PJT Partners Inc. — Q3 2015 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2015. The combined statements present the historical Blackstone strategic advisory, restructuring and reorganization advisory, and Park Hill Group businesses—not results of PJT Partners as a standalone public company. PJT Capital LP was acquired on October 1, 2015, so its results are excluded. Blackstone completed the spin-off on that date.
Financial performance
| Metric | Three months ended Sept. 30, 2015 | Three months ended Sept. 30, 2014 | Nine months ended Sept. 30, 2015 | Nine months ended Sept. 30, 2014 |
|---|---|---|---|---|
| Revenue | $147.3m | $79.5m | $302.1m | $252.5m |
| Income (loss) before taxes | $43.9m | $(13.6)m | $22.7m | $(47.3)m |
| Net income (loss) attributable to PJT Partners | $41.9m | $(14.2)m | $18.8m | $(48.8)m |
| Operating cash flow | Not presented by quarter | $137.3m | $5.6m |
- Q3 revenue rose 85%; nine-month revenue rose 20%. Advisory fees were $116.2m in Q3 and $221.5m for nine months; placement fees were $27.8m and $76.1m, respectively.
- Q3 pretax and net margins were approximately 29.8% and 28.4%; nine-month margins were approximately 7.5% and 6.2%. These are historical combined results and should not be treated as standalone post-spin margins.
- Q3 expenses were $103.5m, up 11%; nine-month expenses were $279.4m, down 7%. Compensation and benefits declined 12% in Q3 and 16% for nine months. Professional fees, occupancy, and depreciation and amortization increased.
- The company reported a $6.0m Q3 impairment of certain customer-relationship intangible assets, included in depreciation and amortization. Goodwill was $68.9m with no impairment reported.
- Cash and cash equivalents were $21.7m at September 30, down from $38.5m at year-end 2014. Nine-month investing cash outflow was $4.4m and financing cash outflow was $149.8m, primarily reflecting a decrease in Parent Company investment. There was no debt shown on the September 30 combined balance sheet.
- Total assets were $301.6m; total liabilities were $45.4m. Accounts receivable, including affiliate receivables, totaled $149.5m net. Of this, $46.3m was long-term placement-fee receivables; $5.3m of long-term receivables was more than 90 days past due.
- Operating lease commitments totaled $235.9m through 2030. Park Hill Group LLC reported $11.6m of regulatory net capital, $11.4m above its minimum at September 30.
Changes, outlook, and important developments
- Drivers and concentration: Management attributed the sharp Q3 advisory-fee increase primarily to significant fees from M&A transactions that closed in the quarter. Two clients generated 49.5% of Q3 advisory fees; four clients generated 51.3% of placement fees. For the first nine months, two clients represented 29.3% of advisory fees.
- Costs and standalone transition: Higher Q3 professional fees reflected infrastructure build-out and spin-off-related legal and other services. Occupancy costs increased with new offices and overlap with former locations. Management cautioned that historical allocations from Blackstone may not reflect future standalone costs; certain transition services were to continue under an agreement of up to 24 months.
- Tax and pro forma earnings: Historical tax expense reflects separate-company calculations and differs from the anticipated post-spin tax structure. Pro forma results applying standalone tax assumptions show net income attributable to PJT Partners of $12.6m for Q3 and $5.0m for nine months, with basic and diluted EPS of $0.67 and $0.26, respectively. These are pro forma figures, not reported historical net income. The pro forma tax rates were 35.9% and 47.1%.
- Non-GAAP measure: Adjusted Net Income was $47.3m for Q3 and $49.6m for nine months, versus $2.0m and $8.7m in the comparable 2014 periods. This measure excludes specified compensation and amortization items and uses adjusted current taxes; it is not GAAP net income.
- Liquidity and financing: A $60m revolving facility with First Republic Bank became available after the spin-off on October 1, 2015, with a possible seasonal increase to $80m subject to conditions. It matures October 2, 2017; no borrowings had been made after September 30 as of the filing. The facility includes quarterly financial covenants. Management expects operating cash flow, the facility, and available cash to fund needs, but notes cash flows depend on client receipts and transaction closings.
- Business outlook and risks: Management cited strong global M&A activity and growth in alternative-asset fundraising as supportive market trends, but gave no company-specific numerical guidance. Advisory revenue is transaction-dependent and can fluctuate with deal completions; placement-fee collections may extend over several years. Management also highlighted the limited standalone operating history, public-company costs, compensation cash needs, foreign-exchange exposure, and potential effects of market conditions.
- Tax receivable agreement: Following eligible partnership-unit exchanges, PJT Partners Inc. may owe holders 85% of certain realized tax benefits. The filing says future payments could be substantial, but does not provide a clear estimate.
- Legal matter: Park Hill defendants remain involved in the New Mexico Foy litigation. The state supreme court held that treble damages under the state statute could apply retroactively; further proceedings were pending. The company said it considers the action without merit and would defend it. The state Attorney General indicated an intent to seek dismissal; that outcome was not yet resolved.
Investor verification checklist
- Confirm the post-spin standalone results, including the contribution and purchase accounting for PJT Capital LP, which are absent from these historical statements.
- Track revenue conversion and client concentration, particularly the reliance on a small number of clients and successful transaction closings.
- Reconcile historical and post-spin compensation, occupancy, professional-service costs, taxes, and cash requirements.
- Monitor collection of long-term and overdue receivables, cash balances, facility usage, and compliance with revolving-credit covenants.
- Assess the eventual tax-receivable-agreement liability and the status and potential exposure of the Foy litigation.