PJT Partners Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. Unaudited results. PJT Partners is a global advisory firm offering strategic, capital markets, restructuring, shareholder advisory, and private-fund placement services.
Financial performance
Amounts below are in millions of U.S. dollars unless stated otherwise.
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $206.7 | $200.2 | +3% |
| Advisory fees | $152.6 | $156.6 | -3% |
| Placement fees | $50.4 | $39.0 | +29% |
| Total expenses | $162.8 | $166.6 | -2% |
| Income before taxes | $43.9 | $33.6 | +31% |
| Net income | $43.8 | $32.0 | +37% |
| Net income attributable to PJT Partners Inc. | $26.7 | $18.9 | +41% |
| Diluted EPS | $1.03 | $0.72 | +$0.31 |
- Consolidated pretax margin was 21.2%, compared with 16.8% in Q1 2020. Net margin was 21.2% and 16.0%, respectively. Compensation and benefits were $132.8 million, or 64% of revenue, versus $134.0 million, or 67%.
- Management attributed lower advisory fees to a significant decline in restructuring revenue, largely offset by increased strategic advisory revenue. Higher placement fees reflected stronger fund placement activity.
- Expenses fell mainly because travel costs declined $4.8 million; this was partly offset by a $3.2 million increase in professional fees, including consulting and recruiting.
Cash flow, balance sheet and liquidity
- Operating cash flow was negative $149.7 million, versus negative $25.1 million in Q1 2020. The company cited the usual first-quarter cash decline after annual incentive compensation payments; cash-flow movements also included a $177.8 million decrease in accrued compensation and benefits and a $41.1 million increase in receivables.
- Cash and cash equivalents were $99.6 million at quarter-end, down from $299.5 million at December 31, 2020. Cash plus investments were $172.3 million, versus $437.4 million at year-end. Investing activities provided $65.1 million, largely reflecting investment maturities and sales; financing activities used $117.2 million.
- Accounts receivable, net, increased to $271.6 million from $233.2 million; $81.6 million was long-term placement-fee receivables, generally collected over three to four years. The credit-loss allowance was $1.2 million.
- Total assets were $950.3 million and total liabilities $303.7 million. No revolving-credit borrowings were outstanding; the facility provides $60 million of commitments, potentially increasing to $80 million seasonally, and matures October 2022. The company reported covenant compliance. Lease liabilities were $167.3 million.
- The company repurchased 657,907 shares for $45.9 million at an average $69.73 per share. $140.6 million remained available under the repurchase authorization at March 31. It declared a $0.05-per-share dividend payable June 16, 2021.
Outlook, risks and other notable items
- No quantitative revenue or earnings guidance was provided. Management noted that Q1 2021 global announced M&A volumes were substantially above Q1 2020, but cautioned that activity might not remain at that level.
- Restructuring activity eased from elevated 2020 levels amid fiscal and monetary support and strong capital markets. Management expects medium- to long-term demand for restructuring and liability-management advice to remain robust as some companies emerge from the pandemic with increased leverage.
- Fundraising remains affected by COVID-19 uncertainty and challenging transaction execution; management described a higher bar for new manager-investor relationships and continued investor interest in selected strategies.
- Key risks include economic and market volatility, COVID-19 impacts, transaction completion and collection timing, foreign-exchange movements, cyber and technology disruption, and regulatory uncertainty. The UK’s departure from the EU ended UK passporting rights; the company uses its Spanish-regulated entity for certain EU activities.
- The effective tax rate was 0.2%, versus 4.6%; management attributed the decrease primarily to tax benefits related to delivery of vested shares. Partnership income is generally not subject to U.S. corporate income tax at the company level.
- The company owed an estimated $23.8 million under its tax receivable agreement, which requires payment of 85% of specified tax benefits to exchanging unit holders; actual payments may differ significantly. Management said pending legal matters were not expected to have a material adverse effect, but possible losses could not be estimated. Employee-loan guarantees were $5.5 million, with expected loss described as insignificant.
- Management reported no material change in risk factors and concluded disclosure controls were effective. No material changes to contractual obligations were reported.
Most important facts for investors to verify
- Whether placement-fee growth and strategic advisory activity can offset lower restructuring fees, and how transaction markets evolve after the strong Q1 M&A environment.
- Receivable collection timing and credit quality, especially the $81.6 million of long-term placement-fee receivables.
- Cash generation after annual compensation payments, alongside continued share repurchases, unit exchanges and tax-receivable-agreement payments.
- The sustainability of reported earnings growth, including the unusually low 0.2% effective tax rate and the impact of equity-based compensation.
- Potential operating and regulatory effects of COVID-19, currency movements, and post-Brexit arrangements for serving EU clients.