PJT Partners Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparative period is Q1 2018 unless otherwise noted. PJT Partners is a global advisory-focused investment bank providing strategic advisory, restructuring, shareholder engagement, and private-fund advisory and placement services. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where appropriate.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Total revenue | $128.1 million | $134.0 million; down 4% |
| Advisory fees | $104.5 million | $103.5 million; up 1% |
| Placement fees | $23.3 million | $26.1 million; down 11% |
| Interest income and other | $0.3 million | $4.5 million; down 94% |
| Total expenses | $128.1 million | $131.4 million; down 2% |
| Income (loss) before tax benefit | $(0.1) million | $2.6 million |
| Net income | $0.9 million | $6.7 million |
| Net income attributable to PJT Partners Inc. | $1.1 million | $5.2 million; down 79% |
| Class A EPS | $0.05 basic; $0.04 diluted | $0.27 basic; $0.24 diluted |
| Net cash used in operating activities | $(39.9) million | $(53.0) million |
- Expenses were approximately equal to revenue, leaving a small pretax loss. A $1.0 million tax benefit resulted in positive consolidated net income. The effective tax rate was not meaningful in Q1 2019.
- Compensation and benefits expense fell 8% to $95.2 million, while depreciation and amortization rose 80% to $3.6 million, primarily reflecting CamberView acquisition-related intangible amortization. Travel and other expenses also increased.
- Cash and cash equivalents were $54.3 million at March 31, 2019, versus $106.1 million at year-end 2018. Cash, cash equivalents and investments totaled $56.4 million, compared with $108.3 million at year-end.
- Accounts receivable was $203.9 million, including $69.1 million of long-term placement-fee receivables generally collected over three to four years. Cash fell by $51.8 million during the quarter; operating and financing activities used $39.9 million and $19.5 million, respectively.
- Debt included a $30.0 million term loan; the $40.0 million revolving facility had no outstanding balance at quarter-end. The company reported compliance with debt covenants. Operating lease liabilities were $161.2 million following adoption of new lease accounting standards.
Material changes and business developments
- Revenue declined despite slightly higher advisory fees, mainly because private-equity fund closings reduced placement fees and interest income and other fell sharply. Management attributed the latter decline primarily to foreign-currency fluctuations and lower reimbursable expenses billed to clients.
- Domestic revenue increased to $122.3 million from $111.6 million, while international revenue declined to $5.8 million from $22.4 million. One client represented 15.6% of total Q1 2019 revenue; one client also accounted for 19.1% of advisory fees, and two clients represented 30.1% of placement fees.
- The October 2018 CamberView acquisition was included in Q1 2019 results. The preliminary purchase price was $136.1 million, and a $5.1 million measurement-period adjustment reduced goodwill.
- Adoption of lease accounting on January 1, 2019 brought operating lease right-of-use assets and liabilities onto the balance sheet; comparative periods were not restated.
- Diluted weighted-average Class A shares increased to 40.0 million from 23.9 million, reflecting the dilutive effect of unvested awards and partnership units. Equity-based compensation expense was $35.0 million.
Outlook, risks and contingencies
- No quantitative earnings or revenue guidance was provided. Management described the M&A environment as constructive by historical standards, although worldwide announced M&A volume in Q1 2019 was down 18% year over year. Restructuring activity remained muted amid low defaults, but management cited strong momentum and new mandates across several industries. Management also noted continued institutional investor demand for alternative assets.
- Management expects cash to typically decline around year-end or early in the following year as prior-year incentive compensation is paid, then gradually increase through the year. Liquidity depends substantially on client receipts and transaction completion; the company said available cash, operating cash flow and revolver availability should fund expected needs, while noting future financing availability is not assured.
- Brexit’s effects remain uncertain; management said it was taking preparatory steps. Transaction cycles, successful deal closings, fund-raising activity, client collections, market conditions and foreign exchange can affect results.
- The company reported that potential additional claims related to funds fraudulently obtained by Andrew Caspersen could be less than $30 million, considers the claims without merit and intends to defend them. For other litigation, it could not estimate a possible loss or range; disposition of contingencies could materially affect results in the period recognized.
- Employee investment-loan guarantees totaled $8.1 million; management expected associated loss risk to be insignificant. Indemnification exposure was not quantified, though management also expected associated risk to be insignificant. Tax receivable agreement amounts due were $9.1 million; actual payments may differ significantly from estimates.
- After quarter-end, the board authorized up to $100 million in additional share repurchases, on top of $32.9 million remaining under the prior authorization. No shares were repurchased in Q1. A $0.05-per-share quarterly dividend was declared for payment June 19, 2019.
Key facts for investors to verify
- Whether advisory and placement-fee trends, particularly private-fund closing activity, support revenue recovery or continued weakness.
- Client concentration and collection of receivables, including the timing and collectibility of long-term placement-fee balances.
- Cash generation after incentive compensation, planned dividends and buybacks, partnership-unit exchanges, and scheduled term-loan principal payments.
- The impact of equity-based compensation and partnership-unit dilution on per-share results.
- Developments in litigation and other contingencies, and the financial effects of Brexit, foreign exchange and market conditions.