PJT Partners Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; filed July 30, 2021. PJT Partners is a global advisory-focused investment bank, including strategic, restructuring, shareholder and capital-raising advisory and private-fund placement services. It reports as one operating segment.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $240.7M (+3%) | $232.6M | $447.4M (+3%) | $432.7M |
| Advisory fees | $197.6M (+3%) | $192.5M | $350.2M (flat) | $349.1M |
| Placement fees | $40.3M (+14%) | $35.3M | $90.7M (+22%) | $74.3M |
| Income before taxes | $52.4M (+6%) | $49.7M | $96.3M (+16%) | $83.2M |
| Net income | $42.9M (+5%) | $40.9M | $86.7M (+19%) | $72.9M |
| Net income attributable to PJT Partners Inc. | $23.1M (+7%) | $21.7M | $49.8M (+23%) | $40.5M |
| Class A diluted EPS | $0.89 | $0.86 | $1.91 | $1.61 |
Q2 pretax margin was approximately 21.8% versus 21.4% a year earlier; six-month pretax margin was approximately 21.5% versus 19.2%. Q2 expenses increased 3% to $188.2M, while first-half expenses were essentially flat at $351.0M. Q2 tax provision was $9.6M (18.3% effective rate); the six-month provision was $9.7M (10.1%). PJT Partners’ net income is allocated partly to non-controlling interests, which held 39.1% of the partnership at quarter-end.
Liquidity, cash flow and capital
- Cash and cash equivalents were $139.1M at June 30, 2021, down from $299.5M at year-end; investments were $72.7M, down from $137.9M. Combined cash and investments declined to $211.8M from $437.4M.
- First-half operating cash flow was negative $47.6M, versus positive $122.2M in 2020. The filing attributes the cash movement in part to a $125.8M decrease in accrued compensation and benefits and a $69.6M increase in receivables; receivables were $300.3M at period-end.
- First-half investing cash flow was positive $63.3M, mainly reflecting net investment sales and maturities. Financing cash flow was negative $177.9M, including $80.3M of share repurchases and $65.2M of cash-settled partnership-unit exchanges.
- No borrowings were outstanding under the $60M revolving credit facility at June 30; the facility matures October 1, 2022, subject to extension. The company reported compliance with its debt covenants. No material funded debt balance is reported in the supplied filing text.
- Operating lease liabilities were $169.1M. The company’s $150M repurchase authorization had $106.2M remaining at quarter-end. It declared a regular $0.05-per-share dividend and a subsequent special dividend of $3.00 per share, payable in October 2021.
Changes, outlook and risks
- Management said higher strategic and secondary advisory revenue more than offset lower restructuring revenue. Fund placement activity drove higher placement fees, partly offset by weaker corporate placement activity. International revenue rose to $43.6M in Q2 from $26.9M; domestic revenue declined to $197.1M from $205.6M.
- Management cited significantly higher global announced M&A volumes in the first half of 2021 than in the first half of 2020, but cautioned that activity may not remain at those levels. Restructuring activity eased from elevated 2020 levels amid government stimulus and strong capital markets; management expects medium- to long-term demand for restructuring advice to improve.
- For fundraising, management described investors as active but selective, with a high bar for new fund managers and continued interest in certain alternative-investment strategies and secondary-market solutions. In-person meetings and due diligence remained challenging.
- No quantified company-specific revenue or earnings guidance is provided. Management said future COVID-19 effects, including variant strains, remain difficult to predict. Results also depend on transaction completions, client cash collections, market conditions and recruiting/retaining senior professionals.
- Other risks include foreign-exchange movements (the company does not hedge these exposures), cybersecurity and systems disruption, third-party service providers, and regulatory or economic changes. Ordinary-course legal matters are disclosed; management said it could not estimate potential loss ranges but did not expect current matters to have a material adverse effect. A $5.1M employee-loan guarantee was described as having insignificant expected loss risk.
Most important facts for investors to verify
- Whether placement-fee growth and the stronger strategic/secondary advisory activity persist, given lower restructuring and corporate placement revenue.
- Cash conversion and working-capital trends: operating cash flow turned negative, receivables grew, and cash plus investments fell substantially; review subsequent collections and compensation payments.
- The effects of partnership-unit exchanges, non-controlling interests and equity awards on diluted EPS and future share count.
- Capital allocation after the $3.00 special dividend, ongoing quarterly dividend and remaining repurchase authorization, including the effect on liquidity.
- Developments in COVID-19, M&A and restructuring markets, and any changes in legal contingencies, receivable credit quality or foreign-exchange exposure.