UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 001-36869
PJT Partners Inc.
(Exact name of Registrant as specified in its charter)
Delaware
36-4797143
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
280 Park Avenue
New York, New York 10017
(Address of principal executive offices)(Zip Code)
(212) 364-7800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Class A common stock, par value $0.01 per share
PJT
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 30, 2019, there were 23,108,421 shares of Class A common stock, par value $0.01 per share, and 206 shares of Class B common stock, par value $0.01 per share, outstanding.
TABLE OF CONTENTS
Page
PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
3
Unaudited Condensed Consolidated Financial Statements — June 30, 2019 and 2018:
Condensed Consolidated Statements of Financial Condition as of June 30, 2019 and December 31, 2018
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018
4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018
5
Condensed Consolidated Statements of Changes in Equity (Deficit) for the Three and Six Months Ended June 30, 2019 and 2018
6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018
8
Notes to Condensed Consolidated Financial Statements
9
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
28
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
38
ITEM 4.
CONTROLS AND PROCEDURES
PART II.
OTHER INFORMATION
LEGAL PROCEEDINGS
39
ITEM 1A.
RISK FACTORS
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
DEFAULTS UPON SENIOR SECURITIES
40
MINE SAFETY DISCLOSURES
ITEM 5.
ITEM 6.
EXHIBITS
41
SIGNATURES
42
1
PJT Partners Inc. was formed in connection with certain merger and spin-off transactions whereby the financial and strategic advisory services, restructuring and reorganization advisory services and Park Hill Group businesses of The Blackstone Group Inc. (“Blackstone” or our “former Parent”) were combined with PJT Capital LP, a financial advisory firm founded by Paul J. Taubman in 2013 (together with its then affiliates, “PJT Capital”), and the combined business was distributed to Blackstone’s unitholders to create PJT Partners Inc., a stand-alone, independent publicly traded company. Throughout this Quarterly Report on Form 10-Q, we refer to this transaction as the “spin-off.” PJT Partners Inc. is a holding company and its only material asset is its controlling equity interest in PJT Partners Holdings LP, a holding partnership that holds the company’s operating subsidiaries, and certain cash and cash equivalents it may hold from time to time. As the sole general partner of PJT Partners Holdings LP, PJT Partners Inc. operates and controls all of the business and affairs of PJT Partners Holdings LP and its operating subsidiaries.
In this Quarterly Report on Form 10-Q, unless the context requires otherwise, the words “PJT Partners Inc.” refers to PJT Partners Inc., and “PJT Partners,” the “Company,” “we,” “us” and “our” refer to PJT Partners Inc., together with its consolidated subsidiaries, including PJT Partners Holdings LP and its operating subsidiaries.
Forward-Looking Statements
Certain material presented herein contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include certain information concerning future results of operations, business strategies, acquisitions, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “opportunity,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “might,” “should,” “could” or the negative of these terms or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in such forward-looking statements. You should not put undue reliance on any forward-looking statements contained herein. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
The risk factors discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the United States Securities and Exchange Commission (“SEC”), as such factors may be updated from time to time in our periodic filings with the SEC, accessible on the SEC’s website at www.sec.gov, could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that are not currently expected to have a material adverse effect on our business. Any such risks could cause our results to differ materially from those expressed in forward-looking statements.
Website Disclosure
We use our website (www.pjtpartners.com) as a channel of distribution of company information. The information we post may be deemed material. Accordingly, investors should monitor the website, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about PJT Partners when you enroll your e-mail address by visiting the “Investor Relations” page of our website at ir.pjtpartners.com/investor-relations. Although we refer to our website in this report, the contents of our website are not included or incorporated by reference into this report. All references to our website in this report are intended to be inactive textual references only.
2
Condensed Consolidated Statements of Financial Condition (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data)
June 30,
December 31,
2019
2018
Assets
Cash and Cash Equivalents
$
84,214
106,110
Investments
1,412
2,157
Accounts Receivable (net of allowance for doubtful accounts of $350 and
$726 at June 30, 2019 and December 31, 2018, respectively)
221,901
217,768
Intangible Assets, Net
45,192
49,160
Goodwill
170,914
176,031
Furniture, Equipment and Leasehold Improvements, Net
35,911
34,805
Operating Lease Right-of-Use Assets
140,553
—
Other Assets
43,138
26,935
Deferred Tax Asset, Net
58,309
58,851
Total Assets
801,544
671,817
Liabilities and Equity (Deficit)
Accrued Compensation and Benefits
60,040
89,642
Accounts Payable, Accrued Expenses and Other Liabilities
18,567
24,657
Operating Lease Liabilities
155,979
Deferred Rent Liability
16,417
Amount Due Pursuant to Tax Receivable Agreement
8,916
8,456
Taxes Payable
2,576
7,040
Deferred Revenue
5,965
7,856
Loan Payable
30,000
Total Liabilities
282,043
184,068
Commitments and Contingencies
Equity (Deficit)
Class A Common Stock, par value $0.01 per share (3,000,000,000
shares authorized; 25,101,023 and 23,940,185 issued at June 30,
2019 and December 31, 2018, respectively; 23,108,421 and 22,586,787
outstanding at June 30, 2019 and December 31, 2018, respectively)
251
240
Class B Common Stock, par value $0.01 per share (1,000,000
shares authorized; 203 issued and outstanding at June 30, 2019;
199 issued and outstanding at December 31, 2018)
Additional Paid-In Capital
278,053
210,939
Accumulated Deficit
(166,257
)
(169,836
Accumulated Other Comprehensive Loss
(615
(627
Treasury Stock at Cost (1,992,602 and 1,353,398 shares at June 30, 2019
and December 31, 2018, respectively)
(92,856
(67,172
Total PJT Partners Inc. Equity (Deficit)
18,576
(26,456
Non-Controlling Interests
500,925
514,205
Total Equity
519,501
487,749
Total Liabilities and Equity
See notes to condensed consolidated financial statements.
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
Revenues
Advisory Fees
133,035
98,294
237,502
201,757
Placement Fees
28,695
28,132
52,007
54,252
Interest Income and Other
4,974
4,244
5,251
8,703
Total Revenues
166,704
130,670
294,760
264,712
Expenses
Compensation and Benefits
119,165
94,273
214,316
197,905
Occupancy and Related
7,802
6,573
14,938
13,376
Travel and Related
6,721
5,987
13,680
11,457
Professional Fees
5,667
4,019
11,469
9,218
Communications and Information Services
3,493
3,260
6,706
6,740
Depreciation and Amortization
3,635
2,092
7,255
4,099
Other Expenses
6,629
4,328
12,891
9,160
Total Expenses
153,112
120,532
281,255
251,955
Income Before Provision (Benefit) for Taxes
13,592
10,138
13,505
12,757
Provision (Benefit) for Taxes
3,566
(882
2,542
(4,992
Net Income
10,026
11,020
10,963
17,749
Net Income Attributable to
5,200
4,075
5,036
5,568
Net Income Attributable to PJT Partners Inc.
4,826
6,945
5,927
12,181
Net Income Per Share of Class A Common Stock
Basic
0.20
0.30
0.24
0.57
Diluted
0.55
Weighted-Average Shares of Class A Common
Stock Outstanding
24,572,535
22,641,562
24,157,671
20,987,863
24,185,020
22,689,344
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Dollars in Thousands)
Other Comprehensive Income (Loss), Net of Tax —
Currency Translation Adjustment
(1,228
(1,231
33
(462
Comprehensive Income
8,798
9,789
10,996
17,287
Less:
Comprehensive Income Attributable to Non-
Controlling Interests
4,620
3,476
5,057
5,334
Comprehensive Income Attributable to PJT Partners Inc.
4,178
6,313
5,939
11,953
Condensed Consolidated Statements of Changes in Equity (Deficit) (Unaudited)
(Dollars in Thousands, Except Share Data)
Shares
Accumulated
Class A
Class B
Additional
Other
Non-
Common
Treasury
Paid-In
Comprehensive
Controlling
Stock
Capital
Deficit
Income (Loss)
Interests
Total
Balance at December 31, 2017
18,599,454
221
(60,333
186
23,891
(185,991
155
(2,302
586,515
422,454
Adoption of Accounting Standard
(6,696
5,236
1,493
6,729
Other Comprehensive Income
404
365
769
Dividends Declared ($0.05 Per Share of Class A
Common Stock)
(967
Equity-Based Compensation
25,666
11,396
37,062
Forfeiture Liability for Equity Awards
91
Net Share Settlement
(19,468
Deliveries of Vested Shares of
Class A Common Stock
1,135,047
11
(11
Change in Ownership Interest
(6
81,350
(105,428
(24,078
Treasury Stock Purchases
(81,810
(3,890
Balance at March 31, 2018
19,734,501
215
(142,143
197
111,519
(188,418
559
(6,192
494,341
412,006
Other Comprehensive Loss
(632
(599
(1,115
Tax Distributions
(15
15,774
11,318
27,092
18
(1,584
1,527,115
16
(16
(2
(39,520
33,042
(6,478
(396,984
(21,837
Balance at June 30, 2018
21,261,616
213
(539,127
86,191
(182,588
(73
(28,029
542,162
417,876
(continued)
Balance at December 31, 2018
23,940,185
199
(1,353,398
Net Income (Loss)
1,101
(164
937
660
601
1,261
Dividends Declared ($0.05 Per Share of
Class A Common Stock)
(1,188
23,884
11,089
34,973
(8,604
1,088,396
Acquisition-Related Equity Issuance
49,764
1,889
398
2,287
53,377
(62,642
(9,265
Balance at March 31, 2019
25,078,345
200
281,480
(169,923
463,487
508,156
(648
(580
(1,160
(20
19,465
11,211
30,676
(673
22,678
(22,222
21,627
(595
(639,204
(25,684
Balance at June 30, 2019
25,101,023
203
(1,992,602
7
Condensed Consolidated Statements of Cash Flows (Unaudited)
Operating Activities
Adjustments to Reconcile Net Income to Net Cash Provided by
Equity-Based Compensation Expense
65,649
64,154
Depreciation and Amortization Expense
Amortization of Operating Lease Right-of-Use Assets
8,796
Deferred Taxes
1,320
(3,498
912
(1,178
Cash Flows Due to Changes in Operating Assets and Liabilities
Accounts Receivable
(3,541
(30,308
(17,159
(7,655
(29,638
(28,095
(4,889
3,053
(10,015
14
(4,540
(314
(1,897
2,133
Net Cash Provided by Operating Activities
23,216
20,154
Investing Activities
Purchases of Investments
(20,861
Maturities of Investments
35,185
Purchases of Furniture, Equipment and Leasehold Improvements
(4,477
(5,960
Settlement of Acquisition-Related Escrow
7,485
Net Cash Provided by Investing Activities
3,008
8,364
Financing Activities
Dividends
(2,348
(2,082
Proceeds from Revolving Credit Facility
15,000
Payments on Revolving Credit Facility
(15,000
Employee Taxes Paid for Shares Withheld
(9,277
(21,052
Cash-Settled Exchanges of Partnership Units
(10,050
(30,918
(25,727
Payments Pursuant to Tax Receivable Agreement
(210
(10
Principal Payments on Finance Leases
(70
(51
Net Cash Used in Financing Activities
(47,659
(79,855
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(461
1,252
Net Decrease in Cash and Cash Equivalents
(21,896
(50,085
Cash and Cash Equivalents, Beginning of Period
145,619
Cash and Cash Equivalents, End of Period
95,534
Supplemental Disclosure of Cash Flows Information
Payments for Income Taxes, Net of Refunds Received
647
Payments for Interest
839
Non-Cash Receipt of Shares
2,254
Notes to Condensed Consolidated Financial Statements (Unaudited)
(All Dollars Are in Thousands, Except Share and Per Share Data, Except Where Noted)
1.
ORGANIZATION
PJT Partners Inc. and its consolidated subsidiaries (the “Company” or “PJT Partners”) deliver a wide array of strategic advisory, shareholder advisory, restructuring and special situations and private fund advisory and placement services to corporations, financial sponsors, institutional investors and governments around the world. The Company offers a unique portfolio of advisory services designed to help clients achieve their strategic objectives. Also, through PJT Park Hill, the Company provides private fund advisory and fundraising services for alternative investment managers, including private equity funds, real estate funds and hedge funds.
On October 1, 2015, The Blackstone Group Inc. (“Blackstone” or the “former Parent”) distributed on a pro rata basis to its common unitholders all of the issued and outstanding shares of Class A common stock of PJT Partners Inc. held by it. This pro rata distribution is referred to as the “Distribution.” The separation of the PJT Partners business from Blackstone and related transactions, including the Distribution, the internal reorganization that preceded the Distribution and the acquisition by PJT Partners of PJT Capital LP (together with its general partner and their respective subsidiaries, “PJT Capital”) that occurred substantially concurrently with the Distribution, is referred to as the “spin-off.”
PJT Partners Inc. is the sole general partner of PJT Partners Holdings LP. PJT Partners Inc. owns less than 100% of the economic interest in PJT Partners Holdings LP, but has 100% of the voting power and controls the management of PJT Partners Holdings LP. As of June 30, 2019, the non-controlling interest was 40.2%. As the sole general partner of PJT Partners Holdings LP, PJT Partners Inc. operates and controls all of the business and affairs and consolidates the financial results of PJT Partners Holdings LP and its operating subsidiaries. The Company operates through the following subsidiaries: PJT Partners LP, Park Hill Group LLC, PJT Partners (UK) Limited and PJT Partners (HK) Limited.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Intercompany transactions have been eliminated for all periods presented.
For a comprehensive disclosure of the Company’s significant accounting policies, see Note 2. “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” in “Part II. Item 8. Financial Statements and Supplementary Data” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Notes to Condensed Consolidated Financial Statements – Continued (Unaudited)
During the second quarter of 2019, a misstatement was identified in the presentation of changes in the Company’s ownership interest in PJT Partners Holdings LP, which resulted in a reclassification from Non-Controlling Interests to Additional Paid-In Capital. In accordance with Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections, the Company evaluated the materiality of the misstatement from both quantitative and qualitative perspectives, and concluded that it was immaterial to the prior periods. Consequently, the Company revised the historical consolidated financial information presented herein. The immaterial correction resulted in reclassifications between Additional Paid-In Capital and Non-Controlling Interests. The adjustment decreased Additional Paid-In Capital by $6.8 million, with a corresponding increase to Non-Controlling Interests as of December 31, 2017. The adjustments as of March 31, 2018, June 30, 2018, September 30, 2018, December 31, 2018 and March 31, 2019 increased Additional Paid-In Capital by $76.8 million, $37.7 million, $32.8 million, $60.0 million and $169.2 million, respectively, with corresponding decreases to Non-Controlling Interests. This immaterial correction had no impact on the Company’s Consolidated Statements of Operations and Statements of Cash Flows.
Recent Accounting Developments
In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance regarding leases. The guidance requires lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases. The lease-related assets will be amortized to expense over the life of the leases and the liability, and related interest expense, will be reduced as lease payments are made over the life of the lease. Entities are also required to provide enhanced disclosure about leasing arrangements. The amendments retain lease classifications, distinguishing finance leases from operating leases, using criteria that are substantially similar for distinguishing capital leases from operating leases in previous guidance.
The Company adopted the new guidance as of January 1, 2019 using the transition method that allows such guidance to be applied initially at the adoption date without restating comparative periods. The Company elected the transition package of practical expedients to alleviate certain operational complexities related to the adoption.
The impact of adoption of the lease guidance as of January 1, 2019 was as follows:
Adjustments
January 1,
129,479
(866
26,069
(1,190
23,467
146,220
(16,417
In June 2016, the FASB issued guidance regarding the measurement of credit losses on financial instruments. The new guidance replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company is currently assessing the impact that adoption of this guidance will have on its consolidated financial statements.
In February 2018, the FASB issued guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The guidance is effective for annual and interim periods beginning after December 15, 2018, with an option to apply it in the period of adoption or on a retrospective basis for each period in which the effect of the change in the U.S. federal corporate income tax rate is recognized. Early adoption of the new guidance is permitted for reporting periods for which financial statements have not yet been issued. The Company adopted this guidance on January 1, 2019 with no material impact on its consolidated financial statements.
10
In August 2018, the FASB issued updated guidance on the accounting for implementation costs incurred in a cloud computing arrangement. The updated guidance requires the capitalization of the implementation costs incurred in a cloud computing arrangement to be aligned with the requirements for capitalizing costs incurred to develop or obtain internal-use software. The updated guidance is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. Upon adoption, the Company may elect to apply the new guidance on either a prospective or retrospective basis. The Company is currently assessing the impact that adoption of this guidance will have on its consolidated financial statements.
In August 2018, the FASB issued updated guidance that modifies the disclosure requirements on fair value measurements. The updated guidance removes and modifies various disclosures under current guidance and includes additional requirements. The updated guidance is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The Company is currently assessing the impact that adoption of this guidance will have on its consolidated financial statements.
3.
BUSINESS COMBINATIONS
Acquisition of CamberView
In October 2018, the Company completed the acquisition of CamberView Partners Holdings, LLC (“CamberView”). The preliminary purchase price as of June 30, 2019 was comprised of the following:
Cash (a)
60,765
Common Stock (b)
71,423
Partnership Units (c)
3,961
Total Purchase Price
136,149
(a)
Reflects cash paid to selling unitholders and employees of CamberView at closing, payoff of an existing term loan facility held by CamberView at closing and settlement of escrow balances in March 2019.
(b)
Reflects the value of 1.4 million shares of PJT Partners Inc. Class A common stock issued to the selling unitholders of CamberView at closing based on the Company’s closing stock price of $51.55 on October 1, 2018 and the value of an additional 0.1 million shares of PJT Partners Inc. Class A common stock issued to the selling unitholders related to the settlement of escrow balances in March 2019 based on the Company’s closing stock price of $40.61 on March 15, 2019.
(c)
Reflects the value of 0.1 million common units of partnership interest in PJT Partners Holdings LP (“Partnership Units”) issued to certain CamberView employees at closing using a fair value of $47.53, which represents the closing stock price of $51.55 on October 1, 2018 discounted for holding period risk as well as an additional 0.1 million Partnership Units issued to certain CamberView employees upon the settlement of escrow balances in March 2019 using a fair value of $37.44, which represents the closing stock price of $40.61 on March 15, 2019 discounted for holding period risk. Partnership Units shall be eligible for exchange in accordance with the Exchange Agreement starting on the first exchange date when the Partnership Units have been both outstanding and fully vested for at least six months as of the applicable exchange date.
The total preliminary purchase price includes Securityholder Representative Funds, as defined in the agreement and plan of merger, of $1.0 million, which may be used to cover post-closing obligations of the selling unitholders. Any release of these proceeds to PJT Partners Inc. will adjust the components of the purchase price allocation.
The following table summarizes the preliminary allocation of the total purchase price:
Measurement
Period
Cash
6,787
2,602
283
2,915
(81
2,834
Identifiable Intangible Assets
40,600
103,745
(5,117
98,628
Deferred Tax Asset
111
157,043
(5,198
151,845
Liabilities
192
Accounts Payable, Accrued Expenses and Other
8,660
230
54
6,560
15,696
Net Assets
141,347
The Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 include the results of CamberView. Supplemental information on an unaudited pro forma basis, as if the acquisition had been consummated as of January 1, 2017 is as follows:
Three Months
Ended
Six Months
June 30, 2018
148,328
290,538
10,813
14,637
4.
REVENUES FROM CONTRACTS WITH CUSTOMERS
The following table reconciles revenues recognized from contracts with customers to Total Revenues in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018:
Interest Income from Placement Fees
927
1,015
2,093
2,420
Reimbursable Expenses
1,582
2,098
2,866
4,366
Revenues from Contracts with Customers
164,239
129,539
294,468
262,795
Sublease Income and Other
2,465
1,131
292
1,917
12
Remaining Performance Obligations and Revenue Recognized from Past Performance
As of June 30, 2019, the aggregate amount of the transaction price allocated to performance obligations yet to be satisfied was $12.8 million and the Company generally expects to recognize this revenue within the next twelve months. Such amounts relate to the Company’s performance obligations of providing capital advisory services and standing ready to perform.
The Company recognized revenue of $4.6 million and $9.2 million for the three and six months ended June 30, 2019, respectively, and $5.9 million and $12.1 million for the three and six months ended June 30, 2018, respectively, related to performance obligations that were fully satisfied in prior periods, primarily due to constraints on variable consideration in prior periods being resolved. Such amounts related primarily to the provision of capital advisory services. The majority of Fee Revenue recognized by the Company during the three and six months ended June 30, 2019 and 2018 was predominantly related to performance obligations that were partially satisfied in prior periods.
Contract Balances
There were no significant impairments related to contract balances during the three and six months ended June 30, 2019 and 2018.
The beginning and ending balances of Deferred Revenue are included in the Condensed Consolidated Statements of Financial Condition. For the six months ended June 30, 2019 and 2018, $7.4 million and $1.3 million, respectively, of revenue was recognized that was included in the beginning balance of Deferred Revenue, primarily related to the Company’s performance obligation of standing ready to perform. In certain contracts, the Company receives customer deposits, which are also considered to be contract liabilities. As of June 30, 2019 and December 31, 2018, the Company recorded $1.4 million and $1.1 million, respectively, of customer deposits in Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition.
5.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Included in Accounts Receivable are long-term receivables of $75.9 million and $77.9 million as of June 30, 2019 and December 31, 2018, respectively, related to placement fees that are generally paid in installments over a period of three to four years. The carrying value of such long-term receivables approximates fair value. Long-term receivables are classified as Level II in the fair value hierarchy.
The Company does not have any long-term receivables on non-accrual status. Of receivables that originated as long-term, there were $10.0 million and $7.5 million as of June 30, 2019 and December 31, 2018, respectively, which were outstanding more than 90 days. There was no allowance for doubtful accounts with respect to such receivables as of June 30, 2019 or December 31, 2018.
6.
GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying value of goodwill consist of the following:
Balance, December 31, 2018
Measurement Period Adjustment (a)
Balance, June 30, 2019
During the six months ended June 30, 2019, the Company recorded $5.1 million of measurement period adjustments related to the acquisition of CamberView.
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Intangible Assets, Net consists of the following:
Finite-Lived Intangible Assets
Customer Relationships
62,876
Trade Name
9,900
Total Intangible Assets
72,776
Accumulated Amortization
(24,659
(21,501
(2,925
(2,115
Total Accumulated Amortization
(27,584
(23,616
Amortization expense was $2.0 million and $4.0 million for the three and six months ended June 30, 2019, respectively, and $0.6 million and $1.2 million for the three and six months ended June 30, 2018, respectively.
Amortization of intangible assets held at June 30, 2019 is expected to be $4.0 million for the remainder of the year ending December 31, 2019; $7.9 million for the years ending December 31, 2020 and 2021; $6.7 million for the year ending December 31, 2022; and $5.1 million for the year ending December 31, 2023.
7.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, Equipment and Leasehold Improvements, Net consists of the following:
Office Equipment
2,285
2,151
Leasehold Improvements
41,821
38,745
Furniture and Fixtures
14,727
13,558
Total Furniture, Equipment and Leasehold Improvements
58,833
54,454
Accumulated Depreciation
(22,922
(19,649
Depreciation expense was $1.7 million and $3.3 million for the three and six months ended June 30, 2019, respectively, and $1.5 million and $2.9 million for the three and six months ended June 30, 2018, respectively.
8.
FAIR VALUE MEASUREMENTS
The following tables summarize the valuation of the Company’s investments by the fair value hierarchy:
June 30, 2019
Level I
Level II
Level III
U.S. Treasury Securities
3,275
Common Stock
Total Investments
4,687
December 31, 2018
3,297
5,454
Investments in U.S. Treasury securities were included in Cash and Cash Equivalents in the Condensed Consolidated Statements of Financial Condition as of June 30, 2019 and December 31, 2018.
During the three and six months ended June 30, 2019 and 2018, there were no transfers from Level I to Level II related to U.S. Treasury securities that were initially acquired as on-the-run and classified as Level I, but subsequently transferred to Level II as a result of becoming off-the-run. There were also no transfers between Level I, Level II or Level III during the three and six months ended June 30, 2019 and 2018.
The carrying value of the loan payable approximates fair value based on Level II inputs.
9.
INCOME TAXES
The following table summarizes the Company’s tax position:
Effective Income Tax Rate
26.2
%
-8.7
18.8
-39.1
The Company’s effective tax rate differed from the U.S. federal statutory tax rate for the three and six months ended June 30, 2019 due to corporate entities subject to U.S. federal, state, local and foreign income taxes, to non-corporate entities that are subject to New York City Unincorporated Business Tax and to certain compensation charges that are not deductible for income tax purposes.
The change in tax rate between the six months ended June 30, 2019 and 2018 was primarily due to a decreased tax benefit related to the deliveries of vested shares at values in excess of their amortized cost.
As of June 30, 2019, the Company had no unrecognized tax benefits.
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10.
NET INCOME PER SHARE OF CLASS A COMMON STOCK
Basic and diluted net income per share of Class A common stock for the three and six months ended June 30, 2019 and 2018 is presented below:
Numerator:
Dividends on Participating Securities
73
83
Net Income Attributable to Participating Securities
Net Income Attributable to Shares of Class A
Common Stock — Basic
4,813
6,833
5,909
12,025
Incremental Net Income from Dilutive Securities
378
496
Common Stock — Diluted
7,211
12,521
Denominator:
Stock Outstanding — Basic
Weighted-Average Number of Incremental Shares from
Unvested RSUs and Partnership Units
1,543,458
1,701,481
Stock Outstanding — Diluted
These securities were determined to be anti-dilutive and therefore were excluded from the calculation of net income per share of Class A common stock.
Partnership Units may be exchanged for PJT Partners Inc. Class A common stock on a one-for-one basis, subject to applicable vesting and transfer restrictions. If all Partnership Units were exchanged for Class A common stock, weighted-average Class A common stock outstanding would be 40,523,710 and 40,130,115 for the three and six months ended June 30, 2019, respectively, excluding unvested restricted stock units (“RSUs”) and participating RSUs. In computing the dilutive effect, if any, which the aforementioned exchange would have on net income per share, net income attributable to holders of Class A common stock would be adjusted due to the elimination of the non-controlling interests associated with the Partnership Units (including any tax impact). For the three and six months ended June 30, 2019, such exchange is not reflected in diluted net income per share as the assumed exchange is not dilutive.
The following table summarizes the anti-dilutive securities for the three and six months ended June 30, 2019 and 2018 that have been excluded from the calculation of net income per share of Class A common stock:
Weighted-Average Unvested RSUs
566,311
898,124
Weighted-Average Participating RSUs
54,762
151,707
53,294
153,243
Weighted-Average Partnership Units
15,951,175
15,498,371
15,972,444
15,012,188
These securities were determined to be dilutive.
Share Repurchase Program
On April 24, 2019, the Company’s Board of Directors authorized the repurchase of shares of the Company’s Class A common stock in an amount up to $100 million, which is in addition to the previous October 26, 2017 authorization. Under the repurchase program, shares of the Company’s Class A common stock may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number of shares repurchased depend on a variety of factors, including legal requirements, price and economic and market conditions. The repurchase program may be suspended or discontinued at any time and does not have a specified expiration date.
During the six months ended June 30, 2019, the Company repurchased 639,204 shares of Class A common stock at an average price of $40.15, or $25.7 million in aggregate, pursuant to the share repurchase program. As of June 30, 2019, the available amount remaining for repurchases under this program was $107.2 million.
11.
EQUITY-BASED AND OTHER DEFERRED COMPENSATION
Overview
Further information regarding the Company’s equity-based compensation awards is described in Note 11. “Equity-Based and Other Deferred Compensation” in the “Notes to Consolidated Financial Statements” in “Part II. Item 8. Financial Statements and Supplementary Data” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
The following table represents equity-based compensation expense and related income tax benefit for the three and six months ended June 30, 2019 and 2018, respectively:
Income Tax Benefit
2,895
2,217
6,274
5,456
Restricted Stock Units
A summary of the status of the Company’s unvested RSUs as of June 30, 2019 and for changes during the six months ended June 30, 2019 is presented below:
PJT Partners Holdings LP
Weighted-
Average
Grant Date
Number of
Fair Value
Partnership
Units
(in dollars)
4,254,205
40.99
98,295
37.17
Granted
1,955,929
44.02
Vested
(1,795,850
35.69
(1,255
26.86
Forfeited
(62,541
42.22
Dividends Reinvested on RSUs
11,146
42.61
4,362,889
44.51
97,040
37.30
As of June 30, 2019, there was $126.1 million of estimated unrecognized compensation expense related to unvested RSU awards. This cost is expected to be recognized over a weighted-average period of 1.4 years. The Company assumes a forfeiture rate of 1.0% to 9.0% annually based on expected turnover and periodically reassesses this rate.
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RSU Awards with Both Service and Market Conditions
A summary of the status of the Company’s unvested RSU awards with both a service and market condition as of June 30, 2019 and for changes during the six months ended June 30, 2019 is presented below:
RSU Awards with
Both Service and Market
Conditions
253,152
26.19
12,658
10.63
(15,968
249,842
25.40
As of June 30, 2019, there was $4.5 million of estimated unrecognized compensation expense related to RSU awards with both a service and market condition. This cost is expected to be recognized over a weighted-average period of 2.7 years. The Company assumes a forfeiture rate of 4.0% to 9.0% annually based on expected turnover and periodically reassesses this rate.
The following table presents the assumptions used to determine the fair value of the RSU awards in PJT Partners Inc. with both a service and market condition granted during the six months ended June 30, 2019:
Risk-Free Interest Rate
2.3
Dividend Yield
0.5
Weighted-Average Volatility Factor
28.2
Weighted-Average Expected Life (in years)
2.8
Weighted-Average Fair Value (in dollars)
Restricted Share Awards
In connection with the acquisition of CamberView, certain individuals were issued restricted shares of the Company’s Class A common stock. Based on the terms of the award, compensation expense will be recognized over four years. For the six months ended June 30, 2019, 3,591 restricted share awards were granted. For the year ended December 31, 2018, 5,100 restricted share awards were granted. As of June 30, 2019, no restricted shares have vested or have forfeited and there was $0.3 million of estimated unrecognized compensation expense related to restricted share awards. This cost is expected to be recognized over a weighted-average period of 2.3 years.
Partnership Units
A summary of the status of the Company’s unvested Partnership Units as of June 30, 2019 and for changes during the six months ended June 30, 2019 is presented below:
3,323,948
24.23
78,278
39.78
(156,354
30.64
3,245,872
24.30
As of June 30, 2019, there was $24.0 million of estimated unrecognized compensation expense related to unvested Partnership Units. This cost is expected to be recognized over a weighted-average period of 0.5 years. The Company assumes a forfeiture rate of 4.0% annually based on expected turnover and periodically reassesses this rate.
Partnership Unit Awards with Both Service and Market Conditions
A summary of the status of the Company’s unvested Partnership Unit awards with both a service and market condition as of June 30, 2019 and for changes during the six months ended June 30, 2019 is presented below:
Partnership Unit Awards with
5,118,133
5.72
(122,902
(3,798
4,991,433
As of June 30, 2019, there was $2.0 million of estimated unrecognized compensation expense related to Partnership Unit awards with both a service and market condition. This cost is expected to be recognized over a weighted-average period of 0.3 years. The Company assumes a forfeiture rate of 4.0% annually based on expected turnover and periodically reassesses this rate.
Units Expected to Vest
The following unvested units, after expected forfeitures, as of June 30, 2019, are expected to vest:
Service Period
in Years
8,212,410
0.4
4,468,637
1.5
7,447
Total Equity-Based Awards
12,688,494
0.8
Deferred Cash Compensation
The Company has periodically issued deferred cash compensation in connection with annual incentive compensation as well as other hiring or retention related awards. These awards typically vest over a period of one to four years. Compensation expense related to deferred cash awards was $6.1 million and $12.7 million for the three and six months ended June 30, 2019, respectively, and $2.1 million and $5.9 million for the three and six months ended June 30, 2018, respectively. As of June 30, 2019, there was $48.4 million of unrecognized compensation expense related to these awards. This cost is expected to be recognized over a weighted-average period of 2.6 years.
12.
LEASES
The Company adopted the new lease accounting guidance as of January 1, 2019, which is further discussed in Note 2. “Summary of Significant Accounting Policies—Recent Accounting Developments.” The Company determines if an arrangement is, or contains, a lease at inception.
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The Company leases office space under non-cancelable lease agreements, which expire at various dates through 2030. The lease arrangements for office space typically contain payments to the lessor for common area maintenance charges and reimbursement for certain other costs that are not fixed. The Company accounts for these costs as variable lease costs and does not include them in the lease component. Such amounts recorded during the three and six months ended June 30, 2019 are included in the table below. The Company has also entered into arrangements to sublease a portion of its office space, which expire at various dates through 2025.
The Company leases certain office equipment pursuant to finance leases, which expire at various dates through 2022. The Company does not elect the practical expedient to include the non-lease component with the lease component as a single lease component.
Right-of-Use Assets (“ROU assets”) represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. The Company’s lease agreements generally do not provide an implicit rate, so the Company estimates the incremental borrowing rate considering the collateral, term and the economic environment of the lease arrangement with reference to the Company’s term loan. Certain leases may include options to extend or terminate; however, the Company only reflects such renewal or termination option in the lease term when it is reasonably certain to exercise the option.
The Company records ROU assets and lease liabilities for operating leases in Operating Lease Right-of-Use Assets and Operating Lease Liabilities, respectively, on the Condensed Consolidated Statements of Financial Condition. The Company records ROU assets and lease liabilities for finance leases in Furniture, Equipment and Leasehold Improvements, Net and Accounts Payable, Accrued Expenses and Other Liabilities, respectively, on the Condensed Consolidated Statements of Financial Condition.
The Company does not record ROU assets or lease liabilities for leases with a term of twelve months or less. Lease expense for such leases is recognized on a straight-line basis.
For the three and six months ended June 30, 2019, the components of lease expense were as follows:
Operating Lease Cost
6,300
12,107
Finance Lease Cost
Amortization of Right-of-Use Assets
31
69
Interest on Lease Liabilities
Total Finance Lease Cost
32
72
Short-Term Lease Cost
109
225
Variable Lease Cost
719
1,293
Sublease Income
(913
(1,823
Total Lease Cost
6,247
11,874
20
Supplemental information related to leases was as follows:
Cash Paid for Amounts Included in Measurement of Lease Liabilities
Operating Cash Flows from Operating Leases
10,015
Operating Cash Flows from Finance Leases
Financing Cash Flows from Finance Leases
70
Right-of-Use Assets Obtained in Exchange for Lease Liabilities
Operating Leases
150,020
Finance Leases
Weighted-Average Remaining Lease Term (in years)
7.9
Weighted-Average Discount Rate
4.9
3.0
For the three and six months ended June 30, 2018, rent expense was $6.0 million and $12.3 million, respectively. Rent expense is included in Occupancy and Related in the Condensed Consolidated Statements of Operations. This amount includes escalation payments, which are paid when invoiced.
As of December 31, 2018, the Company maintained an irrevocable standby letter of credit for certain operating leases of $4.7 million.
The following is a maturity analysis of the annual undiscounted cash flows of the finance and operating lease liabilities as of June 30, 2019:
Year Ending December 31,
Finance
Operating
2019 (July 1 through December 31)
12,461
2020
119
22,878
2021
24,839
2022
24,672
2023
24,638
Thereafter
79,638
Total Lease Payments
205
189,126
Less: Imputed Interest
33,147
201
21
As of December 31, 2018, the aggregate minimum future payments required on non-cancelable leases, under legacy accounting guidance, were as follows:
Minimum Lease Payments
130
26,877
104
23,445
22,305
22,190
22,227
67,871
Total Minimum Lease Payments
245
184,915
Less: Amount Representing Interest
Capital Lease Obligation
234
Less: Sublease Proceeds
14,182
Net Minimum Lease Payments
170,733
13.
TRANSACTIONS WITH RELATED PARTIES
Exchange Agreement
The Company has entered into an exchange agreement with the limited partners of PJT Partners Holdings LP pursuant to which they (or certain permitted transferees) have the right, subject to the terms and conditions set forth in the limited partnership agreement of PJT Partners Holdings LP, on a quarterly basis, to exchange all or part of their Partnership Units for cash or, at the Company’s election, for shares of PJT Partners Inc. Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for splits, unit distributions and reclassifications. Further, pursuant to the terms in the partnership agreement of PJT Partners Holdings LP, the Company may also require holders of Partnership Units who are not Service Providers (as defined in the partnership agreement of PJT Partners Holdings LP) to exchange such Partnership Units.
Further information regarding the exchange agreement is described in Note 13. “Transactions with Related Parties—Exchange Agreement” in the “Notes to Consolidated Financial Statements” in “Part II. Item 8. Financial Statements and Supplementary Data” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Certain Partnership Unitholders exchanged 230,325 and 662,146 Partnership Units, respectively, for cash in the amounts of $10.1 million and $30.9 million, respectively, for the six months ended June 30, 2019 and 2018, respectively. Such amounts are recorded as a reduction of Non-Controlling Interests in the Condensed Consolidated Statements of Financial Condition.
During the second quarter of 2019, the Company was presented with 108,586 Partnership Units to be exchanged. The Company will settle the exchange of these Partnership Units on August 6, 2019 for cash for an aggregate payment of $4.4 million. The price per Partnership Unit to be paid by the Company is $40.72, which is equal to the volume-weighted average price of a share of the Company’s Class A common stock on August 1, 2019.
Registration Rights Agreement
The Company has entered into a registration rights agreement with the limited partners of PJT Partners Holdings LP pursuant to which the Company granted them, their affiliates and certain of their transferees the right, under certain circumstances and subject to certain restrictions, to require the Company to register under the Securities Act of 1933 shares of Class A common stock delivered in exchange for Partnership Units. The registration rights agreement does not contain any penalties associated with failure to file or maintain the effectiveness of a registration statement covering the shares owned by individuals covered by such agreement.
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Tax Receivable Agreement
The Company has entered into a tax receivable agreement with the holders of Partnership Units (other than PJT Partners Inc.) that provides for the payment by PJT Partners Inc. to exchanging holders of Partnership Units of 85% of the benefits, if any, that PJT Partners Inc. is deemed to realize as a result of the increases in tax basis related to such exchanges of Partnership Units and of certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. As of June 30, 2019 and December 31, 2018, the Company had amounts due of $8.9 million and $8.5 million, respectively, pursuant to the tax receivable agreement, which represent management’s best estimate of the amounts currently expected to be owed in connection with the tax receivable agreement. Actual payments may differ significantly from estimated payments.
Aircraft Lease
On occasion, certain of the Company’s executive officers, employees and their families may make use of aircraft in which the Company owns a fractional interest (the “Aircraft”). Any such personal use of the Aircraft is charged to the executive officer or employee based on market rates and usage. The amount is not material to the condensed consolidated financial statements.
14.
COMMITMENTS AND CONTINGENCIES
Commitments
Line of Credit
On October 1, 2018, PJT Partners Holdings LP, as borrower (“Borrower”) entered into an Amended and Restated Loan Agreement (the “Amended and Restated Loan Agreement”) and related documents with First Republic Bank, as lender (the “Lender”). The Amended and Restated Loan Agreement provides for a revolving credit facility with aggregate commitments in an amount equal to $40.0 million, which aggregate commitments may be increased, on the terms and subject to the conditions set forth in the Amended and Restated Loan Agreement, to up to $60.0 million during the period beginning December 1 each year through March 1 of the following year. The revolving credit facility will mature and the commitments thereunder will terminate on October 1, 2020, subject to extension by agreement of the Borrower and Lender.
As of June 30, 2019 and December 31, 2018, there were no outstanding borrowings under the revolving credit facility.
Term Loan
The Amended and Restated Loan Agreement also provides for a term loan with an aggregate commitment of $30.0 million (the “Term Loan”). The Term Loan matures on January 2, 2021. In addition to the payment of interest described below, Borrower shall pay to the Lender installment payments of principal in the amount of (a) $4.25 million on July 1, 2019 and quarterly thereafter to January 2, 2021, and (b) $4.5 million on January 2, 2021.
The Amended and Restated Loan Agreement requires the Borrower to maintain certain minimum financial covenants and limits or restricts the ability of the Borrower (subject to certain qualifications and exceptions) to incur additional indebtedness in excess of $20.0 million. Borrowings under the Amended and Restated Loan Agreement are secured by the accounts receivable of Park Hill Group LLC and PJT Partners LP.
23
Outstanding borrowings under the revolving credit facility bear interest equal to the greater of a per annum rate of (a) 3%, or (b) the prime rate minus 1.0%. Outstanding borrowings under the Term Loan bear interest equal to the greater of a per annum rate of (a) 3.25%, or (b) the prime rate minus 0.75%. During an event of default, overdue principal under both the revolving credit facility and Term Loan bear interest at a rate 2.0% in excess of the otherwise applicable rate of interest. In connection with the closing of the Amended and Restated Loan Agreement, the Borrower paid the Lender certain closing costs and fees. In addition, on and after the closing date, the Borrower will also pay a commitment fee on the undrawn portion of the revolving credit facility of 0.125% per annum, payable quarterly in arrears.
As of June 30, 2019 and December 31, 2018, the Company was in compliance with the debt covenants under the Amended and Restated Loan Agreement.
As of June 30, 2019, the future scheduled principal payments on the Term Loan were as follows:
8,500
17,000
4,500
Contingencies
Litigation
From time to time, the Company is named as a defendant in legal actions relating to transactions conducted in the ordinary course of business. Some of these matters may involve claims of substantial amounts. Although there can be no assurance of the outcome of such legal actions, in the opinion of management, after consultation with external counsel, the Company believes it is not probable and/or reasonably possible that any current legal proceedings or claims would individually or in the aggregate have a material adverse effect on the condensed consolidated financial statements of the Company.
As previously disclosed, with respect to actual and potential additional claims related to funds fraudulently obtained by Andrew Caspersen, the Company believes that any such claims are without merit and the Company will vigorously defend any such matters.
With respect to the Company’s other litigation matters, the Company is not currently able to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support such an assessment, including quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by courts on motions or appeals, analysis by experts or the status of any settlement negotiations.
Guarantee
The Company provides a guarantee to a lending institution for certain loans held by employees for investment in funds of its former Parent, which are secured by the underlying investments in those funds. The amount guaranteed was $11.5 million and $8.9 million as of June 30, 2019 and December 31, 2018, respectively. In connection with this guarantee, the Company currently expects any associated risk of loss to be insignificant.
24
Indemnifications
The Company has entered and may continue to enter into contracts, including contracts with Blackstone relating to the spin-off, which contain a variety of indemnification obligations. The Company’s maximum exposure under these arrangements is not known; however, the Company currently expects any associated risk of loss to be insignificant. In connection with these matters, the Company has incurred and may continue to incur legal expenses, which are expensed as incurred.
Transactions and Agreements with Blackstone
Employee Matters Agreement
The Company is required to reimburse Blackstone for the value of forfeited unvested equity awards granted to former Blackstone employees that transitioned to PJT Partners in connection with the spin-off. Such reimbursement is recorded in Accounts Payable, Accrued Expenses and Other Liabilities with an offset to Equity in the Condensed Consolidated Statements of Financial Condition. The Company will cash settle the liability to Blackstone quarterly as the forfeitures attributable to these employees crystallize. The accrual for these forfeitures was $0.9 million as of June 30, 2019 and December 31, 2018.
Pursuant to the Employee Matters Agreement, the Company has agreed to pay Blackstone the net realized cash benefit resulting from certain compensation-related tax deductions. The amount payable to Blackstone arising from the tax deductions has been recorded in Other Expenses in the Condensed Consolidated Statements of Operations and is payable annually (for periods in which a cash benefit is realized) within nine months of the end of the relevant tax period. As of June 30, 2019 and December 31, 2018, the Company had accrued $1.4 million and $4.3 million, respectively, which the Company anticipates will be payable to Blackstone after the Company files its respective tax returns. The tax deduction and corresponding payable to Blackstone related to such deliveries will fluctuate primarily based on the price of Blackstone common units at the time of delivery.
Tax Matters Agreement
The Company entered into a Tax Matters Agreement with Blackstone that governs the respective rights, responsibilities and obligations of the Company and Blackstone after the spin-off with respect to tax liabilities and benefits, tax attributes, tax contests and other tax sharing regarding U.S. federal, state, local and foreign income taxes, other tax matters and related tax returns. The Company has joint and several liability with Blackstone to the Internal Revenue Service (“IRS”) for the consolidated U.S. federal income taxes of the Blackstone consolidated group relating to the taxable periods in which the Company was part of that group. However, the Tax Matters Agreement specifies the portion, if any, of this tax liability for which the Company bears responsibility, and Blackstone agrees to indemnify the Company against any amounts for which the Company is not responsible. The Tax Matters Agreement also provides special rules for allocating tax liabilities in the event that the spin-off is determined not to be tax-free. Though valid as between the parties, the Tax Matters Agreement is not binding on the IRS.
15.
EMPLOYEE BENEFIT PLANS
The Company contributes to employer sponsored defined contribution plans for certain of its employees, subject to eligibility and statutory requirements. The Company incurred expenses with respect to these defined contribution plans in the amounts of $0.3 million and $0.9 million for the three and six months ended June 30, 2019, respectively, and $0.3 million and $0.6 million for the three and six months ended June 30, 2018, respectively, which are included in Compensation and Benefits in the Condensed Consolidated Statements of Operations.
25
16.
REGULATED ENTITIES
Certain subsidiaries of the Company are subject to various regulatory requirements in the United States, United Kingdom and Hong Kong, which specify, among other requirements, minimum net capital requirements for registered broker-dealers.
PJT Partners LP is a registered broker-dealer through which strategic advisory, shareholder advisory and restructuring and special situations services are conducted in the United States and is subject to the net capital requirements of Rule 15c3-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). PJT Partners LP computes net capital based upon the aggregate indebtedness standard, which requires the maintenance of minimum net capital, as defined, which shall be the greater of $100 thousand or 6 2/3% of aggregate indebtedness, as defined, and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. PJT Partners LP had net capital of $17.7 million and $10.6 million as of June 30, 2019 and December 31, 2018, respectively, which exceeded the minimum net capital requirement by $16.8 million and $8.1 million, respectively.
Park Hill Group LLC is a registered broker-dealer through which private fund advisory and placement services are conducted in the United States and is subject to the net capital requirements of Rule 15c3-1 under the Exchange Act. Park Hill Group LLC elected to adopt the alternative standard, which defines minimum net capital as the greater of $250 thousand or 2% of aggregate debit items computed in accordance with the reserve requirement. Park Hill Group LLC had net capital of $10.0 million and $15.0 million as of June 30, 2019 and December 31, 2018, respectively, which exceeded the minimum net capital requirement by $9.7 million and $14.7 million, respectively.
PJT Partners LP and Park Hill Group LLC do not carry customer accounts and do not otherwise hold funds or securities for, or owe money or securities to, customers and, accordingly, are both exempt from the SEC Customer Protection Rule (Rule 15c3-3).
PJT Partners (UK) Limited is licensed with the United Kingdom’s Financial Conduct Authority and is required to maintain regulatory net capital of €50 thousand. PJT Partners (HK) Limited is licensed with the Hong Kong Securities and Futures Commission and is subject to a minimum liquid capital requirement of HK$3 million. As of June 30, 2019 and December 31, 2018, both of these entities were in compliance with local capital adequacy requirements.
17.
BUSINESS INFORMATION
The Company’s activities providing strategic advisory, shareholder advisory, restructuring and special situations and private fund advisory and placement services constitute a single reportable segment. An operating segment is a component of an entity which conducts business, incurs revenues and expenses for which discrete financial information is available that is reviewed by the chief operating decision maker in assessing performance and making resource allocation decisions. The Company has a single operating segment and therefore a single reportable segment.
The Company is organized as one operating segment in order to maximize the value of advice to clients by drawing upon the diversified expertise and broad relationships of senior professionals across the Company. The chief operating decision maker assesses performance and allocates resources based on broad considerations, including the market opportunity, available expertise across the Company and the strength and efficacy of professionals’ collaboration, and not based upon profit or loss measures for the Company’s separate product lines.
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Since the financial markets are global in nature, the Company generally manages its business based on the operating results of the Company taken as a whole, not by geographic region. The following tables set forth the geographical distribution of revenues and assets based on the location of the office that generates the revenues or holds the assets and therefore may not be reflective of the geography in which the Company’s clients are located.
Domestic
154,633
121,003
276,927
232,598
International
12,071
9,667
17,833
32,114
703,612
628,437
97,932
43,380
The Company had one client that represented 10.5% of total revenues for the three months ended June 30, 2019. The Company is not subject to any material concentrations with respect to its revenues for the six months ended June 30, 2019 or three and six months ended June 30, 2018. The Company is not subject to any material concentrations of credit risk with respect to its accounts receivable as of June 30, 2019 and December 31, 2018.
18.
SUBSEQUENT EVENTS
The Board of Directors of PJT Partners Inc. has declared a quarterly dividend of $0.05 per share of Class A common stock, which will be paid on September 18, 2019 to Class A common stockholders of record on September 4, 2019.
The Company did not identify any other subsequent events besides the exchange of Partnership Units described in Note 13. “Transactions with Related Parties—Exchange Agreement.”
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The following discussion and analysis should be read in conjunction with PJT Partners’ Condensed Consolidated Financial Statements and the related notes included in this Quarterly Report on Form 10-Q.
Our Business
PJT Partners is a global advisory-focused investment bank. Our team of senior professionals delivers a wide array of strategic advisory, shareholder advisory, restructuring and special situations and private fund advisory and placement services to corporations, financial sponsors, institutional investors and governments around the world. We offer a unique portfolio of advisory services designed to help our clients achieve their strategic objectives. We also provide, through PJT Park Hill, private fund advisory and fundraising services for alternative investment managers, including private equity funds, real estate funds and hedge funds.
We have world-class franchises in each of the areas in which we compete.
•
Our strategic advisory business offers a broad range of financial advisory and transaction execution capability, including mergers and acquisitions (“M&A”), joint ventures, minority investments, asset swaps, divestitures, takeover defenses, corporate finance advisory, private placements and distressed sales. In October 2018, we acquired CamberView Partners Holdings, LLC (“CamberView” or “PJT Camberview”). PJT Camberview brings together the world’s leading experts from the investor community to help public companies understand, engage and succeed with their investors in complex and contested shareholder matters by developing insightful strategies, effective tactics and high impact messaging.
Our restructuring and special situations business is one of the world’s leading advisors in restructurings and recapitalizations, both in and out of court, around the globe. With vast expertise in highly complex capital structure challenges, our Restructuring and Special Situations Group’s services include advising companies, creditors and financial sponsors on recapitalizations, reorganizations, exchange offers, debt repurchases, capital raises and distressed mergers and acquisitions.
PJT Park Hill, our private fund advisory and placement business, is a world-leading fund placement agent and provides private fund advisory and fundraising services for a diverse range of investment strategies. Moreover, PJT Park Hill is the only group among its peers with top-tier dedicated private equity, hedge fund, real estate and secondary advisory groups.
Business Environment
Economic and global financial conditions can materially affect our operational and financial performance. See “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 for a discussion of some of the factors that can affect our performance.
M&A is a cyclical business that is impacted by macroeconomic conditions. According to Refinitiv, worldwide M&A announced volumes during the first half of 2019 were down 12% versus the comparable prior period in 2018, but still the third strongest first half since records began in 19801. We remain in a very constructive environment for M&A by historical standards. We expect corporate boards and management teams to continue to use M&A as a tool for growth.
Source: Refinitiv. Aggregate mergers and acquisitions values extracted from the official Refinitiv Global Mergers & Acquisitions Review for First Half 2019, based on figures extracted from Refinitiv databases as of June 28, 2019.
Despite continued low default rates, global restructuring activity in the first half of 2019 gained momentum across a broad spectrum of industries including energy; retail; healthcare; pharmaceuticals; and technology, media and telecommunications as well as financial sponsor-backed companies. PJT Partners maintained strong market share and was ranked #1 in global completed restructurings for the first half of 20192.
As investors seek to enhance returns, diversification and portfolio yield, alternative assets continue to be in demand by institutional investors on a global basis. Within certain asset classes, we are seeing increased interest in narrow and niche strategies as well as customized solutions such as joint ventures, separate accounts and direct investment opportunities.
On June 23, 2016, the United Kingdom (“U.K.”) voted to leave the European Union (“E.U.”), commonly referred to as “Brexit,” and on March 29, 2017, the U.K. began the process to withdraw from the E.U. with an original deadline for withdrawal at the end of March 2019, which has now been extended to October 31, 2019. The full impact of Brexit remains uncertain and the political climate in Europe continues to take shape. The future terms of the U.K.’s relationship with the E.U. are still being determined. We expect that circumstances relating to Brexit will impact the Company’s organization and/or operations and we are taking preparatory steps accordingly.
Key Financial Measures
Substantially all of our revenues are derived from Advisory Fees and Placement Fees. This revenue is primarily a function of the number of active engagements we have, the size of each of those engagements and the fees we charge for our services.
Advisory Fees – Our strategic advisory services include a broad range of financial advisory and transaction execution services relating to acquisitions, mergers, joint ventures, minority investments, asset swaps, divestitures, takeover defenses, corporate finance advisory, shareholder advisory and distressed sales. Our restructuring and special situations services include providing advice to corporations and creditors in recapitalizations and restructurings around the world, with particular expertise in large, complex and high-profile deals. In conjunction with providing such restructuring advice, we may also assist with raising various forms of financing, including debt and equity. Our secondary advisory services provided by PJT Park Hill include providing solutions to investing clients seeking portfolio liquidity, unfunded commitment relief and investments in secondary markets. Advisory Fees typically consist of retainer and transaction-based fee arrangements. The amount and timing of the fees paid vary by the type of engagement. The majority of our Advisory Fees recognized are dependent on the successful completion of a transaction.
A transaction can fail to be completed for many reasons, including failure of parties to agree upon final terms, to secure necessary board or shareholder approvals, to secure necessary financing or to achieve necessary regulatory approvals. In the case of bankruptcy engagements, fees are subject to approval of the court.
Placement Fees – Our fund placement services are provided within PJT Park Hill and primarily serve private equity, real estate and hedge funds. Our team advises on all aspects of the fundraising process including competitive positioning and market assessment, marketing materials and related documentation and partnership terms and conditions most prevalent in the current environment. We also provide private placement fundraising services to our corporate clients and earn placement fees based on successful completion of the transaction.
Source: Refinitiv. League Table ranking extracted from the official Refinitiv Distressed Debt & Bankruptcy Restructuring Review for First Half 2019, based on figures extracted from Refinitiv databases as of July 15, 2019.
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Fund placement fees earned for services provided to alternative asset managers are typically recognized upon acceptance by a fund of capital or capital commitments (referred to as a “closing”), in accordance with terms set forth in individual agreements. For commitment based fees, revenue is recognized over time as commitments are accepted. Fees for such closed-end fund arrangements are generally paid in installments over three or four years and interest is charged to the outstanding balance at an agreed upon rate (typically the London Interbank Offered Rate (“LIBOR”) plus a market-based margin). For funds with multiple closings, the constraint on variable consideration is lifted upon each closing. For open-end fund structures, placement fees are typically calculated as a percentage of a placed investor’s month-end net asset value. Typically, we earn fees for such open-end fund structures over a 48 month period. For these arrangements, revenue is recognized over time as the constraint over variable consideration is lifted.
We may receive non-refundable up-front fees in our contracts with customers, which are recorded as revenues in the period over which services are estimated to be provided.
Interest Income and Other – Interest Income and Other represents interest typically earned on Cash and Cash Equivalents, U.S. Treasury securities and outstanding placement fees receivable; miscellaneous income; foreign exchange gains and losses arising on transactions denominated in currencies other than U.S. dollars; sublease income; and the amount of expense reimbursement invoiced to clients related to out-of-pocket expenses. Interest on placement fees receivable is earned from the time revenue is recognized and is calculated based upon LIBOR plus an additional percentage as mutually agreed upon with the receivable counterparty. Interest receivable is included in Accounts Receivable, Net in the Condensed Consolidated Statements of Financial Condition.
Compensation and Benefits – Compensation and Benefits expense includes salaries, cash bonuses, benefits, employer taxes and equity-based compensation associated with the grants of equity-based awards to employees and partners. Changes in this expense are driven by fluctuations in the number of employees, business performance, compensation adjustments in relation to market movements, changes in rates for employer taxes and other cost increases affecting benefit plans. In addition, this expense is affected by the composition of our work force. The expense associated with our bonus and equity plans can also have a significant impact on this expense category and may vary from year to year.
We maintain compensation programs, including salaries, annual incentive compensation (that may include components of cash, restricted cash and/or equity-based awards) and benefits programs. We manage compensation to estimates of competitive levels based on market conditions and performance. Our level of compensation reflects our plan to maintain competitive compensation levels to retain key personnel and it reflects the impact of newly-hired senior professionals, including related grants of equity awards that are generally valued at their grant date fair value.
Increasing the number of high-caliber, experienced senior level employees is critical to our growth efforts. In our advisory businesses, these hires generally do not begin to generate significant revenue in the year they are hired.
Our remaining expenses are the other costs typical to operating our business, which generally consist of:
Occupancy and Related – consisting primarily of costs related to leased property, including rent, maintenance, real estate taxes, utilities and other related costs. Our company headquarters are located in New York, New York, and we maintain additional offices in the U.S. and throughout the world;
Travel and Related – consisting of costs for our partners and employees to render services where our clients are located;
Professional Fees – consisting primarily of consulting, audit and tax, recruiting and legal and other professional services;
Communications and Information Services – consisting primarily of costs for our technology infrastructure and telecommunications costs;
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Depreciation and Amortization – consisting of depreciation and amortization on our furniture, equipment, leasehold improvements and intangible assets; and
Other Expenses – consisting primarily of bad debt, regulatory fees, insurance, fees paid for access to external market data, advertising, other general operating expenses and transaction-related payable to The Blackstone Group Inc. (“Blackstone” or our “former Parent”).
Income Taxes – PJT Partners Inc. is a corporation subject to U.S. federal, state and local income taxes in jurisdictions where it does business. The Company’s businesses generally operate as partnerships for U.S. federal and state purposes and as corporate entities in non-U.S. jurisdictions. In the U.S. federal and state jurisdictions, taxes related to income earned by these entities generally represent obligations of the individual members and partners.
The operating entities have generally been subject to New York City Unincorporated Business Tax and to entity-level income taxes imposed by non-U.S. jurisdictions, as applicable. These taxes have been reflected in the Company’s condensed consolidated financial statements.
PJT Partners Inc. is subject to U.S. corporate federal, state and local income tax on its allocable share of results of operations from the operating partnership (PJT Partners Holdings LP).
PJT Partners Inc. is a holding company and its only material asset is its controlling equity interest in PJT Partners Holdings LP, and certain cash and cash equivalents it may hold from time to time. As the sole general partner of PJT Partners Holdings LP, PJT Partners Inc. operates and controls all of the business and affairs and consolidates the financial results of PJT Partners Holdings LP and its operating subsidiaries.
Condensed Consolidated Results of Operations
The following table sets forth our condensed consolidated results of operations for the three and six months ended June 30, 2019 and 2018:
Three Months Ended
Six Months Ended
Change
35
(4
)%
(40
Communications and
Information Services
(1
Depreciation and
Amortization
74
77
53
Income Before Provision
(Benefit) for Taxes
34
N/M
(9
(38
Net Income Attributable
to Non-Controlling Interests
(31
Not meaningful.
The following table provides revenue statistics for the three and six months ended June 30, 2019 and 2018:
Number of Clients
181
81
Number of Fee-Paying Clients with $1 Million or
More
46
56
Number of Fee-Paying Clients Representing
Greater than 10% of Advisory Fees
Percentage of Such Clients’ Fees of Total
13.1
N/A
37
52
60
Greater than 10% of Placement Fees
37.7
35.8
13.7
11.9
Total Revenues were $166.7 million for the three months ended June 30, 2019, an increase of $36.0 million compared with $130.7 million for the three months ended June 30, 2018. Advisory Fees were $133.0 million for the three months ended June 30, 2019, an increase of $34.7 million compared with $98.3 million for the three months ended June 30, 2018. The increase in Advisory Fees was driven by growth in our strategic advisory and restructuring and special situations businesses. Placement Fees were $28.7 million for the three months ended June 30, 2019, marginally higher compared with the three months ended June 30, 2018. Interest Income and Other was $5.0 million for the three months ended June 30, 2019, an increase of $0.7 million compared with $4.2 million for the three months ended June 30, 2018. The increase in Interest Income and Other was primarily driven by foreign currency gains in the current quarter.
Total Revenues were $294.8 million for the six months ended June 30, 2019, an increase of $30.0 million compared with $264.7 million for the six months ended June 30, 2018. Advisory Fees were $237.5 million for the six months ended June 30, 2019, an increase of $35.7 million compared with $201.8 million for the six months ended June 30, 2018. The increase in Advisory Fees resulted from significant growth in our strategic advisory business and modest growth in our restructuring and special situations business. Placement Fees were $52.0 million for the six months ended June 30, 2019, a decrease of $2.2 million compared with $54.3 million for the six months ended June 30, 2018. The decrease was primarily attributable to a decrease in private equity placement revenues. Interest Income and Other was $5.3 million for the six months ended June 30, 2019, a decrease of $3.5 million compared with $8.7 million for the six months ended June 30, 2018. The decrease was primarily driven by a decrease in reimbursable expenses billed to clients.
Expenses were $153.1 million for the three months ended June 30, 2019, an increase of $32.6 million compared with $120.5 million for the three months ended June 30, 2018. The increase in expenses was primarily attributable to increases in Compensation and Benefits, Other Expenses, Professional Fees, Depreciation and Amortization and Occupancy and Related of $24.9 million, $2.3 million, $1.6 million, $1.5 million and $1.2 million, respectively. The increase in Compensation and Benefits reflected higher revenues during the current quarter as well as increased headcount. The increase in Other Expenses was driven by interest expense associated with the acquisition of CamberView and additional market data and other expenses associated with increased headcount and business activity. The increase in Professional Fees was primarily due to increased headcount and business activity. Depreciation and Amortization increased primarily due to additional amortization expense related to intangible assets recorded in the acquisition of CamberView during the fourth quarter of 2018. The increase in Occupancy and Related was primarily due to the CamberView acquisition and expansion in our existing locations.
Expenses were $281.3 million for the six months ended June 30, 2019, an increase of $29.3 million compared with $252.0 million for the six months ended June 30, 2018. The increase in expenses was primarily attributable to increases in Compensation and Benefits, Other Expenses, Depreciation and Amortization, Professional Fees and Travel and Related of $16.4 million, $3.7 million, $3.2 million, $2.3 million and $2.2 million, respectively. The increase in Compensation and Benefits reflected higher revenues during the current six month period as well as increased headcount. The increase in Other Expenses was driven by interest expense associated with the acquisition of CamberView and additional market data and other expenses associated with increased headcount and business activity. Depreciation and Amortization increased primarily due to additional amortization expense related to intangible assets recorded in the acquisition of CamberView during the fourth quarter of 2018. The increases in Professional Fees and Travel and Related were primarily due to increased headcount and business activity.
The Company’s Provision for Taxes for the three months ended June 30, 2019 was $3.6 million, which represents an effective tax rate of 26.2% on pretax income of $13.6 million. The Company’s Benefit for Taxes for the three months ended June 30, 2018 was $0.9 million, which represents an effective tax rate of -8.7% on pretax income of $10.1 million.
The Company’s Provision for Taxes for the six months ended June 30, 2019 was $2.5 million, which represents an effective tax rate of 18.8% on pretax income of $13.5 million. The Company’s Benefit for Taxes for the six months ended June 30, 2018 was $5.0 million, which represents an effective tax rate of -39.1% on pretax income of $12.8 million.
Net Income (Loss) Attributable to Non-Controlling Interests is derived from the Income Before Provision (Benefit) for Taxes and the percentage allocation of the net income (loss) between the holders of common units of partnership interest in PJT Partners Holdings LP (“Partnership Units”) and holders of Class A common stock of PJT Partners Inc. after considering any contractual arrangements that govern the allocation of income (loss).
Liquidity and Capital Resources
General
We regularly monitor our liquidity position, including cash and cash equivalents, investments, working capital assets and liabilities, any commitments and other liquidity requirements.
Our assets have historically been comprised of cash and cash equivalents, investments and receivables arising from strategic advisory and placement engagements. Our liabilities primarily include accrued compensation and benefits, accounts payable and accrued expenses and taxes payable. We expect to pay a significant amount of incentive compensation late each year or during the beginning of the next calendar year with respect to the prior year’s results. A portion of annual compensation may be awarded with equity-based compensation and thus requires less cash. We expect levels of cash to decline at year-end or during the first quarter of each year after incentive compensation is paid to our employees. We then expect cash to gradually increase over the remainder of the year.
Information regarding our Amended and Restated Loan Agreement can be found in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2018.
As of June 30, 2019 and December 31, 2018, we were in compliance with the debt covenants under the Amended and Restated Loan Agreement.
We evaluate our cash needs on a regular basis in light of current market conditions. As of June 30, 2019 and December 31, 2018, we had cash, cash equivalents and investments of $85.6 million and $108.3 million, respectively.
Our liquidity is highly dependent upon cash receipts from clients, which are generally dependent upon the successful completion of transactions as well as the timing of receivable collections. As of June 30, 2019 and December 31, 2018, total accounts receivable were $221.9 million and $217.8 million, respectively, net of allowance for doubtful accounts of $0.4 million and $0.7 million, respectively. Included in Accounts Receivable are long-term receivables of $75.9 million and $77.9 million as of June 30, 2019 and December 31, 2018, respectively, related to placement fees that are generally paid in installments over a period of three to four years.
Sources and Uses of Liquidity
Our primary cash needs are for working capital, paying operating expenses, including cash compensation to our employees, funding the cash redemption of Partnership Units, repurchasing shares of the Company’s Class A common stock, paying income taxes, making distributions to our shareholders in accordance with our dividend policy, capital expenditures, commitments and strategic investments. We expect to fund these liquidity requirements through cash flows from operations and borrowings under our revolving credit facility. Our ability to fund these needs through cash flows from operations will depend, in part, on our ability to generate or raise cash in the future. This depends on our future financial results, which are subject to general economic, financial, competitive, legislative and regulatory factors. Furthermore, our ability to forecast future cash flows is more limited because we do not have a long-established operating history as a stand-alone company. If our cash flows from operations are less than we expect, we may need to incur debt, issue additional equity or borrow from our revolving credit facility. Although we believe that the arrangements we have in place will permit us to finance our operations on acceptable terms and conditions, our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including: (a) our credit ratings or absence of a credit rating, (b) the liquidity of the overall capital markets, and (c) the current state of the economy. We cannot provide any assurance that such financing will be available to us on acceptable terms or that such financing will be available at all. We believe that our future cash from operations and availability under our revolving credit facility, together with our access to funds on hand, will provide adequate resources to fund our short-term and long-term liquidity and capital needs.
Subject to the terms and conditions of the exchange agreement between us and certain of the holders of Partnership Units (other than PJT Partners Inc.), Partnership Units are exchangeable at the option of the holder for cash or, at our election, for shares of our Class A common stock on a one-for-one basis. Depending on our liquidity and capital resources, market conditions, the timing and concentration of exchange requests and other considerations, we may choose to fund cash-settled exchanges of Partnership Units with available cash, borrowings or new issuances of Class A common stock or to settle exchanges by issuing Class A common stock to the exchanging Partnership Unitholder. Issuing significant numbers of shares of our Class A common stock upon exchange of Partnership Units could adversely affect the tax consequences to Blackstone of the distribution. Accordingly, while we will retain the right under the Exchange Agreement to elect to settle exchanges in cash or Class A common stock in our sole discretion, we intend to limit such issuances of Class A common stock in settlement of exchanges of Partnership Units to the extent necessary to preserve the intended tax-free nature of the spin-off and to comply with our obligations under the Tax Matters Agreement.
Regulatory Capital
We actively monitor our regulatory capital base. We are subject to regulatory requirements in the U.S. and certain international jurisdictions to ensure general financial soundness and liquidity. This requires, among other things, that we comply with certain minimum capital requirements, recordkeeping, reporting procedures, experience and training requirements for employees and certain other requirements and procedures. These regulatory requirements may restrict the flow of funds to and from affiliates. See Note 16. “Regulated Entities” in the “Notes to Condensed Consolidated Financial Statements” in “—Item 1. Financial Statements” of this filing for further information. The licenses under which we operate are meant to be appropriate to conduct our strategic advisory, shareholder advisory, restructuring and special situations and private fund advisory and placement services businesses. We believe that we provide each of these entities with sufficient capital and liquidity, consistent with their business and regulatory requirements.
Our activities may also be subject to regulation, including regulatory capital requirements, by various other foreign jurisdictions and self-regulatory organizations.
We do not anticipate that compliance with any and all such requirements will materially adversely impact the availability of funds for domestic and parent-level purposes.
During the six months ended June 30, 2019, the Company repurchased 639,204 shares of Class A common stock at an average price of $40.15, or $25.7 million in aggregate, pursuant to this share repurchase program. As of June 30, 2019, the available amount remaining for repurchases under this program was $107.2 million.
Contractual Obligations
For a discussion of our contractual obligations, refer to “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2018. There have not been any material changes to our contractual obligations since December 31, 2018.
As previously disclosed, with respect to actual and potential additional claims related to funds fraudulently obtained by Andrew Caspersen, we believe that the total potential amount of any such claims to be less than $30 million, any such claims are without merit and we will vigorously defend any such actions.
With respect to our other litigation matters, including the litigation discussed under “—Item 1. Legal Proceedings” in “Part II. Other Information” included elsewhere in this report, we are not currently able to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support such an assessment, including quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by courts on motions or appeals, analysis by experts or the status of any settlement negotiations. However, the disposition of these contingencies could be material to our financial results in the period in which it occurs.
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We have entered and may continue to enter into contracts, including contracts with Blackstone relating to the spin-off, which contain a variety of indemnification obligations. Our maximum exposure under these arrangements is not known; however, we currently expect any associated risk of loss to be insignificant. In connection with these matters, we have incurred and may continue to incur legal expenses, which are expensed as incurred.
We have entered into a tax receivable agreement with the holders of Partnership Units (other than PJT Partners Inc.) that provides for the payment by PJT Partners Inc. to exchanging holders of Partnership Units of 85% of the benefits, if any, that PJT Partners Inc. is deemed to realize as a result of the increases in tax basis related to such exchanges of Partnership Units and of certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. This payment obligation is an obligation of PJT Partners Inc. and not of PJT Partners Holdings LP. PJT Partners Inc. expects to benefit from the remaining 15% of cash tax savings, if any, in income tax it realizes.
Further information regarding the tax receivable agreement can be found in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2018.
See Notes 9, 11, 12, 14 and 15 in the “Notes to Condensed Consolidated Financial Statements” in “—Item 1. Financial Statements” of this filing for further information in connection with income taxes, equity-based and other deferred compensation plans, leasing arrangements, commitments and employee benefit plans, respectively.
Critical Accounting Policies
Our significant accounting policies are summarized in Note 2. “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” in “Part II. Item 8. Financial Statements and Supplementary Data” in our Annual Report on Form 10-K for the year ended December 31, 2018. A discussion of critical accounting policies is included in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2018. The Company has updated its significant accounting policies with respect to the adoption of new leasing guidance as of January 1, 2019 and included this information in Note 12. “Leases” in the “Notes to Condensed Consolidated Financial Statements” in “—Item 1. Financial Statements” of this filing.
Off-Balance Sheet Arrangements
The Company is not involved with any off-balance sheet arrangements that are not elsewhere reflected in our condensed consolidated financial statements.
Information regarding recent accounting developments and their impact on our financial statements can be found in Note 2. “Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” in “—Item 1. Financial Statements” of this filing.
Quantitative and qualitative disclosures about market risk can be found in “Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2018. Our exposures to market risk have not changed materially since December 31, 2018.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during our most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
From time to time, the Company and its affiliates may be subject to legal proceedings and claims in the ordinary course of business. In addition, government agencies and self-regulatory organizations in countries in which we conduct business conduct periodic examinations and may initiate administrative proceedings regarding the Company’s and its affiliates’ business, including, among other matters, accounting and operational matters, that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer, or its directors, officers or employees. It is our policy to cooperate fully with such governmental requests, examinations and administrative proceedings. In view of the inherent difficulty of determining whether any loss in connection with any such matters is probable and whether the amount of such loss can be reasonably estimated, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, we cannot estimate the amount of such loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, fine, penalty or other relief, if any, might be. Subject to the foregoing, we believe, based on current knowledge and after consultation with counsel, that we are not currently party to any material pending proceedings, individually or in the aggregate, the resolution of which would have a material effect on the Company.
There were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
The risks described in our Annual Report on Form 10-K for the year ended December 31, 2018 and in our subsequently filed Quarterly Reports on Form 10-Q are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Issuer Purchases of Equity Securities in the Second Quarter of 2019
Total Number of
Approximate
Dollar
of Shares
Value of Shares
Purchased as
that May Yet Be
Total Number
Part of Publicly
Purchased Under
Average Price
Announced Plans
the Plans or
Repurchased
Paid Per Share
or Programs (a)
Programs (a)
April 1 to April 30
132.9 million
May 1 to May 31
558,550
40.51
110.2 million
June 1 to June 30
80,654
37.71
107.2 million
639,204
40.15
On April 24, 2019, the Company’s Board of Directors authorized the repurchase of shares of the Company’s Class A common stock in an amount up to $100 million, which is in addition to the previous October 26, 2017 authorization. As of June 30, 2019, the Company’s remaining repurchase authorization was $107.2 million. Under the repurchase program, shares of the Company’s Class A common stock may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number of shares repurchased depend on a variety of factors, including legal requirements, price and economic and market conditions. The repurchase program may be suspended or discontinued at any time and does not have a specified expiration date.
Unregistered Sales
In connection with the issuance during the second quarter of 2019 of LTIP Units in PJT Partners Holdings LP to certain personnel, PJT Partners Inc. issued three corresponding shares of its Class B common stock, par value $0.01 per share, to these limited partners. Shares of Class B common stock have no economic rights but entitle the holder, without regard to the number of shares of Class B common stock held, to a number of votes that is equal to the aggregate number of vested and unvested Partnership Units and LTIP Units in PJT Partners Holdings LP held by such holder on all matters presented to stockholders of PJT Partners Inc. other than director elections and removals. With respect to the election and removal of directors of PJT Partners Inc., shares of Class B common stock will initially entitle holders to only one vote per share. However, the voting power of Class B common stock with respect to the election and removal of directors of PJT Partners Inc. may be increased to up to the number of votes to which a holder is then entitled on all other matters presented to stockholders. The issuance of shares of Class B common stock was not registered under the Securities Act of 1933 because such shares were not issued in a transaction involving the offer or sale of securities.
Dividend Policy
The Company declared a dividend of $0.05 per share of Class A common stock in the second quarter of 2019 and plans to regularly pay quarterly dividends.
Refer to “Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in our Annual Report on Form 10-K for the year ended December 31, 2018 for further disclosure of the Company’s dividend policy.
Not applicable.
Exhibit
Number
Exhibit Description
+2.1
Separation and Distribution Agreement by and among The Blackstone Group L.P., Blackstone Holdings I L.P., New Advisory GP L.L.C., PJT Partners Inc. and PJT Partners Holdings LP, dated as of October 1, 2015 (incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36869) filed with the Securities and Exchange Commission on October 5, 2015).
3.1
Amended and Restated Certificate of Incorporation of PJT Partners Inc. (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36869) filed with the Securities and Exchange Commission on October 5, 2015).
3.2
Amended and Restated By-Laws of PJT Partners Inc. (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36869) filed with the Securities and Exchange Commission on October 5, 2015).
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a).
31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS
XBRL Instance Document – the instance document does not appear in the Interactive Data File because iXBRL tags are embedded within the inline XBRL document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
+
Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. The descriptions of the omitted schedules and exhibits are contained within the relevant agreement. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 2, 2019
By:
/s/ Paul J. Taubman
Name:
Paul J. Taubman
Title:
Chief Executive Officer
/s/ Helen T. Meates
Helen T. Meates
Chief Financial Officer
(Principal Financial and Accounting Officer)