Radcom Ltd

NASDAQ:RDCM

Good morning, and welcome to the Perella Weinberg Partners Full Year and Fourth Quarter Earnings Conference Call. [Operator Instructions] And now at this time, I'd like to turn things over to Taylor Reinhardt, Head of Communications and Marketing. Taylor, please go ahead.

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.

Thank you, Taylor, and good morning. Today, we reported full year 2024 revenues of $878 million, the highest in our firm's history, up 35% year-over-year, and up 10% from our previous record. These results were generated in an improving transaction market, though not yet optimal, and validate our strategy to focus on larger and more complex situations, which enables us to deliver superior results through market cycles for both our clients and for our shareholders.

2024 was a year of records for our firm. Beyond record revenue, we earned our single largest fees in both our M&A and restructuring businesses, our stock continued to reach new highs, and we returned a record amount of capital to our equity holders. We were also recognized by our industry, ranked as the #4 boutique by global deal volume by Dealogic, and ranking #1 in announced restructurings by Debtwire. These are significant accomplishments, and I'm incredibly proud of our team for our record-setting year.

Our performance in 2024 was driven by strong contribution from across the firm with all business lines up. Our results were led by our U.S. business, and we expect that trend to continue. In addition, we are seeing increased activity from our business in Europe in the early days of 2025.

We expect the current tailwinds in the M&A market globally to continue, albeit with increased volatility related to policy decisions taken by the new U.S. administration. And structural challenges, combined with the pause in rate cuts by the Fed, will keep restructuring and liability management services in high demand.

Throughout 2024 and now into 2025, we continue to advise world-class clients on transformative transactions, clients who we are extremely proud to partner with. We added many new clients in 2024, and importantly, we continue to see an increasing number of advisory roles with repeat clients.

As a result of prudent business selection and fee discipline, combined with our steady investment in talent, our productivity today is at a level last seen in 2021, and we still have upward potential. Adding the right senior talent to our firm has always been a strategic priority, and we feel confident in our ability to grow our partner and MD count this year as we continue to expand our client reach.

2024 marks some important milestones in our history as a public company. We exceeded a $20 stock price, we exceeded a $2 billion market cap, and we are now closing in on our first operating financial goal of $1 billion in annual revenue. As we drive further growth, we will continue to solidify our standing as a leading global boutique adviser, focused first and foremost on delivering superior results for our clients, with their success in turn driving our success.

Thank you to the entire Perella Weinberg team for your continued focus on our clients and congratulations on delivering all around exceptional results.

Alex, I'll now turn the call over to you to review our financial results and capital management in more detail.

Thank you, Andrew. Our adjusted compensation margin was 67% for the full year 2024 compared to 70% in 2023, below our 68% accrual for the first 9 months of 2024 and within our target range. Our adjusted non-compensation expense was $162 million for the full year 2024, up 13% from a year ago. This increase was slightly above our original expectations and was primarily due to higher litigation costs and additional professional fees directly correlated to revenue.

Our full year 2024 non-compensation ratio was 18% compared to 22% last year. In 2025, we expect the increase in non-comp expense to moderate to the single-digit percent range.

At year-end, we had 59 million shares of Class A common stock and 27.5 million partnership units outstanding. In 2024, we returned a record $282 million to equity holders, more than double our previous annual high. And since our public listing in 2021, we have returned over $530 million in aggregate to our equity holders.

We ended the quarter and year with $407 million in cash and short-term investments 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 Instructions] We'll go first this morning to Devin Ryan of Citizens JMP.

Congratulations on the record results here. Question on the M&A advisory business. Obviously, Perella advised on some of the largest deals in the market over the past year, and I appreciate those deals can move the needle. So as we think about the outlook there, particularly post election, it would seem that things are getting better, but love to just get some context around what you're seeing with larger deals and especially kind of the ability for that to create a chain reaction within industries and create more activities? So just love to get some sense of what you're seeing in that part of the market.

Sure. So I'll just start maybe by going back to our Q3 '23 call, where that's when we saw the inflection point broadly in the M&A markets. And that's a trend that's continued since Q3 2024. I think our peers saw the same evidence of a turn in the M&A markets. I think what's happened towards the back half of '24, especially with the elections and the results coming out of November that the bigger deal market, for sure, is back, not yet on announcements. I think that has lagged the conversations, which is not something that's atypical at all. Usually, these larger transformative transactions start with the conversation. So we're seeing that. We're seeing conversations that are very different than what we saw a year ago at this time. So remember January, February time frame of '24, we still had Biden as the presumptive Democratic nominee for President. So a lot has changed since then. But the conversations are very encouraging. They are more ambitious.

I think our clients, both boards and executives, have a lot more confidence now that they can transact in a more accommodative environment, albeit as I said in the upfront remarks, there's definitely a lot of volatility here. And that is something that people are going to need to sort of close their eyes for a bit and just try to open them through the tough part of volatility, which is for sure part of the market we're in now.

Got it. And then a follow-up on the non-M&A businesses. So it sounds like there was growth across both the M&A contribution and non-M&A advisory contribution in 2024. So it would be great to just get any more context you can share around kind of that level of kind of non-M&A advisory contribution in the quarter and year. And then just as we think about the year ahead, how do you expect those kind of non-M&A advisory businesses to grow from here relative to your outlook for M&A advisory contribution?

Yes. So they both have, I think, tremendous opportunity to grow. So we're not at all market share constrained in either the core M&A business or our non-M&A business, which, of course, is much broader than the traditional restructuring business. Today, it's liability management, it's capital markets advisory, it's capital solutions and financing. So the fee pools available in those subsegments of our financing and capital solutions business are quite large and something that 5, 6 years ago, we really didn't have those businesses. So they are entirely new markets for us, and where we've seen a very, very nice reception to the service offerings that we provide to our clients there. So we're not seeing any constraints on the growth of those markets. And importantly, they coexist and they can coexist at peak performance. Historically, if you go back 10, 20 years in these markets, they were somewhat countercyclical. And we're not seeing that countercyclicality that we used to see where M&A markets are up when restructuring markets down and then restructuring markets are up when M&A markets are down. That type of correlation just doesn't exist anymore. That's because the market really in restructuring and liability management is a broad financing solutions market and again, the fee pools there are quite large. So we're very optimistic on both of those businesses.

We go next now to Aidan Hall of KBW.

Great. Andrew, maybe just on some of your prepared comments talking about results continue to be led by the U.S., but you're starting to see more activity pick up in Europe. I was wondering if we could just focus on Europe for a little bit and the optimism as of recent in terms of an inflection there. What do you think is really driving that? And any kind of color maybe by region or sector that you're really seeing a pickup in activity?

Yes. We've seen Europe lag the U.S. markets, not just in our own business, but if you look broadly at M&A announcements, the European markets are about half the size of the U.S. markets. So U.S. markets are at $1.6 trillion or so and European markets at about $800 billion. And that's a relationship that I don't think will persist. I think Europe will continue to add announcement activity and eventually closing activity. So I think it's a lag. It's not structural. And as I said upfront, we're looking more at the conversation market and then the engagement market. And I know, from a public perspective, you guys will see the announcement market and the closing market. All of those are important, but it's impossible to get announcements and closings without upfront conversations and engagement.

So our early indicators on Europe are quite promising. We feel very good about the year-end discussions, and those have continued into January and February. I think part of it was a trend we saw over the course of '24 where there's just such a dominance in the U.S. capital markets, and I've mentioned the statistics before. If you look at the aggregate equity value globally, about half of it is the United States. So there's tremendous liquidity, tremendous interest in investing in the U.S. And so a lot of our conversations in Europe are about how to gain additional U.S. exposure and how to deploy capital in U.S. markets?

I think some of those conversations are shifting a bit now to also how to enhance scale and reach for some of the larger European companies? And again, we're encouraged by the early dialogue we're seeing in certainly the month of January, February here.

Great. Appreciate that color. Maybe just one for Alex on some of the non-com -- expense commentary. The non-comp, if I heard correctly, was single-digit growth expectation in '25. Can you just help us kind of contextualize some of the drivers there? And then maybe within that, any kind of thoughts on the amount of nonrecurring items in '24, whether litigation or some other hits that you had this year so we can think about kind of a core growth, if you will?

Yes, sure. So from a non-comp perspective, this last year, I mentioned on one of our previous calls, we did have a few anomalies, one of which was a bad debt expense that we just don't expect those to recur year-over-year. And in addition to that, we do have some elevated costs from a litigation perspective. And those will continue some into the current year, but we still expect that single-digit increase. And I'll also mention that some of our costs are directly correlated to revenue, right? So we saw a slight uptick in professional fees, and that's really what drove the increase over the 10% expectation that I indicated on the last call.

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

I guess to start, I just wanted to follow up on one of your comments in response to Aidan's question relating to cross-border activity. I understand the urge for European companies to look to get more exposure to the U.S., especially in light of tariff risk. But with the dollar -- Euro at all-time highs and European values versus U.S. valuations at the widest gap in recent memory, I just want to get a sense as to how you -- how those different dynamics that push and pull are acting out or playing out? And whether maybe we actually see activity ahead in the other direction as U.S. companies take advantage of more depressed valuations?

Yes. First on tariffs. I think the world is waiting to see whether tariffs are going to be a temporary tool for policy or a permanent fixture in our economy. I think it's too early to tell. I think most of the bets are that it'll be more temporary, and we'll work through those. So we haven't seen any specific transaction impact or activity around tariffs, number one. Number two, currency is a headwind in some respects, but a lot of the clients we work with are multinational and they've got currency positions around the world. So that tends to alleviate any home currency issues in and of themselves.

I do think you're right that there is a possibility and a real probability that U.S. companies look into Europe in part because of currency and in part because of valuation, but I think also the valuation differential, which is that historic high levels, typically it's been a couple of points now, you're approaching 7, 8, 9 type of multiple points. And that's a significant delta that has a lot of European companies thinking about listing, thinking about, again, exposure to the U.S. economy. And so we do expect transaction activity to continue to look into the U.S. But you're right that, that transaction activity could reverse and certainly see U.S. companies looking into Europe, no question.

That's helpful color. And I guess, for my follow-up, just wanted to get an update on recruiting. Andrew, you acknowledged last quarter that you're running a bit below trend, but you were planning on picking up the pace in '25. Would be great to get an update on how the recruiting pipeline is looking at the moment? And also, if you do see an acceleration of recruiting next year, how we should be thinking about the impact of the flow-through on your comp ratio and your ability to deliver leverage?

Yes. We've always looked at our hiring as a very steady investment exercise. So we typically haven't had moments of abnormal activity. I think last year, as I mentioned on Q3, we came in below our targets for recruiting, mostly because some of the folks we were talking to decided to stay at incumbent firms. So it wasn't as though they left for other firms. So that is something that we contend with all the time, and we just had a couple of situations where candidates we were talking to decided to stay.

The pipeline looks very strong, and we're encouraged by what we see, both for very senior hires at the partner level, but also some very promising MD-level hires. This year, combined senior hires were 16 between the partner and MD ranks as well as promotions. So we feel good about the build. But it's also a 2-part exercise because we don't just look at additions to the partnership, for example, where we're very focused on productivity. We're starting to get close to our all-time high in terms of partner productivity. So at the same time, we were trying to add partners. We're also constantly working on the other part of the equation, which is making sure that we've got an optimized partnership. And when we add partners, we want those partners to be accretive to the partnership in terms of productivity, not below our targets, otherwise you're diluting the value of partnerships. So for us, it's a 2-part exercise. We're active in both parts of that continuously, and we feel very good about the pipeline we're seeing and we just got to have some better conversion this year, which we're optimistic about.

We go next now to James Yaro of Goldman Sachs.

I just wanted to turn to the rates dynamic. Maybe you could just speak to the impact of a steeper yield curve and fewer rate cuts on sponsor M&A. Does the need to transact outweigh this for a time and eventually sponsor activity slows -- or the growth slows? Or do you see the shape of sponsor recovery differently?

I've mentioned this before in some press reports as well as on I think our last call that I just was not optimistic on big rate cuts coming into '25. And I'm not a macroeconomist, I'm just a banker, but it seems to me in the day-to-day activities we're involved in that there're still inflationary pressures. And so I just don't see the big cuts coming absent something completely external and some kind of shock to the system. So we're going to be in this elevated rate environment for a while. But if we go back to a 2005, 2006 type of market, sponsors were plenty active with a 4.5 Fed funds rate.

So I think sponsors have a different challenge, and that's the sort of large assets that are in place now and looking at liquidity events or vehicles that continue their life so that they can move on to a different investor base. Those are, I think, preventing a lot of deployment of new capital because you're just not monetizing enough of what's in the house.

So we do expect that will pick up. The IPO market is not quite back where it should be and where people would like it to be. So I think sponsors are still sitting on a tremendous amount of capital. You combine that with the availability of credit, you have all the ingredients for a very, very active sponsor cycle, but I always maintain that I thought it was going to be a slower grind up and not a rocket ship vertical lift off on sponsor activity. So we see whereabout 30% of our business or so right now is trending to sponsors. And I do think it will pick up, but I think it's a pacing forward, not a vertical lift off forward.

It's really clear. Maybe just turning to restructuring, which has obviously been very strong across the industry this year. Maybe you could just provide your outlook for restructuring into 2025, and whether it could stay at currently elevated levels or potentially even grow from here and the drivers of that?

Yes. As I said earlier, in our market, we're very significant players, both in the U.S. as well as in Europe in restructuring, liability management and financing and capital solutions broadly. That market is not just a 911 I need to go bankrupt market anymore. It's very proactive, very forward thinking liability management, thinking about sources of capital in both tenor and term, and having an adviser alongside the finance teams at these companies is very, very valuable. And trying to navigate through this kind of rate environment, policy environment, volatility, all the things that create a complex environment are just good for our business. So very optimistic about our value add and the services we provide, and clients are reacting very favorably to what we bring to the table in connection with complex financing.

So the world is not getting any simpler. Doesn't seem like we're going to have reduced volatility in the near term. So we still feel very, very good about that business.

Great. And then just lastly, you put up a 67% adjusted comp ratio for the year. How should we think about the ability to make further progress on the comp ratio in 2025 in light of your mid-60s comp ratio longer-term target? And then just thinking about what normalized comp ratio could look like beyond 2025 as well?

Yes. So look, we're still in growth mode. We are still committed to our mid-60s margin that we indicated when we became a public company in 2021. We had a couple of abnormally down years for the industry, '22 and '23. So we took up the margin, we think, appropriately to share the investment costs between our team and our shareholders and make sure we kept our assets in place and motivated and energized for the rebound, which is now, I think, in front of us. So we feel very good about the investments we made. We took the margin down almost 300 basis points from last year. We drove revenue over $200 million. I don't have an algorithm for that because we do a bottoms-up analysis in what we think we need to compensate our team, but we feel very good as we scale the business that we should get additional comp leverage. And for sure, as we scale the business, we'll get more non-comp leverage. As Alex outlined before, we have a couple of items in there that we just don't think are recurring. So we feel good about getting leverage on both of those line items as we continue to scale the business up. But I don't have a specific algorithm and it's certainly too early in the year to indicate where we might be this year.

And this will conclude today's Q&A portion of the call. I will now turn the call back to Andrew for any closing comments.

Okay. Thank you, operator, and thank you, everyone, for joining us today. We appreciate your interest in our firm, and we look forward to talking to you in a few months with respect to our first quarter results. Thank you again. Goodbye.

Thank you. This does conclude the Perella Weinberg Partners Full Year and Fourth Quarter 2024 Earnings Call and webcast. You may disconnect your lines at this time, and have a wonderful day. Goodbye.