Earnings Call Transcript - PWP Q1 2025

Operator, Operator

Good morning, and welcome to the Perella Weinberg Partners First Quarter 2025 Earnings Conference Call. Currently, all callers are in a listen-only mode. After management's prepared remarks, the call will be open for your questions. I would now like to turn the call over to Taylor Reinhardt, Head of Communications and Marketing. You may begin.

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’ll now turn the call over to Andrew Bednar to discuss our results.

Andrew Bednar, CEO

Thank you, Taylor, and good morning. Today we reported first quarter revenues of $212 million, up more than 100% year-over-year and representing the highest first quarter revenue in our history. Our results were up across the firm with revenue in the US and in Europe up twofold, driven by larger fees per transaction, which resulted from our continued focus on client coverage and business selection. Policy action from the US government at the start of April and related reactions have not stopped deal announcements but have slowed them down. Our clients are in an adjustment stage and are awaiting clarity on ultimate tariff and trade policy. Once the range of uncertainty narrows, we expect transaction activity to accelerate as we experienced in both 2008 and 2009 and during the COVID periods. Unlike these prior market dislocations, however, we have not seen clients today broadly terminating processes or walking away from deals, just pausing, which is encouraging. Our client engagement dashboard stats, which include new business reviews, client calls, and requests for meetings, are at all-time highs, and our pipeline is very strong. Our announced and pending backlog, however, has declined from record levels. In the current log, we see two bright spots. First, our restructuring liability management and financing advisory business experienced a meaningful uptick in demand from the start of April. And second, recruiting, where in the first quarter we added a Managing Director focused on transportation, leasing, and logistics, and we have a healthcare partner, a software partner, a Managing Director in financials, and a Managing Director in Industrial slated to join us in the coming months. Disruption creates opportunity. This is a time to showcase the strength of our firm and lean into growth initiatives. Our client-centric model allows us to quickly pivot our resources to deliver the services our clients need, from advising on their most transformative strategic initiatives to their most pressing financial needs. Our client relationships are measured by a lifetime and not by a transaction timeline, and it's in times like these that we gain and solidify their trust. Our brand and our team are stronger than ever. And we are exceptionally well positioned. I remain very confident in our long-term prospects. With that, I'll now turn the call over to Alex to review our financial results and capital management in more detail.

Alex Gottschalk, CFO

Thank you, Andrew. Our revenues of $212 million included $23 million related to closings that occurred within the first few days of the second quarter, which, in accordance with relevant accounting principles, were recorded in the first quarter. Our adjusted compensation margin was 67% of revenues and in line with our full year 2024 accrual. The compensation margin was set based on assumptions at the end of the quarter and may be adjusted as business conditions and investment decisions progress in the coming months and through year-end. Our adjusted non-compensation expense of $49 million for the quarter included more than $10 million of litigation-related costs, which was the primary driver of the year-over-year and quarter-over-quarter increases. Our prior guidance of a single-digit increase in non-comp expense for the full year 2025 remains our best estimate at this time. Shifting to taxes, our adjusted if converted effective tax rate for the first quarter reflects the tax benefit resulting from stock compensation awards vesting at a higher price than granted. Excluding this impact, the adjusted tax rate would have been 29.5%, in line with our tax rate expectation for the remainder of the year. Turning to capital management, in the first quarter, we returned $121 million to equity holders, including over $14 million in open market repurchases and nearly $29 million related to unit exchanges. We will continue to deploy capital for open market buybacks as opportunities arise, in addition to repurchases in connection with ordinary course RSU vestings and quarterly unit exchanges, with a continued focus on proactively managing our share count. At the end of the first quarter, we had 62 million shares of Class A common stock and 26 million partnership units outstanding. We ended the quarter with $111 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'll take our first question from Devin Ryan of Citizens Bank. Please go ahead. Your line is open.

Devin Ryan, Analyst

Hello?

Andrew Bednar, CEO

Yeah, we can hear you now.

Devin Ryan, Analyst

Sorry about that. Yeah, hey, good morning. I think my phone caught for a second. Question on the M&A environment, obviously, a lot of uncertainty right now. I'm just curious, how much of maybe the recent slowdown is because companies are changing plans because their business outlook is more uncertain? So maybe they're less interested in buying an asset or selling their business versus simply market conditions being volatile? And so when market conditions settle down, that should reignite activity that's maybe sitting on the sideline?

Andrew Bednar, CEO

Yeah. Thanks for the question, Devin. As I said in the upfront remarks, broadly across the firm in the M&A business, we see clients pausing and not terminating. And so I think we have clearly a slowdown in announcements. You can see that across the board in the sector as well as in our power business, but not a slowdown in the interest in M&A. I think this is just a natural moment with the volatility, as you mentioned. And I think an increasing range of uncertainty — we always have uncertainty, but I think the range of uncertainty is particularly broad at this moment. And so when you're driving in the fog, I think it's a natural instinct to tap the brakes, and that's what we see. I do think because there is not a slowdown in the interest in M&A that once you get some clarity — some more clarity, I don't think you can achieve complete clarity, but once you get more clarity, I think there's an opportunity to be able to transact again and plan again, and then we'll see, I think, a pretty sharp response to more clarity from the policy actions. So we're anticipating this to look a bit more like coming out of COVID than slogging through the March 2022 timeframe.

Devin Ryan, Analyst

Great. Thanks, Andrew. And a follow-up on the non-M&A businesses. Can you give us any sense of the percentage of contribution in the quarter? And then for restructuring specifically, your team seems like they're doing quite well there. And I'm curious if you can frame how much the productivity improvements are a function of just the environment being more active versus perhaps the firm gaining market share, and how you feel about just more broadly market share in that business? Thanks.

Andrew Bednar, CEO

We feel great about the broad liability management business. I think our team is doing a terrific job. I think the brand is gaining a lot of traction in that marketplace. We've been building that now for many years, and you tend to get the benefits of compounding, which we're seeing now. I think the market is quite conducive to the broad liability management service when you have these periods of volatility. In moments where capital markets are quite challenging, you tend to seek help. And so that's a very good driver of our business. We don't break out the elements of our revenue, as you know, Devin, so I won't go into answering that question. But as you know, we're a very client-centric model. When our clients need more than just their strategic help, they need help with financings or in connection with balance sheet management, we quickly mobilize our team to address client needs. So that business has done very well. We continue to see strength coming into the year, and we saw a real pickup beginning during the volatility in April. We saw even further increase in the business in that month.

Devin Ryan, Analyst

All right. Terrific. I'll leave it there, but I appreciate it.

Andrew Bednar, CEO

Thanks, Devin.

Operator, Operator

Thank you. And our next question comes from the line of Brendan O'Brien with Wolfe Research. Please go ahead. Your line is open.

Brendan O'Brien, Analyst

Thanks for taking my question. I heard the comments about balanced growth across Europe. But we've been hearing a lot more positivity on the M&A backdrop relative. So, I just want to get a sense of the activity in REIT and whether you're seeing anything notable.

Andrew Bednar, CEO

Sorry, Brendan, I'm not hearing that very well. I'm not sure, operator, if we can help his line.

Operator, Operator

Please stand by. I'll see if I can turn the volume up here some.

Andrew Bednar, CEO

Thank you. Brendan, do you want to try again?

Brendan O'Brien, Analyst

Yes. Can you hear me now? Sorry.

Andrew Bednar, CEO

Yes, that's perfect. Thank you.

Brendan O'Brien, Analyst

Okay, great. Sorry about that. Yes. So, I was just asking on activity in Europe relative to the U.S. I heard that you saw pretty balanced trends across both regions in the first quarter, but there's been a little bit more positivity on the outlook for Europe. So, I just want to get a sense as to whether you're seeing any bifurcation in trends there?

Andrew Bednar, CEO

Yes, we're seeing Europe much more unified in the wake of the policy actions here since the April timeframe. We see a greater willingness to consider broad regional transactions and a more accommodative regulatory backdrop in Europe. I think all of those are encouraging. I think, much like the U.S. markets, however, particularly in the last 30 days or so, everybody has sort of paused and taken a step back, and again waiting for a bit more clarity. It doesn't need to be absolute clarity, but I think a little bit more clarity on where this tariff policy and broad trade relations are going to fall out. I think we'll start to see again a thawing of what I think is a thin layer of ice — not a deep freeze, but a thin layer of ice here that will melt both in the U.S. and in Europe. But we do like the backdrop for Europe, and we think it's trending very well and appears to be better trending than what we saw in the last two years.

Brendan O'Brien, Analyst

That's helpful color. And for my follow-up, I just wanted to touch on recruiting. Last year you spoke about plans or hopes to see an acceleration in hiring this year. And obviously, it sounds like you've gotten off to a good start. But while the preference is obviously for a stronger revenue backdrop, I would imagine that the current volatility and slowdown in M&A could also result in a better recruiting environment for you. So I just want to get a sense of what you're seeing in the recruiting backdrop today and get an update on your expectations for the full year.

Andrew Bednar, CEO

Yes, you're exactly right. This is a bit of the yin-yang of the business; when you tend to have moments of less activity or slower announcement activity in particular, it tends to lead to an acceleration in hiring opportunities. So we're always at the plate and ready to seize opportunities on recruiting. We are constantly adding talent. In this environment, we're going to see some more talent. We're not going to change our criteria, but we are seeing more talent. As I said on the third quarter call, I think last year we did want to accelerate our hiring for 2025 irrespective of the market. I think that the market has moved more our way than when we started the year, given, again, the slower announcement cadence here makes it a bit easier for people to consider a job change. So that's helpful on the recruiting front.

Brendan O'Brien, Analyst

Great. Thank you for taking my questions.

Andrew Bednar, CEO

Thank you.

Operator, Operator

Thank you. And your next question comes from the line of James Yaro with Goldman Sachs. Please go ahead. Your line is open.

James Yaro, Analyst

Hi, good morning and thanks for taking the questions. On the 67% comp ratio you put up for the quarter, could you just give us a little more clarity on what sort of backdrop you baked into the ratio and then how you're thinking about the ability to make further progress on the comp ratio for this year and beyond?

Andrew Bednar, CEO

Yes. Alex, do you want to go ahead and take that?

Alex Gottschalk, CFO

Yes, sure. Thanks, James. Look, so the 67% comp ratio really reflects our best estimate at the end of the quarter and continues to reflect our best estimate at this point in time. Obviously, as the year progresses and we measure our performance and we have better visibility on our pace of recruiting that could adjust. We're still early in the year, and I think we've demonstrated that we've provided leverage in our comp ratio and continue to be committed to doing that.

James Yaro, Analyst

Okay. Non-comps rose 33% year-on-year in the quarter. Could you just break out how much of the non-comps were from the litigation this quarter that you highlighted? I assume it's one-time in nature. And can you just update us on your full-year non-comp guidance relative to the single-digit year-on-year number you provided previously?

Alex Gottschalk, CFO

Sure, James. Yes, I think I mentioned in my upfront remarks that litigation spend, which was directly related to the trial that has concluded, was over $11 million in the quarter. So, that is definitely seasonal and not something that we expect to occur in the balance of the quarters for the year. And that single-digit increase that we indicated on the last call still remains our best estimate for the year on the year-over-year increase in non-comps.

James Yaro, Analyst

Thanks a lot.

Operator, Operator

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

Andrew Bednar, CEO

Okay. Thank you, operator and thank you everyone for your interest in our firm and for your continued support. I also want to take a moment just to thank the 700 professionals, all my colleagues at Perella Weinberg, for their tireless commitment to our mission and their unwavering dedication to our clients whenever and wherever they need us. I look forward to speaking with all of you in a few months, and thank you again for joining today.

Operator, Operator

This concludes the Perella Weinberg Partners first quarter 2025 earnings call and webcast. You may disconnect your line at this time and have a wonderful day.