Q3 2019 Earnings Call

Time participants are in listen only mode. If you wish to ask a question I stop on unusually for at least to withdraw your question I started and now I'd like to handle appeal, Oh, Shaban hasten head of Investor Relations.

Thanks, very much sunny and good morning, and welcome to the P.J.T. Partners third quarter 2019 earnings Conference call I'm, Sharon Pearson head of Investor Relations and joining me today is pulled taubman, Chairman and Chief Executive Officer, Helen make some chief financial Officer.

Before I turn the call if it's Paul I want to point out that during the course of this conference call. We may make a number of forward looking statement.

These forward looking statements are subject to various risks and uncertainties and they're important factors that could cause actual outcomes to differ materially from those indicates to me statement.

We believe that these factors are described in the risk factor section contained in P.J.T. partners 2018 Form 10-K , which is available on our website at P.J.T. botanists dotcom.

I want to remind you that the company assumes no duty to update any forward looking statements.

The presentation today contain non-GAAP financial measures, which we believe a meaningful in evaluating the company's performance.

A detailed disclosures on these non-GAAP metrics and the GAAP reconciliation.

You should refer to the financial data contained within the press release, we issued this morning also available on our website and with that I'll turn the call as its Paul.

Thank you shared.

Good morning, Thank you all for joining us today.

For the third quarter, our firm wide revenues rose to $174 million.

24% increase versus a year ago.

For the nine month period, or revenues were 469 million up 16% versus a year ago.

Our growth in revenues for both the three months a nine month period.

Were driven by substantial year over year grades in our strategic advisory business.

As we continue to realize the financial benefits.

Our sustained investment.

These strategic advisory results for our strongest ever.

And our reflective of our ongoing investment in this business.

Now turning to each of our businesses in more detail.

Beginning with restructuring.

Compared to last years levels revenues decreased meaningfully in the third quarter.

But held almost even for the nine month period.

Given the increase in distressed within certain industries, such as energy media telecommunications pharma consumer retail.

Our outlook for the full year has become a bit more positive.

And we now expect for your restructuring revenues to be up slightly year over year.

This activity level combined with restructurings increasing ability.

To leverage the expertise and productivity.

Our strategic advisory bankers.

Good result at a stronger backlog heading into 2020 versus a year ago.

Turning to P.J.T. Park Hill.

Overall revenues were down slightly for the quarter, a nine month period versus year ago levels.

As we have said previously given the timing of anticipated closings, we expect 2019 P.J.T. part kill results to be heavily weighted to the fourth quarter.

For the full year P.J.T. Park Hill remains on track to deliver another record year, driven by strong revenue growth in secondary advisory and real estate as.

As well as continued strength in both private equity and hedge funds.

As part of our continued investment in the secondary advisory business.

We recently announced a partnership partnership with NASDAQ private market to offer clients enhanced execution capabilities.

For secondary transactions.

This new venture combines the capabilities of P.J.T. part kills leading secondary advisory business.

With NASDAQ private market is best in class technology platform.

We are delighted to be partnering with NASDAQ and we're working diligently to ensure that this is a collaborative success.

Turning to strategic advisory.

And strategic advisory the investments we've made these past four years or being increasingly reflected in our reported results.

The significant increase in strategic advisory revenues was the driver in the growth of our firm wide revenues for the third quarter as well as the nine month period.

The positive momentum we are seeing at our strategic advisory business.

Reflects our engagement with a larger number of clients.

Across a growing number of industry verticals products and geographies.

These engagements in turn or larger in size and complexity.

Creating increased revenue potential.

We remain focused on expanding our roster of talented senior bankers.

And strategic advisory our partner Count has increased by nearly 30% versus a year ago.

Inclusive of our Camber view acquisition.

Our recruiting pipeline continues to be robust and three additional partners will be joining us shortly.

For years into this journey, we could not be more pleased with the progress we have made.

And the momentum we are seeing at our strategic advisory business.

I will now turn the call over to Helen to review our financial results I think you pull good morning.

Beginning with revenue.

Total revenues for the quarter were 174 million up 24% year over year the breakdown of revenues.

Advisory revenues were 146 million up 25% year over year with significant growth in strategic advisory and declines in restructuring and secondary advisory.

[noise] placement revenues of 26 million up 40% from the same period last year with higher revenues and corporate private placements and private equity fund placements.

For the nine months ended September 30, total revenues of 469 million up 16% year over year and the breakdown of nine month revenues advisory revenues were 384 million up 20% year over year with significant growth in strategic advisory and decline in secondary advisory and risk.

Right shrink.

Hi, some revenues was 78 million up 7% year over year, driven by growth in corporate private placement activity.

Turning to expenses consistent with prior courses, we presented the expenses with Susan non-GAAP adjustments and these adjustments I more fully described in our 8-K.

First adjusted compensation expense.

Adjusted compensation expense continues to be accrued at 64%.

This ratio represents an updated estimates for the compensation ratios for the full year.

Turning to adjusted non compensation expense.

Yes, the Noncompensation expenses 29.2 million for the quarter up students the same year over year. The increase was largely due to increased occupancy expense, reflecting the costs associated with taking on additional space in London.

For the nine month period, our adjusted non compensation expense was 92.1 million up 16% year over year.

Reflecting increased occupancy expense relating to London as well as high a cost associated with increased headcount in business activity, including the addition of came to be.

Turning to adjusted pre tax income.

We reported adjusted pretax income of 33.5 million for this dude coursa up from 23.1 million last year.

And 76.7 million for the first nine months of 2019 up from 66.3 million for the same period last year.

And our adjusted pre tax margin was 19.2% in the suit KUSA and 16.4% for the first nine months.

The provision for taxes.

As with prior courses, we presented our results.

Is it all partnership units had been converted to she is so that assumes one of our income with taxed at a corporate tax rate.

The tax rate also takes into account the tax benefit relating to the delivery of eastern she has during the two SCUSA at a value higher than they are amortized cost. This was a lower benefit in 2019 than in prior years and this benefit has been incorporated in our annualized rate.

At current estimated effective tax rate for the full year is 25.8%.

That's right is slightly higher than the effective tax rate of 25% that we applied in the first six months of 2019, primarily due to additional local taxes incurred in connection with an ongoing engagement we have in the U.S. territory.

Earnings per share our adjusted if converted earnings the 60 cents per share for the third quarter compared with 44 cents in the third quarter last year.

And for the first nine months $1.59, because she had compared with a dollar sushi and the same period last year.

The share count for the quarter I weighted average share count was 40.9 million shares.

During the first nine months of the yeah, we repurchased the equivalent of 1.6 million shares through a combination of open market share repurchases NACFC implements and exchanges partnership units the cash.

We currently in receipt of exchange notices for approximately 108000 partnership units as we've done in the past we will exchange these units for cash.

We ended the quarter with approximately $89 million remaining under our share repurchase authorization and this will provide us with continued flexibility to manage dilution by the time.

On the balance sheet, we ended the quarter with 119 million in cash cash equivalents and short term investments 178 million in net working capital and 26 million unfunded days.

Finally, the board has approved the dividend of five cents to share.

The dividend will be paid on December 18, 2019 to class a common shareholders of record as of December for 2019, I'll now turn back to pool for some final comments.

Thank you Hello.

We're pleased with our firm's grows can progress to date and by the contribution of each of our businesses to the strength and stability of our franchise as a whole.

Overall, we remain very confident in our outlook for 2019 and beyond.

And with that we will now take your questions.

Thank you. Your first question coastline, if Devin Ryan from JMP Securities. Please proceed your leaving the core.

Great Good morning, everyone.

Good morning.

The first question just on the strategic Advisory business, you know clearly from the outside we can see.

Backlog growing.

And I appreciate the comments this morning.

You know clearly the firm's executing and gaining market share, but Paul you might be able to talk a little bit more about the environment for business and.

How that's been evolving since we spoke last quarter. It seems like you know the M&A markets, probably had been a little choppy and it took.

Heading into next year, especially given that it's an election year and what your comp that that backdrop kind of you could mean for growth in your business.

Well, David there's the micro and macro I think you know the ended the day, we already micro business, which is it's a function of the clients. We engage with the success, we have with those clients and the results we deliver for those clients and in many respects.

We have been and we'll continue to be an idiosyncratic growth story, because as long as we get additional traction as long as our footprint grows as long as their capabilities grow as long as more of our client coverage bayes appreciates our differentiated capabilities, we're going to continue to.

Do very well and grow our business regardless of the macro.

And I feel very comfortable with our level of M&A activity for 2019, and certainly heading into 2020, almost regardless of what the macro does I mean, clearly if there's just a complete halt to.

Activity because of some global crisis, we will not be immune, but but short of that I find us in a very good position, but since you've asked me about the the macro.

Give you my two cents, which is.

We don't really see much of an abatement in terms of activity levels.

The world is changing and it's changing rapidly and companies need to adjust and the analog I would give would be restructuring just as there's been a benign macro backdrop do you still see pockets of distress in restructuring I would argue that in strategic advisory.

Steve It if the world is becoming a bit more a certain there are a whole industries that need to be reshaped and transformed and that has proven to be a catalyst for four activity.

Terrific and.

And then just maybe that the touch on restructuring as well as you mentioned you obviously are the comments about the.

Before your view and that being better than kind of the last update and so I'm curious where you're seeing.

Those pockets what's changed here why you know there there's a bit more activity and how much you feel like is there is a function of P.J.P. and your development as a firm versus yeah, there, they're actually being kind of more stress in the backdrop that you mentioned, it's still relatively benign.

I mean, I mean to some extent Devon, we foreshadowed this you know for a.

For most of the year, where we've said that you know we started to see an uptick in restructuring activity.

He said that if that you know spike up you know continued than we might grow progressively more constructive.

And our restructuring prognosis for 2009 team. The reality is that in restructuring they tend to be long cycle from when you get a an assignment at an engagement.

Until there's resolution.

That's why what we're seeing is really just a slight uptick in our interview, but to the positive for 2019 and as I mentioned, a few moments ago. We expect if things you know hold to to enter 2020 with a stronger backlog and how much of that is the macro and how much of it.

Is the might grow.

It's hard to say, but I do I do think that we're benefiting from Bose. So I think there is additional stress.

In the system is certainly concentrated in certain areas, where there is you know.

Demonstrably more stress and we're clearly you know a more formidable more integrated firm and and we're benefiting I think in both regards.

Okay great.

One last quick one.

On the NASDAQ partnership what will you be able to do that you previously weren't.

Ownership or what are your expectations from out if you can give us any more color would be helpful.

Well look it's an enhanced execution platform. So it means that we're able to provide our clients with increased speed and efficiency and if we can do that then we should be able to.

Benefit from enhance participations from individual institutional investors because we've streamlined to the process. If we can turn do that then we may actually be able to you know too.

It's out you know additional GP led transactions because there's greater confidence.

In a more robust successful take up in some of these.

No.

Strategic.

Transaction. So it really is just trying to increase the caliber of the experience. It means there'll be more participations that means that GE piece will be able to.

To do a recapitalization zohr restructurings of their.

Partnerships, knowing that there's greater participation amongst limited partners and it just sort of moves that virtuous circle forward. This is.

An area that we've been keenly focused on for a long time, though a decade or less ago. This industry didn't exist.

It's moved quite.

Dramatically in terms of its Brad sophistication.

And types of GPS who were taking advantage.

Some of these transactions and the more that we can do to have a differentiated best in class execution experience that should deliver you know.

Ill tangible results to us and to our partners the Nasdaq.

Great. Thanks for taking all my questions.

Absolutely. Thank you David.

Thank you. Your next question comes from the line of Richard benefiting from Goldman Sachs. Please proceed your leaving the cool.

Hi, Good morning. This is a sony filling in furniture today, just a quick one for mark.

On Noncomp earlier. This year you previously talked about a 31 million dollar run rate for the remainder of 2019.

We saw the materialize in the first half of this quarter came in a little bit lower I just wanted to touch base on what you think the right indicator of non comp activity as for the rest of the you and really if that's this quarter.

Oh, the 31 million that was previously discussed.

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Hi, Thanks, a few questions. Firstly I would say that we continue to be disciplined in managing our expenses, but they will be some quarterly variability and a non comp which is purely business related.

So as we think about an operating leverage.

We do think that's going to be driven more by growth than any cost control.

But as we look at the fourth quarter given the fact that we think there'll be increased business activity. We would expect that the the non comps would go up slightly in the fourth quarter, what you've seen in prior years as well.

So that you have an additional question.

No that was it for us. Thank you very much. Thank you very much.

Thank you Al final question is from the line of Jim Mitchell from Buckingham Research piece to see leaving the cool.

Hey, good morning, maybe just a follow up on the NASDAQ partnership.

Just how we think about is this a volume play just maybe help us think about the the economics to you.

Bringing more transparency and efficiency does that put downward pressure on.

On fees, but you make it up in volume or the way that business works, it's not really and issue on on price.

In the volumes really helped US help me think about the economics.

Well, just because we have a unique partnership with NASDAQ, we're able to provide a differentiated customer experience and because we can provide a differentiated customer experience.

We would hope that over time.

Our ability to win business with GPS and Lps into potentially expand this into a broader arena should increase and obviously the more business you do the better it is for the parties who are doing the business I think it's as simple as that.

And you know given the structure of.

Hi, guys. Your clients you don't feel like there.

Any pressure for more.

Transparency or centralization of the business.

I think the issue right now is we have we have clients who want to see more more take up.

In these transactions and because the execution process is cumbersome.

Theres less take up then there would be with the streamline performance. So if we could actually not only increase the success of specific transactions that have already been mandated.

That's a win for everyone and it as a result of that that invites others to consider these transactions that's a win for us.

And if were perceived as we should be is having a differentiated capability that should be an additional win for us. So.

We just view this as a natural extension of everything else, we've been doing at our firm, which is to expand our capabilities and to bring differentiated insights and caliber of execution to everything we do the this is just a another manifestation of that and where.

We're pleased that Nasdaq.

Chose to partner with Us and.

You know, we're delighted with the association.

Oh, absolutely makes sense and maybe if I could get some thoughts on the macro from you as well.

Yes, and credit growth story, so it doesn't get no skin in the game on the macro to say to speak but maybe just you know I think there's been a lot of consternation about how weak.

Outside the U.S. has been particularly Europe .

What is your sense of you know is there any thawing.

Over there.

Do we still just.

So the way before we can start to see activity pick up.

I mean again, it's quite interesting you know we continue to add resources in Europe , we continue to add resources in the UK, where more active now than we've ever been and we're finding ways.

To do business in a significant way there and if you just pick up the papers.

You see that there is still a lot of interest in UK companies and there's a lot of interest in UK companies.

Looking to move outside of the whole market, there's no doubt that it makes transactions more difficult, but as I've said previously dislocation with sterling creates opportunities that invites.

But equity firms to take.

A renewed a refresh look in the marketplace.

Many of these UK domiciled companies when you really look at the underpinnings of their business, our global companies, who have been to be headquartered in the UK and therefore, there just as attractive with or without the uncertainties of Brexit and then you also have a global companies.

His who are who are domiciled in the UK, who still have strategic imperatives to continue to grow what if anything would like to have more of their business come from outside of the UK market. So.

It will be bumpy.

As as you know you're dealing with euro uncertainty, but but fundamentally.

In many of these instances the uncertainties overblown meeting that you know parties on either side of the transaction can what it's true that uncertainty because so much else in the transaction is certain.

And in those situations, where it is uncertain.

Like everything else ultimately there'll be a resolution I think were a lot closer to a resolution now that we've we've ever been and there will be no impact in the markets and markets will adjust currency will the Justin will get back to a baseline of.

Of activity, but we've actually benefited I think from.

From some of those turmoil because the value of advice goes up in an uncertain world and you know what are the things were always you know fighting against is you know the perception, sometimes that advice as commoditized.

It's not.

That is it's easy to think of it as a commodity when things are Joe's.

Moving along at a very you know bullying market, it's only what things getting more difficult.

That you can differentiate yourself. So we're we're quite comfortable with it.

And when you look at the macro levels of activity in the marketplace. You know just the step way back in terms of transaction volume number of transactions it's down.

But a it's down from you know quite robust levels and be it's not down terribly much. So my my sense is probably more AG spend is is deserved, but if there is excess where we're not feel it.

Well thanks for all your insights appreciate it thanks.

Absolutely thank Jeff.

Okay. I think that concludes this earnings call. We look forward to visiting with you again after we report our fourth quarter results. Thank you all.

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