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PJT Partners Inc. (PJT) Q1 2019 Earnings Call Transcript

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PJT Partners Inc.  (NYSE: PJT)
Q1 2019 Earnings Call
May. 01, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the PJT Partners First Quarter 2019 Earnings Call. My name is Katrina, and I'm your event manager. During the presentation, your lines will remain on listen-only. (Operator Instructions) I'd like to advise all parties the conference is being recorded for replay purposes.

And now I'd like to hand over to Sharon Pearson, Head of Investor Relations.

Sharon Pearson -- Head of Investor Relations

Thank you very much, Katrina. Good morning, and welcome to the PJT Partners First Quarter 2019 Earnings Conference Call. Joining me today is Paul Taubman, our Chairman and Chief Executive Officer; and Helen Meates, our Chief Financial Officer.

Before I turn the call over to Paul, I want to point out that during the course of this conference call, we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, and there are important factors that could cause the 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' 2018 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 also the presentation we make today contains non-GAAP financial measures, which we believe are meaningful in evaluating the Company's performance. The detailed disclosures on these non-GAAP metrics and their GAAP reconciliations, you should also refer to the financial data contained within the press release we issued this morning, also available on our website.

And with that, I'll turn the call over to Paul.

Paul J. Taubman -- Chairman and Chief Executive Officer

Good morning, and thank you for joining us today.

Revenues for the quarter were $128 million, down slightly from a year ago. Advisory revenues were up marginally while placement revenues declined by $3 million. As we have consistently communicated, we measure our progress in years, not quarters. When we reported our full year 2018 results, we laid out our goals and objectives for 2019. And at that time, we noted that our 2019 growth trajectory would not become evident until later on in the year. Sitting here today the underlying growth drivers for each of our businesses remain unchanged, and we continue to be confident in our ability to deliver on our growth prospects for all of 2019.

Now turning to each of our businesses in more detail. Turning to restructuring. We continue to mostly offset lower levels of overall restructuring activity through increased win rates as our restructuring bankers capitalize on an expanding Strategic Advisory coverage footprint. Our restructuring performance in the first quarter was below the run rate we expect to see for the rest of the year, reflecting the timing of transaction closings. Given the benign credit environment in which our restructuring bankers are currently operating, we continue to expect modest declines in 2019 restructuring revenues. However, the recent uptick in our restructuring activity that was previously highlighted has continued, which should be a positive heading into next year.

Turning to Park Hill. In Park Hill, strengths in real estate mostly offset declines in the other Park Hill businesses, as we experienced fewer closings in the quarter. While overall Park Hill revenues were down modestly versus year ago performance, our overall pipeline is strong and we remain on track for another record year.

Turning to Strategic Advisory. In Strategic Advisory, revenues increased in the quarter compared to the prior year. The momentum in our Strategic Advisory business continues to build as measured by an increase in number of active mandates, an increase in size complexity and revenue potential of these mandates, and an increase in our presence across a greater number of industry verticals and geographies. As we get further into 2019, we expect this Strategic Advisory momentum to be better reflected in our financial results.

The addition of CamberView has proven to be even more powerful than first anticipated. We have just begun to touch upon the many opportunities and connections between these two franchises. In just the first four months of this year, our combined teams have worked together on 30 client situations, and have identified opportunities for enhanced relationships with a far larger number of additional clients.

Before I turn the call over to Helen, I wanted to reiterate our capital priorities. In light of today's announcement that the Board has increased our repurchase authorization by $100 million. We have consistently highlighted that investing in talent is our Number 1 capital priority with our highest return coming from our people and the talent we attract to PJT. A close second is managing share count and ownership dilution over time.

When we announced our share repurchase program in October 2017, we committed to effect open market repurchases, while also increasing our float. Since the authorization of the program, we repurchased 1.4 million shares, while our float has increased by approximately 3 million shares. These open market repurchases combined with our cash exchanges and net share settlements have in the aggregate enabled us to repurchase the equivalent of 5.6 million shares since becoming a public company. We intend to continue to use open market repurchases as an additional tool and managing dilution over time. Any repurchase opportunities will be evaluated alongside the implications for our float.

I will now turn the call over to Helen to review our financial results.

Helen T. Meates -- Chief Financial Officer

Thank you, Paul. Good morning. Beginning with revenues. Total revenues for the quarter were $128 million, down slightly from $134 million in the first quarter 2018. The breakdown of revenues: advisory revenues were $104 million, up slightly year-over-year, with growth in Strategic Advisory offsetting the year-over-year declines in both restructuring and the secondary advisory. Placement revenues were $23 million, down approximately $3 million from the same period last year, with fewer closings in the quarter compared to last year. Other revenues were down year-over-year primarily as a result of foreign currency fluctuations related to our U.K. entity as well as a decrease in reimbursable expenses billed to clients during the quarter. Going forward, we expect that other revenue will be more in line with historical levels.

Turning to expenses. Consistent with prior quarters, we presented the expenses with certain non-GAAP adjustments, which include some adjustments relating to the CamberView acquisition, primarily transaction related compensation expense and amortization of intangible assets. These adjustments are more fully described in our 8-K.

First, adjusted compensation expense. Adjusted compensation expense for the first quarter 2019 was $82 million or 64% of revenues, compared with $86 million or also 64% of revenues in the first quarter 2018. This ratio represents our current best estimate for the compensation ratio for the full year.

Turning to adjusted non-compensation expense. Total adjusted non-compensation expense was $31 million for the first quarter 2019, up $4.5 million compared with the first quarter 2018. Approximately half of the year-on-year increase in our non-comp expense reflects additional costs associated with the CamberView acquisition. Away from CamberView, we had Travel and Related (technical difficulty) and additional headcount. And with the success of our European efforts, we've recently committed to taking on additional space in London with increased quarterly run rate expense of approximately $1 million. We believe our non-comp expense in aggregate for the first quarter is fairly representative of our run rate for the year.

Turning to adjusted pre-tax income. We reported adjusted pre-tax income of $15.1 million for the first quarter, compared with $21.8 million last year. And our adjusted pre-tax margin was 11.8%, compared with 16.3% in the first quarter 2018. The provision for taxes as with prior quarters, we presented our results as if all partnership units had been converted to shares, so that assumes all of our income was taxed at a corporate tax rate.

The tax rate also takes into account the tax benefit relating to the delivery of vested shares during the first quarter at a value higher than their amortized cost. This benefit was lower in 2019 than prior years. With annualized benefit resulting in an effective tax rate for the full year of 24.9%, which is the rate we applied in the first quarter. Had we assume the full benefit of this tax impact in only the first quarter, the effective tax rate would have been 15.3% for the quarter.

Earnings per share. Our adjusted if-converted earnings for $0.28 per share for the first quarter, compared with $0.44 in the first quarter last year. On share count for the quarter, our weighted average share count was 41.1 million shares. During the first quarter, we repurchased the equivalent of approximately 404,000 shares through a combination of exchanges and net share settlement of employee tax obligations. We are currently in receipt of exchange notices for approximately 14,000 partnership units. And as we've done in the past, we will exchange these units for cash.

As Paul mentioned, the Board authorized a $100 million increase in buyback capacity on top of the $33 million remaining under our previous authorization. This new authorization will provide us with additional flexibility to manage dilution over time. The program will be funded with cash on hand and internally generated funds.

On the balance sheet, we ended the quarter with $56 million in cash, cash equivalents and short-term investments, $138 million in net working capital and $30 million in funded debt. And finally, the Board has approved a dividend of $0.05 per share. The dividend will be paid on June 19th to Class A common shareholders of record on June 5th.

I'll now turn it back to Paul.

Paul J. Taubman -- Chairman and Chief Executive Officer

Thank you, Helen. Turning to our 2019 outlook. We've always viewed our progress through a year and multi-year lens, as we execute on our strategy of building and sustaining a premier global advisory firm. We are a uniquely idiosyncratic growth story, given our balance of businesses and the early stage of our Strategic Advisory build out. We have seen that as we build out our Strategic Advisory franchise, our leading restructuring in Park Hill businesses also benefit. The continued integration of these three businesses will enable us to further expand our market shares, as our clients increasingly recognize the value of our holistic, differentiated and value-added advice. As we have said previously, we remain highly confident in our growth trajectory for 2019 and beyond.

And with that, we will now take your questions.

Questions and Answers:

Operator

(Operator Instructions) Your first question is from Devin Ryan from JMP Securities. Please go ahead.

Devin Ryan -- JMP Securities -- Analyst

Good morning. How are you guys?

Paul J. Taubman -- Chairman and Chief Executive Officer

Fine, thank you.

Devin Ryan -- JMP Securities -- Analyst

Good. First question just on Europe, obviously, you guys have a strong presence there, and it's relatively large compared to the overall footprint to the PJT today. And we've heard from some of your peers on calls already discerning fees in the business, and Europe is relatively slow today. So I'm just curious whether you're seeing this as well? How this fits in to kind of the full year expectations for the business? And whether the theme of kind of what you're seeing in Europe today is any different than maybe what you were thinking heading into the year, what we talked about a few months ago with fourth quarter earnings?

Paul J. Taubman -- Chairman and Chief Executive Officer

Well, thanks for that question. When we think about our European business, it is large relative to the rest of our Strategic Advisory practice, but it's still quite small relative to all of our competitors. And as a result of that, we see tremendous opportunity to continue to build the presence and to gain share, but to do it in a judicious way. And many of the companies that we are focused on maybe European domiciled, but they have operations around the globe and/or either attractive targets for U.S. companies, or they have growth aspirations of their own in the U.S. and elsewhere. So in many respects, they are global corporations that are headquartered in Europe.

And if you look at some of the transactions that we've been involved with, in Europe, you have seen a strong strategic interest in many of these companies even in the context of uncertain Brexit outcome, elections elsewhere in Europe and the like. So we're not particularly concerned about this. We're playing a longer game. And many of the opportunities that we're involved with are cross-border, where we have unique opportunities to knit our bankers around the globe and unite them on behalf of their clients. And with our industry focus, many of the industry verticals that we have built out have that global presence.

Having said that, I think there's no doubt that from a macro perspective, there has been a slowing of activity. But rather than take that for us into a decline, I think what it's done is, it's just kept steady relative to last year.

Devin Ryan -- JMP Securities -- Analyst

Got it. Okay, that's very helpful. Follow-up here just on -- this in my commentary on Park Hill, I appreciate the context business by business. It's a little bit of a slower start, but the pipeline sounds like it's strong and heard the comments that your expectation for growth year-over-year and another record, I'm just curious if kind of we dig into that a little bit. Is that across the business or are there any areas that are particularly strong or you're particularly expecting kind of a big year in our, I guess, is it a broad-based comment?

Paul J. Taubman -- Chairman and Chief Executive Officer

Well, I think as we said last year, we achieved record results in Park Hill, notwithstanding the fact that none of the verticals themselves enjoyed record results. And we've also said that, because the Park Hill business is largely dependent upon timing of closings. It tends to be difficult to forecast and is lumpy quarter-to-quarter, but there is great clarity because of the long tail cycle of these fundraisers to have visibility for the year. And as we sit here today, we have previously identified real estate and our secondary advisory business as the greatest growth drivers this year. And our commentary would be that, that remains in, in effect.

Devin Ryan -- JMP Securities -- Analyst

Got it. Okay, great. And just last one for me on the CamberView kind of connectivity, you mentioned I think 30 situations that you've already worked on with CamberView's team, and kind of the legacy PJT Group. So I'm just curious kind of those situations what -- just even rough kind of numbers, how much were kind of CamberView existing relationships where you're able to do more with, or kind of vice versa? You getting broadened on bringing CamberView into your existing relationships, and how many are kind of new relationships? Just a little bit more context on kind of what's going on in that the momentum with CamberView.

Paul J. Taubman -- Chairman and Chief Executive Officer

Sure. I mean, I think there's so many different buckets here. One is new situations where the company that we're now working with, previously was not a client of either the PJT or CamberView side, and seeing the joint team working seamlessly. We've been able to secure a number of mandates coming together with an even more attractive value proposition for clients.

Then the second is, you have a number PJT relationships where they're either clients, and have previously retained our firm or we have a developing relationship, and our bankers have been able to bring their CamberView colleagues into broaden the discussion and the dialogue and create greater value delivery and more stickiness.

And then there is the last one, which will probably take the greatest time for that to appear, which are CamberView relationships where there may be opportunity for our more traditional Strategic Advisory capabilities to shine through, because we've made it very clear that this all needs to be driven by the needs of the clients. And therefore, we're not looking to do anything other than better serve those clients. And as they get to know us and as those clients have a better appreciation for the broader range of capabilities that are now in evidence with our firm, we expect that that will bear tremendous fruit. But in the near-term, we're really talking about new situations, where we're bringing new clients into the fall that neither side would have brought themselves. We're talking about expanding and enriching existing client relationships, and we are beginning to touch on that last part, which really is an enormous untapped potential.

Devin Ryan -- JMP Securities -- Analyst

Okay, great. I'll leave it there. Thanks, Paul.

Paul J. Taubman -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question is from Richard Ramsden, Goldman Sachs.

Salvatore Saroni -- Goldman Sachs -- Analyst

Good morning. This is Sal Saroni filling in for Richard today. Regarding your $100 million increase in the buyback authorization this quarter, can you simply elaborate on your intentions for the repurchase program going forward, particularly considering you did not buyback any Class A shares this quarter?

Paul J. Taubman -- Chairman and Chief Executive Officer

I'd say a couple of things. One is, it's -- we repurchased I think the equivalent of over 400,000 share equivalence this quarter. So when we think about repurchasing and returning capital to shareholders and reducing the dilution, we look at it really across all of those opportunities. So this is just simply another arrow in our quiver. I would point out that from the 1st of October until the 31st of March, we made a very sizable acquisition in CamberView, where we spent a lot of cash, because we wanted to protect our shares and issue fewer shares.

And at the same time, if you look at all of the share equivalents that we repurchased in the fourth quarter of last year and the first quarter of this year, I think when you add all of that up, we spent well in excess of $150 million in what we're either explicit share repurchases, equivalent share repurchases or reduce the number of shares we issued in the CamberView transaction. So that overarching approach remains unchanged. And I think as we move into the later stages of the year, second quarter and beyond, we're in a cash build mode at this point in time. And we're going to constantly look at the best most efficient ways to repurchase shares with the excess cash that we will continue to generate. And we'll be opportunistic, but it's just another way for us to implement that.

Salvatore Saroni -- Goldman Sachs -- Analyst

Okay, that's quite helpful. And then separately, can you discuss the competitiveness of the Strategic Advisory recruiting environment, at least as you're currently observing it? And then as effectively as a follow-up to that, how do you think about the growth in in headcount in the Restructuring and Placement verticals, particularly as we enter later stages of this current economic cycle?

Paul J. Taubman -- Chairman and Chief Executive Officer

Well, I start with the second part of that, which is we are always looking for best-in-class talent that can advance our franchise to another level. So as a result of that, you should always expect that we'll be looking to augment and to enhance our franchises, and that's not limited by some explicit quota. At the same time, we do recognize that we have two leading franchises. One of the things about restructuring is, while we may be in the late stages of an economic cycle, we may be in the super early stages of a deteriorating credit cycle. So therefore, we see over time the restructuring opportunity being significantly greater than it is today. And as more and more of our restructuring endeavors are prosecuted hand in glove with our Strategic Advisory partners and colleagues, we have more and more flex capacity to deal with those.

So I think, the bumper sticker is, we are always be on the lookout for individuals who can advance our franchise. We have plenty of ways in which if the restructuring marketplace heats up further for us to capitalize on that. And as far as the overall competitive nature, I would say the following, which is the independent advisory model or the balance sheet light model continues to resonate with clients. And because it resonates with clients increasingly firms like ours have been able to secure more and larger and more complex mandates, and that is not lost on individuals working in large banks. So we expect that over time, you're going to continue to see some migration of talent from larger firms to smaller firms, and we're very comfortable with how we're positioned to be that destination for talent.

Salvatore Saroni -- Goldman Sachs -- Analyst

Okay, thank you. Thank you for taking my questions.

Paul J. Taubman -- Chairman and Chief Executive Officer

Absolutely.

Operator

Your next question is from Mike Needham, Bank of America.

Mike Needham -- Bank of America -- Analyst

Hey, good morning. First question I have is on the M&A environment. Have you been able to identify any slowdown in the market impacting your business apart from the momentum you're seeing just adding people of platform more collaboration things like that?

Paul J. Taubman -- Chairman and Chief Executive Officer

It's hard to tell how it's affecting our business, if at all. I think there's no doubt that from a macro perspective, this market has a lot of secular tailwind. But also, as I've said consistently, it's a deeply cyclical business, and you're going to have ups and down. And it's procyclical in the sense that some M&A is done as a competitive response. So if you reduce the activity at the front end, the follow-on or competitive responses get reduced, just as if more companies begin to look at transformative value enhancing transactions, it then causes their competitors to think about their own strategic positioning. So that's why you sometimes see a little bit more on the upside and a little bit more on the downside as you kind of go from guardrail to guardrail.

We look at this and we think that probably there is a little bit more bias to the downside than there is to the upside from where we sit today in terms of near-term M&A activity. From our perspective, we think that's a good thing, because when the market gets a little choppier, a little bit more volatile, a little bit more challenged, the value of advice grows. And therefore firms like ours have an easier time standing out. And since we're not a monster flow business with this enormous footprint that's just looking to see the overall market expand and just figure will get our share. We're looking to be an alpha player, and this market we believe makes it easier to recruit. We think it makes it easier to differentiate ourselves with clients. And we are playing a longer-term game. So we've always assumed that this market would cool a little bit, it's not troubling us, and I don't really expect that it's going to fall off a cliff. But if you said to me from where we sit today in the very near-term, where do you think it's up or down, I'd say, it's probably flat to down a little bit.

Mike Needham -- Bank of America -- Analyst

Okay, that makes sense. And then for the restructuring business you lost a senior person, can you talk about how that team has evolved this leadership changed a little while ago on the bench of people you have this step up? I think the partner account in restructuring actually increase despite that departure, I think there were three additions. So is that just promotions or did you go out and hire people? Thank you.

Paul J. Taubman -- Chairman and Chief Executive Officer

Look, we have an enormously deep and talented bench in our restructuring franchise. And we have individuals who've been there for an awfully long time who are now emerging as leaders in their own rights. We made leadership decisions in that business about 18 months ago, which we feel incredibly good about and we're very comfortable with the team. With their ability to continue to grow the business, the fact that by all indications, we seem to be winning more and enhancing our franchise, working alongside advisory. The fact that we've seen this uptick in our business, we're huge believers in the power of the collaboration, and we're huge believers in the talent that we have in our restructuring business.

Helen T. Meates -- Chief Financial Officer

And Mike, the number of partners has increased and that's a result of internal promotes.

Mike Needham -- Bank of America -- Analyst

Okay, got it. And then last one maybe for Helen, the tax rate, is that 25% level kind of the right level for go forward taxes? And I think that's why you talked about before, but you have been running a couple of points below it.

Helen T. Meates -- Chief Financial Officer

That's correct. That is our assumption, and the reason we were running below historically as we had more of an impact on the delivery of vested shares. So that is our view for the full year as we sit here today.

Mike Needham -- Bank of America -- Analyst

Okay, thank you.

Operator

Your next question is from Sumeet Mody, Sandler O'Neill.

Sumeet Mody -- Sandler O'Neill -- Analyst

Hey thanks, good morning, Just appreciate the commentary on capital deployment. Just a quick follow up here. Now we have CamberView about six months behind us, what's the appetite like for bolt-ons versus hiring? And maybe where the future opportunities are hold? You think that could be best built by either of those?

Paul J. Taubman -- Chairman and Chief Executive Officer

We are big believers in growing organically. CamberView was an extraordinarily fortuitous a set of circumstances, where as we've talked about their leadership position, the confluence of their culture and hours a long history of working with the leadership of that firm it being big enough to be quite consequential and needle moving to our business, but small enough to integrate, having only two offices, one in New York, one in San Francisco that aligned with where we have offices. They were building out the European practice with a small office in London and that combined with our significant presence.

So as we've always said, we never say never, but our strong preference is to hire individuals and to do this organically, but every now and then something comes up that's game changing, and that's what CamberView was. So we are very focused and committed on continuing to grow organically.

Sumeet Mody -- Sandler O'Neill -- Analyst

Great, thanks.

Operator

Your final question is from Jim Mitchell, Buckingham Research.

Jim Mitchell -- Buckingham Research -- Analyst

Hey, good morning. Most of my questions have been asked and answered. Maybe just a quick follow-up on the restructuring side. You said it's been the -- the activity has remained pretty solid, maybe ticked up a little bit. Can you just -- I get the thought that your -- the synergies with the advisories, that makes sense. Is that really the main driver, or are you seeing any kind of segments or distress that's I guess driving some of that as well? I guess, how do you think about the industry as a whole?

Paul J. Taubman -- Chairman and Chief Executive Officer

Yes, I mean, there is a lot there. So there is a macro and the micro, right. The macro is what's going on in overall restructuring. We're still in anyone's definition, a benign accommodative credit market where you have low default rates, plentiful opportunities to refinance and very low interest rates by any historical standard. And you have GDP, which while it may be moving around is positive and certainly not threatening to put you into a contraction or recessionary environment.

Having said that, you have a lot of change and dislocation as business models get disrupted, and that in and of itself creates a lot of opportunity in restructuring. So we have consistently observed that because the world is changing, while the macro world of GDP numbers may look reasonably good. There's a lot of variability as you go industry-by-industry sector-by-sector and we're seeing a lot of disruption in energy, energy services, pharma, TMT and the like. And I think those pockets are fueling a lot of activity.

Then there is the issue of, OK, what is your share of that restructuring market. And what we've consistently identified was our best-in-class leading restructuring business got there without a whole lot of help. And what I mean by that was, they did not have a lot of business that they were doing with the financial sponsor community, because of their prior owners. And they did not have a front-end sales force with a lot of deep industry expertise and relationships to identify and source transactions and to bring them in well before there was a credit event. And now that those things are no longer in evidence, those constraints melt away over time, but nothing happens overnight. It happens over time, and we believe that every day that goes by that business is better advantaged.

Jim Mitchell -- Buckingham Research -- Analyst

That makes sense. I would imagine that the perceived conflict with the PE guys, it doesn't go away over time, but that could be an area of growth over time is what you're saying?

Paul J. Taubman -- Chairman and Chief Executive Officer

Yes, well, I think it's a little different. I'd say it as -- I think the conflict goes away immediately, but if there is no historic -- if there is no historic calling effort on all that new addressable market, you don't just walk in and become the beneficiary of that immediately. That takes some hard work and focus and consistent coverage.

Jim Mitchell -- Buckingham Research -- Analyst

Right, make sense. Thanks.

Paul J. Taubman -- Chairman and Chief Executive Officer

All right. Well, I appreciate everyone participating this morning and listening to our results. And we look forward to speaking to you in three months time. Thank you very much.

Duration: 35 minutes

Call participants:

Sharon Pearson -- Head of Investor Relations

Paul J. Taubman -- Chairman and Chief Executive Officer

Helen T. Meates -- Chief Financial Officer

Devin Ryan -- JMP Securities -- Analyst

Salvatore Saroni -- Goldman Sachs -- Analyst

Mike Needham -- Bank of America -- Analyst

Sumeet Mody -- Sandler O'Neill -- Analyst

Jim Mitchell -- Buckingham Research -- Analyst

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