PJT Partners Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. PJT Partners is a global advisory-focused investment bank spanning strategic advisory, restructuring and special situations, and alternative-asset fundraising and placement services. Unless noted otherwise, financial amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $346.3m | $233.1m | $546.3m | $479.5m |
| Advisory fees | $323.8m | $186.6m | $491.9m | $368.3m |
| Placement fees | $20.0m | $49.5m | $47.6m | $109.8m |
| Expenses | $292.1m | $189.5m | $462.9m | $385.6m |
| Income before taxes | $54.2m | $43.7m | $83.4m | $93.8m |
| Net income | $41.1m | $35.2m | $69.0m | $79.7m |
| Net income attributable to PJT Partners Inc. | $22.1m | $19.2m | $39.5m | $44.9m |
| Diluted earnings per Class A share | $0.86 | $0.74 | $1.53 | $1.74 |
| Effective tax rate | 24.2% | 19.4% | 17.2% | 15.1% |
Q2 pretax margin was approximately 15.6%, versus 18.7% a year earlier; expenses were approximately 84.4% of revenue, versus 81.3%. The filing does not report a company-defined operating margin.
- Cash flow: Six-month operating cash flow was $167.6m, up from $117.5m. Investing cash outflow was $26.9m and financing cash outflow was $164.5m. Cash and cash equivalents decreased $21.7m to $151.5m.
- Liquidity: Cash, cash equivalents and short-term investments totaled $225.6m at June 30, 2023. Net accounts receivable was $333.1m, including $125.8m of long-term placement-fee receivables; the credit-loss allowance was $3.0m.
- Debt and obligations: No revolving-credit-facility borrowings were outstanding. The facility provides $60m of commitments, with a seasonal increase provision up to $80m, and matures October 1, 2024. Operating lease liabilities were $126.2m. The company reported compliance with debt covenants.
- Capital returns: PJT repurchased 1.4m shares for approximately $104.0m during the first half at an average $71.87 per share; $69.7m remained authorized at June 30. It declared a quarterly dividend of $0.25 per share, payable September 20, 2023.
Changes versus the prior comparable periods
- Q2 revenue increased 49%, primarily because advisory fees rose 73%, driven principally by restructuring revenue. Placement fees fell 60%, reflecting lower fund-placement revenue.
- First-half revenue increased 14%, but first-half net income fell 13% and income attributable to PJT Partners Inc. fell 12%. Advisory-fee growth was more than offset at the earnings level by lower placement fees and higher expenses.
- Q2 expenses increased 54%; compensation and benefits rose 64%, mainly due to a higher six-month compensation accrual rate. Professional fees and other expenses also increased, with higher bad-debt expense contributing to the latter.
- Q2 interest income and other was $2.5m versus a $3.0m loss a year earlier. The prior-year period included a decline in fair value of certain equity securities received as transaction compensation.
- First-half operating cash flow improved, while cash declined as the company used funds for share repurchases, dividends, tax distributions and other financing activities.
Outlook, commentary and risks
- The filing provides no numerical earnings or revenue guidance. Management describes M&A as cyclical and notes that worldwide announced M&A volume declined 37% in the first half of 2023 year over year. Monetary policy, economic and geopolitical uncertainty, and slower global growth were cited as pressures; management expects companies to continue using M&A strategically.
- Restructuring activity remained elevated amid higher interest rates and macroeconomic pressure on leveraged companies. Fundraising conditions remained challenging as limited partners became more selective; management also noted a shift toward more diversified secondary and private-capital solutions.
- Management believes operating cash flow, available facility capacity and funds on hand should provide adequate resources for foreseeable liquidity needs, while noting that client receipts depend on successful transactions and collection timing. The company expects cash balances to vary seasonally with incentive-compensation payments.
- Material risks include market and transaction cyclicality, economic and geopolitical uncertainty, interest rates, client and receivable collection timing, banking-institution stability, foreign-exchange movements, cybersecurity and operational disruptions. The company does not hedge its foreign-currency exposure with derivatives.
- On June 13, 2023, New York’s highest court reinstated a negligent-supervision-and-retention claim in the Moore Capital matter for further proceedings. PJT says it believes the claim is without merit and will defend it. Management says it cannot estimate a possible loss or range and does not believe current proceedings are expected to have a material effect.
- An IRS examination of the partnership’s 2020 tax return began; management does not currently expect a material financial-statement impact. The company’s estimated tax-receivable-agreement liability was $32.2m; actual payments may differ significantly.
Most important facts for investors to verify
- Whether advisory-fee growth, particularly restructuring revenue, persists and offsets continued weakness in placement fees.
- How compensation expense and accrual rates evolve relative to revenue, and the effect of deferred and equity-based compensation.
- Collection performance and credit quality of the $333.1m receivables balance, especially long-term placement-fee receivables.
- Cash available after buybacks, dividends and other distributions, and the status of the $69.7m remaining repurchase authorization.
- Developments in the reinstated Moore Capital claim, the IRS examination, and the company’s estimated tax-receivable-agreement obligations.