not only trying to model it out and if converted basis. We obviously are in a year where half of the year, we were a private company, but it also it also exclude.

A number of GAAP items, which at least in the current year are leading to a lot of deductions and so.

Net of all of that is for this year, our expected cash tax rate as you can see from our GAAP numbers is actually going to be far far lower so.

It's still I think it's reflected a 31% is reflective of the best we can do under.

Under the assumptions of non-GAAP, but but I do want to point out that there is going to be that disconnect from cash taxes. This year.

Okay, Yeah, I understand those laws are very complicated.

Puts and takes there, but I appreciate the color.

And then just maybe one last one.

The third quarter include any pull forward from the fourth quarter, just due to the revenue recognition accounting rules and if so can you quantify that.

Sure, we had about $29 million of pull forward from two deals.

That follows on from the second quarter, where there was $17 million from one transaction.

Okay, great very helpful. Thank you for taking.

Taking my questions.

Sure thing.

Your next question comes from the line of Ken Worthington from Jpmorgan. Your line is now open.

Hi, good morning.

Just just really one for me.

As we think about liability management and traditional restructuring.

You indicated in the prepared remarks that both were down for the quarter and this is sort of similar to the message we've heard.

From others on.

Restructuring broadly.

To what extent is liability management more resilient to good market conditions, then as say traditional restructuring and what part of the economic cycle would that resiliency likely to be most apparent.

Hey, good morning, Ken.

Yes, the capital markets advisory business within our firm.

Is.

Quite tied to the M&A business in the sense that it's part of the advice that we provide to clients and so.

And so I would say that and that's been very much the case this year.

But it's also very much.

Part of our dialogue with companies who are in financial distress.

One of the things about our firm is that we don't manage the business by product area, but really more so by clients and client groups.

So it's quite seamless actually the dialogue that a client would have with a restructuring person who might have expertise in an area that would be relevant to them to a capital markets advisory person, who would be closer to an actual transaction that may or may not be associated with the merger.

And of course, all of our industry bankers.

Great. Thank you very much.

Yeah.

And now I would like to turn the call over to Taylor Reid Hart for closing remarks.

Great. Thank you operator, and thank you everyone for joining us if you have any additional questions. Please feel free to follow up with us.

Yeah.

And ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.

[music].

From the research community. This conference call is being recorded at this time I'd like to turn the conference over at the dealer Lienhard head of Investor Relations. Please go ahead.

Okay.

Thank you operator, and welcome to our third quarter 2021 earnings call. Joining me today are Peter Weinberg, Chief Executive Officer, and Gary <unk>, Chief Financial Officer.

A replay of this call will be available through the investors page at the company's website approximately two hours. Following the conclusion of this live broadcast November 18 2021 for.

For those who listen to the rebroadcast of this presentation. We remind you that the remarks made herein are as of today November four 2021 and have not been updated subsequent to the initial earnings call.

Before I get into our results I would like to share a few overall observations that set the tone for our quarter.

First of all our markets continued to be as active as I've ever seen them. The activity is sourced by continued macroeconomic and structural factors.

The increasing traction of the independent advisory model to clients and what we are calling a liquidity super cycle. The enormous amounts of capital across our financial system that will support the velocity of activity for some time.

Second Perella Weinberg partners as a growth company, we see very clear opportunities to grow the size and scope of the firm into industry sub sectors and products in which we do not know participate.

In both clients and talented professionals around the world are embracing our platform as a place to higher end work respectively.

<unk> to our people than pre pandemic.

Now onto our financial performance.

I am pleased to report that our firm recorded revenues for the quarter of $177 million and revenues for the nine months ending September 30 of $603 million of.

A 44% increase and an 83% increase versus the respective prior periods in 2020.

Both of these revenue amounts were records for their respective periods.

Diving a bit deeper on our M&A activity, we experienced strong results across our industry coverage universe, with particularly robust activity in the healthcare energy and industrial sectors.

The activity was driven by an array of clients spanning from large cap corporates to midcap emerging growth companies and was reflective of a balance of both buy and sell side transactions.

Separately emerging companies are seeking to grow their scale raise capital or are grappling with interest from larger companies.

Furthermore, private and public financing markets are robust and the private equity community has experienced record activity showing again its importance to the strategic landscape across every sector.

Activity in the restructuring and liability management market continues but has dropped significantly relative to the peak levels seen in 2020.

Activity has been tempered by low interest rates, the wide availability of capital and the impact of government stimulus.

It is possible that we will continue to see such dynamics through the medium term until some technical factors begin to turn.

Our restructuring and liability management pipeline for 2022 is healthy.

From a geographic perspective, we generated record results in our European business for the first nine months of 2021.

While we do not look at our business on a regional basis, we believe our significant presence in attractive branding position in Europe differentiates us when compared to advisory peers and our strong performance is commensurate with that differentiation.

We are well positioned to take advantage of the recent acceleration of activity in that region, and we continue to invest behind the business to support future growth.

Across market participants activity is healthy and the overall mindset of business leaders is quite positive.

Our backlog at the end of Q3 remained extremely strong and was close to an all time high.

We continue to add talent at all levels to support our strategic growth as of September 30, We had 58 advisory partners and year to date, we have added nine partners. This figure does not reflect an additional partner who has agreed to join the firm in 2021, and our recruiting pipeline remains strong.

<unk>.

And expertise from our sector product and geography standpoint, as well as those who we deem collaborative <unk> franchise enhancing.

We are encouraged by the level of interest that we're seeing and feel confident in our ability to successfully attract individuals who fit our strategic needs in our culture.

Providing trusted and high quality strategic and financial advice to our clients and delivering long term value to shareholders.

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

Thank you Peter as Peter mentioned, we generated $177 million of revenues for the third quarter, an increase of 44% over the prior year period.

The increase in third quarter, 2021, M&A and financial Advisory revenue was partially offset by a reduction in restructuring and liability management fees as compared to the prior year.

The overall dollar increase in non compensation expenses on an adjusted basis was primarily driven by an increase in professional fees related to consulting and recruiting increased public company costs, including D&O insurance and a modest increase in travel and related expenses as pandemic related travel restrictions ease.

For the second half of 2021, we expect that our adjusted non comp expense are likely to be approximately 25% to 30% higher than the $54 5 million recorded in the first half of the year.

Timing related to certain projects in professional development expenses as well as some modest assumed increase in travel.

As we look beyond 2021, I want to call two other non compensation items to your attention.

First 2020, and 2021 year to date adjusted non compensation expense benefited from low levels of travel and entertainment expenses due to the effects of the pandemic.

We have begun to see a modest increase in business travel and expect that this trend will continue.

Although we're not able to quantify these amounts at the current time, we will provide an update on subsequent earnings calls.

Technology has become a much more important component of how we interact with our colleagues and our clients.

In designing our space in the post pandemic environment will allow us to create efficient effective and highly productive workspaces.

Adjusted net income totaled $29 million for the third quarter and $122 million for the nine months ended September 32021 hour.

Our adjusted if converted net income for the third quarter was $24 million and presents our results as if all partnership units had converted to shares of common stock.

Adjusted diluted if converted net income per class a share was 26 for the three months ended September 32021.

And finally, turning to the balance sheet as of September 32021, we had $415 8 million of cash and cash equivalents, no debt and an undrawn revolving credit facility.

The board has declared a class a common stock dividend of <unk> <unk> payable.

Payable on December 17 to 2021 to holders of record as of December three 2021 over time, we expect to return excess cash flow to shareholders through a combination of share repurchases to moderate dilution and dividends.

With that I will now turn the call back to the operator to open the line for questions operator.

Thank you Edward this events as a reminder, that all of your question you will need to press star one on your policy.

Bob again Thats Star then the number one on your telephone keypad withdraw your question Brad.

Your first question comes from the line of Bob.

<unk> <unk> from JMP Securities. Your line is now open.

Hey, great good morning, Peter and Gerry.

Your first question here, just wanted to talk a little bit about the recruiting outlook.

Obviously, I think you mentioned it is competitive but you've got some idiosyncratic.

Wins, and there's a lot of white space for the firm right now.

No.

The kind of the rough target is to add five external partner of the year you're already at seven.

For this year, how are you thinking about that 5% number going forward.

Kind of where the cross currents that you mentioned.

Do you think you may be able to do a little bit better than that over the intermediate term like youre doing in 2021, and then Peter you also mentioned some I guess products and.

Industry, who are not in today, what are the priorities and what are maybe some of the near term areas that you may enter.

Recruiting.

Sure Good morning Devin.

We hired <unk>.

Seven partners from outside the firm last year or this year.

Ross product areas regions and industry groups and as you suggest it's competitive to get the best people.

The reason that we were able to hire that.

Specific group of people is because of business fit because of culture and because of fair compensation, meaning that.

Was fair to the partner to.

Cover foregone equity and compensation, but also attractive for the firm.

We believe that our competitive advantage really with respect to hiring partners is that they can come to our platform and create more value on it than their incumbent firm.

And we feel very positive about the prospects of hiring partners at that rate going forward.

With respect to your comment on product areas. Indeed.

Or the <unk>.

Future hires and what the areas will be.

We have a very clear view on exactly who we want to hire.

For what positions for each position.

We know that people in the market and we know people internally, who could potentially sit in those partner seats.

Well, we don't disclose that going forward.

The best indication of that.

Is the people that we hired this year, we hired people and tech.

Technology, 40% of our people that we elevated to partner in this last year.

We're in technology.

Financial technology.

And also in healthcare industrials.

And in both in the U S and Europe.

Okay terrific.

Wanted to touch on Europe, a bit here.

You are having a record year there to date.

The European M&A broadly is recovering, but still well below kind of historical peaks. If you go back over a decade, the 2007 or so in that prior cycle.

With the recovery that we're seeing in Europe, how do you think about.

Maybe the productivity upside from here Youre, having lot of success, but is there a lot more upside banker productivity or how would you frame kind of where we are in the European recovery from the broad perspective.

I always start a conversation about Europe with the reference to the fact that we started in Europe 15 years ago at the same time that we started in the U S. Because thats, an important framework in which to evaluate the firm over there.

As I said earlier and as you referenced we had a record year in Europe, but it is important to mention that this record applies also to productivity.

The partners in Europe matching USA metrics.

We're serving our clients from our three bases in Europe, London, Paris Munich.

Half of our partners that we hired this year were elevated our.

Resident in Europe.

And the forces really creating activity in Europe are very similar to those in the U S. In terms of liquidity available in terms of the overall environment for four mergers and we're very optimistic about the business going forward.

Okay, great if I could just squeeze one more in for Gary question that we get from our clients just around.

Quantification of excess capital.

Clearly firm.

With capital Light and building capital how would you guys kind of recommend.

Looking at that quantification of that and then capacity or potential buybacks.

You guys are thinking about the opportunity there as well.

Yes, thanks, Kevin.

Look I think that the messaging we grew in the Paas is still very much. The case, we'll be looking at a mix of both.

Repurchases.

Potentially specials as well as our ordinary dividends.

It means of returning capital.

I think on one hand, we will probably have a bias towards.

Excess cash for repurchases, because we do want to moderate the impact of dilution from share based comp.

But also our FC structure as you know Ken.

Ken can create a bias for a need for occasional specials to balance out the cash between cash that's held at the public company. So it will be a mix, we're not anticipating any specials or repurchases.

For the balance of this quarter, but it is something we expect to turn to in the new year.

Okay, great. Thanks for the color I'll leave it there. Thank you guys.

Thank you.

Your next question comes from the line of Richard Ramsden from Goldman Sachs. Your line is now open.

Okay. Good morning, Peter and Gerry So I wanted to ask a question on financial sponsors.

Corporate activity I know, there's a continuum between corporates and financial sponsors, but if you take a step back and think about the contribution from financial sponsors to your franchise. This year would you consider it to be disproportionate relative to history, and perhaps you can touch on the sustainability and the risks that you see the run.

<unk> in the sponsor business as we head into 2022.

Sure Good morning, Richard.

A number of the sell side analysts on the phone had referenced a.

Our coverage of sponsors is ubiquitous every partner industry coverage partners product partners and regional partners have engagement with sponsors directly.

What sponsors want and that's that's what we provide.

We'll say that sponsors are attracted to our deep relationships with large corporates around the world and when appropriate we make those connections.

And that's how we think about the sponsor business is very much an integral part of our entire firm.

Okay. That's helpful. And then just more broadly can you just spend a couple of minutes Peter on what you think the biggest risks to the run rate of activity. So.

Interest rates higher inflation, the robust antitrust enforcement that we're seeing what type of impact do you think that will have on the environment as we head into next year and I'm also curious on the micro side.

<unk> seen any issues around lawyers and accountants hitting capacity constraints, which is coming out the time it takes to get the deal closed thanks a lot.

Sure.

On the macro side.

These clouds on any horizon and as you correctly state we have no shortage of clouds today all of the points that you mentioned inflation interest rates.

Supply chain labor shortages tax policy antitrust et cetera.

I would say that large multinational companies that we work with and I think others have shown.

That they have been very adaptive and resilient through many market dislocations over the past.

510 to 15 years or more so today than they ever have been.

Theyre not wishing these risks away, but they include these risks and accommodate them in terms of how they think about corporate strategy and M&A.

The one caveat I would make on the macro side is that companies and markets don't react well to shocks or spikes or significant changes versus market expectations. As you all know and so I think a very significant and sudden change in inflationary expectations.

Very significant or sudden change in interest rates.

Think would dislocate the markets and would also slow activity I don't think thats likely.

But that's my view on how that might happen.

With respect to micro.

It's a very busy market and the whole ecosystem.

The transactional world is very busy, but we have not felt any restraint or problem or unnecessary delays as it relates to working with lawyers and others across the system.

Okay, Alright, that's very helpful. Thanks, a lot.

Your next question comes from the line of Stephen Shellbark from Wolfe Research. Your line is now open.

Good morning, Peter Good morning, Gary.

So first off I wanted to start just a question on some of the commentary related to the backlog you noted that the backlog is near.

Record levels.

As at the end of <unk> I was hoping you could speak given your the hiring that you've done this year.

Granted they won't necessarily be operating at full run rate productivity by 2022, but just your confidence level about your ability to grow revenues recognizing there are some clouds looming overhead, but the fundamentals could not be stronger just for the M&A space broadly and as you noted earlier Peter.

Dialogue remains incredibly active.

Can you take that sponsors.

Good morning, Steven.

We are indeed.

You know very committed to growth as I mentioned earlier and as you.

Correctly state the reason for that is that our roadmap for growth is so clear we have clear line of sight.

To the different areas.

The business in which we want to grow.

I'll also add that we only have 60 approximately 60 partners.

And don't feel a constraint in terms of hiring or on.

The clients that we work with them and seek to work with and so I think the backdrop is compelling in that regard we do have approximately a quarter.

Of our partners, who have been at the firm.

For less than three years and so those partners are gaining in productivity.

We will continue to have that dynamic as we hire people going forward.

Okay, that's great color care and maybe just a couple of cleanup questions for Gary.

First on some of the non comp commentary.

Rather than just thinking about the trajectory heading into next year, you spoke about TNT normalization being a potential headwind certainly not exclusive to you guys. I was hoping you could just help frame or quantify the dollar of expense associated with.

The cost of going public.

Try to.

Through appropriately some of the puts and takes as we think about the growth trajectory in non comps for next year.

Yes, I think.

I'm not going to be able to get too specific for you Steven but just to kind of point to a few of the larger ones just to kind of give a sense of where they are.

Largely.

Flag D&O before that's that's an expense that is not only.

Just because we're a public company, but because we went public through a transaction.

Is elevated for us relative to our peers and probably will remain so for a few years.

That's a pretty big component of it the other ones referenced some are sort of run rate public company costs that we just have additional folks in natural reporting for example, an additional audit.

<unk> fees and things like that which is more ordinary course, but as a comparison to prior periods is somewhat elevated and then there are also some.

All references shorter term call. It in the six to nine months from the date of the business combination items around legal impacts relating to just us needing some additional support from outside advisors.

Relating to various some of the capital markets transactions some of the.

Our first couple of Qs and so forth and those are really the main the main types of things.

Understood and then just.

Final cleanup.

Was hoping for an update Gary on the on that.

The lock ups, when they're set to expire and maybe you could just speak to the comments around the buyback why not look to get a little bit more aggressive here given the constructive commentary that was cited on the call with regards to the outlook and the strength of your excess liquidity position as you know David in one of the earlier remarks.

The first part of your question on <unk>.

On buybacks there excuse me on the on the Lockups.

Really kind of two two groupings of those to speak to one our sponsor shares.

Which are.

Which are subject to either a straight six month lockup from the time of the transaction or in some cases Theyre also stock price targets.

And.

So the six month anniversary coming up in late December.

Some of those will be released in addition.

On the order of 14 or 15 million shares or so that's sort of the ballpark.

That's kind of a six month framing and really the next the next milestone aside for meeting certain price targets.

That would be at the one year anniversary, where theres some additional units.

Come up.

On your question on buybacks it is.

Absolutely something that again subject to our board's approval, we would be very focused on its next year.

We're not we're not doing it this quarter just in part because we still have a frankly, just a lot of moving pieces will be getting through our first year as a public company with compensation.

We have the overlay of the special versus repurchase mix given the need for tax distributions.

And we just want to be very prudent in how we manage that and so that's why I'm, saying, it's something that we expect to turn to.

Next year as opposed to this quarter.

Helpful color. Thanks, so much for taking my questions.

Thank you.

Your next question comes from the line of Michael Brown from <unk>. Your line is now open.

Great. Thank you.

Hey, Peter Gerry how are you guys.

Good Mike Thanks morning.

So I just wanted to follow up on the.

Comments on the energy space, obviously that.

Sure Mike.

Yes, with respect to our energy business very much the focus of that business right now is energy transition energy technology and sustainability.

Downstream and services companies.

Okay great.

And then just to maybe quick cleanups for for Gary.

So Gary the tax rate that was used under the if.

If converted method was 31%.

I'm not sure if I missed it but is that the right way to think about that going forward is that is that the tax rate, we should be using in our adjusted.

EPS.

Our forecast here.

Yes, Michael that's really our best view right now for the year.

As is limited in its deductibility for the tax laws.

I should also mention and this is probably an obvious point, but that that non-GAAP tax rate is somewhat theoretical construct for a number of reasons. We're obviously not only trying to model. It out on an if converted basis. We obviously are in a year where half of the year, we were a private company, but it also it also excludes <unk>.

Number of GAAP items, which at least in the current year are leading to a lot of deductions and so the net of all of that is for this year. Our expected cash tax rate as you can see from our GAAP numbers is actually going to be far far lower.

So.

It's still I think it's reflected a 31% is reflective of the best we can do under.

Under the assumptions of non-GAAP, but but I do want to point out that there is going to be that disconnect from cash taxes. This year.

Okay, Yeah, I understand those those are very complicated.

Puts and takes there, but I appreciate the color.

And then just maybe one last one did.

The third quarter include any pull forward from the fourth quarter, just due to the revenue recognition accounting rules and if so can you quantify that.

Sure, we had about $29 million of pull forward from two deals.

That follows on from the second quarter, where there was $17 million from one transaction.

Okay, great very helpful. Thank you for taking.

Taking my questions.

Sure thing.

Your next question comes from the line of Ken Worthington from Jpmorgan. Your line is now open.

Hi, good morning.

Just really one for me.

As we think about liability management and traditional restructuring.

You indicated in the prepared remarks that both were down for the quarter and this is sort of similar to the message we've heard from others on <unk>.

Restructuring broadly.

Hey, good morning, Ken.

Yes, the capital markets advisory business within our firm.

Is.

Quite tied to the M&A business in the sense that.

It's part of the advice that we provide to clients.

So.

And so I would say that and that's been very much the case this year.

But it's also very much.

Part of our dialogue with companies who are in financial distress.

One of the things about our firm is that we don't manage the business by product area, but really more so by clients and client groups.

And of course, all of our industry bankers.

Great. Thank you very much.

And now I would like to turn the call over to Taylor Reid Hart for closing remarks.

Great. Thank you operator, and thank you everyone for joining us if you have any additional questions. Please feel free to follow up with us.

And ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.

Q3 2021 Perella Weinberg Partners Earnings Call

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