Q3 2020 PJT Partners Inc Earnings Call
Ladies and gentlemen.
Good day and welcome to the P.J.G. partners third quarter 2020 earnings call. Today's conference is being recorded at this time I would like to turn the call Sharon Pearson head of Investor Relations. Please go ahead ma'am.
Thank you very much Jake good morning, and welcome to the P.G. Pot note that calls for 20 to 20 <unk> earnings Conference call.
Sure and you had some type of Investor relations at P.J.G. partners.
Joining me today is pull child, <unk>, Chairman and Chief Executive Officer, and help them make a chief financial officer.
Before I turn the call as its Paul I want to point out that during the course of this conference call. We may make a number of forward looking statements.
These forward looking statements are subject to various risks and uncertainties.
And there are important factors that could cause actual outcomes to differ materially from those.
These statements.
We believe it needs such as I described in the that's actually section contained in P.J.T. partners 2019 form 10-K, which is available on our website at <unk> Dot com.
I want to remind you that the company assumes no duty to update any forward looking statements.
And at the presentation, we make today contains non-GAAP financial measures, which we believe a meaningful valuation the company performance.
A detailed it's mostly as a non-GAAP metrics and the GAAP reconciliations you.
You should refer to the financial data contained within the press release, we issued this morning also available on our website at <unk>.
That said I'll turn the call as its Paul. Thank you Sherri good morning, and thank you all for joining us today.
We're pleased to report record results for the quarter incident response.
In the third quarter firm wide revenues increased 71% pretty your don't levels to 298 million.
While adjusted pre tax income was 127%.
Pair to a year ago.
Each of restructuring P.J.T. Park Hill, and strategic advisory delivered strong performance in the quarter.
Yes, 11 years, each basin, that's player than a year ago.
For the nine months Firmwide logins grew 56% to 730 million.
Exceeding our full year 2019 Roberts.
Adjusted pre tax income increased by 122% from.
From year ago levels to 171 million.
These results reflect the unique depth and breadth of our franchise.
And highlight our differentiated ability to navigate challenging market environments.
We reported our first quarter results.
We were appropriately cautious about the remainder of the year.
Since then we have grown ever more optimistic about the full year.
Oh strong momentum in strategic advisory heading into the year.
Combined with a balanced business model with the leading pillars restructuring capital markets advisory and shareholder engagement has enabled us to gain market share in these turbulent times.
Increasingly clients are gravitating towards demonstrated track record of delivering superior advice.
Oh extraordinarily challenged to achieve a combined with our distinctive lead collaborative culture.
Has enabled us to serve clients in a superior manner they produce exceptional results.
Now turning to each of those businesses in greater detail.
Beginning with restructuring.
Revenues at our global restructuring business was sharply for the quarter.
For the nine months compared to comparable periods a year ago.
Do you ever increasing collaboration between restructuring and the rest of world.
Enables us to leverage our collective expertise consistently delivering exceptional results for our clients.
During a market backdrop characterized by economic contraction.
Dislocations and disruptions our team has excelled.
While the pace of new restructuring activity is likely to slow in the near term.
We expect it to remain elevated relative to historical levels.
There are a significant number of companies and industries.
Expenses have been meaningfully.
And in some cases permanently compromised.
Bryce this location is caused by the pandemic.
Accordingly, we expect to see an active restructuring as part of that.
For the foreseeable future.
Turning to P.J.T. Park Hill.
Well this business was significantly impacted at the onset of the global pandemic it.
It has rebounded more quickly than expected.
The fund raising environment continues to normalize.
As market volatility has subsided.
And investors have become increasingly acclimated to virtual rather than physical due diligence.
With respect to future it two parts, so our ability to bring to market in the Mezz fund managers.
It has been a competitive advantage it what can best be described as a flight to quality and barb.
If you could keep park Hill third quarter revenues increased significantly versus.
Versus year ago levels.
Most revenues are essentially unchanged relative to last year's levels.
We expect sequential growth in revenues in the fourth quarter.
We anticipate P.J.T. part kills full year results to fall short of last year's results.
Turning to strategic advisory.
And strategic advisory we enjoyed another strong quarter.
Year to date strategic advisory and restructuring had been different growth drivers.
Despite the global pandemic and corresponding economic shut down.
Our announced trends actually carried increased by 25%.
And the six months ended September 30 versus year ago levels.
However, the aggregate value of these transactions was down significantly compared to year ago levels.
Beginning in the third quarter, we've started to see a significant uptick in strategic dialogues.
A number of new mandates.
A preannounced backlog continues to build and that was a father would go levels.
We remain committed to investing in our strategic advisory franchise.
Year to date, we have hired five new partners to our strategic advisory team is active its defense technology real estate and energy.
As has been the case since we started our store.
We continue to be an employer of choice for talented individuals.
At all levels.
Now over to Helen to do all of financial results in greater detail.
Thank you Paul good morning, beginning.
Beginning with revenues.
Total revenues for the quarter were 298 million.
The 1% year over year.
The breakdown of revenues.
Revenues were 262 million up 18% year over year, driven by a significant increase in the structuring revenues as well as an increase in strategic advisors.
Placement revenues were 52 million.
24% year over year, driven by an increase in fund placement activity to private equity funds.
For the nine months ended September 30, total revenues of 750 million.
56% year over year.
The breakdown of nine months revenues advisory revenues of 612 million.
59% year over year, driven by significant growth in both restructuring and strategic advisory.
Placement revenues were 106 million up 67% year over year, driven by increases in both corporate private placement activity as well as fund placement activity.
Turning to expenses consistent with prior quarters, we presented the expenses, but there is a non-GAAP adjustments. These adjustments are more fully described in our child.
First adjusted compensation expenses adjust.
Just a compensation expense continues to be accrued at 65%.
Ratio represents a kit based it's not so the compensation ratio for the full year.
Turning to adjusted non compensation expenses.
Adjusted Noncompensation expenses decreased modestly to 28 million for the third quarter compared to 29 million for the prior year.
We have continued to experience a significant reduction in travel and independent states as a consequence of the global pandemic.
This reduction was partly offset by an increase in other expenses due to a variety of factors the largest of which relates to charitable contributions to pension, but 'cause it related release and the advancement of <unk> equity.
For the nine months total adjusted non compensation expense decreased 8% to 85 million can teach a 92 million for the prior year.
Turning to adjusted pre tax income.
We reported adjusted pre tax income of 76 million for the third quarter up significantly compared with 53.5 million for the same period last year and.
And for the nine months, we reported adjusted pre tax income of 171 million more than double the 77 million last year.
Our adjusted pre tax margin was 25.5% suggested coosa compared with 19.2% for the same period last year.
And 23.4% for the nine months compared with 16.4% for the same period last year.
Provision for taxes as with prior quarters, we presented our results as if all partnership units have been converted dishes and that all of our income with text at a corporate tax rate.
Annualized benefit relating to the delivery of Vista shares during the first quarter.
Our effective tax rate for the full year is expected to be 25.6%, despite slightly lower than our previous estimates to reflect lower anticipated state and local Texas.
Your next to share our adjusted EPS can you do to their names were $1.56. Two she has to do of course.
Up significantly compared with 60 cents in the third quarter last year.
And for the first nine months $3 10 per share up significantly compared with $1.59 per share in the same period last year.
Share count.
For the quarter, our weighted average share count was 41.5 million shares.
During the quarter, we pitched the equivalent of approximately 494000 shares through open market share repurchases as well as the exchange of partnership units for cash.
I totally pitches in the first nine months.
Approximately 1.7 million, including exchange of approximately 636000 tons shipped units the cash.
Currently in receipt of exchange notices for approximately 1.1 million tons shipped units as we have done in the past because of exchange these units for cash.
On the balance sheet, we ended the quarter with a highest cash balances either.
Hundreds of 67 million in cash cash equivalents and short term investments and 323 million working capital.
And we have no somebody of outstanding.
Finally, the board has approved a dividend of five cents per share the dividend will be paid on December 16th Twentytwenty to class a common share holders of record as of December 2nd Twentytwenty and with that I'll turn back to Paul. Thank you Howard.
Do you think ahead.
Earlier this month, we celebrated our fiftyth anniversary as an independent publicly traded company.
From day, one we had a simple vision the P.J.C. <unk>.
Tom that would deliver best in class of bodies to decision makers worldwide.
Forged by a culture of excellence collaboration and integrity.
We have a clear view of the investments we would make to build their phone.
Cost against that these investments will pay off.
But ultimately be reflected in our financial results.
Throughout this journey is the progress we clearly saw occurring on the inside.
Not always apparent on the outside.
But after five years of consistent value added investments.
And a growing track record of results.
Our strategy and progress to date.
Understood.
I appreciate it.
We've always said the longer the loans.
The greater clarity of vision, we have for our business.
Clearly 2020 is shaping up to be an extraordinarily strong year for ofer.
In both absolute and relative terms.
While it is premature to preserve to 2021 outlook.
We remain extremely confident in our future growth prospects when measured over the next few years and beyond.
And with that.
We will take your questions.
Ladies and gentlemen, if you would like to ask a question you could signal by pressing star one on your telephone keypad.
Keep in mind, if you are using your speaker phone. Please make sure your mute function is <unk> <unk> <unk>.
Once again for questions today Star one.
We'll begin with Devin Ryan with JMP Securities.
Great Good morning, everyone.
Good morning, and good morning.
Maybe just start here to dig a little bit more around.
Right now you guys are seeing I'm just curious how are you.
Wood frame some of the strikers supporting <unk> right now and whether.
Whether this is more of a assumption business its usual because companies are now at least.
What the immediate impact to the virus or was there something else.
Occurring whether it be strategic decision, making is accelerating.
Dominic or something else just trying to think about what's driving the kind of assumption.
We're seeing very strong right now.
Well I think the way we think about it is if we go back to the beginning and what we have said.
For a number of years now is we believe that there is a secular shift to.
More M&A in almost any environment and that while M&A is always going to be a deeply cyclical business.
That's the secular trends are all else equal more M&A any given set point yeah.
Now what we've consistently said is the reason for that is as the world speeds out.
There's more innovation more technological disruption.
Business models companies could no longer stand still and lead to more actively manage their portfolio to either acquire skills and capabilities to fortify them too.
I'll leave certain markets because they are no longer have a competitive advantage.
What's the pandemic did.
It's a health crisis is a terrible held prices.
With enormous economic ripples.
What it did in the very very short term is it froze all strategic activity.
As far as the waters, you know, which kept rising and rising realized they stopped laws they added.
Stabilize.
I think for many companies, who were able to get to higher ground.
We now look at their businesses and they see that many of the trends that were either evidence before the pandemic.
I would now what evidence to magnify the extent.
The trends pre pandemic.
Are the same trends.
Significantly accelerated again, and that's that's where we see and that's why we've always had a conviction that.
Once the.
The companies were able to ensure that they had adequate liquidity.
They had right sized the business.
For.
The new reality that they had.
Adult with immediate needs.
We got to step back and if they were damaged by.
The economic dislocations, there, we're going to figure out strategically what to do about it.
And if there were strategically advantaged by they're going to figure out how best to.
Take advantage of all the fortunate position.
And that's what we see.
Okay. Thanks, Paul I appreciate the color there.
Maybe question on <unk> <unk>.
Pre tax margin potential, which is 25% plus in the quarter. The best level. The first thing that obviously strong revenues.
Non comp Tailwinds out there.
Help.
Help accomplish a steady as she typically do you're trying to think about your margin potential from here now that you're already kind of into that zone, where some of the industry has been kind of better years and contemplated in kind of the comp ratio well kind of what flexibility do you see.
We really haven't given any indication here year to date, just given how you guys do.
For the first nine months, just trying to think about.
Margin potential to the extent we were to extrapolate.
Revenues can remain solid from here.
Well I.
I'm optimistic about the revenue outlook as we look out over years, because we continue to build the business. We continue to attract talent the brand is increasingly well known.
And I think we have so much potential ahead of us so that is certainly.
How we see the world all the cost side Weve said from day one.
That we have a cost structure that is the equivalent if not advantage relative to others, but that you only see that over time as the business is built out and you get operating leverage through the revenue is there's always said it was more the.
Revenues that needed to grow 50 expenses were out of line I think you've seen that as our long comps as a percentage of revenue instead of increasing late or I'm, sorry, not increasing it but have consistently.
In Dallas.
I'm reluctant to talk about normalization, while we're in the midst of an environment that is anything but normal and a world where no. One is traveling everyone is remote in yen is not necessarily the place to start to that extrapolate as to where we go but if you look to where we were pre.
Pandemic, we've had a track record of steadily increasing the margin.
You know year to year to year and from that you know pretty pandemic level I, certainly would expect us to continue to do that.
Okay terrific last quick one here just on the cash position.
Obviously, just continued to build strongest ever had.
Dollars a share cash equivalents.
Just just would love some perspective around how you guys are thinking about just got cash position as obviously that continues to build and understanding that you're also a capital.
Capital Light models, just just trying to think about.
How you guys are contemplating that building position today.
Well first of all the cash traditionally builds throughout the year, because we have year end compensation obligations to pay our people.
So you always have to look at those numbers really on a net basis, there's a gross cash number and as commitments that we have which are.
On the balance sheet, but no matter, how you elected to.
It has grown.
More quickly this year than any other year at this time of year is higher.
That is a that can build a couple of times in prior years as it's higher than it's been relatively.
Also even the fourth quarter.
I think we've already signaled that we're going to take our excess capital prudently.
Manage dilution and Helen talked about the fact that weve already committed to spend.
They are a sizable amount of cash to repurchase 1.1 million partnership units are saying that that gives you a sense as to where our collective heads that's consistent with how we've always operated the business, but we do like the fact that in uncertain times, we have such a strong.
Right and stability.
We're always going to be conservative financial stewards, but we also believe deeply.
Currency and we're going to do everything we can to prudently manage the issuances, which relate to invest so I like that a lot.
Steel remains unchanged.
Great. Thanks, Paul I'll leave it there.
Thank you Doug.
And now we will move to Richard Branson with Goldman Sachs.
Hi, Good morning, guys. So I wanted to dig a little bit more.
More into the restructuring business. So I guess a couple of questions. The first is pull I think if we go back a few years you said that restructuring I think it was probably about a third of the advisory revenue pool.
I know you said, it's up sharply this quarter, but if you look at the contribution of restructuring today is it significantly different from the third a that you talked about I think in 2016 I know obviously a lot has changed in terms of the Pacific. Since then and then secondly, I think you said you expected that the pace of restructuring is going to slow a little bit from here could you just.
Find little better as to why you think of it as the case, it's not just of EBITDA to financing is it because a lot of the mandates that actually already happened. If you could just expand on your expectations for them would be helpful. Thanks.
No I appreciate the question because it gives me an opportunity to certainly.
Amplified by Thomas If you go back in and listen to what we said earlier in the year. We saw this as a concentric circles.
A number of a number of ways of restructuring and the first one.
Our companies, whose business model was essentially shut down.
And then Rick no revenues noticed and there was no cash coming in dealing with extreme circumstances.
And that.
I was an extraordinary number of mandates.
Which came to us and to the industry in the months of March April and May that is not a normal environment, that's not even an elevated and that.
That is.
Extreme.
Circumstances, where business models are opened to literally overnight.
There's a tremendous amount of activity there that will work its way through the system, but most of that relates to businesses that were immediately turn.
Turned off from a revenue perspective on day one.
What Weve said from day, one however, as a companion point is that the damage done by this economic crisis is going to be longer lasting the changes in consumer behavior.
Changes in activity levels are going to leave certain businesses and industries severely potentially permanently compromised and.
We've also said that even if there is a robust alternatives in the capital markets in the near term.
There's a limit to how much debt you can put on it.
You keep a challenged business operating indefinitely.
At some point those businesses.
They need to be restructured and then we've also said there are other companies and industries.
The odd.
The collective radar screen in the near term, but are highly dependent upon companies that are more deeply affected and as all of this works its way through the system is likely to be.
There are ways. So that's really what I'm talking about where we are dealing with extraordinarily high levels of restructuring activity at the onset of the pandemic.
That activity continues as many of those tough things are continuing to restructure their balance sheets, whether its import out of court liability management.
Activities.
And then there are a large number of companies.
Who have been deeply affected by their second they have had highly geared balance sheets coming in but now are inevitably going to have to deal with major restructurings are good businesses, but that may take time to to present itself.
<unk>.
Okay, all right well. Thank you. Thank you that's it that's very helpful. And then secondly, there's obviously been a lot of discussions around changes to the tax code. So specific to an increase in capital gains tax potentially depending on who wins. The election has that had any impact in terms of pulling forward.
Mandates from financial sponsors from next year into this year or would you say it's be inconsequential.
I think it's been quite.
Modest I'd say, everyone talks about it they see the potential coming.
Very few people are really prepared to act.
And then if you also go back in time, a little bit in order to sell businesses and have it be and this tax year.
You you can make.
Determination much earlier, you typically don't wake up in September I say I'm, not just going to go sell my business and while it compressed process just.
And this year you might do with your stock portfolio, which is quite liquid it's much more difficult to do strategically attitude.
And if you go back there as to when people might be planning for this I.
I think the views about or whether there would be a change in tax policy, we're probably quite different in terms of conventional wisdom.
And then may be a week before the election.
Who knows where they'll be a seven or eight days from as well so I feel like.
To the extent that was something that the company is.
Families what are they thinking about it we didn't see that much of it earlier in the year.
Thank you at this point no one knows that.
Whether announce something happens next year, if there is a tax increase as a retroactive to the first of the year resolved. So there's so much uncertainty about all of this stuff that I suspect you're you're going to look back and then maybe companies. If there was a tax a grade school.
Ill.
Well question, whether they should have started a process earlier, but I just haven't lost a significant pull forward.
Okay, Alright, thank you very much for taking my questions.
Absolutely. Thank you Richard.
Well now move to a question from Steven Chubak. Please go ahead.
Hi, good morning.
So.
Oh.
I'm like the advisory outlaw.
I think some of the remarks that you can't just take your seeing in strategic dialogues.
[laughter] I guess the coke.
You probably is still shop.
Services revenue.
And I Didnt.
Oh, it's it to the cure the same size as public backlog.
Hi, there, where it appears that seems to improve albeit off a much lower.
So just curious if the public policy.
So the trends are.
Presented it or what you're seeing in S series constructive comments.
Yeah, I'd say strategic dialogue or.
Okay, Stephen I'm going to I'm going to take a shot here because you may not appreciate it does start your own connecture has quite garbled as.
That's my son, sorry, but just.
Okay landline survival, yes, Okay, I think I caught I think I caught most of it if I could summarize I think you're just trying to parse out comments about strategic advisory.
Asking about the public.
Public database backlogs at all about that we've got a pretty good summary, I apologize that that's a that's a great summer.
Okay, well first I have to confess I don't look at the public database some rate side, even though they say.
Hi, I have no comment on that because I don't think I've ever seen that public database, you know summary of backlog.
I guess, that's not how I think about the business or manage the business. We literally do this from the bottoms up.
She says we're just focused on serving our clients that we have the right bankers and we have the right advice that we put the right team and from the.
Ultimately ship.
Ship will come back and I never want to think about Gee are we need three more deals this way through this quarter, but if you have enough dialogue slip there right.
As calling on the right companies inevitably you.
You got it.
Those two are cut to the board room and that I'd say, you know you're right.
Right. It would stress so we live in an idiosyncratic business where.
Depending upon the companies that were talking to where our relationships are how active they are they may be incredibly active and then decide to go pencils down or something and then things pick up so what I will say as to reiterate my comments.
The second or third quarter as a pretty good benchmark of kind of the new unfortunate normal. So I know it can really tie when when the world shut down by March 31st there is a pretty good rounded.
Dave of the second and third quarters, what I said was really three things number one.
We now have 25% more transactions and that six month period than we did a year ago, but they were meaningfully smaller transactions that a year ago.
And that's what's publicly known and available.
What is more important to me is as you know the waters began to receive a little bit as companies got to higher ground and they were able to show up their liquidity as they began to come to grips with those unfortunate new normal we began to see a very significant uptick.
And strategic dialogues.
At the end of <unk>.
The second quarter, so rounding into the third quarter. So somewhere in July we began to see a significant uptick in activity and the focus really shifted from.
The World is on fire and we need to tap into all these companies that have overnight liquidity issues liability management issues potential restructurings.
We shifted back to we have a very significant demand to talk about strategic situations transactions and they were either from companies who are looking to play all sides as well as companies who now.
Deciding that maybe they don't have the right balance sheet and the right business model to succeed going forward and that backlog has consistently to steadily build in the months of July August September October presumably will continue.
The trend persists into November and beyond and we now sit in a better place than we did a year ago, but how all of this you know presents itself and reveals itself publicly did a week to week quarter to quarter I have no idea, but I know that the longer the lines. If we're having these many die.
Odds on these many high quality mandates and assignments what I know is go phase will ultimately happen.
Right No I appreciate all that.
And just one more for me.
Backdrop.
You know working.
[laughter].
Speaking, you're still good let's say one more time okay.
I'll just follow up later on.
Okay.
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Okay, well apologies for that so I talked about a world technological disruptions. The dislocations, we've had clear evidence of it from Stephens phone line, but I do I do sincerely wish everyone.
They are able to navigate these difficult times.
In a safe and sound manner and that everyone can remain healthy and that.
Sooner rather than later, we can all visitors.
A more normal interaction with the with all of you but in the interim.
We'll do our part to remain accessible.
Virtually to our shareholders and we will.
Speech you on the next earnings call. Thank you very much.
Ladies and gentlemen, this will conclude your conference for today. Thank you for your participation you may now disconnect.
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