PJT Partners Inc. — 2019 Q3 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2019; financial statements are unaudited. PJT Partners is a global advisory-focused investment bank, providing strategic, shareholder, restructuring and private-fund advisory and placement services. The 2018 comparison includes CamberView only from its October 2018 acquisition date, so it is not a full-period like-for-like comparison.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $174.2m | $140.1m | $469.0m | $404.9m |
| Advisory fees | $146.1m | $117.2m | $383.6m | $318.9m |
| Placement fees | $25.6m | $18.2m | $77.6m | $72.5m |
| Operating expenses | $154.4m | $128.1m | $435.7m | $380.0m |
| Income before taxes | $19.8m | $12.1m | $33.3m | $24.8m |
| Consolidated net income | $14.8m | $12.3m | $25.7m | $30.0m |
| Net income attributable to PJT Partners Inc. | $6.8m | $7.6m | $12.8m | $19.7m |
| Class A diluted EPS | $0.28 | $0.33 | $0.52 | $0.85 |
Revenue increased 24% in Q3 and 16% for the nine-month period. Approximate pretax margin was 11.4% in Q3 versus 8.6%, and 7.1% for nine months versus 6.1%. Higher compensation costs absorbed much of the revenue growth. Nine-month net income and EPS declined partly because the prior-year period included a tax benefit, while 2019 had tax expense.
Cash flow and liquidity: Nine-month operating cash flow was $87.0m, down from $118.3m; investing cash flow was a $7.9m use versus $7.7m provided; financing cash flow was a $75.6m use versus $106.4m. Cash and cash equivalents were $108.0m at September 30, 2019, versus $166.4m at September 30, 2018. Cash, cash equivalents and investments totaled $118.2m. Accounts receivable was $255.9m, including $64.1m of long-term placement-fee receivables.
Debt and obligations: The term loan balance was $25.8m, down from $30.0m at December 31, 2018; no revolving-credit borrowings were outstanding. The revolving facility provides $40m of commitments and matures October 2020, subject to extension. The company reported compliance with debt covenants. Operating lease liabilities were $150.8m following adoption of lease accounting guidance in 2019.
Changes, outlook and risks
- Q3 advisory fees rose 25%, led by strategic advisory growth, more than offsetting lower restructuring activity. Placement fees rose 40%, supported by corporate private placements and private-equity fund placement activity. For nine months, strategic advisory growth drove advisory fees higher; placement fees rose 7%.
- Compensation and benefits increased 23% in Q3 and 13% year to date, reflecting higher revenue and headcount. Depreciation and amortization increased, primarily due to CamberView acquisition-related intangible assets. Interest income and other fell 46% in Q3 and 42% year to date, mainly due to lower reimbursable expenses and foreign-exchange losses.
- Management gave no quantified company-specific earnings guidance. It described the M&A environment as constructive by historical standards despite worldwide announced M&A volume falling 10% in the first nine months of 2019. Restructuring activity remained consistent with 2018 amid low defaults, with demand across several industries. Management noted uncertainty around Brexit and said it was taking preparatory steps.
- Liquidity depends substantially on client receipts and successful transaction completions; management expects significant annual incentive-compensation payments late in the year or early the next year. A $100m share-repurchase authorization had $89.4m remaining at September 30; $43.5m had been repurchased year to date. The quarterly dividend was $0.05 per Class A share.
- The company described potential additional claims related to funds fraudulently obtained by Andrew Caspersen as meritless and said it would defend them; it estimated potential claims at less than $30m. Other litigation loss ranges were not estimable. Management said it was not currently party to material pending proceedings and expected insignificant loss exposure under employee-loan guarantees and indemnifications.
- One client represented 10.7% of Q3 revenue. The company identified no material revenue concentration for the nine-month period. The filing also disclosed an immaterial prior-period reclassification between additional paid-in capital and non-controlling interests, with no impact on operating results or cash flows.
Key facts for investors to verify
- Whether advisory-fee growth and placement activity continue, and how dependent results remain on transaction closings and client collections.
- Whether compensation growth, headcount and acquisition-related costs allow revenue growth to translate into parent-attributable earnings and EPS.
- Collection timing and credit quality of the $255.9m receivables balance, including long-term placement-fee receivables.
- Cash needs for incentive compensation, unit exchanges, repurchases, dividends and lease payments, alongside scheduled term-loan repayments and covenant compliance.
- Developments in Brexit-related uncertainty, litigation claims and other contingencies, and any change to management’s market outlook.