PJT Partners Inc. — Q1 2022 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. PJT Partners is a global advisory-focused investment bank providing strategic, restructuring, shareholder and capital markets advice, as well as private fund placement and fundraising services. It reports as one operating segment.
Financial performance
Amounts below are in millions, except per-share data and percentages.
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $246.3 | $206.7 | +19% |
| Advisory fees | $181.7 | $152.6 | +19% |
| Placement fees | $60.4 | $50.4 | +20% |
| Total expenses | $196.2 | $162.8 | +20% |
| Income before taxes | $50.1 | $43.9 | +14% |
| Net income | $44.5 | $43.8 | +2% |
| Net income attributable to PJT Partners Inc. | $25.7 | $26.7 | -4% |
| Class A EPS, basic / diluted | $1.03 / $1.00 | $1.07 / $1.03 | Lower |
| Operating cash flow | -$42.2 | -$149.8 | Improved |
- Revenue growth reflected higher restructuring advisory fees and stronger fund placement revenue; corporate placement activity declined. Management reported 239 clients versus 213 and 49 transactions with fees of at least $1 million versus 44.
- Compensation and benefits increased 20% to $159.2 million; equity-based compensation expense rose to $59.1 million from $29.9 million. Travel expense increased to $4.5 million from $0.5 million as activity recovered, though it remained below pre-COVID levels. Other expenses rose 46%, principally reflecting a higher credit-loss allowance.
- Income before taxes equaled about 20.4% of revenue, versus 21.2% a year earlier. Net income attributable to PJT Partners Inc. equaled about 10.4% of revenue, versus 12.9%. The effective tax rate increased to 11.3% from 0.2%, primarily due to a lower tax benefit from delivery of vested shares.
- Operating cash use was driven in part by increases in accounts receivable and other assets and payments of accrued compensation. Cash and cash equivalents fell to $75.8 million from $200.5 million at year-end; cash plus short-term investments totaled $95.8 million.
- Accounts receivable, net, increased to $352.2 million from $289.3 million, including $151.4 million of long-term placement-fee receivables, generally collected over three to four years. The credit-loss allowance increased to $3.3 million from $1.9 million.
Balance sheet, capital and liquidity
- Total assets were $963.9 million and total liabilities were $308.8 million at March 31, 2022. The company had $25.0 million drawn on its $60 million revolving credit facility at quarter-end; it repaid the balance in April 2022. The facility maturity was extended to October 1, 2023, and the company reported covenant compliance.
- Operating lease liabilities were $150.1 million. The filing also reports $31.7 million due under the tax receivable agreement; actual payments may differ significantly from estimates.
- PJT repurchased 0.9 million shares for $56.6 million at an average $63.75 per share during the quarter. On April 25, the Board authorized an additional $200 million repurchase program; $26.6 million remained under prior authorizations at March 31.
- A quarterly dividend of $0.25 per Class A share was declared for payment June 22, 2022 to holders of record June 8.
Outlook, risks and other notable items
- No quantified company revenue or earnings guidance is provided. Management said global announced M&A volume fell 21% year over year in Q1 but remained historically high. It expects M&A to remain a strategic tool for boards and management teams.
- Management noted a modest uptick in restructuring activity and cited rising interest rates, inflation, geopolitical uncertainty and COVID-related business dislocations as potential sources of medium- to long-term restructuring demand. Fundraising conditions remained competitive, with investors favoring established managers; secondary-market continuation vehicles were increasing.
- Key risks include cyclical transaction activity, delayed or failed closings, client payment and receivable-collection timing, economic and geopolitical volatility, inflation and rates, COVID impacts, foreign-exchange movements, cybersecurity and technology disruptions, and regulatory requirements. The company does not hedge foreign-currency exposure.
- Management said it was not currently party to material pending proceedings expected to have a material effect. A New Mexico qui tam case was dismissed; the plaintiffs’ rehearing request was denied on April 15, 2022, and the company said it would oppose further appeals. The company cannot estimate potential losses for some legal matters.
- Disclosure controls and procedures were deemed effective, with no material quarterly change in internal control over financial reporting. No material changes to the previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether revenue growth and transaction activity remain resilient amid the reported M&A slowdown and uncertain macroeconomic environment.
- How compensation expense, including equity awards, evolves relative to revenue and profitability; Q1 compensation growth was broadly in line with revenue growth, while total expenses grew slightly faster.
- Receivable quality and collection timing, especially the growth in long-term placement-fee receivables and the increased credit-loss allowance.
- Cash generation and liquidity after incentive compensation, share repurchases, dividends and partnership-unit exchanges; confirm the revolver repayment and ongoing facility availability.
- The impact of the higher effective tax rate, share repurchases and partnership-unit dilution on future Class A EPS.
- Potential cash obligations under leases and the tax receivable agreement, and developments in legal or regulatory matters.