Q3 2024 PJT Partners Inc Earnings Call
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Speaker Change: Good day and welcome to the PJT Partners Third Quarter 2024 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.
Sharon Pearson: Good morning. Thanks very much, Leo. And welcome to the PJT Partners Third Quarter 2024 Earnings Conference Call. Joining me today is Paul Taubman, our Chairman and Chief Executive Officer, and Helen Meates, our Chief Financial Officer.
Sharon Pearson: 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.
Sharon Pearson: 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.
Sharon Pearson: We believe that these factors are described in the risk factors section contained in PJT Partners 2023 Form 10-K, which is available on our website at pjtpartners.com.
Sharon Pearson: 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.
Sharon Pearson: for detailed disclosures on these non-GAAP metrics and their GAAP reconciliations.
Sharon Pearson: 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.
Paul Taubman: Thank you, Sharon. Good morning, everyone. Thank you all for joining today's earnings call.
Paul Taubman: We reported strong results with record third quarter revenues of $326 million.
Paul Taubman: up 17% year-on-year, Adjusted Pre-Tax Income up 16%, and Adjusted EPS up 19% from year-ago levels.
Paul Taubman: Our nine-month revenues were also a record at $1.016 billion.
Paul Taubman: Up 23% year-on-year, reflecting increased contributions from all of our businesses.
Paul Taubman: Our nine-month adjusted pre-tax income was up 32%, while our nine-month adjusted EPS increased 35% from year-ago levels.
Paul Taubman: The benefits of our sustained investment in the business are beginning to shine through in our financial results.
Paul Taubman: We remain committed to continued investment as we seek to enhance our capabilities.
Paul Taubman: deepen our industry expertise and broaden our geographic footprint.
Paul Taubman: Consistent with this commitment to invest, we closed our De Novo Partners acquisition on the 1st of October.
Paul Taubman: While our firm's growth has largely been driven by organic investment, we have been acquisitive when we see unique opportunities to strengthen our firm.
Paul Taubman: That was why we acquired CanvaView Partners, and that is why we acquired DeNovo Partners.
Paul Taubman: Our firms were culturally aligned with a similar focus on collaboration and teamwork and a shared set of values.
Paul Taubman: We had the benefit of working alongside DeNovo's founder for many years, as well as insights gained from our strategic alliance with DeNovo, which dated back to 2020.
Paul Taubman: This highly successful partnership gave us the confidence that for all our successes together
Paul Taubman: We could be even more powerful combining DeNovo's presence in the Gulf with PJT's broad advisory capabilities, extensive global network, and strong sector expertise.
Paul Taubman: After Helen takes you through our results, I will review our business performance and outlook in greater detail. Helen? Thank you, Paul. Good morning. Beginning with revenues.
Helen Meates: Total revenues for the third quarter were $326 million, up 17% year-over-year.
Helen Meates: For the nine months ended September 30, total revenues were $1,016,000,000, an increase of 23% year-over-year and a record first nine months.
Helen Meates: Each of our businesses produced record revenues for the first nine months of the year.
Helen Meates: Turning to expenses, consistent with prior quarters, we've presented the expenses with certain non-GAAP adjustments, which are more fully described in our 8K.
Helen Meates: First Compensation Expense. We have continued to accrue 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 2024.
Helen Meates: Turning to Adjusted Non-Compensation Expense.
Helen Meates: Total adjusted non-compensation expense was 49 million for the third quarter, up 19% year-over-year, and 138 million for the first nine months, up 14% year-over-year.
Helen Meates: As a percentage of revenues, 15% for the third quarter and 13.6% for the first nine months.
Helen Meates: For the third quarter, the main drivers of the year-over-year increase were higher occupancy costs, travel and related, and our other expenses line. In the third quarter, we recognized some non-recurring expenses, including expenses related to the acquisition of De Novo Partners.
Helen Meates: We expect that our full year 2024 non-comp expense growth rate will be in line with our nine month rate of 14%, which is slightly higher than our previous guidance.
Helen Meates: Turning to adjusted pre-tax income, we reported adjusted pre-tax income of $51 million for the third quarter and $172 million for the first nine months.
Helen Meates: Our effective tax rate for the first nine months of 2024 was 21 percent. This rate is slightly below our previous full year 24 estimate of 22 percent, primarily due to the tax benefit from the delivery of vested performance units.
Helen Meates: As a result, the effective tax rate for the third quarter was 18.6 percent. The 21 percent rate represents our current expectation for the full year.
Helen Meates: Earnings per share are adjusted as converted earnings for 93 cents for the third quarter and $3.10 per share for the first nine months.
Helen Meates: On the share count for the third quarter, our weighted average share count was 44.5 million shares, up from 43 million in the second quarter of 2024.
Helen Meates: Given we used the treasury stock method to calculate our share count, the increase in the third quarter was principally due to the impact of a higher share price.
Helen Meates: In addition, some of the share count increase was a result of achieving further price hurdles on the performance units. By the end of the third quarter, virtually all of the price hurdles from these performance units had been achieved.
Helen Meates: As we look to share count growth in the fourth quarter, ignoring any price movement in our stock or any additional share buybacks, we expect the fourth quarter weighted average share count to increase by approximately 400,000 shares, primarily reflecting
Helen Meates: the remaining weighting of the Performance Awards.
Helen Meates: We continue to be mindful of offsetting this dilution over time and for the nine-month period our repurchases total approximately 2.6 million shares up from 2 million for the same period last year with record open market repurchases of 1.9 million shares in the year-to-date period.
Helen Meates: And finally, we plan to exchange 125,000 partnership units for cash on November 5th, 2024.
Helen Meates: On the balance sheet, we ended the quarter with a record $477 million in cash equivalents and short-term investments, and $491 million in net working capital, and we have no funded debt outstanding.
Helen Meates: The board has approved a dividend of $0.25 per share. The dividend will be paid on December 18 to Class A common shareholders of record as of December 4, 2024. And finally, as Paul mentioned, we close the acquisition of DeNova Partners on October 1.
Helen Meates: Thank you.
Speaker Change: Thank you, Helen.
Speaker Change: Beginning with PJT Park Hill.
Speaker Change: PJT Park Hills revenues have rebounded faster than our most optimistic predictions.
Speaker Change: fueled by significant growth in both our primary and secondary businesses.
Speaker Change: P.J.T. Parkhill's 2024 results will be up significantly relative to 2023 and in line with 2022's record performance.
Speaker Change: Even though LPs continue to be highly selected in their allocations to alternatives, our differentiated approach to origination and distribution has enabled us to significantly outperform the broader primary fundraising marketplace.
Speaker Change: Our year-to-date fundraising volumes are more than double year-ago levels, while industry-wide fundraising volumes are down year-to-date.
Speaker Change: The macroeconomic headwinds which continue to dampen the primary fundraising marketplace have been a boon to our private capital solutions business.
Speaker Change: New fundraisers continue to be constrained by limited fund distributions, which have helped create over-allocations to the alternative space.
Speaker Change: While these dynamics have challenged the primary market, they have also fueled secondary activity as GPs pursue alternative liquidity options for LP capital return.
Speaker Change: With secondary industry volumes now at record levels, our private capital solutions business and its best-in-class capabilities have capitalized on this increased demand, driving strong year-to-date revenue growth.
Speaker Change: Turning to Restructuring.
Speaker Change: Our leading restructuring business continues to benefit from a multi-year cycle of elevated restructuring levels and liability management activity.
Speaker Change: Our team has maintained its global leadership rankings in both announced and completed restructuring transactions and remains extremely active in providing proactive liability management advice to clients.
Speaker Change: For the nine months, our restructuring revenues are at record levels, and 2024 is shaping up to be another record year.
Speaker Change: Even with the expectation of additional rate cuts beyond the 50 basis point moved by the Fed and rate cuts from other central banks,
Speaker Change: We have high conviction that this restructuring cycle will continue for some time to come.
Speaker Change: Corporates and sponsors continue to work their way through high interest rates.
Speaker Change: challenged business models, technological disruption, and changing consumer preferences.
Speaker Change: Turning to strategic advisory.
Speaker Change: While year-to-date global M&A volumes are up for the first time since 2021, they're only up 8% relative to last year.
Speaker Change: We have always expected 2024 to be a transitional year, sandwiched between two successive down years for global M&A activity,
Speaker Change: and what should be a far more constructive 2025 market environment.
Speaker Change: Against this backdrop, our nine-month revenues for strategic advisory were up solidly year-on-year, while third-quarter strategic advisory revenues were up slightly.
Speaker Change: The M&A market is slowly recovering with many elements now in place for a more active M&A environment in 2025.
Speaker Change: Central banks are cutting rates.
Speaker Change: Capital markets are more open and receptive than at any point in the past three years.
Speaker Change: The velocity of both private equity monetizations and dry powder deployment has begun to increase.
Speaker Change: We will soon turn the page on a year of consequential elections around the world.
Speaker Change: And all the while, companies' strategic appetite for M&A continues to grow.
Speaker Change: Today we are better positioned to capitalize on an active M&A marketplace than we were in 2021.
Speaker Change: We have 35% more strategic advisory partners who have been with the firm for more than two years than we did in 2021. We're seeing the benefits of this more built out platform translate into greater traction with clients.
Speaker Change: higher win rates, and a growing backlog of announced transactions.
Speaker Change: We are quite constructive on our strategic advisory prospects given this building announced pending closed backlog, a near record mandate count,
Speaker Change: and an increasingly favorable M&A backdrop.
Speaker Change: in closing.
Speaker Change: 2024 is proving to be an important milestone in the firm's evolution.
Speaker Change: We continue to attract a significant number of highly talented professionals to our platform.
Speaker Change: We continue to expand our global reach, most recently with our De Novo Partners acquisition.
Speaker Change: We continue to see the network benefits of our collaborative business model as we increasingly deliver the full capabilities of our integrated advisory and capital-raising businesses.
Speaker Change: to clients around the world.
Speaker Change: And, as we showcase our unique capabilities and value proposition,
Speaker Change: Our brand, both in terms of recognition and reputation, continues to grow.
Speaker Change: And, as before, we remain confident in our near, intermediate, and long-term growth prospects.
Speaker Change: And with that...
Speaker Change: We will now take your questions.
Speaker Change: Ladies and gentlemen, at this time the floor is open for your questions. To ask a question, please press star 1 on your telephone keypad. To get out of the queue, press star 2.
Speaker Change: We'll take our first question from Devin Ryan of Citizens J&P Securities.
Devin Ryan: Thank you.
Devin Ryan: Hey good morning Paul and Helen, how are you?
Speaker Change: We're well. Good morning, Devin.
Devin Ryan: Great. First question.
Devin Ryan: In the M&A advisory practice in strategic advisory, obviously, Paul, you highlighted
Devin Ryan: The material level of headcount growth there and you're seeing, you know, significant seasoning of bankers on the platform. And so given the level of change we've seen in your business specifically over the past handful of years, I think people are having a hard time just trying to understand the capacity of the strategic advisory business today and kind of how that's evolved relative to maybe the prior upcycle that you referenced. So I'd love to just get a sense of whether, you know, there's any type of range of productivity expectations that you guys expect when you hire a partner or any other frameworks you would suggest to think about that from the outside just given that degree of change in the business over the past few years. Thanks.
Speaker Change: Look, we we don't manage to a to a metric because it's very hard to say a partner should deliver X in revenue because it's a function of what's your time horizon.
Speaker Change: Number one. Number two, what's the macroeconomic backdrop?
Speaker Change: Number three, what else is built or unbuilt around that banker?
Speaker Change: And number four, what is the strength of the franchise and how much what I like to call walk-up business or walk-in business does one benefit from?
Speaker Change: But the firm that we are building
Speaker Change: is designed to be best in class on all dimensions and ultimately that reflects itself in very high revenue per partner for that moment in time relative to any other firm.
Speaker Change: As I've talked about repeatedly, we started this firm nine years ago with virtually everything unbuilt.
Speaker Change: The progress that we have made in nine years is extraordinary. We have far better built out
Speaker Change: industry groups, geographic areas. We're a far better understood and sought-after firm and all of that plays to our long-term advantages.
Speaker Change: We did not have nearly the market presence that we have for 2025 and beyond.
Speaker Change: And therefore, I certainly see the direction of travel to be meaningfully more productive going forward. And I think the first time you'll see that will be in 2025.
Speaker Change: Thanks, Paul. And then just to follow up here on the restructuring commentary and kind of the contribution that you're seeing there, good to hear the outlook. Just to go a layer deeper, it'd be great to just get a sense of kind of the pace of new restructuring mandates coming in, because I know you're executing on a lot of
Speaker Change: and I'm going to turn it over to Dr. Gillespie to talk a little bit more about how that pace of mandate has evolved over the past couple of quarters and whether you're seeing a stronger effort to kick the can as rates are coming down and capital markets re-open. Or just any other kind of nuance within the business that you are seeing? Thanks.
Dr. Gillespie: Yeah, look, I mean, there's so many different dynamics there. What I have said repeatedly, and I think I might have been a minority of one, was that this was a long-tailed restructuring cycle.
Dr. Gillespie: that this restructuring cycle bears no resemblance to what we saw 2020 to 2021. I think when I said that,
Dr. Gillespie: I was out by myself. I think now that's become much more conventional wisdom. We stand by that. This is a multi-year cycle. And even though central banks have moved in the short term, if you look at what's happened in the long term,
Dr. Gillespie: rates have been stubbornly high and the long end of the curve has moved higher. The refinancing walls in the very near term have been addressed.
Dr. Gillespie: But if you look out two, three, four years, there's yet another wall of maturities that will need to be addressed.
Dr. Gillespie: But when you have more creation, somewhere in the world you have more destruction. And that's how you end up with more destruction.
Dr. Gillespie: companies needing to rethink the balance sheet that they have because oftentimes the balance sheet that they have was not designed for the competitive environment that they are in.
Speaker Change: We don't see an answer to your specific question. We don't see any material change in the onboarding of new clients, and we've been quite pleased that as the year has gone on, we've been more constructive about...
Speaker Change: 2024, and we are constructive on 2025 and beyond as well.
Speaker Change: Thank you.
Speaker Change: Okay, that's great. Thanks so much, Paul, appreciate it.
Paul Taubman: Thank you, Devin.
Speaker Change: We'll take our next question from James Yarrow of Goldman Sachs.
James Yarrow: Good morning and thanks for taking my questions.
James Yarrow: Maybe just on Strategic Advisory, I do appreciate your comments on why 2025 looks so much stronger, but maybe you could just comment on what exactly gives you that confidence. Is it that we're past the U.S. election, economic factors, geopolitical, or something else?
Speaker Change: Well, there's the micro and the macro. Let's talk about the macro first.
Speaker Change: At the beginning of the year, I said that notwithstanding all of the hype about runaway M&A activity,
Speaker Change: 2024 was going to be a relatively sober year, and I think I was out there, maybe not a minority of one, but there were relatively few who had that sober perspective. I think as the year has played out...
Speaker Change: That's pretty much what we've seen. And we're sitting here today, 10 months into the year, with an annualized run rate of volume up all of 8% from a year ago. And I've repeatedly talked about us needing to start to see
Speaker Change: rate cards
Speaker Change: And not just one, but when we start to see the direction of travel as we continue, I think that that will ignite more sponsor activity. I also believe that we need to get past the elections. And I also believe that there is a building demand on the part of corporates.
Speaker Change: to transform their businesses and their desire to use M&A as a tool has never abated. And I suspect that once we get past the election, regardless of where it ends up in both the U.S. Congress
Speaker Change: and in the White House that the approach to regulation, to antitrust, and the like will be more constructive than it has been. It may manifest itself in different ways.
Speaker Change: ways and to different degrees, but I believe that either.
Speaker Change: either direction will result in somewhat freeing up of strategic transactions. And when you take that...
Speaker Change: plus
Speaker Change: continued easing of monetary policy. I suspect you're going to start to see the private equity imbalance, which has occurred, become more imbalanced as capital markets continue to open up and there's more opportunities to tap the equity markets.
Speaker Change: As you start to see dividend recapitalization transactions like as you get the Ecosystem into a better balance you will see a more active environment. It's just that it's a slow rebuild
Speaker Change: And you see some of it in 2024. I'm reasonably confident you're going to see more of it in 2025. Now, as to what makes us confident beyond the macro environment about our firm.
Speaker Change: As I said at the beginning of the year, we started with a record or near record number of mandates. We had an enormous pre-announcement pipeline, but the cupboard was historic, was bared by historic standards in terms of announced pending closed transactions.
Speaker Change: If you look at what has transpired over the 10 months,
Speaker Change: Our mandate count continues to grow. It stands at or near record levels.
Speaker Change: Our Announced Pending Closed backlog has improved dramatically, which sets us up very well for 2025.
Speaker Change: We have more completed networks, whether it's by industry group or by geography. We have more maturation of the bankers on the platform. We have the benefit of some
Speaker Change: significant increase in understanding of our firm. We have far more companies who appreciate what we do and how differentiated we are. And all of that, both from a micro and macro perspective.
Speaker Change: sets us up very well for 2025 relative to either 2024 or relative to the last time we saw an active M&A market, which would be 2021.
Speaker Change: Excellent. That's extremely helpful. Just one follow-up here on sponsors, which have comprised nearly 40% of the M&A market.
Speaker Change: in 2021 and 2022, but less than 30% in 23 and this year so far. So I guess the question is, is it conceivable that sponsors could return to comprising this much of the M&A market, or is that more of a function of the near 0% interest rate backdrop?
Speaker Change: I've always believed it was more the latter, which is that, you know, things have a way of returning to balance, and I think it's dangerous when you have, you know, historic norms that, you know,
Speaker Change: are punctured and all of a sudden you're dealing with aberrational weightings to just conclude that that's the way the world is going to be going forward.
Speaker Change: With each passing day, it becomes clear that the quantum of capital that was raised in the alternative space, the quantum of capital that was deployed, the near-zero interest rate cost,
Speaker Change: The fact that as assets melted up, having all of that low-cost money created...
Speaker Change: very attractive returns. That is not sustainable for the long term. And that's, as we've now returned to a more normal.
Speaker Change: direction of travel for interest rates that has put a lot of pressure in Into the system and it takes a while to get back to a new equilibrium So I suspect this could be meaningfully better than it has been
Speaker Change: but our view of the world is not predicated on it going back to what we saw coming out of COVID.
Speaker Change: Excellent. Thank you. Thank you, James.
Speaker Change: We'll take our next question from Jim Mitchell of Seaport Global Securities.
Jim Mitchell: Hey, good morning. Paul, maybe you can talk, since you're talking about sponsors there, can you talk about how you're sort of leveraging Park Hills touchpoints with sponsors to kind of improve the win rate in sponsor M&A, where you are in that sort of evolution?
Paul Taubman: Yeah, well, we can talk about it across the board. So we've always maintained that if you're going to have, you know, a best-in-class sponsored practice, the best way to do it is to have a best-in-class strategic practice.
Paul Taubman: because you have a best-in-class strategic practice and you have all of that corporate access.
Paul Taubman: and you have an increasingly important number of sell-side mandates.
Paul Taubman: And what you can talk to your sponsors about is highly relevant to what they do, which is to buy and sell businesses.
Paul Taubman: then over time you build a world-class sponsor practice. So it's very hard to just start and say, we're going to cover sponsors. We don't have the corporate side figured out. You need to get the corporate side figured out, and then you need to translate it to sponsors. So that's the first point.
Paul Taubman: And with every passing day, that mission is further advanced.
Paul Taubman: The second thing is
Paul Taubman: If you think about sponsors, they typically buy companies with relatively high degrees of leverage.
Paul Taubman: Most of those investments work out, not all of them do. So not surprisingly, they become a disproportionately important part.
Paul Taubman: of the liability management or restructuring ecosystem as far as important clients. And if you look at some of the success that we've had in our liability management and restructuring endeavors, it has been to continue to expand the number of sponsors.
Paul Taubman: that we represent. And one of the wonderful things about sponsors is they're highly sophisticated, and they understand who's best in class. And when you have a best-in-class franchise, that franchise is increasingly in demand as you continue to expand the footprint.
Paul Taubman: Then you get to the next place, which is Park Hill.
Paul Taubman: That, increasingly, is the domain of the largest GPs.
Paul Taubman: who don't necessarily look for outside help in terms of fundraising because they've taken a lot of their fundraising capabilities and brought them in-house.
Paul Taubman: But as you have an ever-growing
Paul Taubman: on the part of large GPs for fund continuation services, being able to leverage our best-in-class capabilities with our sponsor relationships.
Paul Taubman: has helped to spark growth in that business.
Paul Taubman: And then when you get to the next level, having...
Paul Taubman: mid-market sponsors who are quite desirous to work with Park Hill, being able to now pair that relationship with deep domain expertise and knowledge of many of the assets in the portfolio, which might not have been the case.
Paul Taubman: five years ago or seven years ago.
Paul Taubman: or even three years ago, increasingly creates lots of opportunities for us to present holistic relationship, holistic coverage.
Paul Taubman: and a holistic approach to serving clients and being rewarded in terms of business. So it all kind of is progressing apace, and it's all highly interrelated.
Speaker Change: Yeah, makes sense, a great color. Maybe just a follow-up on...
Speaker Change: just sort of the comp leverage I think you've talked to.
Speaker Change: said today that every business line has had record revenues here to date, including M&A. I know that's been the...
Speaker Change: the fulcrum of getting comp ratio improvements. As we look to next year, the pipeline's good, M&A does seem likely to be improving pretty materially. So is that sort of the key to getting the comp leverage out of the franchise?
Speaker Change: And any thoughts on it would be helpful. I'll give you the one the one word answer first. Yes Okay, now now to give it a little bit of context. We have said repeatedly
Speaker Change: that comp leverage for us, because we're making such heavy investments in strategic advisory, is when strategic advisory revenues increase at a rate faster than headcount growth.
Speaker Change: That's typically when you see comp leverage.
Speaker Change: almost every year in the early years we were growing the revenues faster than the headcount. You saw, you know, comp leverage. You saw it in in 2020. You saw it in 2021. Not surprisingly, when we continue to add heads in 22 and 23,
Speaker Change: and the market retreated and our advisory revenues retreated even though they retreated less than virtually anyone else's.
Speaker Change: You had that mismatch?
Speaker Change: And that's why you saw negative comp leverage in 22 and 23. In 24, I suspect you're going to see headcount growth and growth in strategic advisory revenues.
Speaker Change: reasonably matched. So it's not getting worse, it's not getting better.
Speaker Change: Having said that, when you turn the page to 2025, I am highly confident that our strategic advisory revenues will grow meaningfully in excess of our headcount, and that's when you'll begin to see meaningful comp leverage in the system.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: We'll take our next question from Brennan Hawken of UBF.
Speaker Change: Thank you.
Brennan Hawken: Good morning. Thanks for taking my question. Of course.
Brennan Hawken: So Paul, I'd love to start on that last point. So it looks like partner head count, you know, year-over-year is up about 4%. If we look at total head count it's up a little more, 10.
Brennan Hawken: But your total revenue is up nearly 21%.
Brennan Hawken: So,
Brennan Hawken: Can you maybe help us understand what's missing with the lack of comp leverage coming through?
Brennan Hawken: this year, because it looks like at this point you're basically saying 69.5 is right, which would mean 30 basis points of comp leverage versus what was reported in 2023. So is the
Brennan Hawken: Is there some movement going on under the surface? What's causing the comp leverage to not show up this year and why would that be different next year?
Speaker Change: Well, I think, as I said, you've got to look at the headcount growth in strategic advisory and you have to look at the revenue growth in strategic advisory.
Speaker Change: And what I'm telling you is, if you look at those two this year, they're going to be roughly in line with one another.
Speaker Change: and we've made all of this investment.
Speaker Change: in headcount for a number of years, and we had two years of revenue contraction, albeit much less than anyone else.
Speaker Change: We now have an inflection point.
Speaker Change: The revenue has grown this year, but it's not grown...
Speaker Change: at a rate that's in excess or meaningfully in excess of what our strategic advisory headcount growth will be. And when you look at headcount growth, you need to look at total headcount growth.
Speaker Change: in strategic advisory. Partners are an important part of that. Managing directors, the full stack up and down. When we get to next year, you just look at our announced pending closed backlog and the like.
Speaker Change: As I said, I'm highly confident that those two will diverge to the positive, meaning meaningfully higher strategic advisory growth and headcount, and that's when you'll see it. And investment is a multiyear process.
Speaker Change: You need to think about it over multi-years. It doesn't just move, you know, quarter to quarter or even year to year. It develops over time.
Speaker Change: And we've been very clear on how our investors should think about the cadence of that. And we've been quite consistent.
Speaker Change: that they should look to that, you know, green light, which I've been pretty clear is positioned for 2025, to start to see the benefits.
Speaker Change: of what we've been building. And we've had a couple of years of...
Speaker Change: higher comp than we would like, but that's in the short term. We have no doubt that if you just take the lens and make it a little broader that the return on that investment is going to be quite significant.
Speaker Change: Thank you.
Speaker Change: Okay, great. Well, we'll be looking forward to that meaningful leverage then next year. You also had some interesting comments on Park Hill, it sounds like. Things are really picking up nicely in that business. You know, when we think about the market currently, and as I'm trying to think about
Speaker Change: what should happen in that market. It feels like we're gonna have probably a handoff.
Speaker Change: from, you know, the continuation funds, a lot of secondary activity into more of a regular way fundraising market.
Speaker Change: As things pick back up here in the beginning of next year, do you think that that's a fair expectation? And then can you talk about
Speaker Change: That handoff and what that would mean for like economics and the revenue and the business and how it should translate into effectively growth for Park Hill.
Speaker Change: Yeah, I'm not sure that I would agree with that. I think the fund, I'm not sure that the fund, to me the fund continuation
Speaker Change: concept is here to stay.
Speaker Change: The biggest issue has been a mismatch between desire on the part of GPs to avail themselves of these opportunities and the dedicated capital.
Speaker Change: that is available to invest in these situations, and if you just pick up, you know, the papers, you'll see
Speaker Change: an ever-increasing stream of funds that are gearing up to put billions of dollars against this opportunity. And as you get a build-out in dedicated capital for this asset class,
Speaker Change: and the ability to underwrite larger transactions, more transactions, I think this business grows meaningfully from where it is today.
Speaker Change: And as far as the macro fundraising environment, I think we're increasingly getting to a bifurcated market where not everyone can go out and raise their next fund. And you're starting to see a tiering where the successful funds
Speaker Change: can accumulate larger and larger dollars, and those that don't have the performance and the scale are increasingly finding it more difficult.
Speaker Change: And in that environment, which is challenging, our Park Hill business has had differentiated performance because we have a differentiated approach.
Speaker Change: to distribution and to origination, and in a more difficult environment, there is a flight quality, and that benefits our team.
Speaker Change: Got it. Okay, thanks for the color. Absolutely, thank you.
Speaker Change: We'll take our next question from Brendan O'Brien of Wolf Research.
Brendan O'brien: Good morning and thanks for taking my questions. I just wanted to follow up on the comp ratio commentary and specifically a few of your peers have cited that comp ratios are going to be structurally higher going forward given the level of inflation seen specifically at the junior level.
Brendan O'brien: Could you speak to your confidence and your ability to get back to that 64% comp ratio that you were running to previously and whether you're seeing any of the similar dynamics playing out within your own business?
Speaker Change: I don't see any reason sitting here today that we can't do that.
Speaker Change: Great. And I guess for my follow-up, I want to touch on capital allocation and specifically, you know, whether you're more inclined to do an acquisition today versus returning capital to shareholders.
Speaker Change: I know you recently did the deal for DeNovo Partners, but given where you and your peers are trained today, it feels like there could be a lot of interesting opportunities out there to leverage your multiple and do a creative acquisition. So it would be great to get a sense as to how your thinking has evolved here, if at all.
Speaker Change: Look, we're building a best-in-class firm. I don't think you build a best-in-class firm by leveraging your multiple.
Speaker Change: So it's not like we have a currency that we don't believe in that we want to go use.
Speaker Change: If anything, we still think it's an incredibly undervalued currency. We want to continue to buy it back, and we'll use it if there is a highly, highly attractive market.
Speaker Change: You know combination, but as I've said repeatedly those are are few and far between and that's why in our nine-year history
Speaker Change: We've done it twice and they've been a reasonably modest scale. They've been of a scale that's big enough to move the needle, but not so big as to overwhelm the firm.
Speaker Change: And it all starts with, you know, is there a compelling opportunity? And the reality is, you know, investment banking mergers, you know, if you look at the history of them, they haven't gone particularly well.
Speaker Change: And I think we have the benefit. If you look at what we did with Blackstone, if you look at what we did with Camberview, if you look at what we were able to do with our strategic alliance, we're quite confident that if we do it, we can execute on it. But that doesn't mean there are that many things out there that we have the confidence that we can execute on.
Speaker Change: Thank you.
Speaker Change: Well, thank you for taking my questions. Of course. Thank you very much.
Speaker Change: We'll go next to Aidan Hall of KBW.
Aidan Hall: Great. Thanks for taking my question. Most have been asked, but maybe just one on
Aidan Hall: DeNovo, obviously relatively small, few partners, but...
Aidan Hall: strategically, sounds like it made a lot of sense to extend beyond the initial partnership.
Aidan Hall: So I'm wondering if you could just expand on where you see the immediate impact. Is it really in making introductions on the strategic advisory side? Maybe some benefit within Park Hill with primary fundraising? And then over a longer term period, call it three plus years, what are your aspirations and what would success really look like for PJT in the Middle East?
Speaker Change: Maybe I'll answer more in the short term.
Speaker Change: As Paul mentioned, we have had a historical relationship, we've had a JV for four years.
Speaker Change: Denova brings two partners, two managing directors and some senior advisors.
Speaker Change: as well as licenses to operate in the region, so we're very committed.
Speaker Change: to the region and where it will have immediate impact, I think it's across the board, it's all the businesses where we operate, advisory, restructuring, Park Hill, and
Speaker Change: And so that's where we focus. We've already had a lot of people flying down to the region to continue to meet with clients in that area. And that will be our focus. Three years down the track, I presume that we will be well ingrained and have a lot of success.
Speaker Change: All right, I will leave it there. Thanks for taking my question.
Speaker Change: Thank you. That concludes our question and answer period. I would now like to turn the call back over to Mr. Taubman for closing remarks.
Paul Taubman: Until then, we wish you all well. Thank you.
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