PJT Partners Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. PJT Partners is a global, advisory-focused investment bank with strategic and shareholder advisory, restructuring and special situations, and private fund advisory and fundraising businesses. The company reports one operating segment.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $717.6 million | $580.2 million | +24% |
| Advisory fees | $571.8 million | $451.6 million | +27% |
| Placement fees | $133.2 million | $111.0 million | +20% |
| Income before taxes | $82.2 million | $41.5 million | +98% |
| Consolidated net income | $63.8 million | $42.6 million | +50% |
| Net income attributable to PJT Partners Inc. | $29.6 million | $27.2 million | +9% |
| Diluted earnings per Class A share | $1.21 | $1.16 | — |
| Operating cash flow | $211.4 million | $122.9 million | +$88.5 million |
Pretax margin was approximately 11.5%; parent-attributable net income was approximately 4.1% of revenue. Compensation and benefits were $502.2 million, about 70% of revenue. Revenue growth was driven mainly by strategic advisory, with higher corporate private placement and alternative-manager fundraising activity also contributing. Interest income and other declined $5.0 million, primarily due to foreign-exchange losses.
Cash and cash equivalents were $216.0 million at year-end; cash, cash equivalents and investments totaled $217.5 million. Accounts receivable was $227.5 million, including $77.6 million of long-term placement-fee receivables. The company generated $211.4 million of operating cash flow; investing activities used $1.7 million and financing activities used $101.3 million. Financing uses included $47.8 million of share repurchases, $19.0 million of cash-settled partnership-unit exchanges and $11.4 million of tax distributions.
Year-end loan payable was $21.5 million, all under the term loan, which was repaid in January 2020. The $40 million revolving facility had no borrowings at year-end; its maturity was extended to October 2021 in February 2020. PJT reported compliance with debt covenants. The board authorized up to $100 million in repurchases; $85.1 million remained available at year-end. The company declared $0.20 per share in 2019 dividends and announced a subsequent quarterly dividend of $0.05 per share.
Changes, outlook and risks
- Management described the M&A environment as constructive by historical standards, despite worldwide announced M&A volume falling 3% from 2018. Restructuring activity was strong, and PJT said it ranked first in global completed restructurings. Management also cited continued institutional demand for alternative assets.
- Quarterly revenue rose through the year, reaching $248.7 million in Q4, versus $175.4 million in Q4 2018. Q4 2019 net income attributable to PJT was $16.8 million. The filing provides no numerical company revenue or earnings guidance.
- The business is exposed to transaction-cycle volatility: fees depend on mandates, transaction closings and fundraising, while much of compensation and other costs may be difficult to adjust quickly. Competition for clients and talent, retention of key professionals, and collection of deferred placement fees are additional risks.
- Other material risks include regulation and litigation, cybersecurity and operational disruptions, foreign-exchange exposure, Brexit-related uncertainty, and potential conflicts of interest. International operations generated 9.1% of 2019 revenue.
- Adoption of lease accounting in 2019 added $166.5 million of operating lease right-of-use assets and $182.9 million of operating lease liabilities at year-end; this accounting change contributed to higher reported assets and liabilities.
- The tax receivable agreement provides eligible exchanging partnership-unit holders 85% of specified tax benefits. The company estimated a $140 million payment if it had terminated the agreement at year-end, based on stated assumptions; this was an estimate, not a current amount due. The recorded amount due was $9.3 million.
- In litigation arising from former employee Andrew Caspersen’s fraud, an appellate court dismissed claims against PJT and Park Hill in December 2019; plaintiffs sought reargument or leave to appeal in January 2020. The company said potential additional related claims were expected to total less than $30 million and would be vigorously defended. Other proceedings include the appealed dismissal of a New Mexico qui tam action; management said it could not estimate losses for certain contingencies.
The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Revenue recognition was identified as a critical audit matter because judgment is required in determining when uncertainty over variable fees has sufficiently resolved.
Investor verification priorities
- Review the composition and timing of advisory and placement-fee revenue, particularly Q4’s contribution and the sustainability of 2019 growth.
- Assess compensation costs, equity awards and dilution; equity-based compensation expense was $111.6 million and weighted-average diluted shares increased from 24.3 million to 25.0 million.
- Check collections and credit quality of $227.5 million in receivables, including long-term placement-fee balances.
- Confirm post-year-end repayment of the term loan, revolving-facility availability and the cash impact of partnership-unit exchanges, dividends and repurchases.
- Monitor tax receivable agreement obligations, Caspersen-related claims and other unresolved legal or regulatory matters.