PJT Partners Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; filed February 28, 2017. PJT is a global advisory-focused investment bank with strategic advisory, restructuring and special situations, and private fund placement businesses. The company became independent following its October 1, 2015 spin-off from Blackstone and acquisition of PJT Capital.
Financial results and liquidity
Amounts below are in millions of dollars unless otherwise noted. The 2015 comparison includes Blackstone business results before October 1 and is not fully comparable to 2016 stand-alone results.
| Metric | 2016 | 2015 | Change / context |
|---|---|---|---|
| Total revenue | $499.4 | $405.9 | Up 23% |
| Advisory fees | $377.6 | $286.0 | Up 32%, mainly more clients and larger fees in restructuring and special situations |
| Placement fees | $115.0 | $114.1 | Approximately flat |
| Total expenses | $484.9 | $411.9 | Up 18%; compensation and benefits rose to $381.0 |
| Income (loss) before taxes | $14.5 | $(5.9) | 2016 pretax margin was approximately 2.9% |
| Consolidated net income (loss) | $5.1 | $(6.2) | 2016 tax provision was $9.4; effective tax rate 64.8% |
| Net income (loss) attributable to PJT Partners Inc. | $(3.0) | $7.6 | Includes allocation to redeemable non-controlling interests |
| Class A diluted loss per share | $(0.17) | Not presented for full-year comparison | 2015 stand-alone period from October 1 to December 31 reported $(0.61) |
| Cash from operating activities | $116.9 | $112.2 | Accounts receivable growth was a significant cash-flow use |
Quarterly context: Q4 2016 revenue was $173.5 million, pretax income $24.0 million, consolidated net income $18.7 million, and net income attributable to PJT Partners Inc. $6.7 million; diluted EPS was $0.35. Quarterly figures are unaudited.
- Cash and cash equivalents were $152.4 million at year-end, up from $82.3 million. Total assets were $590.5 million; total liabilities were $177.1 million. Redeemable non-controlling interests were $422.0 million, and reported equity was a deficit of $8.6 million.
- Accounts receivable, net, was $227.6 million, including $73.1 million of placement-fee receivables expected to be collected in at least one year. The allowance for doubtful accounts increased to $4.4 million from $0.9 million.
- No revolving-facility borrowings were outstanding; the facility provides $60 million, with a seasonal increase option up to $80 million, and matures October 2, 2018. PJT reported compliance with its covenants.
- Operating cash flow was $116.9 million; investing cash outflow was $11.8 million and financing cash outflow was $32.5 million. Capital expenditures for furniture, equipment and leasehold improvements were $13.1 million.
- 2016 dividends declared were $0.20 per Class A share. The board declared a further $0.05 quarterly dividend payable in March 2017.
Changes, outlook and key risks
- Revenue growth was led by advisory fees; placement fees were broadly stable. Expenses increased, particularly compensation and benefits, reflecting stronger business performance, increased headcount, and a full year of spin-off-related equity compensation amortization.
- Equity-based compensation expense was $89.0 million in 2016. Management also cited higher bad-debt expense, stand-alone public-company costs, and certain amounts payable to Blackstone as drivers of expenses.
- Management described the M&A environment as constructive by historical standards, despite worldwide announced M&A volume declining 16% in 2016. It expected restructuring opportunities to continue in areas including retail, merchant power, healthcare, and technology, media and telecommunications. No quantified financial guidance was provided.
- Management noted that short-term market volatility could pause investment and affect strategic advisory and fund placement activity. Results are sensitive to transaction timing, successful deal completion, fundraising conditions, and client fee collection; revenues and profits can fluctuate substantially by quarter.
- The company recorded an $8.9 million Caspersen-related charge and received a $5.6 million insurance reimbursement in 2016. A securities class action alleging misstatements about business and compliance controls was pending; PJT said it considered the action without merit. PJT stated potential additional claims relating to funds fraudulently obtained by Caspersen were estimated by the company at less than $30 million, while noting such claims could not be excluded.
- The tax receivable agreement requires payment to exchanging partnership-unit holders of 85% of specified realized tax benefits. PJT estimated that a hypothetical termination at December 31, 2016 would have required approximately $178.5 million; this was an estimate, not a current payable. Payments may exceed actual cash tax savings under certain circumstances.
- Other risks include talent retention and substantial near-term equity-award vesting, regulatory and litigation exposure, cybersecurity and operational disruption, foreign-exchange exposure without hedging, Brexit uncertainty, and potential dilution from exchangeable partnership units. The company had no debt outstanding, but leases and other contractual obligations totaled $195.3 million, including $188.8 million of operating leases.
- The filing notes an immaterial prior-period balance-sheet reclassification involving partnership interests; it did not affect operations or cash flows. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Assess how much 2016 revenue growth was sustained by underlying advisory activity and how the post-spin-off comparison affects reported year-over-year growth.
- Monitor compensation expense, equity-award vesting and retention, including the effect of equity compensation on reported earnings and potential dilution.
- Review accounts-receivable aging, collection of long-dated placement fees, and the increase in the doubtful-account allowance.
- Track the status and potential financial impact of Caspersen-related matters and the securities class action.
- Evaluate the tax receivable agreement’s potential cash requirements, particularly in a change of control or early termination.