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PJT Partners (PJT) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for PJT Partners Inc Financial Statements This section presents PJT Partners Inc.'s unaudited condensed consolidated financial statements for the periods ended June 30, 2023 Condensed Consolidated Statements of Financial Condition Total assets increased to $1.087 billion, liabilities to $321.9 million, and equity remained stable at $765.2 million as of June 30, 2023 Condensed Consolidated Statements of Financial Condition (Unaudited) | (In Thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and Cash Equivalents | $151,496 | $173,235 | | Accounts Receivable, Net | $333,059 | $317,751 | | Total Assets | $1,087,102 | $1,050,652 | | Liabilities and Equity | | | | Accrued Compensation and Benefits | $123,190 | $83,920 | | Total Liabilities | $321,911 | $291,094 | | Total Equity | $765,191 | $759,558 | | Total Liabilities and Equity | $1,087,102 | $1,050,652 | Condensed Consolidated Statements of Operations Q2 2023 total revenues grew 49% to $346.3 million, driven by Advisory Fees, while H1 2023 revenues increased 14% Q2 2023 vs Q2 2022 Performance (In Thousands) | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Advisory Fees | $323,794 | $186,649 | +73% | | Placement Fees | $20,028 | $49,482 | -60% | | Total Revenues | $346,277 | $233,141 | +49% | | Compensation and Benefits | $246,614 | $150,587 | +64% | | Total Expenses | $292,108 | $189,453 | +54% | | Net Income | $41,052 | $35,193 | +17% | | Net Income Attributable to PJT | $22,141 | $19,168 | +16% | | Diluted EPS | $0.86 | $0.74 | +16% | H1 2023 vs H1 2022 Performance (In Thousands) | Metric | H1 2023 | H1 2022 | Change | | :--- | :--- | :--- | :--- | | Advisory Fees | $491,884 | $368,307 | +34% | | Placement Fees | $47,613 | $109,833 | -57% | | Total Revenues | $546,265 | $479,460 | +14% | | Total Expenses | $462,903 | $385,624 | +20% | | Net Income | $69,038 | $79,661 | -13% | | Net Income Attributable to PJT | $39,477 | $44,872 | -12% | | Diluted EPS | $1.53 | $1.74 | -12% | Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased to $167.6 million in H1 2023, with a net decrease in cash and cash equivalents of $21.7 million Six Months Ended June 30, Cash Flow Summary (In Thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $167,615 | $117,476 | | Net Cash Used in Investing Activities | ($26,922) | ($35,937) | | Net Cash Used in Financing Activities | ($164,500) | ($130,543) | | Net Decrease in Cash and Cash Equivalents | ($21,739) | ($53,162) | | Cash and Cash Equivalents, Beginning of Period | $173,235 | $200,481 | | Cash and Cash Equivalents, End of Period | $151,496 | $147,319 | - Financing activities in the first six months of 2023 included $104.1 million for treasury stock purchases, $19.4 million for cash-settled exchanges of partnership units, and $12.3 million for dividends29 Notes to Condensed Consolidated Financial Statements Detailed notes cover accounting policies, revenue disaggregation, equity compensation, and share repurchases, with $98.0 million in H1 2023 equity-based compensation Disaggregation of Revenues (Six Months Ended June 30) | (In Thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Advisory Fees | $491,884 | $368,307 | | Placement Fees | $47,613 | $109,833 | | Interest Income from Placement Fees and Other | $8,222 | $4,157 | | Revenues from Contracts with Customers | $547,719 | $482,297 | - As of June 30, 2023, there was $206.1 million of unrecognized compensation expense related to unvested RSU awards, expected to be recognized over a weighted-average period of 1.9 years57 - During the first six months of 2023, the company repurchased 1.4 million shares of Class A common stock for $104.0 million. The remaining repurchase authorization was $69.7 million as of June 30, 202354 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A highlights 49% Q2 2023 revenue growth driven by restructuring, a challenging M&A and fundraising environment, and strong liquidity Business Environment H1 2023 saw a 37% decline in M&A volumes, elevated restructuring activity, and a challenging fundraising environment for alternative assets - Worldwide M&A announced volumes during the first half of 2023 were down 37% compared with the first half of 202298 - Global restructuring activity remained elevated during Q2 2023 due to adverse macroeconomic conditions and higher interest rates99 - The fundraising environment remains challenging as limited partners have become more discerning, with a continued flight to quality and focus on existing relationships100 Results of Operations Q2 2023 total revenues grew 49% to $346.3 million, driven by Advisory Fees, while H1 revenues increased 14% with an 11% decline in income before taxes Condensed Consolidated Results of Operations (In Thousands) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2023 | 2022 | 2023 | 2022 | | Total Revenues | $346,277 | $233,141 | $546,265 | $479,460 | | Advisory Fees | $323,794 | $186,649 | $491,884 | $368,307 | | Placement Fees | $20,028 | $49,482 | $47,613 | $109,833 | | Total Expenses | $292,108 | $189,453 | $462,903 | $385,624 | | Compensation and Benefits | $246,614 | $150,587 | $379,657 | $309,819 | | Income Before Provision for Taxes | $54,169 | $43,688 | $83,362 | $93,836 | - The increase in Advisory Fees for both the three and six-month periods was principally due to an increase in restructuring revenues118119 Liquidity and Capital Resources The company maintains strong liquidity with $225.6 million in cash and investments and an undrawn $60 million credit facility - As of June 30, 2023, the company had cash, cash equivalents, and short-term investments of $225.6 million129 - The company's revolving credit facility of $60.0 million was extended to mature on October 1, 2024, and remained undrawn as of June 30, 2023128 - During the first six months of 2023, the company repurchased 1.4 million shares for $104.0 million under its share repurchase program139 Quantitative and Qualitative Disclosures About Market Risk The company faces exchange rate risk, resulting in a $3.1 million gain in OCI and a $2.7 million loss in Interest Income and Other for H1 2023 - The company is not subject to significant market risk (interest rate, commodity price) or credit risk as its business is not capital-intensive and it does not use derivative instruments150 - The company is exposed to exchange rate risk. For the six months ended June 30, 2023, the impact of foreign currency fluctuation was a gain of $3.1 million in Other Comprehensive Income and a loss of $2.7 million in Interest Income and Other153 Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report154 - No material changes occurred in the company's internal control over financial reporting during the most recent quarter155 PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and other corporate information Legal Proceedings The company faces a reinstated claim for negligent supervision related to a former employee's fraudulent conduct, which it intends to defend - In June 2023, the New York Court of Appeals reversed lower court dismissals and reinstated a claim for negligent supervision and retention against the company in a case filed by affiliates of Moore Capital concerning the actions of a former employee158 - The company believes the remaining claim is without merit and will continue to vigorously oppose it158 Risk Factors No material changes were reported to the risk factors previously disclosed in the Annual Report on Form 10-K for 2022 - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022 were reported159 Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2023, the company repurchased 592,343 shares for $37.9 million, with $69.7 million remaining under authorization Issuer Purchases of Equity Securities in Q2 2023 | Period | Total Number of Shares Repurchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet Be Purchased | | :--- | :--- | :--- | :--- | | April 2023 | — | $— | $107.5 million | | May 2023 | 507,598 | $63.29 | $75.4 million | | June 2023 | 84,745 | $67.76 | $69.7 million | | Total Q2 | 592,343 | $63.93 | $69.7 million | Other Information No Rule 10b5-1 trading arrangement changes by directors or officers occurred in Q2 2023, and a Restated Certificate was filed - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement during the three months ended June 30, 2023166 - On July 27, 2023, the Company filed a Restated Certificate of Incorporation, which integrated prior amendments without further changes167