PJT Partners Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; unaudited. PJT Partners is a global advisory-focused investment bank, with strategic and capital markets advisory, restructuring, shareholder advisory, and private-fund placement businesses. Unless noted, figures below are in millions of dollars.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $231.3 | $297.6 | $678.7 | $730.3 |
| Advisory fees | $179.9 | $262.4 | $530.1 | $611.5 |
| Placement fees | $46.9 | $31.8 | $137.6 | $106.0 |
| Expenses | $183.0 | $227.5 | $534.1 | $577.0 |
| Income before taxes | $48.3 | $70.1 | $144.6 | $153.3 |
| Net income | $39.2 | $58.1 | $125.8 | $131.0 |
| Net income attributable to PJT Partners Inc. | $21.4 | $30.9 | $71.3 | $71.4 |
| Diluted EPS | $0.82 | $1.22 | $2.72 | $2.87 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $133.6 | $300.1 |
Q3 revenue fell 22% year over year; attributable net income fell 31%. For the first nine months, revenue declined 7% and attributable net income was broadly flat. Calculated from reported figures, Q3 pretax margin was approximately 20.9% versus 23.6% a year earlier; nine-month pretax margin was approximately 21.3% versus 21.0%. Effective tax rates were 18.8% and 13.0% for Q3 and the nine-month period, respectively, compared with 17.1% and 14.5% in 2020.
Liquidity, capital and balance sheet
- Cash and cash equivalents were $261.1 million at September 30, 2021, down from $299.5 million at year-end 2020. Cash, cash equivalents and short-term investments totaled $333.8 million, versus $437.4 million at year-end.
- Nine-month operating cash flow was $133.6 million, compared with $300.1 million in 2020. Cash declined by $38.4 million over the period. Financing uses included $94.6 million of share repurchases and $95.9 million of cash settlements for exchanged partnership units.
- No borrowings were outstanding under the $60 million revolving facility at September 30. Commitments may rise to $80 million during a specified seasonal window; the facility matures October 1, 2022, subject to extension. PJT reported covenant compliance and no material debt balance.
- Accounts receivable were $250.4 million, including $97.5 million of long-term placement-fee receivables, generally collected over three to four years. The credit-loss allowance was $2.1 million.
- Total liabilities were $483.3 million and total equity was $594.7 million. Operating lease liabilities were $162.4 million; the estimated tax-receivable-agreement liability was $29.2 million.
Material changes and management commentary
- Advisory fees declined 31% in Q3 and 13% year to date. Management attributed the decline primarily to lower restructuring revenue following unusually high 2020 activity; higher strategic advisory revenue partly offset that decline.
- Placement fees rose 48% in Q3 and 30% year to date, reflecting increased fund-placement activity. Q3 placement revenue had notable client concentration: three clients accounted for 44.1% of placement fees. One advisory client represented 12.0% of advisory fees.
- Q3 compensation and benefits expense declined 25%, primarily in response to lower revenue. Nine-month compensation expense declined 10%. Professional fees increased, mainly due to higher senior-advisor expenses; technology investment contributed to higher communications and information-services costs.
- Management said global M&A activity was substantially higher in the first nine months of 2021 than in the comparable 2020 period, while restructuring activity continued to ease. It expects medium- to long-term demand for restructuring advice to improve, but gave no numerical earnings or revenue guidance.
- Management noted continued investor preference for established fund managers and a high bar for new fundraising, alongside rapid fund deployment and increased use of secondary-market continuation vehicles. It said COVID-19’s future economic effects remained difficult to predict.
Distributions, risks and contingencies
- The company declared a $3.00-per-share special dividend, paid October 18, 2021, totaling $73.0 million, and declared a $0.05-per-share quarterly dividend payable December 22, 2021. The Q3 financial statements include $73.0 million of dividends payable at September 30.
- PJT repurchased 1.3 million shares during the first nine months for $94.6 million, at an average $70.61 per share; $91.9 million remained authorized at quarter-end. Diluted weighted-average shares rose to 42.0 million in Q3 from 26.2 million, reflecting partnership units and unvested awards.
- Key business risks include transaction-cycle volatility, dependence on successful deal completion and client collections, COVID-19 and broader economic disruption, cybersecurity and technology interruptions, and foreign-exchange movements. PJT does not hedge its foreign-currency exposure; nine-month currency movements reduced other comprehensive income by $1.5 million.
- Management reported no material change to previously disclosed risk factors. It said pending ordinary-course legal matters were not expected to have a material adverse effect, but it could not estimate possible losses. The company also guarantees certain employee investment loans; the guaranteed amount was $4.6 million, with expected loss described as insignificant.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the decline in restructuring advisory activity is offset by sustained strategic advisory and placement-fee growth.
- Cash conversion and liquidity after year-end incentive compensation, dividends, partnership-unit exchanges, repurchases, and tax-receivable-agreement payments.
- Collection timing and credit quality of the $97.5 million in long-term placement-fee receivables, and the concentration of Q3 placement fees among three clients.
- The effect of partnership-unit exchanges and equity awards on diluted share count and per-share earnings.
- How market conditions, COVID-19, foreign-exchange exposure, regulatory requirements, and unresolved legal matters may affect future results; the filing provides no quantitative company guidance.