PJT Partners Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. PJT Partners is a global advisory-focused investment bank providing strategic and capital markets advisory, restructuring, and alternative asset placement services. The company reports as one operating segment.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $200.0 million | $246.3 million | Down 19% |
| Advisory fees | $168.1 million | $181.7 million | Down 7% |
| Placement fees | $27.6 million | $60.4 million | Down 54% |
| Expenses | $170.8 million | $196.2 million | Down 13% |
| Income before taxes | $29.2 million | $50.1 million | Down 42% |
| Net income | $28.0 million | $44.5 million | Down 37% |
| Net income attributable to PJT Partners Inc. | $17.3 million | $25.7 million | Down 33% |
| Diluted EPS | $0.67 | $1.00 | Down 33% |
Reported pretax margin was approximately 14.6%, compared with 20.4% a year earlier; net income attributable to PJT Partners Inc. was approximately 8.7% of revenue, versus 10.4%. The effective tax rate was 4.1%, down from 11.3%.
Cash flow: Operating activities used $23.0 million, compared with $42.2 million used in Q1 2022. Investing activities provided $42.7 million, primarily reflecting $49.8 million in investment sales and maturities. Financing activities used $99.5 million, including $66.2 million of share repurchases and $6.2 million of dividends. Cash and cash equivalents declined $79.7 million to $93.5 million; cash, cash equivalents and short-term investments totaled $98.5 million at quarter-end.
Balance sheet and funding: Total assets were $959.8 million and total liabilities were $221.7 million at March 31, 2023. Accounts receivable, net, was $319.6 million, including $131.7 million in long-term placement-fee receivables. There were no revolver borrowings outstanding. The revolving credit facility has $60 million of commitments and was extended to mature October 1, 2024. Operating lease liabilities were $130.7 million. The filing does not report conventional funded debt outstanding.
Material changes versus prior year
- Revenue fell $46.3 million, with the largest decline in placement fees, principally due to lower fund-placement revenue. Advisory fees also declined, reflecting lower strategic advisory and private capital solutions revenue.
- Expenses declined $25.4 million, mainly because compensation and benefits fell $26.2 million. Management said the compensation accrual rate increased, principally reflecting higher fixed compensation costs combined with lower revenue; travel and occupancy costs increased.
- Client count was nearly unchanged at 237 versus 239, while fees of at least $1 million from client transactions declined to 37 from 49.
- The company repurchased 855,118 shares at an average $77.37 per share for $66.2 million; $107.5 million remained authorized at quarter-end. It declared a quarterly dividend of $0.25 per Class A share, payable June 21, 2023.
Outlook, risks and contingencies
- No numeric earnings or revenue guidance was provided. Management described global M&A conditions as pressured by monetary policy, weaker equity markets, economic and geopolitical uncertainty, and slowing growth; worldwide announced M&A volume was down 44% year over year in Q1 2023. Management expects companies to continue using M&A strategically.
- Management reported increased restructuring activity and active mandates, while noting that fund managers face a high bar to attract new investors as limited partners become more selective. These market conditions may affect advisory and placement activity and fee timing.
- Management said cash levels typically decline at year-end and in Q1 as prior-year incentive compensation is paid, then build during the remainder of the year. It believes operating cash flow, available revolver capacity and funds on hand will meet liquidity needs, but notes that client receipts and receivable collections affect liquidity.
- First Republic Bank, which held company deposits and provided the revolving facility, was acquired by JPMorgan Chase following an FDIC seizure on May 1, 2023. The company expected no material effect on its financial statements or day-to-day operations. It reported that most cash and short-term investments were held at global systemically important banks, in insured cash-sweep accounts, or in Treasury securities; a bank failure could still affect liquidity.
- Potential risks include volatile macroeconomic and geopolitical conditions, inflation, rising rates, banking-system instability, foreign-exchange movements, and cyber or systems disruptions. The company does not hedge its foreign-exchange exposure with derivatives. Currency movements produced a $0.8 million loss in Interest Income and Other in Q1 2023.
- The IRS selected PJT Partners Holdings LP’s 2020 partnership return for examination; management did not expect a material impact. Management said it was not aware of material pending litigation, though loss estimates for legal matters could not be determined. A $3.0 million employee-loan guarantee was outstanding, with expected loss described as insignificant. The tax receivable agreement liability was $31.7 million; actual payments may differ significantly from estimates.
Most important facts for investors to verify
- Whether the sharp decline in placement fees and strategic advisory revenue persists, and how mandates convert into recognized and collected fees.
- Cash conversion and collection trends, especially the $131.7 million of long-term placement-fee receivables and the decline in cash and short-term investments.
- Whether compensation costs remain aligned with revenue and whether share repurchases and dividends remain supportable under weaker market conditions.
- The practical impact of First Republic’s acquisition on deposits and continued availability of the $60 million credit facility.
- Progress and any material developments in the IRS examination, legal matters, and tax receivable agreement payments.