Earnings Call Transcript - PWP Q2 2025

Operator, Operator

Good morning, everyone, and welcome to the Perella Weinberg Partners Second Quarter 2025 Earnings Conference Call. Please be advised that today's call is being recorded. I will now turn the call over to Taylor Reinhardt, Head of Communications and Marketing. Ms. Reinhardt, please go ahead.

Taylor Reinhardt, Head of Communications and Marketing

Thank you, operator, and welcome all. Joining me today are Andrew Bednar, Chief Executive Officer; and Alex Gottschalk, Chief Financial Officer. Before we begin, I'd like to note that this call may contain forward-looking statements, including Perella Weinberg'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 Perella Weinberg'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. 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. I will now turn the call over to Andrew Bednar to discuss our results.

Andrew Bednar, CEO

Thank you, Taylor, and good morning. Today, we reported second quarter revenues of $155 million and first half revenues of $367 million. While we experienced some variance in reported results this past quarter, the leading indicators in our business, specifically our active engagement count and our gross revenue pipeline are at peak levels. Our first half revenues were flat year-over-year, though with a notable difference in composition. In the first six months of 2024, we had two transactions account for over 35% of revenue, which contributed to our record second quarter last year. In the first half of 2025, our business broadened out by industry, product and geography, and we recorded a higher average fee per engagement. These are encouraging trends, reflecting improved client targeting, prudent business selection and the overall value-add we deliver to our clients. Without a doubt, we ended the quarter in a better environment than we experienced in April and May. Our teams are extremely busy with the level of client dialogue and related mandates growing, though conversion into announcements, especially for large transactions has been taking longer. Today, we're still seeing some transactions sit on the edge of announcement due to a variety of factors, including some financing challenges, valuation gaps between buyers and sellers or in certain industries, operating weakness due to a more cautious consumer. That said, with many active mandates currently in the red zone, we are confident that a broader acceleration in announcements is coming. We are business builders no matter the environment. And to that end, we have made significant investments in our senior talent through both hiring and promotions. And we have more than made up for what I noted last year was a gap in senior hiring. Between now and year-end, we have six partners and three managing directors joining the firm with expertise, including software, health care services, consumer and retail, insurance distribution, U.K. takeovers, machinery and capital goods and fintech. In July, we promoted six managing directors to partner for each a hard-earned and very deserving recognition of the contributions they have made to our business. So by year-end, 12 new partners and nine new managing directors will be on our platform, representing our best hiring year on record since entering the public markets. This creates a significant source of future revenue and demonstrates that Perella Weinberg continues to be a destination of choice for top-tier talent across the industry. We also significantly expanded our capabilities with today's announced acquisition of Devon Park Advisors, a premier private funds advisory firm, with specific expertise in GP-led secondaries. This acquisition creates our private funds advisory business, establishes our position in a large and fast-growing segment of the market and enables us to expand our coverage of alternative asset managers, including private equity, private credit, infrastructure, venture and real estate. We've noted in the past that financial sponsors, in particular, were historically underrepresented in our client base and in our revenue. This transaction changes our mix overnight. We're excited to welcome to our firm, a group of talented new colleagues from Devon Park, including a partner and two managing directors. I've said in the past that we would consider M&A to advance our growth objectives if the transaction is compelling, not only financially, but strategically and culturally as well, and that is what we have with Devon Park. We expect that the addition of Devon Park will contribute to our financial performance immediately upon closing and looking ahead, will meaningfully benefit all of our stakeholders, our clients, our teams and our shareholders. With that, I'll now turn the call over to Alex to review our financial results and capital management in more detail.

Alexandra Kathleen Gottschalk, CFO

Thank you, Andrew. Our second quarter revenues of $155 million included $28 million related to closings that occurred within the first few days of the third quarter and which in accordance with relevant accounting principles were recorded in the second quarter. Consistent with our first quarter, our adjusted compensation margin remained at 67% of revenues. We will evaluate our accrual level in the back half of the year as we gain clarity on full-year revenue and the current impact of talent investment. Our adjusted non-compensation expense of $36 million for the quarter was a meaningful drop from the prior year and prior quarter and was largely driven by the expected decline in litigation-related costs. For the first half of the year, non-compensation expenses totaled $86 million, up 9.5% from the same period last year. Given a lower anticipated run rate, we are now modeling a mid-single-digit increase for the full year, which is lower than previously indicated. Our adjusted tax rate for the first half, excluding the benefit from stock-based compensation vesting at a higher price than the grant date, was 30% and is in line with our expectation for the remainder of the year. Turning to capital management. In the second quarter, we returned an additional $24 million to equity holders through the net settlement of RSUs, open market purchases and dividends. In the first half of the year, we repurchased 1.7 million Class A common shares as we continue to look for opportunities to offset dilution from the vesting of stock-based compensation. Since entering the public markets four years ago, we have returned over $675 million to equity holders, including the repurchase of more than 32 million shares and share equivalents. At the end of the second quarter, we had 63 million shares of Class A common stock and 25 million partnership units outstanding, and we closed the quarter with $145 million in cash and no debt. This morning, we declared a quarterly dividend of $0.07 per share. With that, operator, please open the line for questions.

Operator, Operator

We will go first this morning to Devin Ryan of Citizens.

Devin Patrick Ryan, Analyst

So a question on the comment about peak level of gross fee backlog, I think, is what I heard. Just want to make sure, is that including announced deals? Or is it off of announced deals? And I hate to overly focus on the backlog, but the Dealogic data that some people look at shows it down, I think, a fair amount from the beginning of the year. So maybe just talk a little bit more about what you're seeing in the backlog, just describing it, but then also the momentum and engagement that you've seen just kind of evolve here in recent months. You've given a little bit of detail in the prepared remarks, but just any more color there? And then just how it feels today with some of this complexity relative to maybe even, say, a year ago?

Andrew Bednar, CEO

Yes. Good question, Devin. Let me start with some nomenclature just to make sure we're level set on what we define as pipeline versus backlog. So backlog, we think of as just the announced and pending, and I'm not going to comment on the specifics of what Dealalogic or any other third-party vendor provides, but we think about backlog as just the announced and pending. Our pipeline is all the activity that we have throughout the firm, which involves engagement letters and also situations where we believe we will be mandated. And that on an unrisk-adjusted basis is trending at peak levels right now. As I said in my remarks upfront, we have had some longer duration to convert some of our transactions to announcement. But the flow from clients, the new business reviews that I see on my dashboard are growing and they're up. Our engagement letter executions are growing and they're up. And the client activity as I do course sampling around the firm in different industries and geographies, everyone is reporting extremely busy conditions on the ground, but just challenges in getting things announced. I think the tone has changed dramatically from the end of that the middle of the second quarter, as I said, April and May were pretty tough months overall just to get people focused on getting transactions announced. I think that was an air pocket. And already in July, we have seen a reversion back to a more typical announcement cadence that looks more like the first quarter than the second quarter. So we feel good about looking ahead, every time we get on these calls, it's always hard to measure our progress by one quarter, whether it's a great quarter or a quarter that may not have hit our expectations, but we're building a business for the long term. It's just very, very challenging to get these closing dates exactly to line up with the end of the quarter. But the leading indicators I look at, Devin, looks very, very strong.

Devin Patrick Ryan, Analyst

Yes, that's great insight, Andrew. I appreciate the details you provided. It's good to hear that. Regarding the acquisition of Devon Park Advisors this morning, I like the name. More importantly, I want to know how it impacts your firm. Although it's a small deal, it seems to enhance your presence in private capital significantly. Could you discuss your perspective on private capital opportunities for the firm? Is this acquisition a foundation for expanding your capabilities? If so, what are your next steps? What are the most immediate opportunities? Additionally, are there areas within private capital that you prefer to avoid, which some of your peers might be heavily involved in, or are those considerations further down the road?

Andrew Bednar, CEO

Yes. Thanks, Devin. So look, Devon Park is a small firm with a big impact. They're a lot like us. They've got more of a workshop mentality than a factory. We're not in the high-volume business. We're very client-centric and very focused on making sure we get superior outcomes for our clients. And with that added value on large-scale transactions, we tend to earn a very significant fee. So we feel good about the strategic and cultural fit. Financially, it's not material to our balance sheet or income statement, but it's going to have a significant impact on how we think about and pursue opportunities with our alternative asset manager clients. And as I said upfront, it sort of ranges from traditional financial sponsors, but also private credit, infrastructure, venture and real estate. All of these aspects of alternative asset management have liquidity needs. You have private capital extending duration across the growth curve of many, many companies that, in some cases, obviates the need to go public. And in some cases, there's not an opportunity to sell. And so these liquidity needs are really driving the growth of this market, which has been quite extraordinary, and we've watched it for a while and have decided that it's just too important to our clients not to be in the business. And a lot of our thinking around this transaction really emanated from reverse inquiry coming from our clients asking us if we can help with GP-led secondaries. And so this is a hand-in-glove fit for our strategy and serving the needs of our alternative asset manager clients. We think we've got a great cultural fit, and the team at Devon Park has done a great job in building their business in a way that we've built our business. So we're very excited about the combination.

Devin Patrick Ryan, Analyst

That's great. If I can just sneak in one more on the partner headcount. I'm not sure if you provided that, but could you share the number for where it ended in June? I also heard about the six partner promotions and the six external hires, so I assume that would be added to whatever the number is in June.

Andrew Bednar, CEO

Yes. We ended June at 64. Today, we're at 70, and we expect at least 76 towards the end of the year, given the new hires that we've made, subject to any types of retirements or movements. But right now, we're expecting 76 at the end of the year.

Operator, Operator

We go next now to Brendan O'Brien of Wolfe Research.

Brendan James O'Brien, Analyst

I just want to touch on the revenue outlook for the remainder of the year. I recognize the tough year-on-year comps for revenues, especially as you alluded to the two sizable transactions that contributed to the results last year. But just given your constructive outlook for the back half, could you speak to your confidence in your ability to meet or exceed that record 2024 revenues? Or is it just too uncertain at this juncture just given the timing of conversion and the like?

Andrew Bednar, CEO

Yes. Thanks for the question. As you know, we don't give revenue guidance, so I'll stay away from that. We're very happy with our record year last year. It's always hard to replicate those types of fee events, but we're doing a good job given that we're only down 2% in the first half versus last year, which included the record second quarter. I'm very pleased with the broadening out of the business so that we're less reliant on large fee events. We always like large fee events, but we don't like being reliant on them. So I'm very happy that we broadened out the revenue base. I feel very good about engagement take-up and client receptivity. I'm super excited, as you can tell by the addition of the capabilities with the Devon Park team. Again, a lot of that reflected reverse inquiry from our clients coming in. So we feel like we'll have an immediate impact as soon as we get that transaction closed, which we expect in October. Whether transactions announce and close within a certain accounting period, as I've said, I know ad nauseam here on these calls over time. It's just very hard to predict when transactions will actually close. We are looking forward to more announcements. We've already seen a better trend in July. And exactly when things close, that's usually in someone else's hands. And so we will do our best to serve our clients and get transactions that they want announced and then we wait for the closing. So it's very hard in our business line to predict quarter-to-quarter. So I'll stay away from that. But again, the leading indicators are all quite positive.

Brendan James O'Brien, Analyst

That's helpful information. For my follow-up, I have been asking about recruiting for a few quarters now, so it was great to see an increase in hiring this quarter. I'd like to get an update on what the recruiting pipeline looks like today and how you're planning to balance your hiring goals with managing the compensation ratio this year.

Andrew Bednar, CEO

Yes, we are very pleased with our recruiting efforts so far. Over the past four years since going public, we have seen a cumulative impact. As we hire more people, the quality of those hires tends to attract even more candidates. We have a steady and growing stream of potential candidates who we find interesting and would be exciting to add to our platform. We approach this carefully and are deliberate in our hiring process, considering the integration and cultural impact new hires may have on the organization. We are still experiencing steady growth in this area. Last year, I mentioned that we may have fallen short in our recruiting efforts, but we were very busy and ended up achieving a record year. This year, we dedicated more time to recruiting, and we are seeing positive results. As you have pointed out and questioned us about in the past, our growth is now built in. The addition of new team members gives us the opportunity to increase revenue that is inherent in our business. We are excited about that. Regarding compensation margin, it's still too early to provide a clear outlook; we typically gain more insights in the fourth quarter. Currently, we are reflecting on where we stood in the first quarter, which is our best estimate for the year. We are managing our investments and monitoring revenue development, but it’s too early in the year to make any definitive moves on that.

Operator, Operator

We go next now to Alex Bond of KBW.

Alexander Scott Bond, Analyst

Just curious on your view related to the large cap deal outlook specifically. We've seen a number of large strategic tie-ups here announced in the past couple of weeks and seems like momentum there is building. But do you think conversations or activity levels in this part of the market are back to or maybe close to the pre-April levels? Or is there still somewhat of a maybe a wait-and-see element of some C-suite wanting to have a bit more macro clarity or maybe see how some of these recently announced deals progress before committing to a deal themselves?

Andrew Bednar, CEO

Yes, thanks for the question, Alex. I believe that across the board, we've already considered the pricing on large-scale transactions. Looking forward rather than backward, I think people have navigated the tariff challenges and expect to come through them well. There will be some impact, but overall it will be fine. The feedback from our executives and clients reflects that sentiment. We've observed a significant rise in large-scale transactions, including in industries where we previously had no presence. This growth is part of our strategy to scale the business. Such transactions encourage other companies to consider larger dealings as well. We are in a market where one transaction often leads to another, which is a positive trend not only for large transactions but for the market as a whole.

Alexander Scott Bond, Analyst

Got it. That makes sense. And then maybe just for my follow-up, specifically on the restructuring outlook through year-end. Just given obviously, the changing backdrop that we've seen since April, you had mentioned on the previous call that you're seeing heightened activity levels there kind of during that tariff uncertainty. But obviously, the backdrop has changed since then. So wondering if you could run through how you've seen activity levels or how you have seen activity levels evolve in that space in the month since.

Andrew Bednar, CEO

The restructuring business is an integral part of our overall financing and capital solutions operations. When I consider the performance of that segment combined, it is heading toward a record year. They are performing exceptionally well and are very active. This particular business experienced no interruptions during April and May, and that positive trend has continued. Typically, we go through phases of high activity followed by periods where we need to focus on marketing. We experience these cycles, but overall, the trends in that sector remain robust, and we have not yet encountered the usual cyclical downturns. I'm uncertain if we will. The foundation of this business seems to be more stable, exhibiting less volatility, and the fluctuations have diminished over time, providing a reliable support for our other activities, particularly in mergers and acquisitions and fund advisory.

Operator, Operator

We go next now to James Yaro with Goldman Sachs.

James Edwin Yaro, Analyst

So you obviously substantially increased hirings here both organically and through the acquisition announced this morning. What is the scale you believe you could achieve from a senior banker base over the next few years? And any way for us to sensitize that growth or think about how much growth you could achieve? And then longer-term, is there a ramification you would expect to the comp ratio from that growth?

Andrew Bednar, CEO

Yes. Thanks, James. Right now, we have no limitation on hiring more partners and managing directors. It's really for us a question of whether they're the right fit, whether they have the caliber of expertise and client coverage that makes sense for us strategically and financially. So we'll continue to apply the same criteria to enter new people onto our platform. We're, again, excited about that pipeline. And so that looks very, very promising. We're also just cautious culturally in adding too many people and wanting to make sure that we're not just simply adding to headcount, but we're adding the right people and that they're going to help create value for our firm and for all of our stakeholders. So I think what we said at IPO time back in 2021 is somewhere around five to seven hires, and then you probably have some retirements. So we were looking at four to five net. We'll be way above trend this year, which makes up a bit for last year. So that feels good. But generally, we're still in that same zone. That might trend upward a little bit as we grow, but also we're working very hard to make sure that we have a fair number of internal promotes. And this year, we've got a terrific class of internal partner promotes with the six individuals that we've previously announced. And so there's a mix of growing the partner base through internal hires as well as external hires. So we'll continue to have that mix. But as we head into the year-end, it's going to be back to about one-third of our partnership will have been here less than three years. So that's an exciting embedded growth for us that we're going to hopefully get returns on as we head into '26 and beyond.

James Edwin Yaro, Analyst

That's great. Any update that you could provide around capital return aspirations going forward, given the scale of the organic investment and obviously, that consumes some of that capital that could otherwise be returned to investors?

Andrew Bednar, CEO

Yes, we continually evaluate our share count and are focused on growing earnings per share by reducing that count. We have annual stock-based compensation that typically increases the share count, so we aim to manage that. Additionally, we have opportunities to buy back shares through net settlement and our partnership exchanges that happen each quarter. Recently, we have chosen to invest in the business. Overall, if we can invest more and generate revenue and returns, that’s a sensible use of our capital. However, we are also committed to returning capital to our shareholders. At this time, we find it more beneficial to invest in the business, especially with recent opportunities from new hires and the Devon Park transaction. There will be periods where we invest heavily and return less, and that’s the current situation. We remain attentive to these aspects since we are significant shareholders ourselves, and we aim to mitigate the effects of stock-based compensation. As mentioned earlier, we have maintained our dividend at $0.07.

Operator, Operator

And it appears we have no further questions this morning. Mr. Bednar, I'd like to turn things back to you, sir, for any closing comments.

Andrew Bednar, CEO

Okay. Thank you very much. As you can sense from our comments, we're very excited about our future prospects. We welcome the Devon Park team to our Perella Weinberg team. I appreciate everyone joining the call today, and we'll catch up again in a few months. Thank you.

Operator, Operator

Thank you. Again, ladies and gentlemen, that will conclude today's Perella Weinberg Partners Second Quarter 2025 Earnings Call and Webcast. You may disconnect your line at this time, and have a wonderful day. Goodbye.