Perella Weinberg Partners - Earnings Call - Q1 2025

Executive Summary

• Record quarter: Revenue of $0.212B, up 107% y/y; Adjusted EPS $0.28 and GAAP diluted EPS $0.24, with GAAP operating margin 5.5% and adjusted operating margin 9.7%.
• Announcements slowed post early-April U.S. policy actions (tariffs/trade), but management emphasized clients are pausing, not terminating; pipeline strong, announced/pending backlog down from record levels.
• Non-compensation expenses elevated by litigation; CFO flagged >$11M in Q1 litigation costs and maintained guidance for a single-digit full‑year non-comp increase; adjusted tax rate ex-stock comp benefit guided to ~29.5% for the remainder of 2025.
• Capital returns continue: $121.3M returned in Q1, dividend maintained at $0.07/share, $111.2M cash and no debt at quarter-end; proactive buybacks and unit exchanges executed.
• Accounting nuance: ~$23M of closings from early Q2 were recorded in Q1 under relevant accounting principles; investors should normalize for timing in quarterly trend analysis.

What Went Well and What Went Wrong

What Went Well

• Highest Q1 on record; revenue up across products, sectors, geographies, driven by larger fees per transaction. “Our first quarter revenues represented our highest Q1 on record...” — Andrew Bednar (CEO).
• Restructuring/liability management demand surged starting in April amid market volatility; firm quickly pivoting resources to client needs.
• Talent momentum: Four MDs added YTD; additional partners/MDs joining in coming months, leaning into growth in healthcare, software, financials, industrials.

What Went Wrong

• Macro/policy uncertainty (tariffs/trade) slowed deal announcements; backlog declined from records despite strong engagement metrics.
• Non-compensation expenses rose materially due to litigation (over $11M in Q1), pressuring margins; adjusted non-compensation $49.3M vs $37.0M y/y.
• Compensation ratio remained elevated at 67% adjusted (70% GAAP); management expects leverage over time but noted ratio may adjust as the year progresses.

Transcript

Operator (participant)

Please be advised that today's call is being recorded. 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 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 most recent SEC filings for 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 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 U.S. 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 U.S. 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 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 fog, 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. 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 industrials 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 a 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 (participant)

At this time, if you wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. We'll take our first question from Devin Ryan with Citizens Bank. Please go ahead. Your line is open. Please go ahead, Devin Ryan. Your line is open.

Alex Gottschalk (CFO)

Hello. Yeah, we can hear you now.

Devin Ryan (Director of Financial Technology Research)

Oh, hey. Sorry about that. Yeah, hey, good morning. I think my phone cut 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 are volatile. 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 and the M&A business, we see clients pausing and not terminating. I think we have clearly a slowdown in announcements. You can see that across the board in the sector as well as for our 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 here is particularly broad at this moment. 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's not a slowdown in the interest in M&A, that once you get some clarity, some more clarity, I don't think you need complete clarity, but once you get more clarity, there's, I think, an opportunity to be able to transact again and plan again, and that's when we'll see, I think, a pretty sharp response to more clarity from the policy action. We are anticipating this to look a bit more like coming out of COVID than slogging through the sort of March 2022 timeframe.

Devin Ryan (Director of Financial Technology Research)

Okay. Great. Thanks, Andrew. A follow-up on the non-M&A businesses. Can you give us any sense of percentage of contribution in the quarter? For restructuring specifically, your team seems like they're doing quite well there. I'm curious if you can frame kind of 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)

Yeah, 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, 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 and 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 to the answering that question.

As you know, we're a very client-centric model, and when our clients need more than their strategic help, but they need help in connection with financings or in connection with balance sheet management, we quickly mobilize our team to address client needs. 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 an even further increase in the business in that month.

Devin Ryan (Director of Financial Technology Research)

All right. Terrific. I will leave it there, but appreciate it.

Andrew Bednar (CEO)

Thanks, Devin.

Operator (participant)

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

Brendan O’Brien (SVP)

Thanks for taking my question. I heard the comments that once you saw pretty balanced growth across the U.S. and Europe, but we've been hearing a lot more positive on the M&A backdrop in Europe relative to the U.S. of late. I just want to get a sense of how conversations are going there by region and whether you're seeing any relative signs of.

Andrew Bednar (CEO)

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

Operator (participant)

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

Andrew Bednar (CEO)

Thank you. Brendan, you want to try again?

Brendan O’Brien (SVP)

Yeah. Can you hear me now? Sorry.

Andrew Bednar (CEO)

Yeah, that's perfect. Thank you.

Brendan O’Brien (SVP)

Okay. Great. Sorry about that. Yeah, 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 Q1, but there's been a little bit more positivity on the outlook for Europe. I just want to get a sense as to whether you're seeing any bifurcation in trends there.

Andrew Bednar (CEO)

Yeah, 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 think about 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, I mean, everybody's sort of paused and taking 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'll thaw both in the U.S. and in Europe.

We do like the backdrop for Europe, and we think it's trending very well and appears to be a better trending than what we saw in the last two years.

Brendan O’Brien (SVP)

That's helpful, color. For my follow-up, I just want to touch on recruiting. Last year, you spoke about plans or hopes to see an acceleration in hiring this year. Obviously, it sounds like you've gotten out to a good start. 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. I just want to get a sense as to what you're seeing in the recruiting backdrop today and get an update on your expectations for the full year.

Andrew Bednar (CEO)

Yeah, you're exactly right. This is a bit of the Yin and Yang of the business when you tend to have moments of less activity or slower announcement activity in particular tends to lead to an acceleration in hiring opportunities. We are always at the plate and ready to take swings at pitches that we're going to be given 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 market. I think that 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 think about a job change.

That's helpful on the recruiting front.

Brendan O’Brien (SVP)

Great. Thank you for taking my questions.

Andrew Bednar (CEO)

Thank you.

Operator (participant)

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

James Yaro (VP of Equity Research)

Good morning. 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)

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

Alex Gottschalk (CFO)

Yep. Sure. Thanks, James. Look, 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 some leverage in our comp ratio and continue committed to doing that.

James Yaro (VP of Equity Research)

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. Could you just update us on your full-year non-comp guidance relative to the single-digit year-on-year number you gave previously?

Alex Gottschalk (CFO)

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

James Yaro (VP of Equity Research)

Thanks a lot.

Operator (participant)

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 (participant)

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.