Good morning, and welcome to the Perella Weinberg Partners Second Quarter 2022 Earnings Conference Call. I will now turn the call over to Taylor Reinhardt, Head of Investor Relations. You may begin.

Thank you, operator, and welcome to our second quarter 2022 earnings call. Joining me today are Peter Weinberg, Chief Executive Officer; and Gary Barancik, Chief Financial Officer. A replay of this call will be available through the Investors page of the company's website approximately two hours following the conclusion of this live broadcast through August 11, 2021. For those of you who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, August 4, 2022, and have not been updated subsequent to the initial earnings call. Before we begin, I'd like to note that this call may contain forward-looking statements, including PWP's expectations of future financial and business performance and conditions 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 Peter Weinberg to discuss our results.

Thank you, Taylor. Good morning, and thank you all for joining us on our second quarter 2022 earnings call. Before I give some color on our financial performance, on the occasion of being public for just over a year, I wanted to put into context our aspiration and journey to become the leading global independent advisory firm. When we first approached public market investors in the fall of 2020, we articulated a very precise vision for our firm to grow our leading independent advisory franchise by broadening and deepening client relationships by expanding the suite of our advisory services and by adding best-in-class talent to the team. We saw an enormous market opportunity, and we felt the firm was exceptionally well positioned to capitalize upon it. Our pursuit of that goal would remain undaunted in booming operating environments and in stressed economic times. While we've tested the bookends of those extremes in our public life. In 2021, global M&A volume was at a record $5.8 trillion. Our revenues were up over 50%, and our earnings were up over four times the prior period. In 2022, we're facing very stressed macroeconomic and geopolitical conditions without any clear indication of improvement in the near term. Our mindset in this volatile and challenging environment is that the opportunity for our firm is greater even than it would have been in more stable and robust economic environments. We are focused on leaning into this market, investing, and capitalizing intelligently so that when the cloud eventually parts, our positioning will have only strengthened. We continue to attract great talent to the firm from universities all the way up to partner. Particularly with senior bankers, we're finding our access and yield has never been higher. Since 2020, we've added 16 advisory partners. In 2022, so far, we've promoted three advisory partners from within the firm and another five have either joined or agreed to join the firm. Every one of these additions were in high activity industry subsectors and product areas that we had strategically targeted years ago, including private capital placement and capital structure solutions. Looking forward, we continue to have a clear roadmap of where and when we want to grow to meet our mission. Strategic dialogue with our clients around the world has remained extremely active, yet transaction announcement and closing timelines are elongated compared to prior periods. The number of new clients retaining our services remains robust, and we are continuing to see high levels of engagement across our platform. There has been an understandable increase in focus from the investment community on the timing of a pickup in restructuring activity and the potential contribution of this revenue stream. Today, even more so than three months ago, we're seeing the combination of inflation, rising rates, and supply chain issues, putting pressure on balance sheets and causing increased demand for liability management services. While liability management and restructuring mandates and fee events can take time to materialize, we are seeing an increase in these conversations, which we believe may contribute favorably to our 2023 results. This environment also creates opportunities for the firm as we return capital to shareholders. Year-to-date, in addition to the funding of our quarterly dividend, we have bought back 15% of our total Class A common shares outstanding based on our March 31, 2022 basic share count via open market repurchases and net settled shares to satisfy employee tax obligations in lieu of share issuances upon vesting of equity grants. Collectively, we've returned nearly $70 million in capital. Additionally, we announced the commencement of an exchange offer for our warrants into common shares. Gary will go into more detail on these matters in a minute. Now, turning to the quarter. This morning, we reported second quarter revenues of $151 million, about flat with our first-quarter results. Our second quarter revenues turned out to be well higher than we had anticipated on our first-quarter earnings call. I would characterize this improvement as primarily due to timing. We currently expect revenues for the back half of the year to be relatively in line with our first half results, but transaction timing and changes in market conditions could impact this expectation in either direction. To wrap up, we believe we are on a path of sustained long-term growth and are continuing to invest in our future by expanding our capabilities and reach. Periods of more muted M&A activity have allowed us the opportunity to aggressively invest in talent, and we expect to take advantage of today's market and use it as an accelerant to grow our market share and scale. We believe the opportunities in front of us are enormous and will provide many years of future growth potential.

Thank you, Peter. As Peter mentioned, revenues for the second quarter totaled $151 million, a decrease of 41% from the prior year period. Our first half revenues were $303 million, a decrease of 29% from the prior year. Our prior period results presented us with challenging comparisons with record-setting performance in the second quarter of 2021, driven by an elevated level of large fee transactions. The year-over-year decline for both periods was driven by a reduction in activity across the platform, particularly in mergers and acquisition advice relative to record 2021 results. Our second quarter and first half saw fewer advisory transaction completions and a decrease in average fee size for clients. Our second quarter results included a recognized revenue amount of $8 million from a transaction that closed at the start of the third quarter, in line with relevant accounting policies. This compares to $17 million, which was similarly recognized in the prior year period. The first quarter period did not include any transaction fee revenue from closings early in the second quarter of 2022. My following comments will focus on non-GAAP metrics, which we believe are relevant in assessing the financial performance of the business. Our GAAP measures and a reconciliation of GAAP to adjusted results can be found in our earnings press release, which is on our website. On the expense side, in the second quarter, we accrued adjusted compensation expense of 64% of revenues. We'll continue to evaluate the business environment as the year progresses, but I expect that our full year adjusted compensation expense margin will be in line with our prior medium-term guidance of the mid-60s ratio. Our adjusted non-compensation expense was $31 million for the second quarter, up 4% year-over-year, although down 4% quarter-over-quarter, and represented 21% of our revenues. We currently expect our full year 2022 non-compensation expense, exclusive of travel, meals and entertainment to be in the range of $120 million to $125 million, which is below our previous estimate. We saw T&E pick up a bit in the second quarter to just over $1.2 million per month. And while this level may be more representative of the new normal, it still remains about 25% below our pre-COVID 2019 average run rate of $1.6 million per month. As discussed on prior calls, lease expirations, combined with our significant recent and anticipated growth has necessitated adding space in both our London and New York headquarters. These two real estate projects will provide an increase of nearly 20% over the amount of space currently occupied by PWP's advisory businesses in those cities. In spite of taking on this additional space, our run rate GAAP lease expense per square foot will be significantly less under the new leases compared to the old leases. In the near term, we will incur some one-time accounting double rent related to the new leases in both locations. In London, we plan to relocate to a new building in early 2023 and expect to incur $1.5 million in double rent for accounting purposes for the period July 2022 through January 2023. In New York, we are expanding our space in our current building and expect to complete renovations in September 2023. In this location, we expect to incur $5.4 million in double rent for accounting purposes for the period September 2022 through September 2023. Firm's out-of-pocket build-out costs related to these headquarters are expected to be in excess of $50 million, further mitigated by over $20 million in free rent. We reported adjusted operating income of $23 million in the second quarter and an adjusted operating margin of 15.4%. Our adjusted nonoperating income of $5 million for the second quarter and $7 million for the first half included approximately $4 million and $5 million, respectively, of net gains related to FX revaluation and realizations. The majority of this income resulted from our foreign subsidiaries holding dollar-denominated cash and net intercompany receivables while the dollar strengthened significantly during the period. Because our consolidated financials are reported in dollars, we don't believe that these types of FX gains or losses on dollar-denominated financial assets of our foreign subsidiaries have economic substance to our consolidated business. Adjusted net income totaled $23 million for the second quarter. Our adjusted if converted net income for the second quarter was $20 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 $0.22 for the three months ended June 30, 2022. For the year-to-date period, our adjusted asset converted tax rate was approximately 29%, moderately below our rate in the first quarter. Our asset converted tax rate is a theoretical figure as it is computed ignoring certain GAAP items excluded in our adjusted reporting, which may have positive or negative tax attributes. In addition, it assumes all partnership units were exchanged for shares of the company's Class A common stock, resulting in all the company's income being subject to corporate-level tax. Peter mentioned in his remarks, in 2020, we laid out a very clear vision for the firm. An important component of that vision was the intention that over the long term, we would return significant capital to our shareholders. The recent environment has provided a very attractive opportunity to return capital through share repurchases as well as dividends. As such, year-to-date, we've returned nearly $70 million through the repurchase of more than 7 million shares in the open market, the net settlement of over 600,000 shares to satisfy tax obligations in lieu of share reissuances and the payment of $13 million in pro rata distributions to limited partners, which allows PWP to pay its dividends of $6.6 million. To date, we've utilized approximately 50% of our $100 million repurchase authorization, which commenced at the end of March. The Board has declared a quarterly dividend of $0.07 per share payable on September 12, 2022, to holders of record as of September 2, 2022. As of June 30, 2022, we held $265 million of cash, cash equivalents, and short-term investments in U.S. treasury securities and no debt and had an undrawn revolving credit facility. Finally, on July 22, we announced the commencement of an exchange offer and consent solicitation related to our outstanding warrants. We're offering to all warrant holders the opportunity to receive 0.2 shares of Class A common stock in exchange for each warrant tendered in exchange. If 100% of the $7.8 million warrants outstanding were to be elected for exchange at this ratio, we would issue about 1.6 million shares of Class A common stock to satisfy the exchange. The tender offer is set to expire on August 18, 2022.

Gary, thank you. I would just conclude by saying that these are tough days for our industry, for our clients, and for many people around the world. We believe our business model and our firm will sustain in any economic environment, and we are steadfast in our commitment to provide long-term growth. Operator, we can now open it up for questions.

We'll take our first question from Devin Ryan with JMP Securities.

I appreciate the outlook, particularly for the back half of the year. From the outside, what we're tracking, the pipeline looks like hanging in pretty well, maybe even growing a bit, but at the same time, we are hearing from a lot of your peers about the elongation of just timing of deals kind of moving through the pipeline and closing. So the question is, if you can just touch on how you would actually characterize the pipeline itself. And then interrelated, when you think about the back half outlook, does that imply the elongation theme continues, gets worse? And are there any maybe early green shoots that the market could be moving into a better balance as well?

I am optimistic about our sector and our company in the intermediate and long term, but I remain cautious in the short term. We are not completely beyond the challenges posed by the current environment. As you are aware, we are experiencing a higher cost of capital in both credit and equity markets. Volatility and uncertainty have disrupted confidence, largely due to macroeconomic factors. However, there are some positives. Our pipeline is only slightly below last year's levels, although our backlog has decreased significantly. This reflects the current situation, where we are all very busy, but transactions take longer and are more challenging to finalize. I would also note that our clients' intentions have remained consistent; what was a good idea last year is still a good idea today, albeit more difficult to implement. Additionally, we are observing that the strong are looking to leverage their advantages to achieve strategic goals, while the weak are compelled to execute transactions out of necessity. This is the outlook we foresee for the remainder of the year.

And then maybe just one for Gary on share repurchases. I think people are very pleased to see how aggressive the company has been leading in particularly in this environment and share price. If the stock remains I'll call it in the similar ballpark, could we see a similar pace to the first half of the year continue on repurchases? And just how are you thinking about capacity beyond this first $100 million, just considering some of the other moving parts you've highlighted like the space build-out? The flip side is you're still generating very strong cash flow even in this environment.

Our commitment to returning excess capital to shareholders over the long term is obviously core to our strategy. That said, we really don't comment on the specific cadence of the anticipated repurchases going forward or potential changes that our Board may want to approve in terms of future increases to the current program. I will say and kind of reiterate that the environment, as you mentioned, was quite attractive for share repurchases in the quarter, not only due to where the stock price was, which we think is a very attractive purchase point, but also just that we had relatively high trading volume in the quarter, which we think was largely driven by some of our shareholders, particularly hedge fund shareholders who were exiting. And so that provided an opportunity in the quarter as well. We have repurchased, as Peter mentioned, about 15% of our Class A common stock. So we're kind of mindful of liquidity as well. And so those are all considerations that as we think about the future, we'll keep in mind.

We'll take our next question from Richard Ramsden with Goldman Sachs.

So Peter, maybe you can just talk a little bit about the relative engagement from corporates versus financial sponsors and how that's evolved over the course of the year and what you're expecting in the second half. And I'm particularly interested in how you're thinking about the change in financing conditions for those two client subsegments and how you think that's going to impact activity as you think about the next six months?

Regarding sponsors, there is between $1.5 billion and $2 trillion in available capital that is currently inactive but will not disappear. A few months ago, I believed that the drop in valuations would exceed the rise in credit costs, leading to increased activity. However, that has not yet materialized in terms of new deal initiation. There remains considerable activity within the sponsor sector, though it's focused less on fresh deals. We anticipate that the market will eventually find its balance and transactions will take place. Currently, we are in a challenging phase where determining prices is difficult. While there is significant financing capacity available, the existing risk tolerance is lower. We see this market as being poised for action, but it’s uncertain when that will happen. This reflects our observations related to sponsors so far.

Okay, that's helpful. As a follow-up, are the challenging financing conditions benefiting the capital advisory business? Could you share some insights about the dynamics within that business? Additionally, is the growth rate in that sector different from what you anticipated three or six months ago?

Yes. That theme that you identify is absolutely evident in our business. I mean we really look at our debt advisory and capital solutions business sort of under one umbrella. And whether that's in the restructuring space or advising companies on issuing credit or advising on equity. And so it is more active now because that topic is very much a strategic topic with almost all our clients right now. And that is different than it was, I would say, six months ago and has indeed increased the dialogue on that subject with our clients.

We'll take our next question from Steven Chubak with Wolfe Research.

Maybe a somewhat more nuanced question just on the advisory outlook by geography. Certainly, especially in light of this morning's announcement of the U.K., reinforcing just elevated recession risk. It feels like that's a broader concern as it relates to Europe. You do have a pretty strong franchise in the region. I was hoping you could just provide some context as to how you're thinking about the advisory outlook across the different geographies.

Europe currently presents a contrasting situation. On one side, there are significant challenges such as the war in Ukraine, major disruptions in the energy sector, high stress on national budgets and debt levels, along with ongoing issues related to a recession, inflation, and supply chain disruptions. This creates a perfect storm in the region. On the other side, we’ve observed some intriguing developments that are driving activity in Europe. For instance, while July’s M&A numbers in Europe appear more favorable than those in the U.S., we attribute this to urgent areas that are generating activity. Sectors like energy transition, including renewables, energy technology, hydrogen, and electric vehicle infrastructure, are fostering movement. Additionally, large corporations in need of capital, unable to secure it through traditional financial markets, are often selling assets, particularly in the infrastructure sector. There’s also a notable lag in consolidation within telecom, banking, and other industries. Moreover, there’s an increase in start-ups within fintech, mobility, and healthcare. Thus, while there are numerous concerns in Europe, there’s also a different narrative that keeps us engaged in the market.

And for my follow-up, Peter, you had mentioned that you're looking to take advantage of some of the recent disruption and investment opportunities that might be emerging. I was hoping you could provide some context as to what level of gross partner adds we should be contemplating? And whether you can sustain a 64% comp accrual while leaning into some of those investment opportunities given the more challenging revenue backdrop you cited?

Yes. So this year, just to level set, we have either elevated or hired or have agreed to hire eight partners; three are promoted from within the firm and five are either here or have agreed to join. Last year, the apples-to-apples number to eight was 10%. We elevated three partners internally and hired seven, and we're not finished in the year yet. Of course, we're only in August. We definitely have our eye on a very specific growth plan in the firm. It's the same plan that we articulated when we entered the public market. And we will continue to hire partners. We feel that they are open to conversations almost without exception. And we think there's still an enormous supply of bankers who will enter the independent space, whether it's us or someone else. So that's our strategy is very much to grow through the hiring of partners, and we will continue to do that.

Yes. And Peter, I'd just add on comp margin, as you saw, we've continued to accrue for the year at 64%. That's sort of our best estimate as of today. I think our view for the year is we're still quite comfortable with our medium-term guidance, which is a mid-60s comp ratio. And we're not going to get more specific than that right now, but that's really kind of the state of where we see things today.

We'll take our next question from Michael Brown with KBW.

So Peter, I appreciate the commentary on the restructuring business and the latest trends that you're seeing there, and you noted that there's potential for some pickup in 2023. Can you just talk about the size of that restructuring and debt advisory business either in terms of the revenue contribution or the dedicated partner headcount for that business to try to think about what that potential lift could be next year?

Sure. Well, to answer your specific question, we have seven partners in our restructuring business, and we have a broader set of partners in our overall capital solutions business, which really covers the broad topic of credit advice with respect to our clients. I will just make a comment on the restructuring opportunity and elaborate a bit on what I said a minute ago. Right now, distressed companies are still benefiting from the capital that was available to them last year and before. But the reason that we're positive ultimately on the restructuring opportunity is because right now, the high-yield index is around 300 basis points higher than it was. But for even more stressed companies, say, CCC companies, interest rates are twice what they were. So that's going to cause a challenge, particularly when you look at maturities coming forward of both high-yield bonds and leveraged loans, which in the next three years is almost $700 billion. And so we feel that our firm is well-positioned for that. As I said, it's not going to happen tomorrow because of the capital that was raised last year and before, but we do believe it's coming.

I would like to add that our visibility on this matter isn't very strong at the moment. Many companies have some breathing room, and if there is a significant improvement in rates and the overall environment, it could lead to increased activity next year. We are facing a highly volatile situation, so the extent to which our restructuring contributes next year will largely depend on the developments in the environment in the meantime.

I guess if you had to frame it maybe historically, and I understand your business has been evolving quite a lot over the last few years. But if you could frame it historically, I guess, what has been the rough contribution? And then when you're thinking about the restructuring outlook here, is there any additional color on where you're seeing some of that opportunity? I'm sure it's across sectors, but is it potentially going to pick up more in Europe first and then the U.S.? Any view on rest of world here? Just any additional color would be helpful.

So we don't disclose, as you know, the contribution of our restructuring business or our credit advisory business to the total. But what I will say is that if you look at the market and you look at the industries that are most represented in the distressed category. So I believe that approximately half of all CCC credits and leveraged loans trading at less than 80% are in the TMT space, the health care space, and the industrial space in that order. And so that's as good a proxy as any for the areas of activity in the restructuring space going forward.

Maybe just one clarification for Gary. The second half guidance on revenues. Is it fair to expect that that's a bit more fourth quarter weighted just given the seasonality of advisory typically?

I think, as you've seen from this recent quarter, the ability to predict revenue timing from one quarter to the next is not very reliable. Therefore, I'm not going to make any predictions about how the allocation will break down between Q3 and Q4.

This concludes the Q&A portion of today's call. I would now like to turn the call back over to Peter Weinberg for any additional or closing remarks.

Great. Thanks, operator. Thank you, everybody, for joining the call. We appreciate it. Please feel free to follow up with our team, and we look forward to chatting with you at the next quarter.

This concludes the Perella Weinberg Partners second quarter 2022 earnings call and webcast. You may disconnect your line at this time, and have a wonderful day.