PJT Partners Inc. — Q2 2016 Form 10-Q
Business context and reporting period
Reports the quarter and six months ended June 30, 2016. PJT Partners provides strategic advisory, restructuring and special situations, and private fund advisory and placement services. It operates as one reportable segment.
Comparisons with 2015 require caution: periods before October 1, 2015 reflect the relevant businesses as part of Blackstone, use allocated corporate costs, and exclude PJT Capital LP, acquired on October 1, 2015. The company notes these periods may not represent results as a standalone company.
Financial and operating metrics
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $89.3m | $72.5m | $204.6m | $154.8m |
| Expenses | $99.5m | $78.9m | $212.1m | $175.9m |
| Loss before taxes | $(10.3)m | $(6.4)m | $(7.5)m | $(21.1)m |
| Net loss | $(4.7)m | $(7.0)m | $(3.3)m | $(23.1)m |
| Net loss attributable to PJT Partners Inc. | $(0.3)m | Not clearly provided | $(0.1)m | Not clearly provided |
- Revenue increased 23% in Q2 and 32% in the first half. Advisory fees rose 27% and 34%, respectively; placement fees rose 14% and 25%.
- Q2 pretax loss margin was approximately 11.5%; first-half pretax loss margin was approximately 3.7%.
- Cash from operations was $30.4m for the first half, versus $77.4m in 2015; net cash increased $20.9m to $103.2m. Operating cash flow included $42.2m of noncash equity-based compensation, and cash flow was affected by receivables and other working-capital movements.
- At June 30, cash was $103.2m and net accounts receivable was $184.6m, including $64.9m expected to be collected at or beyond one year. Total assets were $515.4m and total liabilities $131.2m.
- No borrowings were outstanding on the $60m revolving credit facility; PJT reported covenant compliance. No other material debt balance is reported in the filing.
- Compensation and benefits were $72.0m in Q2 and $160.1m year to date. Equity-based compensation expense was $42.2m for the first half.
Material changes, outlook, risks, and unusual items
- Management attributed Q2 revenue growth mainly to more strategic advisory and fund placement transactions closing. First-half advisory growth was particularly driven by restructuring activity in Q1, including more and larger transactions.
- Expenses rose 26% in Q2 and 21% in the first half. Management cited higher compensation, professional fees, depreciation and amortization, and other expenses; increases included stand-alone company costs and costs related to the Caspersen matter.
- The company recorded $8.9m of expense related to former employee Andrew Caspersen’s unauthorized conduct and a probable $5.6m insurance reimbursement in Q1. Management said potential additional claims related to the matter were believed to be less than $30m and would be vigorously contested. Other litigation loss ranges were not estimable. A shareholder securities class action was pending; a separate derivative action was voluntarily dismissed without prejudice.
- Management described global market volatility as a potential near-term restraint on strategic advisory and fund placement activity. It cited elevated restructuring activity, particularly in U.S. commodity-related sectors, and said alternative-asset fundraising trends supported Park Hill Group. No specific financial guidance was provided.
- Brexit-related commercial, regulatory, and market effects remain uncertain. Management did not expect likely arrangements to materially harm the business, but noted potential higher costs, reduced transaction activity, and possible loss of the U.K. entity’s EU passport.
- The board declared a $0.05-per-share quarterly dividend, payable September 21, 2016 to holders of record September 7. Management said it planned regular quarterly dividends, subject to its policy and circumstances.
- An immaterial prior-period accounting misstatement was revised: it reclassified amounts among redeemable non-controlling interests, retained deficit, and additional paid-in capital, with no effect on prior-period operations or cash flows.
Most important facts for investors to verify
- Whether advisory and placement transaction closings and receivable collections sustain revenue and cash generation, given the cyclical, success-based nature of fees.
- The quality and timing of the $184.6m receivables balance, including long-dated placement-fee receivables and the increased doubtful-account allowance.
- The ultimate cost, insurance recovery, and litigation exposure related to the Caspersen matter and pending shareholder claims.
- The level and timing of compensation expense, equity awards, and potential Partnership Unit exchanges; redeemable non-controlling interests represented 47.2% of the partnership’s economic interest at June 30.
- How Brexit developments, market volatility, and transaction volumes affect the U.K. business, advisory pipeline, and Park Hill fundraising.
- The continued availability of revolver capacity and compliance with its financial covenants as liquidity needs change.