Q3 2023 PJT Partners Inc Earnings Call

Good day and welcome to the P. J T Partners' third quarter 2023 earnings call.

Today's conference is being recorded.

At this time I would like to turn the conference over to Sharon Pearson head of Investor Relations. Please go ahead ma'am.

Thanks, very much Todd good morning, and welcome to the P. J T partners third quarter 2023 earnings Conference call I'm, Sharon Pearson head of Investor Relations at P. J T partners and.

Joining me today are Paul Taubman, our chairman and Chief Executive Officer, and Helen <unk>, Our Chief Financial Officer.

Before I turn the call over to 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 indicated in these statements.

We believe that these factors are described in the risk factors section contained in P. J G partners 'twenty to 'twenty two Form 10-K, which is available on our web site at P. J T partners dotcom.

I want to remind you that the company assumes no duty to update any forward looking statements and that the presentation. We make today contains non-GAAP financial measures, which we believe are meaningful in evaluating the company's performance for.

For detailed disclosures on these non-GAAP metrics and the GAAP reconciliations 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 over to Paul.

Thank you Sharon.

Thank you all for joining us this morning.

Okay.

Before we turn our attention to our financial results.

Allow me to make a few comments.

Yeah.

This month the world has witnessed barbaric unspeakable acts.

Perpetrated by a terrorist organization against civilians in Israel.

We express our outrage against such acts and.

And we add our voice, calling for the immediate release of those held hostage.

We see the extraordinary suffering of innocent civilians in Israel in Gaza and we are heartbroken.

In an effort to do our part P. J T is committing funds to H humanitarian relief efforts.

Israel and Gaza.

Now turning to our results.

We continue to operate in a difficult environment as higher rates.

Tighter monetary conditions.

Increased economic uncertainty.

In a fault geopolitical landscape all weigh on markets globally.

These pressures continue to dampen capital formation.

Global M&A activity.

With equity issuance levels, and current M&A volumes down to levels comparable to a decade or so ago.

In contrast, this year the number of U S bankruptcy filings is tracking to levels not previously reached in more than a decade.

Against this backdrop, our unique combination of businesses.

Collaborative team approach.

Illiberal superior outcomes for our clients and outperformance for our firm.

Our nine months revenues grew 11% year over year.

With a record $825 million in revenues.

After how it takes you through our financial results.

I will review our performance by business and.

To provide more detail on our recruiting efforts.

And update our full year outlook.

Helen.

Thank you Paul good morning, beginning with revenues.

Revenues for the third quarter with $278 million up 5% year over year.

A significant increase in restructuring revenues more than offset continued weakness in P. J T patio and lower revenues in strategic advisory compared to year ago levels.

Total revenues that met the criteria to be pulled forward in the third quarter were approximately $5 million compared with approximately $3 million in the same period last year.

For the nine months ended September 30, total revenues were $825 million as Paul mentioned, our record first nine months and an increase of 11% year over year.

A significant increase in restructuring revenues more than offset a significant decline in P. J T Park Hill, and a modest decline in strategic advisory compared to year ago levels.

Turning to expenses consistent with prior quarters, we presented the expenses with certain non-GAAP adjustments, which are more fully described in our 8-K first adjusted compensation expense.

Continue to accrue adjusted compensation expense at 69, 5% of revenues for the first nine months of the year. This ratio represents our current expectation for the full year 2023.

Turning to adjusted non compensation expense total adjusted non compensation expense was 41 million for the third quarter up $4 million year over year, and 122 million for the nine months.

8 million year over year.

As a percentage of revenues adjusted non compensation expense was 14, 8% for both the third quarter and nine month periods.

Adjusted non compensation expense grew 12% in the first nine months of the year compared to the same period last year and we expect the full year growth rate to be in line with the nine month growth rate with full year increase was driven by higher professional fees higher occupancy costs as well as increased travel and entertainment expense.

We reported adjusted pre tax income of 44 million for the third quarter and $130 million for the first nine months.

Our adjusted pretax margin was 15, 7% for both the third quarter and nine months periods. This compares to 23% and 21, 4% for the three and nine month periods last year.

The provision for taxes.

As with prior quarters, we presented our results as if all partnership units had been converted to shares and all of our income was taxed at a corporate tax rate.

Our effective tax rate for the first nine months of 2023 was 26, 7% and we expect this to be our effective tax rate for the full year.

Earnings per share our adjusted if converted earnings with 78 cents for the third quarter and $2 30 per share for the first nine months.

On the share count for the for the quarter, our weighted average share count was 41 4 million shares.

Including the exchange of partnership units for cash repurchases in the first nine months totaled approximately 2 million shares slightly higher than year ago levels.

On the balance sheet, we ended the quarter with 355 million in cash cash equivalents and short term investments and $370 million in net working capital and we have no funded debt outstanding.

Finally, the board has approved a dividend of <unk> 25 cents per share the dividends will be paid on December 20th 2023 to class a common shareholders of record as of December six okay.

I'll turn back to Paul.

Thank you Helen.

Beginning with restructuring.

We're experiencing a wave of opportunity not seen in more than a decade as many companies grappled with an increasing array of challenges.

Pressured business models over leveraged balance sheets on favorable credit markets and higher financing costs.

We continue to believe that this balance sheet repair cycle.

Will persist for an extended period of time.

The pressure on business models becomes more broad based.

And more companies are impacted by higher interest rates and more restrictive credit conditions.

Consistent with this commentary are world class restructuring business continued its strong momentum and leadership position.

With revenues for the three months and nine months periods up substantially.

Pair to year ago levels.

Turning to P. J J Park Hill.

The fundraising environment for alternative investments remains extremely challenging with.

With the hangover from record 2021 fund raising continuing to constrained investor appetite for new commitments.

Subdued IPO and M&A activity has further weighed on new fundraising activity due to the anemic pace of capital return.

As a result, many new fund raises are being scaled down and take a considerably longer to complete.

Against this backdrop, our three and nine months revenues in <unk> Park Hill.

Down significantly year on year.

Turning to strategic advisory.

Notwithstanding the recent spate of M&A activity 2023 is shaping up to be the lowest level of dealmaking in nearly a decade.

And when measured as a percentage of global GDP and global market capitalization M&A activity is at unprecedented low levels.

Our strategic advisory business is not immune to the slowdown.

With revenues down for both the three and nine month periods. However.

However, our business continues to perform well on a relative basis.

With revenue declines meaningfully less than declines in overall M&A activity.

While it is always perilous to call the bottom of any market.

We have the utmost confidence that market conditions will improve and that global M&A volumes will in time.

Returned to levels more in line with historical relationships to global GDP and global market capitalization.

Our focus remains on ensuring that we are well positioned for the inevitable market recovery.

To that end, we remain actively engaged with clients.

On a broad array of strategic topics.

Our pipeline of mandates has steadily grown throughout the year and.

And is meaningfully stronger today than it was at the beginning of the year.

Turning to challenge.

We continue to expand our capabilities through the addition of high quality talent.

We previously communicated that this would be our most consequential hiring year ever.

The subdued M&A marketplace presents us with a unique opportunity to accelerate the pace of senior hiring.

Year to date, we have hired 17 partners and M DS strengthening our market position across many industry verticals, including consumer health care industrials infrastructure and technology.

We expect these elevated recruiting levels to continue into 2024.

We remain steadfast in our focus on long term shareholder value.

This recruiting momentum as an important driver of value creation.

While we expect substantial returns from these recruiting efforts over the intermediate to long term.

These investments will pressure margins in the near term.

As we look ahead.

We expect our full year revenues to be the highest in our firms history, notwithstanding extraordinarily volatile markets and significant macro headwinds.

We remain confident that the businesses, we continue to build and integrate.

Position us to weather this challenging environment and to thrive as market conditions improve.

Our balanced set of businesses enables us to provide clients with differentiated advice.

And reward shareholders with differentiated performance.

And with that we will now take your questions.

Yeah.

Thank you at this time the floor is now open for your questions to ask a question. Please press star one on your telephone keypad.

You may remove yourself at any time by pressing star two.

Once again, if you would like to ask a question. Please press star one.

Our first question will come from Devin Ryan with JMP Securities. Please go ahead.

Great. Good morning, everyone. How are you guys.

Well, Kevin Thank you.

Operator: Good day and welcome to the PJT Partners Third Order 2023 earnings call. Today's conference is being recorded.

Okay.

I want to start on the restructuring business strength, clearly youre seeing nice contribution year to date.

Sharon Pearson: At this time, I would like to turn the conference over to Sharon Pearson, head of investor relations. Please go ahead, ma'am. Thanks very much, Todd.

Thank you your restructuring results are kind of hitting earlier than some of your peers, where we're tracking growing mandates, but they have yet to see much uplift. There. So far so just wanted to get a sense of whether you feel like Thats mix I understand you have a leading business year, but just kind of why it's coming in earlier and then.

Sharon Pearson: Good morning and welcome to the PJT Partners Third Quarter 2023 earnings conference call. I'm Sharon Pearson, head of investor relations at PJT Partners.

Sharon Pearson: And joining me today, Paul Taubman, our chairman and chief executive officer and Helen Meates, our chief financial officer. Before I turn the call over to 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 for different materially from those indicated in these statements.

It does sound like you're still pretty bullish on the potential for this business and could remain structurally higher so I'm just trying to think about whether that could actually mean growth for P. J T from what are good bubbles or if we're just kind of in a higher baseline right now and that just continues thanks.

Sharon Pearson: We believe that these factors are described in the risk factors section contained in PJT Partners 2022 form 10K, which is available on our website at PJT Partners.com. I want to remind you that the company assumes no duty to update any forward-looking statements and that the presentation we make today contains non-gap financial measures which we believe are meaningful in evaluating the company's performance. For detailed disclosures on these non-gap metrics and they gap reconciliation, you should refer to the financial data contained within the press release we issued this morning, also available on our website.

Well look there's no doubt we're in a higher for longer restructuring cycle and we've talked about this for some period of time.

There are many businesses that were substantially weakened as a result of COVID-19.

There was an environment where companies that were over leveraged had extraordinarily benign access to capital seemingly low interest rates, none of those sort of life rafts. You know are available today and as we look at the dialogues that we're having and the mandates that were winning.

We have conviction that this balance sheet repair cycle is going to have legs now like any cycle. It has ebbs and flows every day is not just simply.

Paul Taubman: And with that, I'll turn the call over to Paul. Thank you Sharon. And thank you all for joining us this morning.

A pickup in activity, but we do believe taking a step back that that these elevated levels should continue for some period of time is access to capital becomes more difficult.

Paul Taubman: Before we turn our attention to our financial results, please allow me to make a few comments. This month, the world has witnessed barbaric, unspeakable acts perpetrated by a terrorist organization against civilians in Israel. We express our outrage against such acts and we add our voice calling for the immediate release of those held hostage. We see the extraordinary suffering of innocent civilians in Israel and Gaza and we are heartbroken.

As companies need to deal with our near term maturities.

And as you know what we believe will be an economic slowdown continues to affect it.

Business models and business performance, so that's kind of where where we see the world.

Okay, great color. Thanks, Paul.

And then just a follow up here.

I guess on just expense.

Paul Taubman: In an effort to do our part, PJT is committing funds to aid, humanitarian relief efforts in Israel and Gaza. Now turning to our result. We continue to operate in a difficult environment as higher rates, tighter monetary conditions, increased economic uncertainty and a fraught geopolitical landscape all way on markets globally. These pressures continue to dampen capital formation and global M&A activity with equity issuance levels and current M&A volumes down to levels comparable to a decade or so ago.

The expense ratio, so revenues were up 11% year to date comp expenses up about 20% year to date.

No it's not quite the scientific but I don't know if its possible just a breakdown on comps specifically just how much of that growth is a function of just amortization from prior year versus all of the recruiting but the most consequential year.

Hiring that's going to be this year.

Versus just how much is.

Just inflation and competitive dynamics, just trying to think about that relationship.

Well I think Theres a number as.

There are a number of components to add to the comp ratio as you mentioned, how about we set up again with what our outlook is for revenues.

Paul Taubman: In contrast, this year, the number of U.S, bankruptcy filings is tracking two levels not previously reached in more than a decade. Against this backdrop, our unique combination of businesses and collaborative team approach delivered superior outcomes for clients and outperformance for our firm. Our nine month revenues grew 11% year-over-year with a record 825 million in revenues.

And one significant factor is.

The senior level hiring that we're doing that we've talked about.

So that would obviously impact it and we also think about comp discipline around the existing population the competitive backdrop and then as you mentioned there is amortization from prior year's comps that will be flowing through as well. So all those factors are taken into account when we determine what our best estimate for the ratios.

I think I think Devin if you just look back over the last three years, we have a demonstrably stronger firm today.

Helen Meates: After Helen takes you through our financial results, I will review our performance by business, provide more detail on our recruiting efforts, and update our full-year outlook.

Then what we presented three years ago.

We have.

We've grown our head count, but we're operating and market environment for two of our three businesses that are extraordinarily subdued relative to three years ago. So when you step back and you look at the significant investment the strengthening of the franchise and the.

Helen Meates: Helen? Thank you, Paul.

Helen Meates: Good morning. Beginning with revenues. Total revenues for the third quarter were 278 million up 5% year-over-year. A significant increase in restructuring revenues, more than offset continued weakness in PJT Paquel and lower revenues in strategic advisory compared to year-go levels. Total revenues that met the criteria to be pulled forward in the third quarter were approximately 5 million compared with approximately 3 million in the same period last year. For the nine months ended September 30 total revenues were 825 million as Paul mentioned a record for nine months and an increase of 11% year-over-year. A significant increase in restructuring revenues more than offset a significant decline in PJT Paquel and a modest decline in strategic advisory compared to year-go levels.

A very significant reduction in available wallet in two of our three businesses, it's not a surprise that the comp ratio.

Has moved higher.

Yeah understood. Okay, I will leave it there thanks very much.

Thank you Devin.

Thank you. Our next question will come from James <unk> with Goldman Sachs. Please go ahead.

Good morning, and thank you for taking my questions.

Paul maybe if we could just start with the macro backdrop and how this is impacting your business.

We obviously have more geopolitical uncertainty as you alluded to higher rates and obviously coming U S. Election. So maybe you could just talk about what that means for the the M&A inflection and perhaps the cadence or timeline for which.

Helen Meates: Turning to expenses, consistent with prior quarters, we've presented the expenses with certain non-gap adjustments, which are more fully described in RAK. First, the just a compensation expense. We have continued to accrue a just a compensation expense at 69.5% of revenues for the first nine months of the year. This ratio represents our current expectation for the full year 2023. Turning to adjusted non-compensation expense. Total adjusted non-compensation expense was 41 million for the third quarter, up 4 million year-over-year and 122 million for the nine months, up 13 million year-over-year.

Over which we.

We see returned to normalized levels of M&A.

I mean look we came into this year James with perhaps the most sober assessment of the M&A marketplace and we assumed.

This would be another down year.

And the market I think notwithstanding that it was probably.

Oh.

Or it was it was lower levels it was more difficult to affect transactions than even way on the more bearish side had had.

Helen Meates: As a percentage of revenues adjusted non-compensation expense was 14.8% for both the third quarter and nine months periods. Adjusted non-compensation expense grew 12% in the first nine months of the year compared to the same period last year and we expect the full year growth rate to be in line with that nine month growth rate. We've continued to accrue a just a compensation expense with full year increases driven by higher professional fees, higher occupancy costs, as well as increased travel and entertainment expense.

Had expected to see and when you deconstruct it it's many factors.

Moving to the negative direction.

As volatility and difficulty in agreeing.

On price is constrained financing in terms of the quantum of committed financing available it's cost of financing, which makes it harder for buyers and sellers to agree it's a very strong anti trust.

Helen Meates: We reported adjusted pre-tax income of 44 million for the third quarter and 130 million for the first nine months. Our adjusted pre-tax margin was 15.7% for both the third quarter and nine months periods. This compares to 20.3% and 21.4% for the three and nine months periods last year.

C N enforcement from the administration, which whether they prevail or not has it showing effect on a number of deals because companies are not willing to subject themselves to that uncertainty.

This continued drumbeat of whether or not we're going to head into a recession.

Helen Meates: The provisions for taxes, as with prior quarters, we've presented our results as if all partnership units had been converted to shares and that all of our income was taxed at a corporate tax rate. Our effective tax rate for the first nine months of 2023 was 26.7% and we expect this to be our effective tax rate for the full year. Earnings per share are adjusted as converted earnings with 78 cents for the third quarter and $2.30 per share for the first nine months.

Oh difficulty controlling costs on every dimension it has been more difficult too.

To get transactions done.

But what has been different in this cycle is companies desire.

To move forward with their strategic agendas.

As essentially undeterred.

And that's sort of the betwixt and between where as difficult as it is to get transactions done.

Helen Meates: On the share count for the quarter, our weighted average share count was 41.4 million shares, including the exchange of partnership units for cash, repurchases in the first nine months total approximately two million shares slightly higher than year ago levels.

Companies' desires to manage their portfolio to gain core competencies to benefit from scale economies and the like that that has remained an unchallenged.

Unchallenged and then if you add to that the difficult fundraising environment and alternatives.

Helen Meates: On the balance sheet we entered the quarter with 355 million in cash cash equivalents and short term investments and 370 million in networking capital and we have no funded debt outstanding.

And a little bit of indigestion from all of the capital that was put out in 2021 sponsors have been meaningfully less active in the marketplace I think the number of portfolio companies that would like to the IPO.

Helen Meates: Finally, the board has approved the dividend of 25 cents per share, the dividend will be paid on December 20th, 2023, to class A common shareholders of record as of December 6th.

As buildings. So you have an awfully large backlog and it's unclear how many of those companies will ultimately get liquidity events in the relative near term and I think that also in the ecosystem has an effect on how aggressive private equity firms are and putting.

Paul Taubman: I'll turn back to Paul. Thank you, Helen. Beginning with restructuring, we're experiencing a wave of opportunity not seen in more than a decade as many companies grapple with an increasing array of challenges, pressured business models, over leverage balance sheets, unfavorable credit markets, and higher financing costs. We continue to believe that this balance sheet repair cycle will persist for an extended period of time as the pressure on business models becomes more broad-based and more companies are impacted by higher interest rates and more restrictive credit conditions.

Capital out and if there is less confidence that there's a private equity bid for businesses companies.

Companies are perhaps more reluctant to initiate a sales process. So all of this feeds on itself.

But as I said inevitably markets adjust and I think we're in the adjustment phase on many of these factors and I think we're a lot closer to getting out of the tunnel, but it's been it's been a long dark tunnel.

Paul Taubman: Consistent with this commentary, our world-class restructuring business continued its strong momentum and leadership position with revenues for the three months and nine months periods up substantially compared to year ago levels. Turning to PJT Park Hill, the fundraising environment for alternative investments remains extremely challenging. With the hangover from record 2021 fundraising, continuing to constrain investor appetite for new commitments. So, dude, IPO and M&A activity has further weighed on new fundraising activity due to the anemic pace of capital return. As a result, many new fundraisers are being scaled down and taking considerably longer to complete.

Okay. That's really helpful perspective, Paul Thank you.

As a follow up.

Just on the hiring you've had tremendous success so far with that this year, maybe you could just speak to whether you see the same opportunities for hiring today versus.

Paul Taubman: Against this backdrop, our three and nine month revenues in PJT Park Hill were down significantly year on year.

At the beginning of this year and what you what your expectations are for hiring into 2024.

I think we've.

We've talked consistently about two impediments to us attracting all of.

The talent in the previous few years, one was the anomalies of Covid just being in a remote environment.

Not being able to create those personal connections.

That was a unique.

The period of time and that significantly constrained hiring and we're well past that thankfully and.

The second is that in 2021.

Paul Taubman: Turning to strategic advisory, notwithstanding the recent spade of M&A activity, 2023 is shaping up to be the lowest level of deal-making in nearly a decade. And when measured as a percentage of global GDP and global market capitalization, M&A activity is at unprecedented low levels. Our strategic advisory business is not immune to the slowdown with revenues down for both the three and nine month periods. However, our business continues to perform well on a relative basis with revenue declines meaningfully less than declines in overall M&A activity.

That headwind was linked to.

Two extraordinary melt up in M&A activity and therefore, the friction cost for.

For senior practitioners to leave firms in and take long periods of time on gardening leave those friction costs were extraordinarily high.

And those two together had a chilling effect on our ability to recruit and what we now have is probably the best environment. We've seen in a long time, because the fundamental attractiveness of our firm continues to build.

The level of dissatisfaction at many of the Big banks continues to remain.

People, who have come to our firm have thrived and I appreciate the unique culture and the way in which we can all come together to serve clients that's better understood by those who are considering joining our firm.

Paul Taubman: While it is always perilous to call the bottom of any market, we have the utmost confidence that market conditions will improve and that global M&A volumes will in time return to levels more in line with historical relationships to global GDP and global market capitalization. Our focus remains on ensuring that we are well positioned for the inevitable market recovery. To that end, we remain actively engaged with clients on a broad array of strategic topics. Our pipeline of mandates has steadily grown throughout the year, and is meaningfully stronger today than it was at the beginning of the year.

We're able to create those personal connections because we're all back in the office and the friction costs in the current environment are as low as they've been.

Arguably forever because of the low levels of M&A activity.

So we don't have quotas. Every every addition to the firm as individual by individual it's all from the bottom up it's not from the top down but without those macro impediments.

Practice of our firm as a destination for talent is better shining through.

Paul Taubman: Turning to talent We continue to expand our capabilities through the addition of high-quality talent. We previously communicated that this would be our most consequential hiring year ever. As the subdued M&A marketplace presents us with a unique opportunity to accelerate the pace of senior hiring. Year to date, we have hired 17 partners and MBS strengthening our market position across many industry verticals, including consumer, healthcare, industrial, infrastructure, and technology. We expect these elevated recruiting levels to continue into 2024.

And I certainly expect that momentum to continue in the fourth quarter into 2024 and at some point, we will get back to a more normal cadence.

Okay that makes sense. Thanks, a lot. Thank you.

<unk>.

Thank you. Our next question comes from Steven <unk> with Wolfe Research. Please go ahead.

Good morning, This is Brian O'brien filling in for Steven.

Yes to start results were a bit stronger than maybe your commentary last quarter suggested and based on the prepared remarks. It seems like that might have largely been on the restructuring side of the business. So I just wanted to get a sense as to whether this was simply a function of timing.

That deals that you expected to close in <unk> closed a bit earlier or whether there's some meaningful pickup in underlying activity that you werent expecting and if it was more timing related shall we be expecting to see that seasonal.

Paul Taubman: We remain steadfast in our focus on long-term shareholder value and view this recruiting momentum as an important driver of value creation. While we expect substantial returns from these recruiting efforts over the intermediate to long-term, these investments will pressure margins in the near-term. As we look ahead, we expect our full-year revenues to be the highest in our firm's history, notwithstanding extraordinarily volatile markets and significant macro headwinds. We were made confident that the businesses we continue to build and integrate position us to whether this challenging environment and to thrive as market conditions improve. Our balance set of businesses enables us to provide clients with differentiated advice and reward shareholders with differentiated performance.

Uplift in <unk> that you typically have.

Well I think we I think are our full year commentary is modestly more upbeat than it was.

A quarter ago, so that suggests to us.

Timing per se, but just.

Some additional strength in the in the firm it's always hard to.

Predict.

Xactly, how all of these mandates at all of these.

Opportunities translate into revenues, but I would simply say that as we've been in the.

And the field competing for business and doing the business.

And just seeing the macro environment and the opportunities presented to ourselves I think our outlook for this year.

Is marginally improved relative to a quarter ago I don't believe its a step function improve but it is.

Operator: And with that, we will now take your questions. Thank you. At this time, the floor is now open for your questions. To ask a question, please press star one on your telephone keypad. You may remove yourself at any time by pressing star two. Once again, if you would like to ask a question, please press star one.

Marginally improve a lot of that is restructuring, but it's not exclusively a restructuring.

Got it that's helpful color and I guess for my follow up I know.

You touched on this a bit but we have seen a number of large strategic transactions announced over the past few months, which along with the positive news on the antitrust front such as the approvable approval of Activision Microsoft suggest that the environment is relatively more favor favorable for large strategic transactions.

Devin Ryan: Our first question will come from Devon Ryan with JMP Securities. Please go ahead. Great.

Paul Taubman: Good morning, everyone. How are you guys? Well, we're well, Devon. Thank you. Good. I want to start on the restructuring business strength, you know, clearly you're seeing a nice contribution year-to-date. And I think your restructuring results are kind of hitting earlier than some of your peers where, you know, we're tracking growing mandates, but they've yet to see much uplift there so far. So just want to get a sense of whether you feel like that's mixed.

But at the same time some of the commentary from the large public call. It suggests that activity at sponsors is likely to remain subdued in the near to intermediate term could you compare the dialogues that you're having with sponsors and strategic set at the moment and do you feel like the gap higher among end branches as maybe could serve as a further.

Paul Taubman: I understand you have a leading business year, but just kind of why it's coming in earlier. And then it all does sound like you're still pretty bullish on the potential for this business and could remain structurally higher. So I'm just trying to think about whether that could actually mean growth for PJT from what are good bubbles, or if we're just kind of in a higher baseline right now. And that just continues.

The seller and I guess for sponsor activity.

I'm, sorry, just repeat that last that last sentence I didn't hear the gap higher long end rates and the potential impact on sponsor activity.

Look I think look it is clearly it's a mixed bag I can sit here and I could paint the picture and talk about green shoots and and all of the reasons to be optimistic I could also talk about the reasons why that may not come to fruition I think the reality is.

Paul Taubman: Well, if there's no doubt we're in a higher for longer restructuring cycle. And we've talked about this for some period of time. I think there are many businesses that were substantially weakened as a result of COVID. There was an environment where companies that were over leveraged had extraordinarily benign access to capital, seemingly low interest rates. None of those sort of life rafts are available today. And as we look at the dialogues that we're having and the mandates that we're winning, we have conviction that this balance sheet repair cycle is going to have legs.

We're dealing with a.

A very challenging environment to get transactions done, let's just take that I Trust I think while there have been some well publicized victories.

The fact remains that this administration is still committed to active enforcement.

And as a result.

It puts businesses.

At risk because of an extended periods of time between signing and closing.

Volatile macroeconomic backdrop, putting companies and targets.

Paul Taubman: Now, like any cycle, it has ebbs and flows. So every day is not just simply a pickup in activity. But we do believe taking a step back that these elevated levels should continue for some period of time as access to capital becomes more difficult as companies need to deal with near term maturities. And as you know what we believe will be an economic slowdown continues to affect business models and business performance. So that's kind of where where we see the world.

So in the crosshairs for a longer period of time when there they're not integrated in there they're not yet acquired in there just sort of sitting out there that adds risk and that makes it more difficult for companies to get comfortable so the mere fact that there is uncertainty in the mere fact that there is longer periods.

Time.

Between signing and closing the fact that there are more regulatory jurisdictions around the globe with many different agendas and opportunities for intervenors, where to get caught up in a broader geopolitical.

First at wells that just weighs on transactions that doesn't mean that it precludes all transactions. It just means that the margin some transactions that would otherwise be presented to the market as agreed deals.

Paul Taubman: Okay, great color. Thanks Paul. And just follow up here. I guess on just expense ratio. So, you know, revenues are up 11% year to date. Com expenses up about 20% year to date. I know it's not quite the scientific, but I don't know if it's possible just to break down on cops. Typically, just how much of that growth is a function of just amortization from prior year versus, you know, all the recruiting and, you know, the most consequential year of hiring that's going to be this year versus just how much is, you know, just inflation and competitive dynamics, just trying to think about that relationship.

Never see the light of day.

I think theres no doubt that private equity firms that are looking to create more monetization events.

With portfolio companies.

So the IPO markets hopefully.

Open up a bit and one of the challenges will be just the sheer number of companies that would like to access the.

The IPO market, that's why you're seeing greater interest.

And execution with fund continuation of vehicles and the like as you look for ways to create more liquidity for companies.

Paul Taubman: Thanks. Well, I think there's a number of there are a number of components to to the comp ratio, Devon, as you mentioned, but we sort of begin with what our outlook is for revenue. And one significant factor is the senior level hiring that we're doing that we've talked about. So that will obviously impact it. And we also think about, you know, comp discipline around the existing population, the competitive backdrop. And as you mentioned, there is amortization from prior years comes that will be flowing through as well.

Committed financing.

<unk> to be challenging for very large transactions that youre seeing.

The growth in pools of private capital and direct lenders and more creative dealmaking. So we're adjusting to this environment, but what gives me. The most cough is is the simple fact that.

No matter how difficult it is to get deals done companies' desires to try and figure out a way to for us.

Paul Taubman: So all those factors are taken into account will be determined what our best estimate for the ratio is. I think, I think, Devon, you know, if you just look back over the last three years, we have a demonstrably stronger firm today. Then what we presented three years ago, we have been fully grown the head count for operating in market environments for two of our three businesses that are extraordinarily subdued relative to three years ago.

Deals and to and to move forward and the fact that we have an ever growing backlog of strategic initiatives that have not yet been able to be acted upon I think is an accelerant and as soon as some of these conditions and some of these cloud start to lift you could see a very strong.

No our move in activity to the upside so we're controlling what we control.

Paul Taubman: So when you step back and you look at the significant investment, the strengthening of the franchise and the very significant reduction in available wallet in two of our three businesses, it's not a surprise that the comp ratio has moved.

<unk> is making sure we have the right team on the field, making sure we have the right culture to get our team aligned with clients, making sure we have the right priorities and trying to secure as many high quality mandates as possible. So even if we don't have as much as we'd like to present to our investors on a quarterly basis.

We're at least positioning ourselves for the inevitable turn and when it does hopefully.

Devin Ryan: I will leave it there. Thank you very much.

Devin Ryan: Thank you, Devin.

That will be reflected in our stronger results.

Operator: Thank you.

Alright, thanks for taking my questions.

James Yaro: Our next question will come from James Yaro with Goldman Sachs. Please go ahead. Good morning and thank you for taking my questions.

Thank you.

Thank you. Our next question will come from Brennan Hawken with UBS. Please go ahead.

Paul Taubman: Paul, maybe we could just start with the macro backdrop and how this is impacting your business. You know, we obviously have more geopolitical uncertainty as you alluded to, higher rates and obviously a coming U.S, election. So maybe you could just talk about what that means for the M&A inflection and perhaps the cadence or timeline for which or over which we see, you know, return to normalized levels of M&A. Look, we came into this year, James, with perhaps the most sober assessment of the M&A marketplace and we assumed that this would be another down year in the market.

And Brendan your line is live please on mute if you're muted.

Okay, sorry about that thanks for taking my questions.

Wanted to start Paul with your expectation for the.

Recruiting to continue to pressure margins.

When you when you say that is that incremental pressure versus what you have been generating more recently or is that more saying that the pressure that you've seen recently will continue just trying to understand the implication there.

Paul Taubman: I think notwithstanding that, it was probably, you know, damper, it was lower levels. It was more difficult to affect transactions than even we on the more bearer side had expected to see. And when you deconstruct it, it's many factors all moving to the negative direction. It's volatility and difficulty in agreeing on price. It's constrained financing in terms of the quantum of committed financing available. It's cost of financing which makes it harder for buyers and sellers to agree.

Well I think it I think I wouldn't be.

Telling you anything you werent already aware of I, saying that the current margins are lower than what they've been historically.

And we would like to get back to where the margins were historically, but as long as we're dealing with a subdued environment and elevated recruiting our ability to get back to those margins will be pressured.

Yeah, Okay. Okay.

Understood that was just trying to get a little texture on on whether or not you were talking about incremental I guess I'm left to assume it would be a little incremental.

So.

Sorry, just to just to be clear, we need to get through this year and see where we where we land for the full year, but my hope would be.

Paul Taubman: It's a very strong antitrust policy and enforcement from the administration which whether they prevail or not has a chilling effect on a number of deals because companies are not willing to subject themselves to that uncertainty. It's this continued drum beat of whether or not we're going to head into a recession. It's, you know, difficulty controlling costs. On every dimension, it has been more difficult to get transactions done. But what has been different in this cycle is companies desire to move forward with their strategic agendas remains essentially undeterred.

That from there we would begin to.

Get those margins higher over time and get them back to where they had been historically that's the objective.

There's no confusion.

Okay. Thanks for that Paul.

And then clear strengths in restructuring.

It's really good to see it's really kind of interesting because we've heard other firms remark on growth sort of starting to level out. So it sounds like youre not seeing that curious number one is that still you know sponsor owned debtor side driven and.

Paul Taubman: And that's sort of the between where as difficult as it is to get transactions done, companies desires to manage their portfolio, to gain core competencies, to benefit from scale economies and like that has remained unchallenged. And then if you add to that, the difficult fundraising environment in alternatives and a little bit of indigestion from all the capital that was put out in 2021, sponsors have been meaningfully less active in the marketplace.

Given the fact that you're expecting the highest revenue in the firm's history, how does the restructuring revenue year to date compared to 2020.

And what kind of order of magnitude do you think we could see as far as record revenue go any additional color there would be great. Thank you.

Well sure I'll just take the last thing I mean.

All I'm comfortable saying at this point, we still have a lot of the fourth quarter or two to comment I really don't want to get overly precise on what our fourth quarter estimates aren't because it's very difficult to to.

To sort of.

Predict.

A quarter, we're much more comfortable in thinking about years.

I think at this point in the year I am comfortable saying that this will be you know.

Paul Taubman: I think the number of portfolio companies that would like to be IPO is building so you have an awfully large backlog and it's unclear how many of those companies will ultimately get liquidity events in a relative near-term. And I think that also in the ecosystem has an effect on how aggressive private equity firms are in putting capital out. And if there's less confidence that there's a private equity bid for businesses, companies are perhaps more reluctant to initiate a sales process.

Our highest revenue year ever in the prior peak was 2020, but beyond that I don't have any.

Any additional color to give on that and I think that just reflects if you tie it back to earlier comments, we have made.

A slight or modest you know.

Improvement in our full year prognosis and I think a lot of that is restructuring its not exclusively restructuring I think our restructuring business I would characterize the early wave was probably more liability management at.

Paul Taubman: So all of this feeds on itself. But as I said, inevitably markets are just and I think we're in the adjustment phase on many of these factors and I think we're a lot closer to getting out of the tunnel but it's been a long dark tunnel.

Proactive managing our debt stacks, which it was.

Unrelated to the bankruptcy filings were now starting to see.

Has this difficult credit environment and business pressure continues to.

To carry on that it affects more corporates.

And those companies are increasingly working to proactively manage their debt stacks and some of them may have no choice, but to make use of the courts to resolve some of their overleverage situation. So I think it's it's a mix of business is a mix of business between debtors.

Paul Taubman: So you see the same opportunities for hiring today versus let's say the beginning of this year and what your expectations are for hiring into 2024. I think we talked consistently about two impediments to us attracting all of the talent in the previous few years. Because one was the anomalies of COVID, just being in a remote environment, not being able to create those personal connections. That was a unique period of time and that significantly constrained hiring and we're well past that thankfully.

Paul Taubman: And the second is that in 2021 that headwind was linked to extraordinary meltup in M&A activity and therefore the friction cost for senior practitioners to leave firms and take long periods of time on gardening leave. Those friction costs were extraordinarily high and those two together had a chilling effect on our ability to recruit and what we now have is probably the best environment we've seen in a long time because the fundamental attractiveness of our firm continues to build.

Creditors, if the mix of business geographically, we continue to.

Work to increase our presence outside the United States and Europe and in Asia.

We continue to.

The work import out of court and are quite pleased with just the breath.

And depth of our business and the more that we can link that to our strategic advisory team and their relationships and their industry expertise in their access the hope is that we can continue.

To push forward with this business now where does it go quarter to quarter I'm not.

Are you able to predict that but if you ask me is this kind of at all resemble 2021 where we had this burst of activity and then it dried up I think this feels very different than that but this is this is a balance sheet repair cycle, where it's wave after wave that still need to.

<unk> dealt with and we don't see easy money coming back any anytime soon.

Yes, that's very clear and helpful texture I, just I don't know if it's possible to compare the restructuring strengths order of magnitude to 2020, which I believe was your prior record or are you exceeding that and.

Paul Taubman: I think the level of dissatisfaction at many of the big banks continues to remain people who have come to our firm have thrived and appreciate the unique culture and the way in which we can all come together to serve clients. That's better understood by those who are considering joining our firm were able to create those personal connections because we're all back in the office and the friction costs in the current environment are as low as they've been arguably forever because of the low levels of M&A activity.

To what degree.

Well I, let you know.

Produce full year results and then we can compare year on year when we when we actually have 2022 2023 done and dusted we can.

Perhaps look back and see what what's better what's different than their.

Prior peak, but give us the benefit of getting through the year.

Okay. Thanks for taking my questions.

Thank you.

Paul Taubman: So we don't have quotas every every addition to the firm is is individual by individual it's all from the bottom up it's not from the top down but without those macro impediments the attractiveness of our firm as a destination for talent is better shining through. And I certainly expect that momentum to continue in the fourth quarter into 2024 and at some point we'll get back to a more normal cadence. Okay that makes sense thanks a lot. Thank you.

Alright, Thank you Paul.

Go ahead Sir.

Just going to thank everyone for joining us today.

We appreciate your interest we appreciate your support.

And we look forward to communicating our full year results early in 'twenty 'twenty four thank you very much.

And this does conclude today's call you may now disconnect.

Oh.

Uh-huh.

Brian: Thank you our next question comes from Stephen two box with wolf research please go ahead. Good morning this is Brian filling in for Stephen I guess to start you know results were a bit stronger than maybe your commentary last quarter suggested. And based on the prepared remarks it seems like that might have largely been on the restructuring side of the business so I just wanted to get a sense as to whether this was simply a function of timing.

Mhm.

Hum.

Uh-huh.

Paul Taubman: You know meaning that deals that you expected close and for you close the bit earlier or whether there's some meaningful pick up and underlying activity that you weren't expecting and if it was more timing related you know shall we be expecting to see that seasonal. Off lift and for you that you typically have. Well, I think our full-year commentary is modestly more upbeat than it was a quarter ago. So that suggests it's not timing per se, but just some additional strength in the firm.

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Paul Taubman: It's always hard to predict how exactly all of these mandates and all of these opportunities translate into revenues, but I would simply say that as we've been in the field competing for business and doing the business, and just seeing the macro environment and the opportunities presented to ourselves. I think our outlook for this year is marginally improved relative to a quarter ago. I don't believe it's a step function improved, but it is marginally improved.

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Paul Taubman: A lot of that is restructuring, but it's not exclusively restructuring. That's the full color, and I guess for my follow-up, I know you touched on this a bit, but we have seen a number of large strategic transactions announced over the past few months, which along with the positive news on the anti-trust front, such as the approval of Activision Microsoft, suggests that the environment is relatively more favorable for large strategic transactions. But at the same time, some of the commentary from the large public all suggests that activity at sponsors is likely to remain subdued in the near intermediate term.

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Paul Taubman: Did you compare the dialogues that you're having with sponsors and strategic at the moment? And do you feel like the gap higher and long end rates as maybe could serve as further decelerant, I guess, for sponsor activity? I'm sorry, just repeat that last sentence I didn't hear. The gap higher and long end rates and the potential impact on sponsor activity. Look, I think it is clear, it's a mix bag. I can sit here and I can paint a picture and talk about green shoots and all the reasons to be optimistic. I could also talk about the reasons why that may not come to fruition.

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Paul Taubman: I think the reality is we're dealing with a very challenging environment to get transactions done. Let's just take an anti-trust. I think while there have been some well publicized victories, the fact remains that this administration is still committed to active enforcement. And as a result, it puts businesses at risk because of extended periods of time between signing and closing and a volatile macroeconomic backdrop, putting companies and targets in the crosshairs for a longer period of time when they're not integrated and they're not yet acquired and they're just sitting out there.

Paul Taubman: That adds risk and that makes it more difficult for companies to get comfortable. So the mere fact that there is uncertainty, the mere fact that there is longer periods of time between signing and closing, the fact that there are more regulatory jurisdictions around the globe with many different agendas and opportunities for interveners where to get caught up in a broader geopolitical test of wills. That just weighs on transactions. That doesn't mean that it precludes all transactions.

Paul Taubman: It just means at the margin some transactions that would otherwise be presented to the market as agreed deals never see the light of day. I think there's no doubt that private equity firms are looking to create more monetization events with portfolio companies. The IPO market is hopefully open up a bit. One of the challenges will be just the sheer number of companies that would like to access the IPO market. That's why you're seeing greater interest, and Execution with Fun Continuation Vehicles and the like as you look for ways to create more liquidity for companies, committed to answering, continues to be challenging for very large transactions, but you're then seeing the growth in pools of private capital and direct lenders and more creative deal making.

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Paul Taubman: So we're adjusting to this environment, but what gives me the most confidence is the simple fact that no matter how difficult it is to get deals done, companies desires to try and figure out a way to present deals and to move forward and the fact that we have an ever growing backlog of strategic initiatives that have not yet been able to be acted upon, I think is an accelerant and as soon as some of these conditions and some of these clouds start to lift, you could see a very strong move and activity to the upside. So we're controlling what we control, which is making sure we have the right team on the field, making sure we have the right culture to get our team aligned with clients, making sure we have the right priorities and trying to secure as many high quality mandates as possible.

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Paul Taubman: So even if we don't have as much as we'd like to present to our investors on a quarterly basis, we're at least positioning ourselves for the inevitable turn and when it does, hopefully that will be reflected in stronger results. Right, thanks for taking my questions. Thank you.

Yeah.

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Brennan Hawken: Our next question will come from Brennan Hawking with UBS. Please go ahead. And Brennan, your line is live.

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Paul Taubman: Please unmute it. Okay, sorry about that. Thanks for taking my questions. I wanted to start Paul with your expectation for the recruiting to continue to pressure margins. When you say that, is that incremental pressure versus what you have been generating more recently? Or is that more saying that the pressure that you've seen recently will continue just trying to understand the implication there? Well, I think it's, I think I wouldn't be telling you anything you weren't already aware of by saying that the current margins are lower than what they've been historically.

Uh-huh Oh.

Hum.

Paul Taubman: And we would like to get back to where the margins were historically, but as long as we're dealing with a subdued environment and elevated recruiting, our ability to get back to those margins will be pressured. Yeah, okay. Okay. I understand that was just trying to get a little texture on whether or not you were talking about incremental. I guess I'm left to assume it would be a little incremental. Sorry, just to be clear.

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Paul Taubman: We need to get through this year and see where we land for the full year, but my hope is that the margins higher over time and get them back to where they have been historically. That's the objective. So there's no confusion. Okay, thanks for that Paul.

Paul Taubman: And then clear strength and restructuring. Really good to see. It's really kind of interesting because we've heard other firms remark on growth as starting to level out. So something like you're not seeing that. Curious number one, is that still, you know, sponsor-owned debtor side driven? And, you know, given the fact that you're expecting the highest revenue in the firms history, you know, how does the restructuring revenue year-to-date compare to 2020? And you know, what kind of order of magnitude do you think we could see as far as record revenue go?

Paul Taubman: Any additional color there will be great. Thank you. Well, sure. Just to thank the last thing. I mean, all I'm comfortable saying at this point, we still have a lot of the fourth quarter to come. And I really don't want to get overly precise on what our fourth quarter estimates are because it's very difficult to sort of predict, you know, a quarter. We're much more comfortable in thinking about years. I think at this point in the year, I am comfortable saying that this will be, you know, our highest revenue year ever in the prior, you know, peak was 2020.

Paul Taubman: But beyond that, I don't have any any additional color to give on that. And I think that just reflects, you know, if you type back to earlier comments we had made, it's a, you know, slight or modest, you know, improvement in our full-year prognosis. And I think a lot of that is restructuring. It's not exclusively restructuring. I think our restructuring business, I would characterize that the early wave was probably more liability management and proactive managing of debt sacks, which was unrelated to bankruptcy filings.

Paul Taubman: We're now starting to see, you know, as this difficult credit environment and this pressure, it continues to carry on that it affects more corporates. And those companies are increasingly working to proactively manage their debt sacks. And some of them may have no choice, but to make use of the courts to resolve some of their over leverage situations. So I think it's a mix of business. It's a mix of business between debtors and creditors.

Paul Taubman: It's a mix of business geographically. We continue to, you know, work to increase our presence outside the United States in Europe and in Asia. We continue to, you know, work in court out of court. And I'm quite pleased with just a breath and depth of our business. And the more that we can link that to our strategic advisory team and their relationships and their industry expertise and their access, the hope is that we can continue to push forward with this business.

Paul Taubman: Now, where does it go, court in a quarter? I'm not able to predict that. But if you ask me, is this going to end all resemble, you know, 2021 where we had this burst of activity and then it dried up? I think this feels very different than that. That this... This is a balance sheet repair cycle where it's wave after wave that still need to be dealt with, and we don't see easy money coming back anytime soon.

Paul Taubman: Yeah, that's very clear and helpful texture. I don't know if it's possible to compare the restructuring strength order of magnitude to 2020, which I believe was your prior record. Are you exceeding that and doing it to what degree? Well, let us produce four-year results, and then we can compare year on year when we actually have 2022, 2023 done and dusted.

Paul Taubman: We can perhaps look back and see what's better, what's different than prior peak, but give us a benefit of getting through the year. Okay, thanks for taking my questions. Thank you.

Paul Taubman: All right, thank you.

Paul Taubman: Well, good. Glad to.

Paul Taubman: I was just going to thank everyone for joining us today, and we appreciate your interest. We appreciate your support. And we look forward to communicating our full year results early in 2024. Thank you very much.

Operator: And this does conclude today's call. You may now disconnect. Yeah. [inaudible] . .