Q4 2019 Earnings Call

Good day, ladies and gentlemen, please standby.

Good morning, and welcome to the P.J.T. partners for year end fourth quarter 2018 earnings call.

At this time, all participants are in listen only mode.

If you would like to ask your question. Please press star one on your telephone.

Withdraw your question first start to.

As a reminder, today's call is being recorded and now I would like to hand, the call over to your host Sharon Pearson head of Investor Relations at P.J.T.

<unk>. Please go ahead.

Thanks, very much Jake and good morning, and welcome to the teachers keep Hot Med school year in fourth quarter 2019.

Conference call. Joining me today is supposed to happen agenda, Chief Executive Officer, and telling me that Chief Financial Officer.

Before I turn the call. It it's cool I want to point out the during the course of this conference call, we manage a number and forward looking statement.

These forward looking statements and subject to various risks.

On the.

And there are important factors that could cause actual outcomes to differ materially from those indications.

We believe that these factors are described in the risk factor section Compugen feature to partners 2000 days <unk> form 10-K, which is available on our website I P. Tricky part in the Dot com.

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

The presentation, we make today can be non-GAAP financial measure, which we believe the meaningful and evaluating.

On that.

A detailed disclosures on non-GAAP metrics and my GAAP reconciliation you should refer to the.

So they said contained within the press release issued this morning.

With that on our website and the best helps on the call negligible.

Thanks for sharing.

Good morning, Thank you all for joining us.

We continue to measure.

In years.

And today.

We're pleased to report or for.

2019 results.

And Mr. speedier wins, the considerable progress weve made becomes that much clearer.

We began 2019 confidence.

<unk> prospects.

And our ability to deliver bottom line operating leverage.

Oh failure resolves itself gives us confidence.

Revenues grew 24%.

Adjusted pre tax rate comes is 33%.

Adjusted earnings per share grew 26%.

These results were achieved.

Good.

The number of M&A transactions.

Worldwide decline.

As did the dollar value of these completed transactions.

We've accomplished a great deal in just four years.

Everyday that goes by.

Make additional strides towards your goal.

Building the Premier Global economies research.

It's paid where she's.

Back to insight.

Commitment continued.

Purposeful investment.

Aspects of that business.

We completed or logistics something recruiting year to date.

Handling at all levels.

So it's actually the first you guys in 15.

Yep.

More than doubled or head count and now have 678 employees, including 81 important message.

Well, we know for we have maintained an incredibly high standard for Carol.

While enhancing a culture of collaboration and inclusion.

We can try.

We need to broaden and deepen our industry and product capabilities.

Like neighbouring I'm struggling a broad suite.

Which is true what we lost or plants around the world.

One recent example, as our partnership with NASDAQ private market.

This partnership provides the.

Ladies and P.J.T. Park Hills, leading secondary advisory business.

With Nasdaq's best in class technology platform to offer clients superior transaction execution.

We've also committed additional resources to PGT camper view.

The street leading.

Corporate governance advisory business.

She was further enhanced our ability to advise boards and management teams around the globe.

Shareholder advisory corporate governance, CSG activism matters.

These and other investments across all of our businesses.

I have resulted in higher when rates increased market shares.

Now turning to each of our businesses in more detail.

Beginning with restructuring.

Our world class restructuring franchise maintained its leadership position.

Ranking number one I believe.

<unk> dollar value of announced and completed restructurings.

The business meetings, we exceeded our initial revenue expectations for 2019.

Powered by substantial gains in U.S. restructuring revenues.

As usual, resulting ongoing distress answer.

The industries.

Well, it's closer to elaboration between our bankers and strategic advisory and restructuring.

The outlook for our restructuring business continues to be positive.

Given the increase in mandated backlog relative to where you are.

Turning to the Patriots Park Hill.

D. Treaty portfolio, our leading fund raising business.

Liberty second straight year record results.

Speech, the business verticals experienced year over year growth.

P.J.T. Park Hill continues to benefit from greater collaboration.

Across the Sean.

And is expected to deliver and demonstrate year record results.

Turning to strategic advisory.

In strategic advisory we saw significant growth in 2019 revenues compared to the prior year.

We.

You to realize that financial benefits of our sustained investment in the business.

2019 was a year in which our progress became increasingly visible.

As reflected in our roster of announced and completed M&A transactions.

As well, which improves contribution that's true.

Puget Advisory.

And why themselves.

As the success becomes clear.

We have seen an increased number of talented bankers wanting to join our platform.

We ended 2019 with 45 strategic advisory partners.

I never including pipeline.

Remains robust.

We'll now turn the call over to Helen to review our financial results.

Thank you Paul good morning.

Beginning with revenue.

Total revenues for 2019 with people in terms of 18 million upper Hunton 77 million or 24%.

Yes.

Adjusting out 2018 results for full year of Cantor.

<unk> increased 17% year over year.

The breakdown.

Advisory revenues were 572 million up 27%.

With the increase driven by significantly higher strategic advisory.

You can vary advisory fees.

Hey, we've used 153 million up 20% year over year, reflecting an increase in private placement activities, the corporate clients as well as five reasons across the PGTI talking fundraising businesses.

For the fourth quarter total revenues.

249 million up 42%.

This is the highest reports out from the company's history.

A breakdown of the reasons inclusive.

Revenues were 188 million up 42% year over year, reflecting significant increases in strategic advisory restructuring and secondary advisory.

I think we use a 56 million Bucks Pulte preconceived compete with the same period last year, driven by higher fundraising and teaching culture.

Turning to instances consistent with prior quarters, we presented the expenses with certain non-GAAP adjustments, including adjustments related to the came to be acquisition.

These adjustments almost fully described in our a true with adjusted compensation.

Well you compensation speeds with 460 million 64.1 proceeds of revenues.

But the ratio of the accrued to the first three quarters of the year.

Turning to adjusted Noncompensation speeds.

Total non compensation for 2019 with 125 million.

50% year over year into the fourth quarter 53 million up 11%.

The year over year growth reflected increased business activity in head count.

Also invested an additional space in both London and the waves.

60% year over year increase in occupancy costs.

That's a decision on basins in United States.

Speak to be able to increase headcount meaningfully before requiring additional space.

Locations.

As a percentage of revenues and non comp expense was 17 point focusing for the full year.

2019 down from 18.8% in 2018.

Well, we expect increased Noncompensation expenses Twentytwenty due to continued investment in infrastructure as was increased business activity levels, we expect to realize additional operating leverage is our revenue.

Outpaces the increase in non comps.

Turning to adjusted pre tax income.

<unk> adjusted pretax income of 152.3 million for the full year 2019, and 55.5 million in the fourth quarter.

Our adjusted pre tax margin of 18.4% for the.

Full year up from 17.1 casino in 2018.

22.3 proceeds in the fourth quarter up from 18.8, because in the fourth quarter 2017.

The provision for taxes.

With prior years, we put this is our results as a partnership units had been comparative to shares.

Yes.

She is doing with our income with text and a corporate tax rate. The tax rate also takes into account the text benefit relating to the deliveries this to choose during the year. It is that you hire them and it's like cost.

With those adjustments at school year effective tax rate between 5.5% and tweet between T., we would expect their effect.

Tax rate to be in the range of 25% to 27%.

Well this year, our adjusted as can be.

Earnings per share the $2 41 for the full year up 26 distinct.

And one dollar in two seats in the fourth quarter, 70%.

And she account.

For the year ending 2019, a weighted average headcount was 41 million. She is up just a 2%. This is putting the 2018.

Consistent with our capital priorities, we will continue to focus on than we've done in the business.

Excess cash to reduce the dilutive impact of this and this.

Well I'll also be mindful.

Excellent.

For the full year 2019, we repurchased equivalent of approximately 1.9 million shields through a combination as a massively purchases exchanges of cotton should be much the cash and next year supplements.

During the fourth quarter, we received notices to exchange approximately 200.

Just isn't doesn't patents humans.

Hi courses.

Due to exchange these units the cash which will circle next week.

On the balance sheet, we ended the year with approximately 217 million cash and short term investments.

And 212 million in working capital.

We also ended the year with 21.5 million and fund the do it which we have subsequently we paid a year ahead of schedule and we exceeded our line of credit which remains undrawn.

The board has approved the dividends of five to share the dividend will be paid on March 18 to class a common shareholders of record I'm.

Thats pools.

I'll now turn but.

Thank you Hello.

Well, we've heard much to celebrate.

We are deeply saddened by the passing of two individuals.

He left an indelible mark on our firm.

Our partner data.

Yes.

Our senior advisor former NVH Commissioner David story.

Dan Prendergast cofounder of Parkdale will be remembered as an inspirational leader.

Pioneering entrepreneur and they love it comedy.

To add stewardship of portfolio was marked by integrity.

And soft spoken leadership.

P.J.T. Park Hill for ever benefit from his legacy of excellence.

Commitment to clients.

David stir enjoying P.J.T. as a senior adviser.

Just as we were starting out.

Honored to have.

As a mentor.

No it's nice to green victories.

Maintaining focus even the smallest detail.

David infused respect.

In connection.

Every time he did.

Just a sense of humor Forbes joyful spirit.

We'll be there.

The much missed.

The contribution to these extraordinary colleagues.

Enabled us to come a long way.

Short period of time.

Now turning to our outlook.

Since her debut we have made substantial investments.

Our strategic advisory.

As well as or other leading businesses.

As we sit here today all of our businesses are significantly larger.

And they work in 2015.

While strategic advisory is now our largest and fastest growing business.

This year.

All of our other businesses combined will still account for more than 50% for wind revenues.

Each of our businesses has meaningful opportunities for growth.

We will continue to invest in these businesses to realize that grows.

We have famously said, we are built great getting most any market environment.

And while we had been on certain view of the macro M&A environment for 2020.

Confident in our ability to grow our pretax income this year by more than 20.

He per se.

Triggered by continued revenue growth and further margin improvement.

And with that.

We will now take your questions.

Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad keep in mind, if you're using your speaker phone and make sure that meet functions.

So that signal can reach our equipment.

Once again star one for questions.

We will begin with Devin Ryan with JMP Securities.

Great. Good morning recall, how long and sharing how are you.

One very well good morning.

Hi, good morning.

Course off cruciate.

So my commentary.

Okay. That's helpful.

I guess the first question.

Look the slide in the presentation, the shoes strategic advisory coworkers.

Yeah.

Been trending.

During the current on carbon to conquer over two years.

Awesome object that number.

Our partners is that the shop.

Oh, two plus years is up 30% the deal for 2019.

2018, but it's still only two dogs.

Our base.

So Joe this topic runway there.

So so I guess I'm just trying to think about.

Hi.

That that third.

The partners that have not been itself for two years I'm kind of expectation for ramping what's your experience has been is two years kind of the right timeframe in south central either very little contribution and over the course of two years or kind of getting comfortable ramp.

I'm just trying to get some context here because it is such a large percentage.

That does increase Nike or end of 18, and then also there's still more or so it's still not going to the for three years until you're trying to get some.

Perspective, what you've actually experienced with your partners.

Contribution because its a.

Helpful narrative.

So I thought I'd like more contracts will be helpful.

Sure well a couple of things Devin first of all.

If you look at where we sit at the end of the year, There's 45 strategic advisory partners with.

Our third had been on that platform for less than two years.

Sure.

That one third percentage is going to grow during the year as we continue to.

To onboard other partners to our firms. So we're going to end up with is continuously evolving mix.

Sure about up with individuals are going on the platform for an.

During the period of time and those are.

Who are new to it.

I think we've always made the point that this is more art than science and it's not is.

Two years in a day yet.

Some partner is somehow magically you know.

Really.

Immersed in all of the.

The opportunity or potential that they can ultimately deliberately.

View this as a continue on Theres no doubt that individuals who had been on the platform three or four years or more productive that individuals who are here for a year or two.

Made the delineation of two years because our experience.

Yes, it's unrealistic to expect any meaningful revenue contribution.

The first 24 nodes the individuals who joined our firm had almost instantaneous impact.

So we see the impact we see the client connectivity, we see the momentum we've.

The introduction trip board rooms, and C suite dialogues almost immediately in many instances, but just the way this business works because it's a long sales cycle business and because there's a long period of time between awarded mandate.

Potential announcement of a mandate and completion.

That you need to at a minimum sort of bifurcate two years, plus two years minus but I I don't want to get overly invested in this as the as the predictive model for our firm because we've always maintained that if we get up and running for a number of years.

The brand itself maturities, we get more.

Opportunities more looks at business because.

Clients are coming to us with their situation. So our cost of sale goes down or brand recognition gives out though when rates go up and it's not just the contribution of an individual it's also.

What the from stands for and the firm's track record and as always this matures. There are we take their tremendous runway and opportunity ahead of us.

Appreciate that Paul.

Maybe a follow up on restructuring business.

Or kind of commentary.

Sorry, there that.

You are seeing improvement.

That could be from a year ago sounds like you saw all kind of a nice acceleration in business throughout 2019, so that contributed to.

Our strong overall year and so I'm curious if that trend that maybe externally developed or towards the.

A year later in the year, if you're holding piece offer that is an accelerating just any more context there in terms of how.

The trajectory that business looks given that it seems that it can accrue throughout the year.

Yeah, I think we wind that city Devin I believe we.

Oh, I talked a year ago about the fact that at the end of 18 covering it to 19, we began to see an increase didnt mandates and what we said was that if that increase in mandates persisted.

For some period of time, there wasn't just a flattish but was sort of steady.

Operation that we would grow increasingly constructive.

On our prospects for 2019, and I think as we gave you the quarter by quarter narrative as more and more.

What we saw a late in 18 and early in my team persisted.

Commentary became increasingly.

Optimistic.

And as we look at the totality of 2019.

We ended with a meaningfully.

Higher level of activity than we had forecast a year prior at our tickets I mentioned in my remarks, a few moments ago our.

Good day. This backlog today is higher than it was a year ago and we feel very good about our prospects for continued growth in our restructuring business.

Twentytwenty.

Okay terrific there's last one.

I heard a college remarks around.

We're expecting.

Operating margin.

Merchant expansion and you're trying to think about the operating leverage from here you had a nice recruitment in 2019 clearly the platform is maturing.

Revenues are growing.

Yeah I'm curious.

It's you're.

Expecting overseeing all kind of incremental margins at the moment and just expectations on how the trajectory of that from here is the platform occurs.

Look I think I think we've said from the beginning that we have a tremendous amount of operating leverage in this business.

And that as we.

Get out of the heavy investment phase into a more moderate investment phase and more importantly, as the investments that we've made consistent way over the past four plus years start to bear fruit.

It will be evidenced in our financial results, so you'll see ever increasing.

Turning to prove that until we get to some steady state.

We saw a fair bit of that in 2019, we expect more of that in Twentytwenty and I think I again reference that we see continued revenue growth further margin margin expansion in twentytwenty.

We look forward to.

Delivering on that.

Alright, perfect well congratulations on nice year and look forward to 2020.

Great. Thank you.

Now, we'll take a question from Richard grams, Kent with Goldman Sachs.

Hi, calling on how you doing.

Good morning.

So, but perhaps I can ask the question on operating leverage a little bit differently. So you saw I think about a 130 basis points of margin expansion and 29 King.

If we just assume similar organic revenue growth of around 15% to 20%.

Do you think that the improvement in margin will be linear from here or do you think we should assume that the benefits of scale. It kind of start to lead to more of an exponential margin improvement.

2020, maybe 2021.

Well I'll.

I'll try to somewhat.

Great.

At this point, we we have not yet provided guidance on the comp accrual, which will do and we will put us this quarter results.

But one of the many factors that's going to impact.

Margins going to be the idea, maybe a little bit.

So that's something to them to Tim.

We believe that.

Look at our non comp as this.

So were among comps.

And the other pushing a fixed cost within the fixed cost versus going to go in single digit loans and the variable cost is likely to go closer to our revenue growth.

And with that we expect a reason to upfront.

Income.

Okay.

That.

We believe will provide significant.

I mean, Richard just to come at it.

From a slightly different vantage point.

We are confident.

The investments we've made will lead to continued revenue growth.

That revenue growth is going.

To outpace the growth in our expense base, which is going to create further operating leverage and we're still in the early days.

Doing all of that come to fruition.

But ultimately what you're asking is what's the what's the slope of the revenue if that's really what drives all of its margin improvement.

We feel very.

Uncomfortable.

On the right path, we've been out of the right path for four plus years, we feel very comfortable about our prospects for twentytwenty, but at the end of the day, it's really when those revenues hit how quickly they hit.

That ultimately creates the marching margin is the output, it's not and hit the inputs are we have.

Growing revenues and we have growing but at a meaningfully lower growth rate expenses and that's what creates the operating leverage as we set from the beginning.

Ever get to steady state because for such a growing dynamic organization.

Our overall margins will will settle them.

To a to a range, but for now we think there has been plenty of.

Operating leverage to be had but how it has very diligently put together they cost structure in our for that provides for a significant operating leverage because we've made heavy investments our incremental expense a lot.

That is fixed.

That which is variable is likely to grow at rates less than our revenue growth.

At the end of the day headsets when the revenues hit and as you know further out I look the more prominent I guess.

More and more visibility in my own mine on whatever from looks like in two or three.

Is that I do in two or three quarters, but we're clearly underwrite tracking.

We feel we feel very good about.

Our ability to continue to drive shareholder value.

Okay. That's very helpful. Perhaps I can just ask another question on the environment. So we obviously heard from a number of your peers the.

To be.

Much more constructive view on Europe today, do you share in mountain view.

Can you talk a little bit about whether or not you've seen any shift between strategic and financial sponsor activity.

If you look at the God the backlog so heading into 2020.

Well.

Steadily said that notwithstanding the Brexit overhang, we did not see that didn't you initially in activity in our business.

We continue to see the same thing so maybe we're not changing our view, maybe we've divested more mine nothing really consistent.

In our view, which is that.

Europe, you know will continue to to be an important part because it's such a large part of the global economy.

And so much of your off the companies there are multinationals that do business around the globe and we sometimes focus too much or where companies are domiciled as opposed to where they do business.

And if you look at companies that do business.

A lot of U.S. companies that by that definition or as much your opinion as they are us companies and we've always said that overtime. We believe there's a secular shift to more M&A.

We've also said is that there is a cyclical element.

Right and as I said, a few moments ago, we have an uncertain view of the.

2020 macro environment.

For a variety of reasons, but that really does nothing to dampen our confidence in our own prospects for 2020, Mpls because we continue.

You to gain mindshare, we continue to gain market share.

And with sponsors it's not just how much money you have dry powder, it's also where valuations are so.

An interesting way at valuations remain elevated.

Don't know how much of that dry powder is.

Going to be deployed.

How do I tickets a safety net if.

You Asians come down meaningfully they leg down and others are not prepared to.

Commit significant capital do I think sponsors will fill that void I do but thats different than.

Necessarily believing that there is going to be somehow.

The upturn in sponsor activity Twentytwenty, just because they raise funds.

Okay. Thanks, that's very helpful.

Thank you Richard.

Well now take a question from.

Jim Mitchell with Buckingham Research.

Hey, good morning.

Hey, Paul maybe this is a bit of a high quality problem, but.

If you look at the cash levels year double over double a year ago, you paid down debt.

South that.

You sound pretty confident of pretax income was gonna grow pretty healthily.

Well, we'll grow pretty healthily as well so.

When what's the right level to think about where maybe you start thinking about being a little more aggressive with capital turn whether and how do you think about is it more special dividends.

Or buybacks or how do you think about that.

Right well appreciate the.

I appreciate the question.

If you look at our cash position at the end as 2018, we kept it very tight.

We wanted to.

Good luck as little as our equity as possible in pursuing the camper view acquisition because we're very.

And talk with it in our own prospects and we view our currency as incredibly highly value.

As a result, we spent 2019 replenishing it and now we have a more comfortable cash position I believe than we've ever had.

In our short history, having said that.

You need to look at that cash number.

And then you need to look at.

The comp payable line, which reflects compensation paid after the year and then you also have to take into account, but that there was paid off which tell it has roughly I.

I think there's no doubt that whatever that number is not only very comfortable but.

That number should grow consistently throughout the year.

Our priority has always been to try and minimize dilution I think if you look at the gross or lack thereof.

Fully diluted shares are weighted average shares we've been good stewards of.

Shareholders capital and we'll continue to do that but.

I'd also be mindful of the float so maybe that's a better question to ask us at the end of 2020 that they're at the beginning of 2020.

Alright fair enough will have to wait.

Maybe just talking about the placement business after a number of years.

Before the combination.

There wasn't a lot of growth there, but it seems doesn't really picked up accelerated as you kind of metals everything together can you talk a little bit about maybe give a little more color on.

What's driving that pick up business isn't cyclical.

Things you're doing.

To kind of cross sell.

And leverage that platform and.

Or is there to to grow that business.

Well, we we've always said that the park Hill business as a jewel business, it's a jewel the business and it fits incredibly well inside our other businesses and Holistically.

The more ways, we can touch clients the more ways. We can provide tailored solutions more ways. We can provide insight that has more value to clients. So we find ourselves winning more and we find ourselves being able to add value would it be compensated for that.

We feel we feel good about.

There are continued growth prospects in that business I don't think the growth prospects can rival what we see on the strategic advisory side, just because of the sheer quantum of investment and they're still very low market shares we haven't strategic advisory, but we're quite pleased that.

Trends that have been made have begun to pay off and we see we see continued opportunity for growth in that business.

Okay. That's my questions.

Thank you.

And our final question will come from the line of some meat Modi.

With Piper Sandler.

Thanks, Good morning, guys.

No we talked about in the past about elevated hiring until you reach around that kind of 50 or 60 partner count and strategic advisory. It seems like you guys should maybe approach that next year too.

How are you thinking about growth levels from here.

So fair way to look at the expansion before your baby reassessing that growth rate.

I think I think we've always said.

Yeah.

The number of higher is going to be a function.

Individuals that we had the opportunity to attract.

The platform.

And.

That will dictate our hiring and I think as we've mentioned earlier, we had incredibly high standards.

In terms of the talent.

And the maintenance or enhancement of our culture. So we've said very high volumes.

And to the extent that they are high quality individuals who need all of our hiring criteria.

And we believe we can continue to earn.

Significant returns by what we either in existing vertical.

During a new vertical were going to do that and ultimately.

Yeah.

I'll take one to the marketplace provides us in terms of opportunity.

Today, we found that our story resonates.

Incredibly well and as long as it continues to resonate and as long as.

Clients increasingly want to do business with our farm then we're going to continue to.

Grow so we're not managing to numbers there were managing.

Quality segue, we have a very.

Qualitatively defined criteria, which then creates a quantitative results. So we know what the person is to look like and depending upon how many of those we have the opportunity.

To attracting the platform, there's just a hiring results, but if you asked me do I think there were likely to stop attracting talent to our platform I know because if anything the individuals who want to talk to us.

Okay.

Each each quarter each year that division.

This from becomes better understood in the marketplace.

More we've become the destination for talent and if we have an opportunity.

AD quality individuals without compromising any of that are very high standards, we're going to continue to drive growth.

Got it thanks, Paul and then.

I guess will follow up there where are you seeing kind of the the most opportunity.

For some of that new business I mean, maybe.

Between geographically product or sector over the next few years I.

I know you've got small presence in Europe, but do you see some opportunity elsewhere in a row, perhaps Asia is that is that viewed more.

Good opportunity baby.

Further product diversification for us.

Just wanted to get your thoughts on that.

Well first of all of its a global business we are global.

We do business around the globe.

Being a global forbids really defined by your capabilities to do business.

As anywhere in the world and clients willingness to do business with your regardless of their.

Headquarters there.

Yes, Hi trio.

On the style and in that regard we currently do business.

Nearly I think companies who are in nearly 50 countries around the globe.

[music].

The light time.

If we found again it goes back to individuals if we found the right individuals.

In the light regions of the globe to help create a beachhead for US we would make further investment in those areas, but we arent mobile phone.

And now the question.

She is we want to make further investment that it's going to be defined less by how attractive a market is.

More by how attractive the individuals that can lead that effort in that market are.

[music].

Great. Thank you.

Thank you very much I think that concludes.

Today's call. We appreciate everyone for joining us this morning, and we look forward to speaking to you.

One quarter from now thank you very much.

[music].