PJT Partners Inc. — Q1 2016 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2016. PJT Partners is an advisory-focused investment bank offering strategic advisory, restructuring and special situations, and private-fund placement services. It completed its spin-off from Blackstone on October 1, 2015. Accordingly, Q1 2015 reflects historical Blackstone business results, not a fully comparable stand-alone PJT Partners; it also excludes PJT Capital, acquired in October 2015.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Total revenue | $115.3 million | $82.3 million |
| Advisory fees | $81.6 million | $58.7 million |
| Placement fees | $32.0 million | $23.1 million |
| Total expenses | $112.6 million | $97.0 million |
| Income (loss) before tax | $2.7 million | $(14.7) million |
| Net income (loss) | $1.4 million | $(16.1) million |
| Net income attributable to PJT Partners Inc. | $0.3 million; $0.01 per Class A share | Not presented on a comparable basis |
| Operating cash flow | $10.8 million | $0.3 million |
Revenue increased 40%, with advisory and placement fees up 39% and 38%, respectively. Pretax margin was approximately 2.4%, versus a loss margin of approximately 17.8% in Q1 2015; comparison is affected by the different reporting basis. Compensation and benefits were $88.2 million, including $20.6 million of equity-based compensation. The company reported non-GAAP adjusted net income of $19.0 million, versus an adjusted loss of $2.8 million; this measure excludes specified equity compensation, amortization and tax adjustments and is not a GAAP substitute.
At March 31, 2016, cash and cash equivalents were $86.0 million, accounts receivable $182.1 million (including $62.6 million of long-term placement-fee receivables), and total assets $491.7 million. Total liabilities were $125.8 million; redeemable non-controlling interests were $386.3 million and reported equity was negative $20.4 million. The company had no borrowings on its $60 million revolving credit facility and reported covenant compliance. Q1 investing cash outflow was $5.9 million, including $6.4 million of capital expenditures; cash increased $3.7 million. Operating leases had $229.6 million of minimum future payments, partly offset by $13.1 million of sublease proceeds.
Changes, outlook, risks and unusual items
- Management attributed higher advisory revenue primarily to more and larger restructuring transactions closed; placement-fee growth reflected more and larger closings. Restructuring activity had increased, especially in U.S. commodity-related sectors, while worldwide M&A activity fell 18% year over year in Q1 2016.
- Management noted early-2016 market volatility could moderate deal activity and pause investment, affecting advisory and fundraising businesses. It also cited potential increases in high-yield defaults and described alternative-asset fundraising as a longer-term opportunity. No specific financial guidance was provided.
- Other expense included an $8.9 million accrual related to former Park Hill employee Andrew Caspersen’s unauthorized transactions; a probable $5.6 million insurance reimbursement was also recorded. Management said potential additional related claims were believed to be below $30 million and would be vigorously defended. The filing states that ultimate exposure for other matters could not be estimated.
- Two securities-related actions were filed in April and May 2016 alleging misstatements or failures concerning compliance and fraud-prevention controls. PJT Partners said it believed the actions were without merit. Management assessed ordinary-course litigation as not likely to have a material adverse effect, but outcomes remain uncertain.
- Other risks include transaction-dependent and cyclical revenues, client/closing timing and receivable collection, compensation and stand-alone public-company costs, foreign-exchange exposure, and potential tax-receivable-agreement payments. The company declared a $0.05-per-share dividend payable June 22, 2016; future dividends remain at the board’s discretion.
Investor verification points
- Assess the comparability of Q1 2015 results with post-spin-off Q1 2016, including PJT Capital’s absence from the prior period and changed tax structure.
- Review the quality and timing of fee revenue and collections, including the $62.6 million of long-term receivables and reported client-fee concentration.
- Track the Caspersen accrual, insurance recovery, possible additional claims and related shareholder litigation.
- Evaluate recurring compensation, equity-based awards and non-GAAP adjustments against GAAP earnings and cash generation.
- Monitor lease commitments, revolving-credit availability, partnership-unit exchanges and related tax-receivable-agreement obligations.