PJT Partners Inc. — Q3 2022 Form 10-Q
Business and period: Global advisory-focused investment bank providing strategic, restructuring, shareholder and capital-markets advice, plus private-fund placement and fundraising services. This unaudited report covers the quarter and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods. Amounts below are in millions of dollars unless noted.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $266.1 | $231.3 | $745.6 | $678.7 |
| Income before taxes | $47.6 | $48.3 | $141.5 | $144.6 |
| Net income | $39.0 | $39.2 | $118.7 | $125.8 |
| Net income attributable to PJT Partners Inc. | $21.1 | $21.4 | $66.0 | $71.3 |
| Class A diluted EPS | $0.82 | $0.82 | $2.56 | $2.72 |
| Cash flow from operations | Not presented by quarter | $278.2 | $133.6 |
- Q3 revenue rose 15% year over year, led by advisory fees (+25%); placement fees fell 15%. Nine-month revenue increased 10%, with advisory fees up 12% and placement fees up 9%.
- Expenses rose faster than revenue: 19% in Q3 and 13% year to date. Compensation and benefits increased 21% in Q3 and 12% year to date; travel expense also increased substantially. Q3 pretax income declined 1%, while nine-month pretax income declined 2%.
- Q3 pretax margin was approximately 17.9%, versus 20.9% a year earlier; nine-month pretax margin was approximately 19.0%, versus 21.3%. Effective tax rates were 18.1% for Q3 and 16.1% year to date, compared with 18.8% and 13.0%, respectively.
- Cash and cash equivalents were $189.8 at September 30, 2022, versus $200.5 at year-end 2021; cash, cash equivalents and short-term investments totaled $289.7, versus $200.5. Net operating cash flow improved to $278.2 for the first nine months. Financing activities used $175.1, including $100.2 of share repurchases.
- Accounts receivable, net, was $286.4, including $140.9 of long-term placement-fee receivables generally collected over three to four years. The allowance for credit losses was $2.3.
- No revolving-credit borrowings were outstanding. The facility has $60.0 of commitments, potentially increasing to $80.0 during a specified seasonal period; its maturity was extended to October 1, 2023. The company reported covenant compliance. Total liabilities were $356.1, including $135.0 of operating lease liabilities; the filing reports no other funded debt outstanding.
Material changes, outlook and risks
- Management cited geopolitical uncertainty, inflation and rising interest rates as headwinds to M&A. Worldwide announced M&A volume was down 34% in the first nine months of 2022 year over year, though management said activity remained historically high and expected companies to continue using M&A strategically.
- Management reported increasing restructuring activity in Q3, including more in-court restructurings amid stressed debt and equity markets. Fundraising conditions remained challenging as limited partners became more selective and favored existing relationships and perceived quality.
- The filing provides no numerical earnings or revenue guidance. Management expects seasonal cash declines around year-end and early in the following year as incentive compensation is paid, followed by cash rebuilding during the rest of the year. It believes operating cash flow, available credit and cash on hand should meet foreseeable liquidity needs, subject to economic and market conditions.
- Equity-based compensation expense was $132.0 for the first nine months, versus $83.4 a year earlier; estimated unrecognized compensation expense for equity awards totaled $216.0 across the disclosed award categories. The compensation increase contributed to expense growth.
- Revenue recognized for obligations fully satisfied in prior periods was $50.2 for the first nine months of 2022, versus $12.6 in 2021, mainly as prior-period constraints on variable consideration were resolved. Remaining performance obligations were $39.6, generally expected to be recognized within 12 months.
- The company repurchased 1.5 million shares year to date at an average $65.43 per share, spending $100.2; $183.0 remained under the $200.0 authorization at quarter-end. A quarterly dividend of $0.25 per share was declared after quarter-end, payable December 21, 2022.
- Foreign-currency translation losses were $8.2 year to date, versus $1.5 in 2021; the company said it does not hedge currency exposure. Management noted that exchange-rate movements could adversely affect results. Other cited risks include macroeconomic volatility, cybersecurity and operational disruption, and reliance on transaction completion and receivable collections.
- Management said it was not aware of pending legal proceedings expected to have a material effect, but could not estimate potential losses in individual matters. Employee-loan guarantees totaled $3.6, with expected loss described as insignificant. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether advisory-fee growth and rising restructuring activity can offset weaker M&A and more selective fund fundraising.
- How compensation accruals, equity-based awards and employee hiring affect margins and cash needs, particularly around year-end.
- Collection timing and credit quality of the $140.9 of long-term placement-fee receivables.
- Cash deployment, remaining repurchase authorization, dividends and the October 2023 revolving-credit maturity.
- Exposure to currency movements, litigation or regulatory developments, and the company’s ability to sustain operating cash flow under adverse market conditions.