PJT Partners Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports unaudited fourth-quarter results. Amounts below are in U.S. dollars; financial figures are rounded to millions unless noted.
Business context
PJT Partners is a global, advisory-focused investment bank offering strategic and shareholder advisory, restructuring and special situations, and private fund advisory and placement services through Park Hill. It reported one operating segment and had 590 employees, including 71 partners, at year-end. In October 2018, it acquired shareholder-advisory firm CamberView.
Financial performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Total revenue | $580.2m | $499.3m |
| Advisory fees | $451.6m | $386.3m |
| Placement fees | $111.0m | $102.8m |
| Total expenses | $538.7m | $489.2m |
| Income before taxes | $41.5m | $10.1m |
| Consolidated net income (loss) | $42.6m | $(28.3)m |
| Net income (loss) attributable to PJT Partners Inc. | $27.2m | $(32.6)m |
| Diluted EPS | $1.16 | $(1.73) |
| Cash from operating activities | $122.9m | $111.2m |
- Revenue rose 16%, mainly on higher strategic and secondary advisory activity; real estate placement fees also increased. Expenses rose 10%, led by compensation and benefits (+8%) and travel (+72%).
- Pre-tax margin was approximately 7.2%, versus 2.0% in 2017. Compensation and benefits were $424.5m, about 73% of revenue.
- Fourth-quarter revenue was $175.4m versus $190.6m a year earlier. Income attributable to PJT Partners was $7.4m, compared with a $37.4m loss in Q4 2017.
- Revenue-standard adoption increased reported 2018 revenue and expenses by about $8.2m each, primarily because reimbursable expenses were presented gross. The filing says adoption reduced 2018 net income by approximately $1.1m versus the prior accounting method.
Liquidity, debt and capital
- At December 31, 2018, cash, cash equivalents and investments were $108.3m, down from $182.7m. Cash and cash equivalents on the balance sheet were $106.1m.
- Accounts receivable, net, was $217.8m, including $77.9m of long-term placement-fee receivables generally collected over three to four years. The doubtful-account allowance was $0.7m.
- The company had a $30m term loan outstanding, maturing January 2021, and a $40m revolving facility (potentially expandable to $60m seasonally); there were no revolver borrowings at year-end. It reported compliance with debt covenants. The loan is secured by certain receivables.
- Financing cash outflows included $68.9m for cash-settled partnership-unit exchanges and $64.9m for share repurchases. The company repurchased 1.3m shares during 2018 at an average $50.14 per share; $32.9m remained authorized.
- The board declared a quarterly dividend of $0.05 per Class A share. Future dividends remain at the board’s discretion.
Outlook, risks and unusual items
- Management described the M&A environment as constructive by historical standards and noted worldwide announced M&A volume increased 19% in 2018. Global restructuring activity was down modestly amid benign credit conditions. No numerical company revenue or earnings guidance was provided.
- CamberView’s preliminary purchase price was $141.3m, paid through cash, Class A shares and partnership units. The acquisition added $103.7m of goodwill and $40.6m of identifiable intangible assets. 2018 results include CamberView only from October 1.
- Key business risks include volatile, transaction-dependent fees; market and economic uncertainty; competition and dependence on senior talent; delayed or failed transactions; collection risk on installment placement fees; and regulatory, cybersecurity, foreign-exchange and Brexit-related uncertainty. International operations generated 19.2% of 2018 revenue.
- The tax receivable agreement generally entitles exchanging partnership holders to 85% of specified tax benefits. The company estimated $8.5m currently due; it estimated that a hypothetical termination at year-end could have triggered $116.8m of payments, subject to material variation.
- One Caspersen-related action remained pending: the court dismissed most claims in the Moore Complaint, but an apparent-authority fraud claim remained in discovery and appeals were filed. The company said potential additional Caspersen-related claims were believed to be below $30m and without merit; it could not estimate losses for certain litigation matters.
- Auditor Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective.
Important facts for investors to verify
- How much of 2018 revenue growth reflects durable advisory demand, CamberView, and the accounting change that grossed up reimbursable expenses.
- Cash conversion and collection timing for the $217.8m receivable balance, especially the $77.9m long-term placement-fee receivables.
- CamberView’s contribution, integration costs, purchase-price allocation and performance relative to the unaudited pro forma figures.
- Future compensation costs, including $117.991m of 2018 equity-based compensation expense, and their effect on reported earnings and dilution.
- Debt repayment, liquidity needs, share repurchases and partnership-unit exchanges, along with potential tax receivable agreement payments and litigation developments.