PJT Partners Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; this is an annual report, not a standalone fourth-quarter report. PJT Partners is a global advisory-focused investment bank providing strategic and capital-markets advice, restructuring services, shareholder advisory, and alternative-fund placement and fundraising. It reported 833 employees, including 97 partners, at year-end.
Financial performance
Amounts are in U.S. dollars; financial-statement amounts below are converted from thousands to millions where appropriate.
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $991.9 million | $1,052.3 million | Down 6% |
| Advisory fees | $762.7 million | $872.3 million | Down 13% |
| Placement fees | $216.7 million | $162.2 million | Up 34% |
| Operating expenses | $772.5 million | $804.3 million | Down 4% |
| Income before taxes | $219.4 million | $248.0 million | Down 11% |
| Net income | $190.0 million | $212.4 million | Down 11% |
| Net income attributable to PJT Partners Inc. | $106.2 million | $117.5 million | Down 10% |
| Class A EPS, basic / diluted | $4.25 / $3.99 | $4.80 / $4.40 | Lower |
| Net cash provided by operating activities | $124.2 million | $469.4 million | Down $345.3 million |
- Income-before-tax margin was approximately 22.1%, versus 23.6% in 2020; net margin was approximately 19.1%, versus 20.2%.
- Management attributed lower advisory fees mainly to a significant decline in restructuring revenue from 2020’s record levels, partly offset by record strategic-advisory performance. Placement growth reflected higher corporate placements and fund-placement activity.
- Compensation and benefits declined 6% to $640.0 million, primarily reflecting a lower compensation accrual rate. Higher professional fees, technology spending, and travel partly offset the reduction.
Liquidity, cash flow and capital
- Cash and cash equivalents were $200.5 million at year-end, compared with $299.5 million in 2020; 2021 cash, cash equivalents and investments totaled $200.5 million, versus $437.4 million in 2020. The 2021 balance included $40.0 million in Treasury securities.
- Operating cash flow fell to $124.2 million from $469.4 million. The filing identifies a $131.4 million decrease in accrued compensation and benefits and a $61.0 million increase in accounts receivable among the operating cash-flow movements.
- Net cash used in financing was $353.4 million, including $109.6 million for cash-settled partnership-unit exchanges, $103.3 million of share repurchases, $78.0 million of dividends and $37.8 million of tax distributions.
- No revolving-credit-facility borrowings were outstanding at year-end, and the company reported compliance with its covenants. The facility provided $60 million of commitments, with a seasonal option to increase to $80 million; it was scheduled to mature October 1, 2022, subject to extension.
- Accounts receivable, net, rose to $289.3 million from $233.2 million, including $104.6 million of long-term placement-fee receivables, generally payable over three to four years. The allowance for credit losses was $1.9 million.
- Operating lease liabilities were $157.0 million. This is a contractual lease obligation, distinct from borrowings; the company reported no outstanding revolver debt.
Material changes, outlook and risks
- Management described 2021 worldwide M&A activity as significantly higher than 2020 and said it expected boards and management teams to continue using M&A strategically. Restructuring activity slowed as the economy recovered and default rates remained historically low, but management said longer-term demand could improve as companies address pandemic-related disruptions, financing conditions, supply-chain problems and inflation.
- For fundraising, investors remained focused on established manager relationships, with a high bar for new managers; managers were deploying capital quickly and returning to market for larger funds. Management also noted increased use of continuation vehicles in the secondary market.
- The filing provides no quantitative earnings or revenue guidance. Management’s outlook is conditional on market activity and other factors; advisory revenue can be volatile because fees often depend on successful transaction completion and milestone timing.
- Principal risks include economic and market volatility, changes in transaction and restructuring volumes, competition and fee pressure, dependence on key professionals, client and mandate concentration, cyber and operational incidents, regulatory and litigation exposure, foreign-exchange movements, and COVID-19-related disruption. Inflation, interest rates, supply-chain disruption and geopolitical or political uncertainty could also affect clients and activity.
- International operations generated 11.9% of 2021 revenue. The UK’s new investment-firm prudential regime took effect January 1, 2022 and was expected to substantially increase capital requirements for PJT Partners (UK) Limited.
- The tax receivable agreement requires payment to exchanging partnership-unit holders of 85% of specified realized tax benefits. The year-end recorded amount due was $31.1 million; the company estimated hypothetical termination payments of $233.2 million at December 31, 2021, subject to significant uncertainty. Payments could pressure parent-company liquidity if cash tax savings or partnership distributions are insufficient.
- The company paid a $3.00-per-share special dividend in October 2021 and declared total 2021 dividends of $3.20 per Class A share. A further quarterly dividend of $0.25 per share was declared for payment in March 2022. The board retains discretion over future dividends.
- During 2021, PJT repurchased 1.5 million shares for $103.3 million at an average $71.13 per share; $83.1 million remained under the repurchase authorization at year-end. Partnership-unit exchanges and equity compensation may dilute Class A holders.
- Management said it was not currently party to proceedings expected to have a material effect, but it could not estimate possible losses or ranges for certain matters. A $4.1 million employee-loan guarantee was outstanding; management expected associated loss risk to be insignificant.
- The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective. Revenue recognition was identified as a critical audit matter because of judgment in timing variable consideration.
Important facts for investors to verify
- Whether strategic-advisory and placement growth can offset lower restructuring revenue, and how revenue and transaction mix develop in subsequent periods.
- Cash conversion and collections, particularly given the rise in receivables and multi-year payment terms on placement fees.
- Compensation accruals and cash needs around annual incentive payments, alongside the pace of repurchases, dividends and partnership-unit exchanges.
- The scale and timing of tax receivable agreement payments, and the sensitivity of liquidity to exchange activity and realized tax savings.
- Post-2021 UK regulatory capital requirements, and any material developments in litigation, compliance or cybersecurity matters.