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

Thank you, operator, and welcome to our third quarter 2023 earnings call. Joining me today are Andrew Bednar, Chief Executive Officer; and Gary Barancik, Chief Financial Officer. A replay of this call will be available through the Investors page on the company's website approximately 2 hours following the conclusion of the slide broadcast through November 14, 2023. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, November 7, 2023, and have not been updated subsequent to the initial earnings call. Before we begin, I'd like to note that this call may contain forward-looking statements, including 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 Andrew Bednar to discuss our results.

Thank you, Taylor, and good morning. Today, we reported third quarter revenues of $139 million, down 4% from a year ago, and year-to-date revenues of $436 million, down 3% from a year ago. Our results, produced against the backdrop of a slowly recovering global M&A market, demonstrate the resiliency and the strong foundation of our trusted adviser business model. During the third quarter, we experienced an increase in announced activity across our sectors, with our backlog up meaningfully both year-over-year and quarter-over-quarter, while announced volume in the M&A market broadly is flat to down slightly for the same periods. Our revenue booked in the quarter does reflect a lag effect from lower announced volumes in prior periods with the elongated timelines causing a calendar adjustment in our backlog. Our energy, health care, and technology franchises, in particular, contributed favorably to M&A revenue in the quarter. And within our financing and capital solutions business, we had an increase in restructuring revenue that partially offset a decline in capital raising revenue. Our restructuring business remains very active. We continue to be a lead adviser on the largest bankruptcy in the market today. And on our other key mandates, we are assisting clients with navigating through an increasingly complex credit market on exchanges, amendments and extensions of existing indebtedness. In our capital markets advisory business, we are seeing more clients seek independent financing advice in connection with transactions as well as on a regular way basis. We recently made investments in debt advisory and shareholder engagement analytics and activism, and we are very encouraged by the early returns. Moreover, the dramatic shift toward private credit is a once-in-a-generation move. It has been, and we believe will continue to be a tailwind for our business, both for our corporate clients as well as for sponsors. On investment, we focus on areas of secular growth that leverage our platform of expertise in industries, products, and regions in order to capture more non-linear growth opportunities. Ongoing investments in our current businesses and adjacencies position us well to best serve our current clients and grow our client base without the need to diversify away and distract from our core business of providing strategic and financial advice. The upside from simply executing on what's in front of us is very strong. In 2023, we added six advisory partners and seven managing directors, and we have an additional two partners committed to join the firm. Today, we have about a third of our partners in their seats for less than three years, so the growth potential already embedded in our platform is substantial. Here at Perella Weinberg, we are laser-focused on execution, and we're seeing our efforts bear fruit. Our announced backlog is trending up ahead of the broader M&A market recovery, and we are continuing to deliberately and prudently invest across the cycle to enhance our capabilities to reach and serve more clients globally. As we approach the holidays, I want to say how thankful I am for three things: the hard work and dedication of our teams around the globe, the deep and loyal relationships we've built with our clients, and the continuing support we have from all of you, our investors and analysts. Before I turn the call over, Gary, on behalf of Perella Weinberg, I want to thank you for your years of service to your colleagues and to the firm and for your partnership, strategic counsel, and your friendship. You have been a tremendous leader and colleague, including as an invaluable resource and adviser both through our transition to a public company and in my transition to CEO. We are well positioned for the future because of your disciplined approach to financial leadership and as a result of the excellent job you did in transitioning the CFO role to Alex Gottschalk. Gary, thank you, and now over to you.

I'd like to start by taking a moment to thank you, Andrew, and also Joe and Peter and the rest of my incredible colleagues here at PWP, as this is my final earnings call. I'm immensely grateful for the 17 years I've spent working with all of you, and the opportunities this firm has provided along the way. After serving as an M&A partner since PWP was founded, it's been incredibly rewarding to take the firm public as a CFO, and over the past few years, it's also been a great pleasure to get to know our research analysts and investors. Now turning to our results. As Andrew already spoke to the top line performance in his remarks, I'll begin with a review of our expenses. Our adjusted compensation expense represented 67% of revenues in both the third quarter and the year-to-date period, reflecting our best annual estimate as of quarter end. Our adjusted non-compensation expense was $34 million for the third quarter and $105 million for the nine months. Adjusted non-compensation spend is up 16% year-to-date compared to the same period last year, tracking within our previously communicated guidance range about 15% to 20% for 2023, reflecting investment needed to support growth. Year-to-date, we've returned a total of $57 million to investors through repurchases, net settlement in lieu of share issuances, common stock dividends, and pro rata distributions. Additionally, this morning, we declared a quarterly dividend of $0.07 a share. We continue to maintain a strong capital position and are committed to returning capital to shareholders that is not earmarked for strategic investment or needed to support our business operations. With that, we'll now turn the call back to the operator to open the line for questions.

And our first question will come from Devin Ryan with JMP Securities. Your line is open.

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

Good morning, Devin. Thanks. How are you?

Good. I want to echo the sentiment to Gary. It's been a pleasure to get to know you and working with you, and you did a terrific job. So you'll be missed, but hopefully better things in the future for you. So hopefully, stay in touch.

Thanks, Devin.

I want to start with the environment. Andrew, you mentioned the backlog improving, seemingly ahead of the M&A market. Can you elaborate on that? What is the current status of the backlog? Are the deals in the backlog progressing toward announcements? Additionally, what feedback are you receiving from clients regarding their willingness to move forward on transactions that have been pending for a while? Thank you.

Yeah. Thanks, Devin. I think the macro backdrop continues to be challenging, no question about that. And I think increasingly complex for decision-makers. And what we have seen from our client base is rather than waiting for a better or different environment that may be more conducive to strategic moves, I think our client base and probably others out there are accepting the conditions as they are today and making decisions in the context of today's environment. So I think the waiting game is over. People have to move on with their business and with their planning, and with, in some cases, strategic changes, in some cases, financing changes. Broadly, for our business, as you know, we're less tethered to the overall M&A market because of our size. So we can continue to have outsized gains relative to the broader market just given our scale relative to the size of the market.

Got it. Okay. That's helpful. And then just another one here on advisory on the restructuring business. I appreciate that there was a little bit more contribution from that business this quarter. Some of your peers have really seen kind of an acceleration in year-to-date revenues based on kind of the type of business they're doing in restructuring. When you look at the mandates that you guys are on in restructuring, because we're tracking more mandates for Perella Weinberg as well. Have the revenues come through yet kind of to the degree of the mandate increase? Or do you feel like the restructuring story for you guys is much more of a kind of a 2024 kind of contribution?

Yeah. Thanks. We are seeing an increase in activity for our restructuring team. We had an increase in revenue period-over-period, as I mentioned in my upfront remarks, and that did offset some decline in our financing business. I think a lot of the mandates are longer term. As I mentioned, we're involved in one of the largest bankruptcies in the market. Those are long-term assignments where the revenue does lag the engagement and initial activity that we see. So we do expect that revenue will be into '24, less about in the near term, but more into '24 as we see our activity increase today.

Got it. That makes sense. Okay. I’ll leave it there, but thank you so much. Appreciate it.

Thanks, Devin.

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

Good morning. Thanks for taking my questions. Firstly, Gary, it's been great working with you and good luck in the future. Maybe we can just turn to the M&A trends here. So a longer-term one and then a shorter-term one. The longer-term one is just how you're thinking about the cadence of the eventual industry M&A recovery? And then in the short term, just how you're thinking about the seasonality for the fourth quarter, typically, that is obviously the strongest quarter across the industry. So is that something that we should expect for you as well?

Yeah. I think on the broader M&A market, we have seen flashes of light that have been quite positive, but they haven't been as steady as I think I and the rest of the industry would like to see. So we've had speed bumps along the way. We've had moments where we thought we were getting into a more sustained recovery, but I think we've been met with some obstacles along the way. That being said, as I mentioned earlier in response to Devin's question, we are seeing a change in the client receptivity and in client reaction to those market conditions being more about let's get on with our business and get on with key decisions rather than waiting. So I think that is a healthy sign that people are willing to travel through choppy waters because it doesn't seem like the choppy waters will abate. I think with respect to your question on seasonality, historically, we and the industry have had stronger fourth quarters relative to other quarters. I think we are starting to see some of that emerge again and get back to that pattern of stronger fourth quarters. And I do expect that to be the case.

Okay. That's super helpful. And then on the comp ratio, I think you generated very strong comp discipline this quarter. It was better than expected, better than most peers despite your strong hiring over the course of the year. Maybe you could just talk about how you're thinking about the ability to generate comp leverage over the next few years. And any reason why we shouldn't be able to get back to a more normalized level of comp ratio over the next couple of years in a more normal environment?

Yeah. So first, we put out our comp ratio based on quarter end. That is our estimate. We have a very close look at the fourth quarter. That's usually when we determine what the annual comp ratio will be. So all the action really is in the fourth quarter, not in the lead up to the fourth quarter. And given the scale of our business and the potential for significant fee events to move from period to period, we have to watch that closely as we head into year-end. As I've said historically, that in part, comp is really CapEx, and we got to make sure that we are keeping our assets in place and incentivized properly for the long term. And I know that a lot of investors and analysts like to think quarter-to-quarter, but we have to think much longer term, and we're kind of playing cricket more than we are baseball. So we look out many, many years in thinking about our assets and making sure that we've got our best people in place and incentivized to keep driving our business. So I think there's no reason to think there's a structural change in compensation ratios in our business or across the sector. But when we do go through turbulence, you do have to make sure that, again, you're investing behind the team and also taking advantage of opportunities to grow the team appropriately. And we've had a very disciplined approach to growing our partnership. We want the best people. We don't want to simply add to the partnership just to say we've grown it, and we will continue to be disciplined around that. But we'll have moments where we have to invest behind the team. And again, in turbulent conditions, you will see the comp ratio jump around a bit.

Okay. That’s very clear. Thanks so much.

Thank you.

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

Good morning. This is Brendan O'Brien filling in for Steven. I guess to start, Gary, congrats on the new role and best of luck. It's been a pleasure working with you. I guess turning over to my question, just at the start, I wanted to just ask on Europe. From what we can see in the public data, it seems like activity in the region has been running at similar levels to the U.S. However, we've seen some bifurcation in the strength of the U.S. and European economies. Given these trends, I was hoping you could compare your dialogues with U.S. and European clients and whether there's any differences in the tone of dialogues following the conflict in the Middle East?

So thanks for the question. Broadly on volumes, of course, you can see the data as much as we see it. Europe is a bit weaker than the U.S. in terms of what we see as a recovery in place, albeit not as strong as we'd like to see it. European activity is lagging. I think in terms of the conversations that we see both through the course of the recovery, but also post the events of October, we don't see a material difference in the nature of the dialogue at all. And if anything, in times of complexity and increasing range of uncertainty in the marketplace, that's when our business thrives. And it sometimes takes time to see the revenue effects from those types of activities, but when decision-makers are pressed with having to move forward a business and make critical strategic and financial decisions in the midst of geopolitical risks of credit market, which is still quite challenging, and generally, just this widening of the range of uncertainty as people think about their scenario planning, that's when advisers get called. And so we feel good about the nature of the dialogue. We feel good about our franchise. And complexity, in our case, is a friend to the business.

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

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

All right. Thanks for taking my questions.

Thank you.

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

Great. Thank you, operator. And again, thank you, Gary, and wishing you best of luck on your next endeavor. Obviously, the support from the analyst community is very clear. And thank you all for your continuing support of Perella Weinberg, and because we won't talk again until '24, I want to wish everyone a happy holiday season and a reflective one for all of you, and look forward to speaking again in early 2024. Thank you.

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