PJT Partners Inc (PJT) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the PJT Partners second-quarter 2016 earnings conference call. My name is Towanda and I will be your coordinator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Sharon Pearson, Head of Investor Relations. Please proceed.

Thanks, Towanda. Good morning and welcome to the PJT Partners second-quarter 2016 earnings conference call. Joining me today is Paul Taubman, our Chairman and Chief Executive Officer; Ji-Yeun Lee, our Managing Partner; and Helen Meates, our Chief Financial Officer.

Before I turn the call over to Paul I want to point out that during the course of this conference call we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements.

We believe that these factors are described in the risk factors section contained in PJT Partners' 2015 Form 10-K which is available on our website at PJTPartners.com. I want to remind you that the Company assumes no duty to update any forward-looking statements and that also the presentation we make today contains non-GAAP financial measures which we believe are meaningful in evaluating the Company's performance.

For detailed disclosures on these non-GAAP metrics and their GAAP reconciliations, you should refer to the financial data contained within the press release we issued this morning also available on our website. With that I will turn the call over to Paul.

Good morning and thank you for joining us today. Our second-quarter results reflect positive momentum in our business. We continue to make progress as evidenced by our second-quarter revenues, which are up 23% over the same period last year and 32% for the first half of 2016 versus year ago comparisons. While it is early days, we are seeing the power of our three highly complementary businesses working together to better serve clients.

Park Hill, excluding the secondary advisory business, had meaningfully higher revenues versus a year ago. On our first-quarter earnings call we mentioned the potential impact of the Caspersen matter on our near-term secondary pipeline. We also reiterated our commitment to the secondary business and expressed our confidence that our franchise would remain a market leader.

In the second quarter, our secondary advisory team, together with our strategic advisory team, announced and priced a highly successful securitization for [Temasek]. This transaction, which closed in the beginning of the third quarter, represented a landmark secondary securitization which is the largest collateralized fund obligation since the global financial crisis.

We've always said an important part of our growth strategy is to maximize the power of our three businesses through collaboration. The Temasek transaction is a prime example of the combined strength and complementary nature of the PJT platform, a joint team (technical difficulty) from secondary advisory and strategic advisory structured and executed on innovative client solution.

We are pleased with the speed and strength of the recovery in our secondary advisory business. In the last 45 days we have secured five new mandates in our secondary business with a strong shadow pipeline. As we sit here today we now expect that our 2016 revenues from the secondary advisory business may well be up year over year. The recovery in this business was faster than any of us expected and underscores our leading market position.

Our restructuring business continues to capitalize on the current market environment and maintain its leadership position. While we continue to benefit from the opportunities in the distressed commodity sectors our restructuring mandates span a broad variety of industries and geographies with almost 40% of our active assignments for clients outside the United States. We are currently serving clients in geographies as diverse as Brazil, South Africa, Kenya, Poland and Mexico.

We had fewer transaction fees booked in this quarter reflecting the lumpiness of the business given the timing of transaction closings. As we look out over the next 12 months, the level of activity continues to be high. Our revenue backlog increased in the quarter and is the highest it has been since the financial crisis.

Turning to strategic advisory, we continue to invest in our strategic advisory business. We have hired nearly 50 advisory professionals since separating from Blackstone and now have more employees in our strategic advisory business than we had at the time of our spinoff announcement. In the first half of the year, we expanded our footprint and further built out our business by adding best-in-class talent to our strategic advisory franchise.

In the second quarter we added two partners who will join us in the third quarter, one in the US and one in Europe. These hires were in addition to the five managing directors we hired in the first quarter with an average MD tenure of approximately three years. In doing so, PJT gained greater presence in chemicals, industrials, real estate, media and equity capital markets.

We continue to recruit actively and expect to add a number of partners during the balance of the year. We are pleased with our progress as measured by the level of client engagement, number of mandates and quality of transactions announced in a very short period of time.

In the second quarter, we advised on a number of important transactions for our clients and this momentum has continued into the third quarter. As a consequence, our 2017 strategic advisory pipeline continues to build.

I will now turn it over to Helen to review our reported results and then close with our outlook for the remainder of 2016.

Thank you, Paul. Good morning. I will begin with reviewing revenues. Total revenues for the quarter were $89 million, up 23% compared with revenues of $72 million for the second quarter last year.

The breakdown of revenues: advisory revenues were $59 million compared with $47 million for the second quarter of 2015, up 27% year over year, and the increase was driven primarily by higher strategic advisory revenues compared with the same period last year. Placement revenues were $29 million compared with $25 million for the second quarter 2015, up 14% year over year. The increase was driven primarily by an increase in fund placement fees particularly for real estate clients.

For the six months ended June 30, total revenues were $205 million, up 32% compared with revenues of $155 million for the first six months of 2015. The breakdown of revenues: advisory revenues were $141 million compared with $105 million for the same period last year, up 34% year over year. Placement revenues were $61 million compared with $48 million for the same period last year, up 25% year over year.

Now turning to expenses, consistent with prior quarters, we have presented the expenses with certain non-GAAP adjustments. However, in the past we exclude the amortization of equity awards and intangible assets associated with the Blackstone IPO as well as the merger with PJT Capital and the subsequent spinoff from Blackstone.

This quarter and going forward we will also be presenting our results as if all partnership units had been converted to shares so that PJT Partners Inc., our publicly traded entity, owns 100% of the partnership units and, as a consequence, all of our income is taxed at a corporate tax rate.

First, adjusted compensation expense. For the second quarter compensation expense was $56 million compared with $49 million for the second quarter 2015. Year-to-date compensation expense was $129 million compared with $116 million for the first six months of 2015.

Compensation expense as a percentage of revenues was 63% for both the second quarter and year to date, a decline from 67% in the second quarter and 75% for the first six months of 2015. The year-to-date decline reflects the fact that revenues increased 32% year over year while compensation expense increased only 11% in the same period.

Turning to adjusted non-compensation expense. Before I review the details of our non-comp expense I would make the following observations. Given the fact that the majority of the 2015 non-comp expense reflects Blackstone allocations, the year-over-year comparisons are not particularly meaningful and our second-quarter 2016 expense includes approximately $3 million in legal and other expenses directly related to the Caspersen matter referred to previously.

With that background, total non-compensation expense was $25 million in the second quarter 2016 compared with $18 million in the same period last year. And year-to-date total non-compensation expense was $46 million compared with $35 million in the first six months of 2015. Second quarter non-comp expense as a percentage of revenues was 28% compared with 25% for the same period last year and year-to-date non-comp expense as a percentage of revenues was 23%. It was also 23% for the first six months of 2015.

We continue to actively manage our expenses and the operating costs in the underlying business are in line with our expectations. Excluding the Caspersen-related charges of approximately $6.8 million year to date, our adjusted non-comp expense for the first six months as a percentage of revenues was 19%.

Turning to adjusted pretax income, we reported pretax income of $8.5 million in the second quarter 2016 compared with $5.7 million for the same period last year. Our pretax income for the first six months was $29.4 million compared with $3.5 million for the same period last year.

Our adjusted pretax margin was 10% in the second quarter and 14% year to date and, excluding the Caspersen related charges, the adjusted pretax income would be 18% year to date. The provision for taxes, our GAAP effective tax rate was 54% for the current quarter and 56% year to date with the adjustments I mentioned previously, assuming all the partnership units were converted to common shares, the effective tax rate was 39% for both the quarter and year to date.

Share count; at the end of the earnings release we provided a summary of our share count including a breakdown of the components. The share count used for calculating our adjusted if converted earnings per share is 36.8 million shares.

On the balance sheet we ended the quarter with $103 million in cash, net working capital of $133 million and no funded debt. Finally, the Board has approved a dividend of $0.05 per share. The dividend will be paid on September 21, 2016 to Class A common shareholders of record on September 7. I will now turn back to Paul.

Thank you, Helen. As we previously noted, global industry M&A volumes in 2015 were running about 20% above trend line and we predicted, correctly as it turns out, that 2016 would represent a reversion to trend line.

Notwithstanding the decline in M&A volumes relative to last year, we still see very significant market activity and, more importantly, we are highly constructive on the long-term outlook for M&A with the need to navigate a world with increasing complexity, increasing dislocations caused by technological innovations, and increasing velocity of change.

The macro environment will go through its cyclical ups and downs, but the more challenging the market backdrop the more clients value high-quality advice and the more our firm will be able to differentiate itself from others. We are building PJT Partners with a focus on serving clients through these cycles and positioning our Firm for growth in most any market environment by gaining mind share and market share.

We've talked in the past about taking a long-term perspective and measuring ourselves in years, not quarters. However, given that this is the midway point of our first full year as a standalone public Company, a year we have described as a year of franchise building, we wanted to take stock of where we are.

We have built a strong and cohesive client focused partnership culture centered on collaboration, character and excellence. Our commitment to recruiting and developing best-in-class talent has attracted a high caliber of banking talent to our platform. Our restructuring and Park Hill businesses remain leaders in their respective markets. In strategic advisory we are seeing meaningful progress in our client dialogues, new mandates, announced transactions and revenue backlog. And we are starting to see tangible results from these initiatives.

In the first half of 2016, our revenues increased by more than $50 million versus last year notwithstanding the fact that this has been a period of significant transition. Looking forward to the second half of 2016, we expect to generate substantially higher revenues than we did in the first half of 2016.

Given our current pipeline and strong momentum across all of our businesses we remain confident in the Firm's growth prospects for 2016 and beyond. And with that, we will see if there are any questions.

(Operator Instructions).

Seeing as there are no questions, I thank everyone for joining us this morning and we look forward to speaking with you after next quarter's earnings results. Thank you.