Perella Weinberg Partners (PWP) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the forward-looking statements below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” and elsewhere in this Form 10-K.

Executive Overview

We are a leading global independent advisory firm that provides strategic and financial advice to clients across a range of the most active industry sectors and international markets. Our wide range of global clients include large public multinational corporations, mid-sized public and private companies, individual entrepreneurs, private and institutional investors, creditor committees and government institutions.

Further information regarding our business is provided in “Part I. Item 1. Business” of this filing.

Business Environment and Outlook

While the level of M&A advisory dialogue remains active across our industries and geographies of focus, a challenging macroeconomic environment may persist in the near-term and continue to adversely affect M&A and financing volumes. Headwinds currently impacting industry volumes include rate outlook and inflation, credit spreads, market volatility, lower liquidity and capital availability, recession risk and geopolitical tensions, amongst others.

Notwithstanding near-term headwinds, our core advisory services benefit from macro-economic changes that impact our client base and lead them to consider business combinations, acquisitions and divestitures, capital raises and restructurings. These changes can include a broad range of economic factors in global or local markets, technological advancements which alter the competitive landscape, regulatory and political policies, globalization, changing consumer preferences, commodity and financial market movements, among many other factors.

As our team of advisory professionals expands and continues to gain traction, and as we continue to expand our advisory services, we expect our sector-focused global team collaboration will deepen and continue to resonate with clients. We expect to continue to experience growing global demand for independent advice over the long-term.

Economic and global financial conditions can materially affect our operational and financial performance. See “Part I — Item 1A. Risk Factors” included elsewhere in this Form 10-K for a discussion of some of the factors that can affect our performance.

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Results of Operations

The following is a discussion of our results of operations for the years ended December 31, 2022 and 2021. For a discussion of the year ended December 31, 2021 versus 2020, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations” in our Form 10-K/A for the year ended December 31, 2021.

Revenues

We operate in a highly competitive environment. Each revenue-generating engagement is separately solicited, awarded and negotiated, and there are limited long-term sources of revenue in the form of recurring retainers. Therefore, our fee-paying client engagements are not predictable, and high levels of revenues in one quarter are not necessarily predictive of continued high levels of revenues in future periods. To develop new business, our professionals maintain an active business dialogue with a large number of existing and potential clients. We expect to add new clients each year as our advisory professionals continue to expand their relationships, as we hire senior advisory professionals who bring their client relationships and as we receive introductions from our relationship network of senior executives, board members, attorneys and other third parties. We also lose clients each year as a result of the sale or merger of clients, changes in clients’ senior management, competition from other financial services firms and other reasons.

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In many cases, revenue is not recognized until the successful completion of an underlying transaction. Complications that may terminate or delay a transaction include failure to agree upon final terms with the counterparty, failure to obtain regulatory consents, failure to obtain board or stockholder approvals, failure to secure financing, adverse market conditions or unexpected operating or financial problems related to either party to the transaction (or their customer base). While transactions typically close within a 12-month period post-announcement of such transaction, they can occasionally extend longer. Such delays often occur with larger transactions and can contribute to unpredictability in the timing of such revenues. In other circumstances, we often do not receive the same level of advisory fees that would have been received if the transaction had been completed, and in some cases we may receive no advisory fee despite the fact that we may have devoted considerable time and resources to the transaction. Other barriers to the completion of a restructuring transaction may specifically include a lack of anticipated bidders for the assets or securities of our client, the inability of our client to restructure its operations, the absence of court approval in a bankruptcy proceeding, or a failure to reach agreement with a client's creditors. In these circumstances, our advisory fees are generally limited to monthly retainer fees (if any). In the case of bankruptcy engagements, fees are subject to approval by the applicable court. In most cases, even if a transaction is not successfully completed, we are reimbursed for certain out-of-pocket expenses incurred in connection with the engagement.

We do not present our revenue by the type of advice we provide because of the complexity of the transactions on which we may earn revenue and our holistic approach to client service. For example, a traditional M&A engagement may also require capital markets or capital solutions advice, or an engagement to raise private capital could also be followed by a business combination. These engagements may call for cross-functional expertise from a number of our professionals across M&A advisory and/or financing and capital solutions advisory. We dedicate the resources and expertise needed on any given assignment regardless of product lines and focus on achieving the desired outcome for our clients. Such an approach does not lend itself to tracking the type of advisory service offered in each instance.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Revenues were $631.5 million for the year ended December 31, 2022 as compared with $801.7 million for the year ended December 31, 2021, representing a decrease of 21%. The period-over-period decline was primarily driven by a reduction in mergers and acquisitions activity, partially offset by a step-up in fees related to financing and capital solutions advisory activity. The decrease in revenues can be attributed to both fewer advisory transaction completions as well as a decrease in average fee size per client.

For the years ended December 31, 2022 and 2021, we earned revenues from 200 and 232 advisory clients, respectively. The number of advisory clients who paid fees equal to or greater than $1.0 million decreased to 127 advisory clients for the year ended December 31, 2022 compared to 142 advisory clients for the year ended December 31, 2021. The average fee size decreased to $3.1 million for the year ended December 31, 2022 from $3.4 million for the year ended December 31, 2021.

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Operating Expenses

The following table sets forth information relating to our operating expenses:

Our operating expenses are classified as (i) total compensation and benefits expenses including equity-based compensation and (ii) non-compensation expenses. Headcount is a primary driver of the level of our operating expenses. Compensation and benefits expenses account for the majority of our operating expenses. Compensation expenses also include expense associated with hiring which has been a significant focus of the Company in all of the historical periods described herein. Non-compensation expenses, which include the costs of professional fees, technology and infrastructure, rent and occupancy, travel and related expenses, general, administrative and other expenses and depreciation and amortization generally have been less significant in comparison with compensation and benefits expenses.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Operating expenses were $679.2 million for the year ended December 31, 2022 and represented 108% of revenues, compared with $735.1 million for the year ended December 31, 2021, which represented 92% of revenues. The decrease in operating expenses was primarily driven by a decrease in total compensation and benefits expenses, which were $545.5 million for the year ended December 31, 2022 compared to $600.7 million for the year ended December 31, 2021, as well as a slight decrease in non-compensation expenses which were $133.7 million for the year ended December 31, 2022 and represented 21% of revenues, compared to $134.4 million for the year ended December 31, 2021, which represented 17% of revenues.

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Compensation and Benefits Expenses

Our compensation and benefits expenses are determined by management based on revenues earned, the competitiveness of the prevailing labor market and anticipated compensation requirements for our employees, the level of recruitment of new partners, the amount of compensation expense amortized for equity awards and other relevant factors. Such factors can fluctuate, including headcount and revenues earned, and as a result, our compensation expenses may fluctuate materially in any particular period. Accordingly, the amount of compensation expenses recognized in any particular period may not be consistent with prior periods or indicative of future periods.

Our compensation expenses consist of base salary, benefits, payroll taxes, annual incentive compensation payable as cash bonus awards, deferred compensation awards, profit sharing arrangements and amortization of equity-based compensation awards. Compensation expenses also include signing bonuses and compensation paid pursuant to guarantees for new hires. These amounts have historically been significant. Base salary and benefits are paid ratably throughout the year. Depending on the plan, deferred compensation and profit-sharing awards vest immediately, at future dates, or upon the occurrence of certain events. Cash bonuses, which are accrued each quarter, are discretionary and dependent upon many factors, including the performance of the Company, and are generally paid during the first quarter of each calendar year with respect to prior year performance.

Equity awards are measured at fair value on the grant date and recognized on a straight-line basis over the requisite vesting period or requisite service period. The awards are subject to a service vesting condition, and in some cases a market-based performance vesting condition, and generally vest ratably on a graded vesting schedule of up to five years. Certain awards are recognized over the expected service period for employees who are or will become retirement eligible prior to the stated vesting date. As such, over time, a greater number of employees may become retirement eligible and the related requisite service period over which we expense these awards will be shorter than the stated vesting. The awards are recorded within equity as they are expensed. The vesting of Legacy Awards granted prior to the Business Combination and the various Professional Partners awards issued in connection with the Business Combination have no economic impact on, and do not dilute, PWP shareholders relative to Professional Partners. The awards do not change the economic allocations between Professional Partners and PWP shareholders, nor do they change the Professional Partners' interest in PWP OpCo. As a result, all of the compensation expense and corresponding capital contribution associated with the Professional Partners Awards is allocated to non-controlling interests on the Consolidated Statements of Operations and Consolidated Statements of Financial Condition.

Beginning in the third quarter of 2021, the Company granted incentive compensation awards in accordance with the Perella Weinberg Partners 2021 Omnibus Incentive Plan (the “PWP Incentive Plan”). The Company uses shares of PWP Class A common stock to satisfy vested awards under the plan. The vesting of these awards for employees are recorded as equity-based compensation expense and awards for non-employees are recorded as professional fees at PWP OpCo for U.S. GAAP accounting purposes. The accounting for this equity-based compensation expense, and potentially other factors as well, may cause the Company to experience operating losses in future periods.

We intend to compensate our personnel competitively in order to continue building our business and growing our Company. Certain awards were granted in conjunction with the Business Combination and directly related to this transaction milestone event. These awards were outside the Company's normal and recurring compensation processes. Total future amortization which will be recognized over the next four years before accounting for forfeitures is $53.0 million for a) the restricted stock units (“RSUs”) that vest upon the achievement of service conditions (the “Transaction Pool RSUs”) and b) the performance restricted stock units (“PSUs”) that only vest upon the achievement of both service and market conditions (the “Transaction Pool PSUs”) and $55.4 million for PSUs granted to certain executives that vest upon the achievement of both service and market conditions (“Long-Term Incentive Awards”), in each case granted in conjunction with the Business Combination.

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

For the year ended December 31, 2022, total compensation and benefits expenses of $545.5 million represented 86% of revenues, compared with $600.7 million of compensation-related expenses, which represented 75% of revenues for the year ended December 31, 2021. Included in total compensation-related expense was $154.2 million and $96.3 million amortization of equity awards for the years ended December 31, 2022 and 2021, respectively. The decrease in total compensation and benefit expenses was due to a smaller bonus accrual on an absolute dollar basis associated with lower revenues, despite a higher compensation margin necessitated to attract, motivate and retain talent. The smaller bonus accrual was partially offset by both an increase in equity-based compensation related to awards granted in conjunction with or subsequent to the Business Combination and increased base salaries and benefits due to increased headcount.

Non-Compensation Expenses

Our non-compensation expenses include the costs of professional fees, technology and infrastructure, rent and occupancy, travel and related expenses, depreciation and amortization and general, administrative and other expenses including certain co-advisory fees and expenses reimbursed by our clients. Revenues related to co-advisory fees and expenses reimbursed by clients are presented within revenues on our Consolidated Statements of Operations.

Historically, our non-compensation expenses associated with business development have increased as we have increased our headcount. These costs include costs such as travel and related expenses which have increased due to increased headcount, increasing prices charged by travel vendors and an increased volume of travel as COVID-19 pandemic-related travel restrictions have eased and we return to more normalized travel levels.

While there are temporary factors causing rent and occupancy, depreciation and amortization, as well as professional fees to be lower for the year ended December 31, 2022 compared to the year ended December 31, 2021 and while we expect to continue to reduce certain costs associated with being a newly public company, over the long term we expect our non-compensation expenses will trend upward with growth in headcount and inflation.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

For the year ended December 31, 2022, non-compensation expenses of $133.7 million represented 21% of revenues, compared with $134.4 million, which represented 17% of revenues, for the year ended December 31, 2021. While non-compensation expenses remained relatively flat compared to the prior year, they included a $6.8 million increase in travel related expenses due to the return to more normalized travel levels, increased headcount and the higher cost of travel, a $3.2 million increase in general, administrative and other expenses resulting from a full year of public company costs such as D&O insurance, the recognition of a bad debt reserve in the second quarter of 2022 as well as a $1.7 million increase in technology and infrastructure. These increases were partially offset by decreases in professional fees of $7.1 million, depreciation and amortization of $3.8 million and rent and occupancy of $1.5 million. The decrease in professional fees included an $8.3 million decrease in legal and consulting fees from 2021’s elevated levels, which included costs associated with the Business Combination as well as higher costs associated with ongoing litigation, while recruiting fees increased year-over-year by $0.8 million with increased hiring activities. While legal and consulting fees were comparatively elevated in the year ended 2021 due to the Business Combination and higher costs associated with ongoing litigation, the year ended December 31, 2022 included $1.5 million of Business Combination related costs associated with a potential future partnership restructuring contemplated during the implementation of the Up-C structure, as well as $1.3 million of costs associated with the Warrant Exchange Offer (as defined below). The reduction in rent and occupancy as well as depreciation and amortization expense, are temporary decreases as certain leasehold improvements became fully depreciated in the current year with our New York and London headquarters each reaching the end of their initial lease term. New leasehold improvement activities for New York and London were not completed during the year ended December 31, 2022 and therefore had not begun depreciating. Additionally, some lease amendment and extension negotiations resulted in favorable leasehold incentives.

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Non-Operating Income (Expenses)

Non-operating income (expenses) includes the impact of income and expense items that we consider to be non-operational in nature, including related party income, loss on debt extinguishment, interest expense, and other income (expense), which includes gains (losses) on foreign exchange rate fluctuations. Also included in non-operating income (expenses) was the change in fair value of warrant liabilities prior to the Warrant Exchange Offer. On August 23, 2022, the Company concluded an offer to holders of its outstanding warrants which provided such holders the opportunity to receive 0.20 shares of the Company’s Class A common stock in exchange for each warrant tendered by such holders. This offer coincided with a solicitation of consents from holders of the public warrants to amend the warrant agreement (together, the “Warrant Exchange Offer”). The Warrant Exchange Offer resulted in the exchange of all outstanding warrants for shares of the Company’s Class A common stock with a minimal cash settlement in lieu of partial shares. As a result, the warrant liabilities were removed from the Consolidated Statements of Financial Condition and the issuance of shares of Class A common stock was reflected within equity. Refer to Note 12—Warrants in the notes to consolidated financial statements included elsewhere in this Form 10-K for additional information.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

For the year ended December 31, 2022, non-operating income (expenses) was $26.3 million of income compared to $43.6 million of expense for the year ended December 31, 2021. For the prior year ended December 31, 2021, non-operating income (expenses) included a $39.4 million loss on debt extinguishment which was related to the redemption of the $150.0 million aggregate principal of Convertible Notes concurrent with the Business Combination. The loss was composed of the $10.9 million premium and $28.5 million of unamortized debt discount and issuance costs. The change in non-operating income (expenses) also included a $15.8 million gain from the change in fair value of warrant liabilities for the year ended December 31, 2022 as opposed to a $4.9 million loss in the prior year ended December 31, 2021 as the warrant price fell year-over-year prior to the Warrant Exchange Offer. Additionally, interest expense decreased $7.3 million related to the repayment of all indebtedness in connection with the Business Combination, while the impact of foreign exchange rate fluctuations recorded in Other income (expense) resulted in a $6.8 million gain for the year ended December 31, 2022 as opposed to a loss of $0.2 million for the prior year ended December 31, 2021. The current year foreign exchange rate gain was primarily related to the revaluation of U.S. dollar-denominated cash and intercompany receivables held by our foreign subsidiaries as the U.S. dollar strengthened.

Income Tax Benefit (Expense)

Prior to the Business Combination, the Company operated as a partnership, and therefore, was generally not subject to U.S. federal and state corporate income taxes. Subsequent to the Business Combination, PWP is a corporation and is subject to U.S. federal and state corporate income taxes on its proportionate share of taxable income generated by the operating partnership, PWP OpCo, as well as any standalone income (or loss) generated at the PWP entity level.

The Company's effective tax rate is dependent on many factors, including the amount of income subject to tax. Consequently, the effective tax rate can vary from period to period. The Company's overall effective tax rate varies from the U.S. federal statutory rate primarily because (i) a portion of the Company's income is allocated to non-controlling interests held in PWP OpCo in which the majority of any tax liability on such income is borne by the holders of such non-controlling interests and reported outside of the consolidated financial statements, (ii) a portion of the Company’s compensation expense is non-deductible for tax purposes and (iii) the Company has recorded unrecognized tax benefits related to potential double taxation for certain of its foreign subsidiaries.

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

The Company’s income tax expense and effective tax rate were $10.3 million and (48.2)%, respectively, for the year ended December 31, 2022 compared to income tax expense and an effective tax rate of $18.9 million and 82.5%, respectively, for the year ended December 31, 2021. The change in the effective tax rate was primarily driven by the Company having a pre-tax loss for the year ended December 31, 2022, as compared to pre-tax income for the year ended December 31, 2021.

Cash Flows

Our operating cash flows are primarily influenced by the amount and timing of receipt of advisory fees, which generally have net terms of 30 days, and the payment of operating expenses, including payments of incentive compensation to our employees. We pay a significant portion of incentive compensation during the first quarter of each calendar year with respect to the prior year's results. Our investing and financing cash flows were primarily influenced by the payment of dividends, distributions to partners, purchases of treasury shares and withholding payments for vesting of PWP Incentive Plan Awards during the year ended December 31, 2022.

A summary of our operating, investing and financing cash flows is as follows:

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Year Ended December 31, 2022

Cash and restricted cash were $174.2 million as of December 31, 2022, resulting in a decrease of $330.6 million from $504.8 million as of December 31, 2021. Cash, restricted cash and investments in short-term marketable debt securities (U.S. Treasuries) were $314.3 million as of December 31, 2022, a decrease of $190.5 million from $504.8 million as of December 31, 2021. The Company reported a net loss of $31.7 million for the year ended December 31, 2022 which includes $162.4 million of non-cash charges and other adjustments, largely comprised of equity-based awards vesting expense, depreciation and amortization, the change in fair value of warrant liabilities, foreign currency revaluation and non-cash operating lease expense. This operating cash inflow was offset by working capital needs predominantly due to the payment of annual bonus compensation in the first quarter of the year as well as payments for lease liabilities, resulting in a net operating outflow of cash of $17.8 million during the year ended December 31, 2022. The timing of accounts receivable collections and the payment of incentive compensation have significant impact on operating cash flows. Accounts receivable, net of allowance balance was higher as of December 31, 2022 compared to December 31, 2021, despite a year-over-year decrease in revenues, due largely to the timing of collections as certain large balances were collected shortly after December 31, 2022. A large portion of 2021 incentive compensation, which was based on a record year, was paid in the form of cash bonuses in the first quarter of 2022. Investing activities resulted in a net decrease in cash of $166.2 million largely attributable to investments of excess cash in treasury securities as well as the purchase of fixed assets attributable largely to leasehold improvements associated with the construction and design of the New York and London leased space. Financing activities resulted in a net outflow of $136.8 million primarily related to the repurchase of shares pursuant to the stock repurchase program, distributions to partners, withholding payments for vesting of PWP Incentive Plan Awards and the payment of dividends.

Year Ended December 31, 2021

Cash and restricted cash were $504.8 million as of December 31, 2021, an increase of $173.9 million from $330.9 million as of December 31, 2020. Operating activities resulted in a net inflow of $234.9 million largely attributable to changes in working capital and net income generated during the year ended December 31, 2021. Net income included $171.9 million of non-cash charges including a $39.4 million loss on debt extinguishment related to the redemption of the Convertible Notes concurrent with the Business Combination. Investing activities resulted in a net outflow of $2.4 million attributable to the Company’s purchases of fixed assets and the deconsolidation of PFAC Holdings I LLC. Financing activities resulted in a net outflow of $55.0 million primarily related to the transactions associated with the Business Combination, the payoff of all outstanding debt and tax distributions to limited partners of PWP OpCo, the repurchase of Founder Shares held as treasury shares, withholding payments for vesting of incentive awards and the payment of dividends.

For a discussion of the year ended December 31, 2020, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Cash Flows” in our Form 10-K/A for the year ended December 31, 2021.

Liquidity and Capital Resources

General

We regularly monitor our liquidity position, including cash and cash equivalents, working capital assets and liabilities, commitments and other liquidity requirements. Our primary sources of liquidity are our cash balances, our investments in short-term marketable debt securities, the net cash generated from operations and the available borrowing capacity under our Revolving Credit Facility.

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Our current assets are primarily composed of cash, investments in short-term marketable securities, receivables related to fees earned from providing advisory services, certain prepaid expenses and certain amounts due from related parties. Our current liabilities are primarily composed of accrued and deferred employee compensation, accounts payable and other accrued expenses. We generally pay a significant portion of our annual incentive compensation, in the form of cash bonuses, during the first quarter of each calendar year with respect to the prior year’s results. Therefore, levels of cash and/or investments in short-term marketable securities generally decline during the first quarter of each year after our annual incentive compensation has been paid to our employees and typically builds over the remainder of the year. The Company makes quarterly partner tax distributions as required under the Amended and Restated Agreement of Limited Partnership of PWP OpCo, dated as of June 24, 2021 (as amended, restated, modified or supplemented from time to time, the “PWP OpCo LPA”). These distributions totaled $44.5 million, $65.9 million and $12.0 million, respectively, during the years ended December 31, 2022, 2021 and 2020. Additionally, we intend to pay dividends throughout each year and may continue our share repurchases from time to time. During the year ended December 31, 2022 and 2021, the Company paid $12.8 million and $6.0 million, respectively, in cash dividends. The Company has the option to net settle shares upon the vesting of PWP Incentive Plan Awards in order to remit required employee withholding taxes using cash on hand. During the year ended December 31, 2022 and 2021, the Company paid $9.7 million and $10.5 million, respectively, in withholding payments in lieu of issuing 1,045,847 and 749,042, shares upon the net settlement of vested PWP Incentive Plan Awards. Additionally, during the year ended December 31, 2022, the Company purchased 9,544,016 shares of Class A common stock at a cost of $68.7 million in the aggregate, pursuant to the stock repurchase program described below.

We evaluate our cash needs on a regular basis in light of current market and business conditions and regulatory requirements. Cash and cash equivalents include short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less from the date of purchase. The Company had no cash equivalents as of December 31, 2022 and 2021. As of December 31, 2022 and 2021, the Company had cash balances of $171.6 million and $502.8 million, respectively, maintained in U.S. and non-U.S. bank accounts, of which most bank account balances exceeded the U.S. Federal Deposit Insurance Corporation (“FDIC”) and U.K. Financial Services Compensation Scheme (“FSCS”) coverage limits. Additionally, as of December 31, 2022, the Company held investments in short-term marketable debt securities, consisting entirely of U.S. Treasury securities, of $140.1 million.

Our liquidity is highly dependent upon cash receipts from clients, which generally require the successful completion of transactions. Accounts receivable generally have net terms of 30 days. Accounts receivable were $67.9 million, net of $1.1 million of allowance for credit losses balance as of December 31, 2022. Accounts receivable were $46.9 million, net of $1.9 million of allowance for credit losses balance as of December 31, 2021.

Line of credit

The Company has a Revolving Credit Facility with Cadence Bank with an available line of credit of $50.0 million. Under the Credit Agreement outstanding borrowings accrue interest at LIBOR plus a fixed rate of 2.00% per annum (with a 0.25% LIBOR floor) or an alternate base rate option equal to Cadence Bank’s prime rate minus 1.00% (with a 3.25% floor) and mature on July 1, 2025. Up to $15.0 million of the Revolving Credit Facility may be used for the issuance of letters of credit. Additionally, up to $20.0 million of incremental revolving commitments above the $50.0 million commitment amount may be incurred under the Credit Agreement. The Credit Agreement provides that the benchmark of LIBOR will be replaced with a SOFR-based rate on or prior to the date that the LIBOR benchmark is unavailable. As of December 31, 2022, the Company had no outstanding balance related to the Revolving Credit Facility and no incremental revolving commitments were incurred. For further information on the Revolving Credit Facility, refer to Note 10—Debt in the notes to consolidated financial statements included elsewhere in this Form 10-K.

Based on current market conditions, we believe that our cash on hand, the investments in short-term marketable debt securities, the net cash generated from operations and the available borrowing capacity under our Revolving Credit Facility will be sufficient to meet our operating needs and commitments for the next twelve months; however, if these sources of liquidity are not sufficient, we may seek additional debt or equity financing.

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Share Repurchase Program

On February 16, 2022, the Company’s board of directors approved a stock repurchase program under which the Company is authorized to repurchase up to $100.0 million of the Company’s Class A common stock with no requirement to purchase any minimum number of shares. Shares may be repurchased under the new repurchase program through open market purchases, privately negotiated transactions, block trades, accelerated or other structured share repurchase programs, or other means. The manner, timing, pricing and amount of any transactions will be subject to the Company’s discretion. During the year ended December 31, 2022, the Company purchased 9,544,016 shares, at a cost of $68.7 million in the aggregate. On February 8, 2023, the Company’s board of directors increased the Company’s share repurchase authorization amount by an additional $100.0 million of the Company’s Class A common stock from the previously announced $100.0 million, with no requirement to purchase any minimum number of shares. As of February 23, 2023, $121.6 million remains of the combined $200.0 million share repurchase authorization.

Other Commitments

Regulatory Capital

We actively monitor our regulatory capital base. Our principal subsidiaries are subject to regulatory requirements in their respective jurisdictions to ensure general financial soundness and liquidity. This requires, among other things, that we comply with certain minimum capital requirements, record-keeping, reporting procedures, experience and training requirements for employees and certain other requirements and procedures. These regulatory requirements may restrict the flow of funds to and from affiliates. Refer to Note 7—Regulatory Requirements in the notes to consolidated financial statements included elsewhere in this Form 10-K for further information. These regulations differ in the United States, United Kingdom, Canada, France and other countries in which we operate a registered broker-dealer or regionally similar construct. The license or regulatory framework under which we operate in each such country is meant to comply with applicable laws and regulations to conduct an advisory business. We believe that we provide each of our subsidiaries with sufficient capital and liquidity, consistent with their business and regulatory requirements to effectively operate in each jurisdiction.

Exchange Rights

In accordance with the PWP OpCo LPA, PWP OpCo Unitholders (other than the Company) may exchange these units for (i) shares of Class A common stock on a one-for-one basis or (ii) cash from an offering of shares of Class A common stock with the form of consideration determined by the Company. See Note 11—Stockholders' Equity in the notes to consolidated financial statements included elsewhere in this Form 10-K for further information.

Sponsor Share Surrender and Share Restriction Agreement

Concurrent with the Business Combination Agreement, FTIV, PWP OpCo and certain other parties entered into the Sponsor Share Surrender and Share Restriction Agreement with the Sponsor, which was amended on May 4, 2021. See Note 11—Stockholders' Equity in the notes to consolidated financial statements included elsewhere in this Form 10-K for further information.

Guarantees

PWP OpCo has also unconditionally guaranteed, through a wholly-owned subsidiary, certain loans to limited partners of Professional Partners (“Limited Partners”) with First Republic Bank (the “Program Lender”), whereby PWP OpCo will pay the Program Lender upon the occurrence of a default event. Refer to Note 17—Related Party Transactions and Note 18—Commitments and Contingencies in the notes to consolidated financial statements included elsewhere in this Form 10-K for further information.

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Tax Receivable Agreement

In connection with the Business Combination, the Company entered into a tax receivable agreement with PWP OpCo, Professional Partners and ILPs that provides for payment of 85% of the amount of cash savings, if any, in U.S. federal, state and local and foreign income taxes that the Company is deemed to realize as a result of (a) each exchange of interests in PWP OpCo for cash or stock of the Company and certain other transactions and (b) payments made under the tax receivable agreement. See Note 17—Related Party Transactions in the notes to consolidated financial statements included elsewhere in this Form 10-K for further information as well as the expected timing of payments.

Other Contractual Obligations

We have various non-cancelable operating leases in connection with the leases of our office spaces and equipment. The related lease agreements, which range from non-cancelable to month-to-month terms, generally provide for fixed monthly rentals and can also include renewal options. See Note 5—Leases in the notes to consolidated financial statements included elsewhere in this Form 10-K for further information as well as the expected timing of payments. Our London and New York office leases had expiration dates in December 2022 and September 2023, respectively. The Company signed new lease agreements in February 2022 for the London office and in April 2022 for the New York office spaces, which expand our square footage meaningfully in both locations in order to accommodate our anticipated growth. This expansion increased our contractual obligations upon lease commencement and will require capital contributions towards the design and construction of these spaces, mitigated in part by free rent periods at both locations. Construction of the London space was completed in February 2023 and completion of the New York space is expected by the end of 2023. As of December 31, 2022, the Company estimates spending approximately $25 million to complete the construction of these spaces, net of tenant improvement allowances.

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Market Risk and Credit Risk

Our business is not capital-intensive and we do not invest in derivative instruments. We are not subject to significant market risk (including interest rate risk and commodity price risk) or significant credit risk.

Risks Related to Cash and Cash Equivalents

Our cash and cash equivalents include any short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less from the date of purchase. Cash is maintained in U.S. and non-U.S. bank accounts. Most U.S. and U.K. account balances exceed the FDIC and FSCS coverage limits. We believe our cash and cash equivalents are not subject to any material interest rate risk, equity price risk, credit risk or other market risk.

Credit Risk

We regularly review our accounts receivable and allowance for credit losses by considering factors such as historical experience, credit quality, age of the accounts receivable, and the current economic conditions that may affect a client’s ability to pay such amounts owed to the Company. We maintain an allowance for credit losses that, in our opinion, provides for an adequate reserve to cover current expected credit losses. Refer to Note 2—Summary of Significant Accounting Policies in the notes to consolidated financial statements included elsewhere in this Form 10-K for further information.

With respect to investments, we manage our credit risk exposure by maintaining investment grade credit quality. As of December 31, 2022, the Company held investments of $140.1 million in U.S. Treasury securities with maturities of less than 12 months.

Exchange Rate Risk

The Company is exposed to exchange rate risk as a result of having foreign subsidiaries with non-U.S. dollar functional currencies as well as from entering into transactions and holding monetary assets and liabilities that are not denominated in the functional currency of its operating subsidiaries. Specifically, the reported amounts in our consolidated financial statements may be affected by movements in the rate of exchange between the pound sterling, Euro, and Canadian dollar and our reporting currency, the U.S. dollar. For the years ended December 31, 2022, 2021 and 2020, the net impact of non-functional currency-related transaction gains and losses recorded in Other income (expense) on our Consolidated Statements of Operations was a $6.8 million gain, a $0.2 million loss, and a $0.2 million loss, respectively, primarily related to U.S. dollar-denominated cash and intercompany receivables held by our foreign subsidiaries as the U.S. dollar strengthened. For the years ended December 31, 2022, 2021, and 2020, the net impact of the fluctuation of foreign currencies recorded in Foreign currency translation gain (loss) within our Consolidated Statements of Comprehensive Income (Loss) was a $9.7 million loss, a $1.5 million loss, and a $3.5 million gain, respectively. We have not entered into any transactions to hedge our exposure to these foreign currency fluctuations using derivative instruments or other methods but may do so if we deem appropriate in the future.

As of December 31, 2022, we held balances of $43.7 million of non-U.S. dollar denominated currencies, composed of pound sterling, the Euro, and Canadian dollars.

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Critical Accounting Estimates

We believe that the critical accounting estimates included below represent those that are most important to the presentation of our financial condition and results of operations and require management's most difficult, subjective and complex judgment.

The preparation of our historical consolidated financial statements and related disclosures in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our historical consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period for which they are determined to be necessary.

Revenue Recognition

The services provided under contracts with clients include transaction-related advisory services, fairness opinion services, research and trading services, and underwriting services. The fee structures for the Company’s transaction-related advisory services often involve an “all or nothing” consideration amount and the associated fees are predominantly considered variable as they are often based on the ultimate transaction value or the outcome ultimately achieved and/or are susceptible to factors outside of the Company’s influence, such as third-party negotiations, regulatory approval, court approval, and shareholder votes. Accordingly, a large portion of the fees associated with these services is constrained until substantially all services have been provided, specified conditions have been met and/or certain milestones have been achieved, and it is probable that a significant revenue reversal will not occur in a future period. Such determination of probability may require significant judgement, especially when assessed near the end of a reporting period.

The Company records deferred revenue when it receives fees from clients that have not yet been earned or when the Company has an unconditional right to consideration before all performance obligations are complete (e.g., when announcement fees are received but additional services are expected to be provided between transaction announcement and transaction close). In these cases, the deferred amount is often based on an estimate of the services remaining to be completed, if any. The determination of when and to what extent to subsequently recognize deferred variable fees may require significant judgment, particularly when milestones are met near the end of a reporting period and in cases where additional services are expected to be provided subsequent to the achievement of the milestone.

Certain fixed fees specified in the Company’s contracts, which may include upfront fees and retainers, are recognized on a systematic basis over the estimated period in which the related services are performed. Estimating contract terms may require significant judgment and often change over the course of an engagement.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable are presented net of allowance for credit losses based on the Company’s assessment of the collectability of client accounts. The Company maintains an allowance for credit losses account that, in management’s opinion, provides for an adequate reserve to cover estimated losses on accounts receivable. The Company determines the adequacy of the allowance by estimating the probability of loss based on the Company’s historical credit loss experience of its client receivables and taking into consideration current market conditions and supportable forecasts that affect the collectability of the reported amount. The Company also regularly reviews the age of the receivables, credit worthiness of the client and the current economic conditions that may affect a client’s ability to pay such amounts owed to the Company and as a result may recognize a specific credit loss reserve. Accounts receivable also includes accrued revenue which represents amounts due from clients and recognized as revenue in accordance with the Company’s revenue recognition polices, but unbilled as of the date of the consolidated financial statements.

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Income Taxes

Our income tax expense, deferred tax assets and deferred tax liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We are subject to income taxes in the United States and certain foreign jurisdictions. We make estimates and judgments in determining the provision for income taxes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial reporting purposes, as well as the interest and penalties related to uncertain tax positions. Significant changes in these estimates may result in an increase or decrease to our tax provision in a subsequent period.

We assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We believe that we will ultimately recover the deferred tax assets recorded on our Consolidated Statements of Financial Condition. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determined that the recovery was not likely. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including projected future taxable income. In projecting future taxable income, we begin with historical results and incorporate certain assumptions, including revenue growth and operating margin. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage the underlying business.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that based on the technical merits it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. If we determine that a tax position will more likely than not be sustained on audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as we must determine the probability of various possible outcomes. We re-evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.

Equity Compensation

The Company granted certain employees Transaction Pool PSUs and Long-Term Incentive Awards that vest upon the occurrence of both service and market conditions being achieved. Compensation expense is recognized for these equity-based awards over the requisite vesting period in an amount equal to the fair value of the awards at the grant date, provided the requisite service period is completed, irrespective of whether the market condition is satisfied. The effect of the market condition is reflected in the grant date fair value of the award. The Company utilized a Monte Carlo simulation valuation model to determine the grant date fair value which required significant judgment for various inputs including the risk-free interest rate, dividend yield and the volatility factor.