PJT Partners Inc. — 2015 Form 10-K
Business context and reporting period. This filing covers the fiscal year ended December 31, 2015. PJT Partners is an advisory-focused investment bank offering strategic advisory, restructuring and special situations, and fund placement and secondary advisory services. The company became independent from Blackstone on October 1, 2015, when Blackstone’s advisory businesses were combined with PJT Capital and spun off. Results for January through September principally reflect the businesses as part of Blackstone; PJT Capital’s results are included only from October 1. Accordingly, full-year comparisons do not represent results of the same stand-alone business throughout both periods.
Financial performance and position
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $405.9 million | $401.1 million |
| Advisory fees | $286.0 million | $271.3 million |
| Placement fees | $114.1 million | $127.7 million |
| Total expenses | $411.9 million | $393.5 million |
| Income (loss) before taxes | $(5.9) million | $7.5 million |
| Net income (loss) | $(6.2) million | $4.5 million |
| Adjusted net income (non-GAAP) | $38.1 million | $97.7 million |
| Operating cash flow | $112.1 million | $49.9 million |
| Cash and cash equivalents at year-end | $82.3 million | $38.5 million |
Revenue increased about 1% year over year. Advisory fees rose 5%, driven mainly by M&A transaction closings; placement fees fell 11%, primarily due to lower corporate private placement fees. Expenses rose 5%, led by higher professional fees, depreciation and amortization, and occupancy costs. Full-year GAAP pretax margin was approximately negative 1.5%. The company reported $7.6 million of net income attributable to PJT Partners Inc. for the full year despite consolidated net loss, reflecting allocation of losses to redeemable non-controlling interests after the spin-off.
For the fourth quarter, revenue was $103.8 million, expenses were $132.5 million, pretax loss was $28.7 million, and net loss was $24.9 million. Net loss attributable to PJT Partners Inc. was $11.2 million, or $0.61 per diluted share. Fourth-quarter pretax margin was approximately negative 27.6%.
Operating cash flow was $112.1 million; investing cash flow was $(24.2) million and financing cash flow was $(44.1) million. Year-end accounts receivable, including affiliate receivables, totaled $169.6 million; $62.6 million of fund-placement receivables were expected to be collected in one year or more. The allowance for doubtful accounts was $0.9 million, down from $3.8 million.
There were no borrowings under the $60 million revolving credit facility, which could increase temporarily to $80 million, and the company reported compliance with its covenants. Total liabilities were $125.3 million; redeemable non-controlling interests were $452.8 million. Contractual obligations included $220.7 million of net operating lease payments. Management said cash, operating cash flows, and revolver availability should adequately fund liquidity needs.
Material changes, outlook, and risks
- Spin-off and acquisition: The October 1 separation established PJT as a stand-alone public company. The company recorded $55.4 million of cash in connection with the separation, acquired PJT Capital, and recognized acquired intangible assets and goodwill. Its cost base, tax structure, funding arrangements, and corporate responsibilities changed; management cautioned that historical results may not predict stand-alone performance.
- Unusual items and non-GAAP results: 2015 included a $6.0 million impairment of intangible assets, acquisition-related amortization, and separation and transition costs. Adjusted net income excludes specified transaction-related equity compensation and intangible amortization/impairment; it fell 61% to $38.1 million. This non-GAAP measure is not a substitute for GAAP results.
- Management outlook: Management cited record worldwide M&A activity in 2015 but cautioned that early-2016 market volatility could moderate activity. Restructuring demand had increased, especially in U.S. commodities sectors, and management expected high-yield defaults might rise in 2016. It viewed Park Hill as positioned to benefit from investor interest in alternative assets. The filing provides no quantified earnings or revenue guidance.
- Principal risks: Revenue and profits are volatile and depend on transaction closings, fundraising, market conditions, and client decisions. Talent retention and recruitment, loss of Blackstone-era synergies, stand-alone costs, competition, conflicts, regulation, litigation, cybersecurity, foreign exchange, and delayed collection of placement fees could adversely affect results. A New Mexico qui tam case involving Park Hill remained pending; the company said it believed the action lacked merit and would defend it.
- Tax and governance exposures: The company may owe substantial payments under its tax receivable agreement, which allocates 85% of certain realized tax benefits to exchanging partnership holders. It estimated termination payments of $104.7 million as of December 31, 2015 under stated assumptions; actual amounts could differ materially. The spin-off’s intended tax-free treatment is not binding on the IRS, and certain acquisitions could trigger tax liabilities or indemnification obligations. Class B holders retain significant voting power on matters other than director elections.
- Dividend and controls: No dividends were paid in 2015. In February 2016 the board declared a $0.05-per-share quarterly dividend and stated an intention to pay regular quarterly dividends, subject to board discretion. Management concluded disclosure controls were effective; the filing did not include management’s internal-control effectiveness assessment or an auditor attestation, consistent with the transition exemption for a newly public company.
Important facts for investors to verify
- Separate the pre-spin Blackstone results, post-spin PJT results, and PJT Capital’s fourth-quarter contribution when assessing comparability and earnings trends.
- Review the composition, timing, and collectability of the $169.6 million receivable balance, particularly long-dated placement-fee receivables.
- Assess the persistence of compensation, occupancy, professional-fee, and public-company costs, and reconcile GAAP results to management’s non-GAAP adjustments.
- Monitor cash generation, unused revolver capacity, lease commitments, partnership-unit exchanges, and potential tax receivable agreement payments.
- Track transaction and fundraising markets, key-person retention, the pending New Mexico litigation, and any developments affecting the spin-off’s tax treatment.