Q1 2024 Perella Weinberg Partners Earnings Call
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Good morning, and welcome to the Perella Weinberg first quarter 'twenty 'twenty four earnings conference call.
During todays discussion all callers will be placed in a listen only mode. 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 you Taylor Reinhart head of communications and marketing. Please go ahead.
Taylor Reinhardt: Thank you operator and welcome all joining me today are Andrew Bad Dar Chief Executive Officer, and Alex Gottschalk, Chief Financial Officer.
We begin I'd like to note that this call may contain forward looking statements, including perella Weinberg expectations of future financial and business performance.
Michigan 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.
Taylor Reinhardt: They're not guarantees of future events or performance.
Please refer to perella Weinberg <unk>, most recent SEC filings for a discussion of certain of these risks and uncertainties.
We're 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 Vista Perella Weinberg 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.
Taylor Reinhardt: I'll now turn the call over to Andrew for in order to discuss our results.
Thank you Taylor and good morning.
Today, we reported first quarter revenues of $102 million results that do not reflect the underlying strength of our business.
We are the lead adviser in three of the 15 largest transactions announced year to date, and our announced and pending transaction revenue backlog stands today at a record high for the firm nearly double the level last year at this time.
This quarter, we experienced an unusually large amount of transaction announcements with elongated closing timelines and we're closing in revenue recognition are expected to occur in subsequent periods.
The market backdrop continues to improve especially for larger transactions for many of our clients as market values increased.
Even more scale as needed to move the needle and drive growth. This is something we are seeing across industries and geographies.
Taylor Reinhardt: Long with increased complexity, so we see more corporate carve outs sponsors and joint bids with strategic buyers and asset contribution transactions trends that are broadly aligning very favorably with our stated strategy and our firm's capabilities.
We and our industry also are benefiting from a market that values independent advice more than ever with 14 of the top 20 announced transactions this year, having a boutique as the exclusive or as a co adviser.
The higher for longer consensus on interest rates combined with impending maturities continues to fuel the need for liability management advice and demand from both investors and borrowers for capital solutions remains strong.
But base rates are higher.
Reds have narrowed.
In corporate and sponsor clients have plenty of access to capital it's.
Its financing terms and valuations that present hurdles to transactions not credit availability.
Taylor Reinhardt: Recruiting remains a strategic priority and our mission to scale. The firm, we welcomed the managing director and financial institutions earlier this year and in April we welcomed a new partner with a focus on media and interactive entertainment, including gaming are very active sector, which we believe will be accretive to our business.
We are executing on our growth strategy and enhancing our franchise globally with the addition of exceptional talent and world class clients, who choose perella Weinberg as their trusted adviser.
We are focused on serving our clients with the highest caliber advice strengthening our relationships across corporate sponsors and beyond investing to operate at scale and in turn delivering for our shareholders. We are confident that in time, our reported results will reflect the underlying strength and progress of our business.
I'll now turn the call over to you to review, our financial results and capital management in more detail.
Thank you Andrew for the first quarter, our adjusted compensation expense as a percentage of revenues was 84%. This was the result of a low revenue denominator and does not reflect that on a full year accrual. We expect this ratio to normalize toward our historic target as the year progresses.
Our adjusted non compensation expense was $37 million in the quarter up 7% from a year ago and trending within the range. We indicated on our last call. We continue to manage these expenses prudently to drive earnings shifting to taxes, our adjusted if converted effective tax rate for the first quarter reflects the tax benefit.
It includes the impact of stock compensation awards vesting at a higher price than granted excluding this impact the adjusted tax rate would have been 32% and we expect the full year tax rate to be below 30%.
Taylor Reinhardt: We ended the quarter with a very strong balance sheet with $157 million in cash and no debt on March 1st we successfully completed a 5.75 million share offering increasing our float and trading liquidity, but the offering proceeds and using some of our cash on hand, we expect to settle certain partnership units for tax purposes in Q.
Two which will result in at least a 6 million reduction in our share but once outstanding.
As we've indicated previously proactively managing our share count as a priority.
In the first quarter, we returned 32 million to our equity holders through the net settlement share distributions and dividends and this morning, we declared a quarterly dividend southern cents per share with that operator. Please open the line for questions.
Thank you at this time, if you would like to ask a question. Please press the star and one on your telephone keypad you may remove yourself from the queue at any time by pressing star to once again that is star and wanted to ask a question, we will pause for a moment to allow questions to queue.
And we will take our first question from Devin Ryan with citizens J M P.
Yeah.
Great. Good morning, Andrew Alex how are you.
Good morning, Thank you.
A couple of kind of interrelated questions here on just the pipeline I'm Andrew <unk>.
Marks around.
Your record announced and pending revenue backlog, but just get a sense of what youre seeing in trend in the velocity of deals moving from a mandate to announcements so kind of what you're seeing there and then you talked about the elongation of closings I know that can sometimes just even be deal specific so if you take a step back.
Are you seeing any maybe acceleration in closing speeds just as the environment is getting better as you mentioned thank you.
Yeah. Thanks for the question Devin I think the environment is much better for large deals getting announced and <unk>.
Getting close I think the environment for timelines is similar to what it's been for the last several quarters, which is that there are elongated at every stage of the transaction from beginning of discussion to engagement with a counterparty to announcement and then finally to closing and there are different.
Reasons, along that spectrum for the elongation and I don't think it's anything idiosyncratic to perella Weinberg and our clients I think we're more aligned with larger transactions were more aligned with complexity. So we tend to have transactions that do take longer.
If theres anything new and in that arena to report.
But I think the environment's better for these types of transactions getting announced but they have not improved in terms of timelines in fact, some of the timelines probably or even further along gated Devin.
Okay got it. Thank you and then just one on the comp ratio. So I appreciate this quarters.
More of a placeholder because of the.
The revenue dynamics and the timing as you just mentioned.
Speaker Change: <unk> heard Alex's comments about kind of getting back into that kind of more historical range, how should we think about.
The puts and takes around kind of where comp ratio could settle out just trying to think about some of the things that could potentially create upward pressure.
Maybe things that could create some downward pressure as we think about more of a normalized comp ratio maybe on a full year basis.
Speaker Change: Yes, I think this quarter is really just math right. It's not our best estimate of comp ratio, it's really the math of looking at base comp and payroll and benefits the amortization of prior awards and then.
A modest bonus accrual so.
This really is not designed to be a reflection of you know our comp ratio for the full year. It's.
It's reflective of a abnormally low revenue quarter.
So I don't think its extrapolate a bull to the full year the pressures we see in the.
Broader compensation arena is similar to what we've seen historically I think the increases have abated I think we've absorbed that well I don't think there are any surprises kind of in the in the stack I think we've managed that very very well. This is really about revenue and driving revenue through the course of the year. It's early in the game.
And so I I think.
Our our objective here is to get to target, we're very much on that Paas and.
Again, it's early in the year or two.
Predict where we'll be but we've said in the remarks.
And I'll reiterate that our objective is to get back to our targets for the full year.
And that was in mid sixties target that we've we've always stand behind.
Yeah, Okay, great color I will I'll leave it there, but thank you very much.
Thanks, Kevin.
Thank you and we will take our next question from Stephen <unk> with Wolfe Research.
Hi, good morning.
So good morning wanted to ask why I start with your question Josh.
Specific to the energy space.
Activity has been quite robust theres been a number of sizeable deals and now I'm sorry at least rumored to be in the works for some of the press reports just given your strong franchise in that area just wanted to get a sense as to.
What you're hearing from corporates in terms of dialogue, whether you expect there is gonna be continued robust levels of activity within the sector and how youre positioned for it.
Yes, we've always had a strong franchise in energy, we feel very good about our team and our positioning we had.
A couple of unfortunate near misses during the course of the fourth quarter and the first quarter that happens in the business, where we're involved in a transaction, but we don't quite get to the finish line.
Got a couple in announced and pending which are large which you can see and shouldn't geologic the.
The business is also expanding beyond traditional.
Upstream in.
And the infrastructure and downstream we're now in a very significant way in the energy transition and in renewables and that space looks to.
Be consolidating and <unk>.
Increasing in overall activity for the things that we advised on so we feel very good about energy, obviously, we're watching the developments with the FTC and the overnight and the impact that that might have.
In shale and beyond but we think that's probably a one off but it was interesting for all of us to read about the impending consent decree with Exxon.
Got it and just a clarifying question on the comp ratio commentary. So it sounds as though <unk> revenue weakness more anomalous or at least a function of timing.
We should see some normalization in the comp ratio as revenues ramp certainly the record backlog commentary is supportive of some improvement in revenues is that mid sixties is that a full year comp ratio expectation or is that just your expectation over the course of the year, where the remaining three quarters just as revenues do you start to.
Normalized for that.
Yes, it's really hard for us to try to predict you know.
Quarter to quarter movements, we're very focused on where are we sort of end the year and the overall margin.
We're still committed to targeting that mid <unk> level that we came out with at the time of our listing what happens period over period youre going to have ups and downs around that and so it's just very very hard given the nature of our business not only to predict the revenue flows, but also what the resulting com.
<unk> margin is and I Wanna be unambiguous about what I mean by announced and pending transactions revenue backlog that is not our pipeline. Our pipeline is a very different set of opportunities that we see in front of US which is also very strong but announced impending as all of the transactions that have been announced.
And where we have an engagement letter in where we expect to take the revenue at closing and that's something again, that's corroborated by the Dealogic data as well I know sometimes those.
<unk> are interchangeable and some some folks interchange them, but I want to be very clear that.
That announced and pending.
Speaker Change: Is what we mean that there are transactions that are on their way towards closing.
Understood. Thanks, so much for taking my questions.
Thank you.
Thank you and we will take our next question from Aidan Hall with K B W.
Great. Thanks for taking my questions.
I wanted to touch on some of the revenue dynamics in the quarter. How are the <unk> call. It was noted elevated levels of restructuring liability management as well as strategic M&A.
Obviously this quarter wasn't reflective of the M&A activity and the record pipeline levels. There are announced pending levels that you're speaking to but so I'm wondering if you could touch on the mix of revenue this quarter between M&A and financing and capital solutions business and a reasonable expectation from a mixed standpoint.
For the remainder of the year.
Yes, as you know we don't disclose the specific mix, we're seeing a pretty similar development of that over the course of the last quarter plus I think by the time, we get to year end it'll be.
Similar.
Mix that we've had over time.
You're going to have a lot more growth coming through the end of the year from the M&A business just based on my remarks, a few seconds ago about the announced impending thats largely M&A related.
But our our liability management business in what we call financing and capital solutions is a much broader business now and not just core restructuring. So we look at that broad business compared to our traditional M&A business.
Speaker Change: The mix, probably will wait a bit more toward M&A, but not a material change from what we've seen in the last couple of years on the mix.
Got it okay. Appreciate the color, maybe just switching gears to the recruiting environment.
Andrew you've previously mentioned that you expect it to remain an active year in 2024. So maybe can you just contextualize for us we're seeing a lot of that activity whether by region sector our strategy and.
Maybe just for modeling purposes, our partner head count at quarter end.
Yes, the partner head Count was 62 at quarter end, we have one.
70, who joined in the Fig space and one partner who joined in the interactive media space I think we mentioned that in our COO.
Comments.
The recruiting environment is still very good environment for I think our industry and particularly movements away from large money center institutions I think that trend is continuing.
Do you think some of the dialogue is just a bit slower than what I saw when we were seeing last year.
That's a function of people being a bit busier and also just seasonally.
Typically first quarter people wait to see their annual compensation, and then make decisions and move toward making changes through the second and third quarter, which then you don't see until fourth quarter plus because then you have a garden leave and non competes et cetera that delay the arrival of some of that.
Some of that recruiting.
Do you think that a busier environment for for many of US has led to a bit of a feel.
The elongation of the recruiting pipeline as well, but its still active dialogue is very high and the trending is still similar to what we saw.
Last year.
Great I'll leave it there thanks for taking my questions.
Thank you.
Thank you and we will take our last question from James <unk> with Goldman Sachs.
Good morning, and thanks for taking my questions.
James: So maybe just starting on the revenue side, given the starting point and your comments that this quarter's result is not representative of the strength of your business given the strong backlog et cetera, I think the range of outcomes for your revenue going forward as perhaps wider than normal with that in mind is there anything that you might be able to offer to help us think about the revenue build over the course of this year.
And you know into 2025.
Yes, I'm not sure it's wider than normal I think we're just looking at a different timeline I mean literally the first quarter.
We're sitting here and kind of continuous game.
We have to just stop in 90 days and tell you what our financial history is and that's what we've done but.
The types of transactions, we're involved in and the time to closing.
It's very very difficult to predict exactly which period. The revenue will be recorded we feel very good about the team we have on the field we feel.
Feel great about the clients that we're working with.
And.
Our revenue just comes in over time, and very hard to predict the period to period.
I think we are our objective is to grow our revenue, we do that by putting more people.
On the ground on having the right kind of coverage of clients and the right kind of product experts on the field.
We're adding that talent, we're acquiring new clients. The business is progressing well. It's just this quarter in particular for those 90 days, we didnt record. The revenue that we had hoped for because of transactions that are going to close at a subsequent period. So.
I'm not sure.
Certainly don't.
I agree that the range of outcomes is wider but in any given period.
That may be true, but that's just a function of again when things happen to close or get pushed out.
Understood. Okay, maybe just on the non comp.
They were in the guidance range for single digit year on year growth any updates on the non comp.
Expectations for the full year.
Yeah.
No I think where we highlighted last year that we were going to be.
James: Up around 7% I think is what we remark and Alex will correct me, if I misstated that but.
We saw a bunch of inflation last year, we had some double rent last year, we're starting to.
Put that in the rearview mirror, where youre getting much more efficient in certain parts of our tech stack, we have gotten rid of the double rent or fully settled into our offices. So that's behind us.
James: We are going to see a ramp up in G&A, but that's a good sign that's effectively our investment and our teams and our talent and our clients and so I think thats a part of our <unk>.
Non comp that I look to back out and not really think of as an expense, but more as capex.
So nothing that.
I think we're you know we're not anticipating any significant moves from where we've indicated.
On our last call.
Okay very clear and then just lastly, a quick update on the capital return plans and share count.
Given the puts and takes around the recent issuance and the fact that you didn't do any open market repurchases this quarter.
On the buyback going forward and then perhaps are there any other material drivers of your share count that we should be thinking about over the course of the year from additional share unlocks.
Yeah look we our owner operators as I've said in the past we own as a <unk>.
Employees and partners, some 50% of the firm and so where we're very focused on the.
The impact to share count were a buyer of our stock and have many many ways that we can effectively manage share count and so when we look to use our capital to manage share count we really look to the ways that we can get size and at a price and with the lease cost and police market friction and doing so through a net settlement.
And now with the offering proceeds will have another six plus million shares that we buy in related to our partnership units.
So if you look back since our listing in June of 'twenty, one and with that upcoming.
Upcoming Q2 repurchase we've.
Repurchased over 25 million shares with <unk>.
Returned over 275, or so million and cash through repurchases and that added to a $75 million dividend over that three year period, We've returned 350 plus million dollars.
Through those mechanisms. So we will continue to be very prudent as Alex said in the upfront comments, we put as a priority managing our share count.
Other than the <unk>.
Net settlements that we traditionally see.
Plus the Q2, which is anomalous where we're going to have a little over $6 million and net settle that will buy in.
We will have an exchange through the course of the year that we'll have opportunities to buy back shares, but my my senses will.
It will be quite a lot ahead of certainly our modeling on where we thought we'd be on the buyback front. So we're managing share count very well and it's.
Mitigating significantly all of the stock based compensation.
That we issue on an annual basis, but nothing else that I would add to that James in terms of modeling.
We're just in a bit of an aggressive buyer of the stock. It just didnt is indifferent in different venues that we do that.
Very helpful. Thank you.
Thank you. It appears that we have no further questions. At this time I will now turn the program back over to Andrew <unk> for any additional or closing remarks.
Okay, great. Thank you operator, and thank you everyone for joining all of our stakeholders. We appreciate your support and confidence and Perella Weinberg and we look forward to connecting again next quarter. Thank you.
This does conclude today's program. Thank you for your participation you may disconnect at any time.
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