PJT Partners Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparative periods ended September 30, 2022. Amounts below are in U.S. dollars, rounded to millions unless stated otherwise. PJT Partners is a global advisory firm focused on strategic advisory, restructuring and special situations, and alternative-asset fundraising and placement.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $278.4 | $266.1 | $824.6 | $745.6 |
| Income before taxes | $42.6 | $47.6 | $125.9 | $141.5 |
| Net income | $31.2 | $39.0 | $100.2 | $118.7 |
| Net income attributable to PJT Partners Inc. | $17.4 | $21.1 | $56.9 | $66.0 |
| Diluted earnings per Class A share | $0.68 | $0.82 | $2.20 | $2.56 |
- Revenue mix: Q3 advisory fees were $244.1 million (+9%); placement fees $26.7 million (-33%); and interest income and other $7.6 million, up from $2.0 million. For the nine months, advisory fees rose 24% to $736.0 million, while placement fees fell 50% to $74.3 million.
- Margins and costs: Q3 pretax margin was approximately 15.3%, versus 17.9% a year earlier; nine-month pretax margin was approximately 15.3%, versus 19.0%. Expenses rose 8% in Q3 and 16% year to date, faster than revenue. Compensation and benefits increased 8% in Q3 and 17% year to date.
- Cash flow: Operating cash flow was $317.8 million for the nine months, compared with $278.2 million. Investing activities used $191.0 million, primarily reflecting net purchases of investments; financing activities used $183.9 million.
- Liquidity and debt: Cash and cash equivalents were $116.0 million at September 30, down from $173.2 million at year-end. The company reported cash, cash equivalents and short-term investments of $355.1 million, versus $223.5 million at year-end. No revolving-facility borrowings were outstanding; the $60 million facility matures October 1, 2024. The company reported compliance with its debt covenants.
- Other balance-sheet items: Accounts receivable, net, was $324.1 million, including $117.6 million of long-term placement-fee receivables. Accrued compensation and benefits were $186.8 million, versus $83.9 million at year-end. Operating lease liabilities were $118.3 million.
Changes versus prior comparable periods
- Q3 revenue growth reflected higher restructuring advisory revenue and interest income, partly offset by declines in strategic advisory, private capital solutions and fund placement revenue. Nine-month revenue growth was also led by restructuring advisory.
- Despite revenue growth, net income attributable to PJT Partners Inc. fell 17% in Q3 and 14% for the nine months. Management cited higher compensation accruals, professional fees and occupancy costs; the New York headquarters expansion contributed to occupancy growth. The effective tax rate rose to 26.8% in Q3 from 18.1%, and to 20.4% year to date from 16.1%.
- The company repurchased 1.5 million shares for $105.9 million during the nine months, at an average $71.82 per share; $67.8 million remained authorized at quarter-end. The Board declared a $0.25-per-share quarterly dividend, payable December 20, 2023.
Outlook, risks and contingencies
- Outlook: The filing gives no quantified earnings or revenue guidance. Management described global M&A conditions as pressured by monetary policy, uncertainty and slowing growth; announced worldwide M&A volume was down 27% in the first nine months of 2023. Restructuring activity remained strong amid higher interest rates and challenging economic conditions. Fundraising remained difficult as limited partners became more selective.
- Management expects incentive compensation payments to reduce cash around year-end and in the first quarter, with cash generally rebuilding through the rest of the year. It believes operating cash flow, available cash and the revolving facility will be adequate for foreseeable liquidity needs, while noting financing access and client receipts depend on market conditions and transaction completions.
- Key stated risks include economic and geopolitical uncertainty, inflation and interest rates, weaker advisory and fundraising activity, collection timing and client transaction completion, foreign-exchange movements, and operational, cyber and third-party-service risks. The company does not hedge foreign-currency exposure.
- Ordinary-course litigation and indemnification matters remain subject to uncertain outcomes; management does not currently believe pending matters would materially affect the company, but cannot estimate potential losses. An IRS examination of the partnership’s 2020 tax return was not expected to have a material impact. The company also estimated $32.1 million due under its tax receivable agreement; actual payments may differ significantly.
- The company adopted an amended equity plan authorizing an additional 16 million Class A shares for incentive awards. It reported $203.3 million of unrecognized RSU compensation expense and $75.0 million of unrecognized deferred-cash compensation expense at quarter-end.
Important facts for investors to verify
- Whether restructuring revenue can continue to offset the substantial decline in placement fees, and how transaction markets affect future fee activity.
- How compensation accruals, equity awards and the new plan authorization affect future expenses, dilution and per-share earnings.
- Timing and collectability of the $117.6 million long-term placement-fee receivables and the adequacy of the credit-loss allowance.
- Cash needs for annual incentive payments, share repurchases, dividends, partnership-unit exchanges and tax receivable agreement payments; confirm facility availability and covenant compliance.
- Developments in the IRS examination, litigation and other contingencies, as well as foreign-exchange exposure and changes in market conditions.