PJT Partners Inc. — FY2020 Form 10-K
Business context and reporting period. PJT Partners is a global, advisory-focused investment bank providing strategic and capital-markets advice, restructuring and shareholder advisory, and private-fund fundraising services. This annual filing covers the year ended December 31, 2020; quarterly figures below include the three months ended December 31, 2020. The company reported one operating segment.
Financial performance and position
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue | $1,052.3 million | $717.6 million | +47% |
| Advisory fees | $872.3 million | $571.8 million | +53% |
| Placement fees | $162.2 million | $133.2 million | +22% |
| Total expenses | $804.3 million | $635.4 million | +27% |
| Income before taxes | $248.0 million | $82.2 million | +202% |
| Net income | $212.4 million | $63.8 million | +233% |
| Net income attributable to PJT Partners Inc. | $117.5 million | $29.6 million | +298% |
| Basic / diluted EPS | $4.80 / $4.40 | $1.23 / $1.21 | |
| Operating cash flow | $469.6 million | $211.4 million |
- FY2020 net margin was approximately 20.2% of revenue; income before taxes was approximately 23.6% of revenue.
- Q4 2020 revenue was $322.0 million, income before taxes was $94.6 million, net income was $81.4 million, and net income attributable to PJT Partners Inc. was $46.1 million. Diluted EPS was $1.67.
- Cash and cash equivalents were $299.5 million and investments were $137.9 million at year-end, totaling $437.4 million, versus $217.5 million a year earlier. Accounts receivable was $233.2 million, including $83.5 million of long-term placement-fee receivables; the credit-loss allowance was $1.3 million.
- There were no revolving-credit borrowings at year-end; the $30 million term loan was repaid during 2020. The company reported no loan payable at December 31, 2020. In February 2021, its revolving facility was increased to $60 million, with a seasonal option to increase to $80 million.
- Total liabilities were $483.8 million, including $172.3 million of operating lease liabilities and $19.6 million due under the tax receivable agreement. Operating lease commitments were $209.3 million undiscounted.
Material changes versus prior period
- Revenue growth reflected significant increases in restructuring and strategic advisory fees; placement fees also rose, principally from corporate private placements and private-equity fund placements.
- Compensation and benefits increased 36% to $683.4 million, mainly due to improved business performance. Travel costs fell 71% to $7.3 million as travel and entertainment activity declined.
- The effective tax rate fell to 14.3% from 22.4%, attributed mainly to lower permanent differences related to equity compensation, lower state and local tax rates, and a CARES Act net-operating-loss carryback benefit.
- Cash used in financing activities increased to $244.4 million, including $101.9 million for cash-settled partnership-unit exchanges, $48.7 million for share repurchases, and $54.7 million in tax distributions. Operating cash flow rose to $469.6 million.
- Reported diluted EPS reflects a material change in the diluted share calculation: weighted-average diluted shares increased to 43.1 million from 25.0 million, primarily because of the assumed conversion of partnership units and unvested awards. Basic EPS is a useful comparison alongside diluted EPS.
Outlook, commentary, risks, and unusual items
- Management gave no numerical earnings or revenue guidance. It said M&A remained active and expected boards and management teams to continue using M&A strategically, while noting that the pandemic’s effect on future activity was uncertain.
- Management described restructuring activity as strong in Q4 2020, but expected it could slow from elevated levels. It noted continuing pandemic-related pressure on companies and uncertainty in fundraising, with established manager-investor relationships particularly important.
- COVID-19 risks include weaker demand, delayed or cancelled transactions, collection delays, client distress, employee disruption, remote-work cybersecurity exposure, and possible impairment of goodwill or intangible assets. Most employees worked remotely beginning in March 2020; management reported no pandemic-related decline in demand to date.
- Revenue and earnings are transaction-dependent and can be volatile because advisory fees often depend on transaction completion. Other notable exposures include competition and talent retention, client and receivable concentration, litigation and regulatory risks, foreign exchange movements (not hedged), and uncertainty following Brexit.
- The tax receivable agreement generally requires payment to eligible partnership-unit holders of 85% of specified realized tax benefits. The company estimated a $267.7 million payment if it terminated the agreement at December 31, 2020, based on stated assumptions; actual payments could differ materially.
- Two previously disclosed legal matters remained subject to further appeals or proceedings. The company said it could not estimate potential losses, but did not believe current proceedings would have a material adverse effect based on information then available. It reported a $6.0 million employee-investment loan guarantee and expected associated loss risk to be insignificant.
- The company repurchased 0.9 million shares for $48.7 million in 2020 and authorized an additional $150 million repurchase authorization in February 2021. It declared quarterly dividends of $0.05 per share during 2020 and declared a further $0.05 dividend for March 2021.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Revenue recognition was identified as a critical audit matter because of judgment involved in timing variable-fee recognition.
Most important facts for investors to verify
- Whether 2020’s exceptional revenue and profit growth is sustainable, given transaction timing and market-cycle sensitivity.
- Cash conversion and collectability of the $83.5 million of long-term placement-fee receivables, including the effect of installments and any client distress.
- The diluted-share impact of partnership units, incentive awards, and future cash-settled or stock-settled exchanges; compare diluted EPS with basic EPS.
- Future cash needs from compensation, unit exchanges, dividends, repurchases, leases, and tax-receivable-agreement payments, and any effect on liquidity.
- Developments in COVID-19, restructuring and M&A markets, fundraising conditions, cybersecurity, litigation, regulation, and post-Brexit operations.