Good day and welcome to the PJT Partners Third Quarter 2019 Earnings Call. [Operator Instructions] And now I’d like hand over to your host Sharon Pearson, Head of Investor Relations..

Thank you very much, Sunny, and good morning, and welcome to the PJT Partners Third Quarter 2019 Earnings Conference Call. I’m Sharon Pearson, Head of Investor Relations and 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 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 that the presentation 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. And with that, I'll turn the call over to Paul..

Thank you, Sharon. Good morning and thank you all for joining us today. For the third quarter our firm-wide revenues rose to $174 million, a 24% increase versus a year ago. For the nine months period, our revenues were $469 million, up 16% versus a year ago.

Our growth in revenues for both the three months and nine months periods were driven by substantial year-over-year growth in our Strategic Advisory business. As we continue to realize the financial benefits of our sustained investment.

These Strategic Advisory results are our strongest ever and are reflective of our ongoing investment in this business. Now turning to each of our businesses in more detail, beginning with Restructuring, compared to last year's levels, revenues decreased meaningfully in the third quarter, but held almost even for the nine month period.

Given the increase in distress within certain industries, such as energy, media, telecommunications, pharma, consumer retail, our outlook for the full-year has become a bit more positive and we now expect full-year restructuring revenues to be up slightly year-over-year.

This activity level combined with restructurings increasing ability to leverage the expertise and connectivity of our Strategic Advisory bankers should result in a stronger backlog heading into 2020 versus a year ago. Turning to PJT Park Hill, overall revenues were down slightly for the quarter and nine month period versus year ago levels.

As we have said previously given the timing of anticipated closings, we expect 2019 PJT Park Hill results to be heavily weighted to the fourth quarter.

For the full-year PJT Park Hill remains on track to deliver another record year, driven by strong revenue growth in secondary advisory and real estate, as well as continued strength in both private equity and hedge funds.

As part of our continued investment in the secondary advisory business, we recently announced a partnership with NASDAQ private market to offer clients enhanced execution capabilities for secondary transactions.

This new venture combines the capabilities of PJT Park Hill's leading secondary advisory business with NASDAQ private market's best-in-class technology platform. We are delighted to be partnering with NASDAQ, and we'll work diligently to ensure that this is a collaborative success.

Turning to Strategic Advisory, in Strategic Advisory, the investments we have made these past four years are being increasingly reflected in our reported results. The significant increase in Strategic Advisory revenues was the driver in the growth of our firm-wide revenues for the third quarter, as well as the nine month period.

The positive momentum we are seeing in our Strategic Advisory business reflects our engagement with a larger number of clients across a growing number of industry verticals, products and geographies. These engagements in turn are larger in size and complexity, creating increased revenue potential.

We remain focused on expanding our roster of talented senior bankers. In Strategic Advisory, our partner count has increased by nearly 30% versus a year ago, inclusive of our CamberView acquisition. Our recruiting pipeline continues to be robust and three additional partners will be joining us shortly.

Four years into this journey we could not be more pleased with the progress we have made and the momentum we are seeing at our strategic advisory business. I will now turn the call over to Helen to review our financial results..

Thank you Paul, good morning. Beginning with revenues, total revenues for the quarter were $174 million, up 24% year-over-year. The breakdown of revenues – advisory revenues were $146 million, up 25% year-over-year with significant growth in strategic advisory and declines in restructuring and secondary advisory.

Placement revenues were $26 million, up 40% from the same period last year with higher revenues and corporate private placements and private equity fund placements.

For the nine months ended September 30, total revenues were $469 million, up 16% year-over-year and the breakdown of nine month revenues – advisory revenues were $384 million, up 20% year-over-year with significant growth in strategic advisory and declines in secondary advisory and restructuring.

Placement revenues were $78 million, up 7% year-over-year, driven by growth in corporate private placement activity. Turning to expenses, consistent with prior quarters we presented the expenses with certain non-GAAP adjustments and these adjustments are more fully described in our 8-K.

First adjusted compensation expense, adjusted compensation expense continues to be accrued at 64%, this ratio represents our updated estimate for the compensation ratio for the full-year. Turning to adjusted non-compensation expense. Adjusted non-compensation expense was $29.2 million for the quarter, up 7% year-over-year.

The increase was largely due to increased occupancy expense, reflecting the costs associated with taking on additional space in London.

For the nine month period, our adjusted non-compensation expense was $92.1 million, up 16% year-over-year, reflecting the increased occupancy expense relating to London, as well as higher costs associated with increased headcount and business activity, including the addition of CamberView.

Turning to adjusted pre-tax income, we reported adjusted pre-tax income of $33.5 million for the third quarter, up from $23.1 million last year and $76.7 million for the first nine months of 2019, up from $66.3 million for the same period last year. And our adjusted pre-tax margin was 19.2% in the third quarter and 16.4% for the first nine months.

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 was a lower benefit in 2019 than in prior years. And this benefit has been incorporated in our annualized rate.

Our current estimated effective tax rate for the full-year is 25.8%, this rate is slightly higher than the effective tax rate of 25% that we applied in the first six months of 2019, primarily due to additional local taxes incurred in connection with an ongoing engagement we have in the U.S. territory.

Earnings per share, our adjusted if-converted earnings was $0.60 per share for the third quarter, compared with $0.44 in the third quarter last year. And for the first nine months, $1.39 per share, compared with $1.30 in the same period last year.

The share count for the quarter, our weighted average share count was 40.9 million shares and during the first nine months of the year, we repurchased the equivalent of 1.6 million shares through a combination of open market share repurchases, net share settlements and exchanges of partnership units for cash.

We're currently in receipt of exchange notices for approximately 108,000 partnership units and as we've done in the past, we will exchange these units for cash. We ended the quarter with approximately $89 million remaining under our share repurchase authorization, and this will provide us with continued flexibility to manage dilution over time.

On the balance sheet, we ended the quarter with $118 million in cash, cash equivalents and short-term investments, $178 million in net working capital and $26 million in funded debt. And finally, the Board has approved a dividend of $0.05 per share.

The dividend will be paid on December 18, 2019 to Class A common shareholders of record as of December 4, 2019. I'll now turn back to Paul for some final comments..

Thank you, Helen. We are pleased with our firm's growth and progress to-date and by the contribution of each of our businesses to the strength and stability of our franchise as a whole. Overall, we remain very confident in our outlook for 2019 and beyond. And with that, we will now take your questions..

Thank you. Your first question comes from the line of Devin Ryan from JMP Securities. Please proceed, you're live in the call..

Great. Good morning, everyone..

Good morning..

Good morning..

The first question just on the strategic advisory business, clearly from the outside we can see the backlog growing and appreciate the comments this morning. And so clearly the firm is executing and gaining market share. But Paul, if you might be able to just talk a little bit more about the environment for business.

How that's been evolving since we spoke last quarter, it seems like the M&A markets broadly have been a little bit choppy.

And then so [Audio Gap] heading into next year, especially given that it's in election year and what, you know, kind of, that backdrop, kind of, view could mean for growth in your business?.

Well, Devin, there is the micro and the macro, I think at the end of the day, we are a micro business, which is, it's a function of the clients we engage with, the success we have with those clients and the results we deliver for those clients.

And in many respects, we have been and will continue to be an idiosyncratic growth story, because as long as we get additional traction as long as our footprint grows, as long as our capabilities grow, as long as more of our client coverage base appreciates our differentiated capabilities, we're going to continue to do very well and grow our business regardless of the macro.

And I feel very comfortable with our level of M&A activity for 2019 and certainly heading into 2020, almost regardless of what the macro does, I mean clearly, if there is just a complete halt to activity, because of some global crisis, we will not be immune, but short of that, I find us in a very good position.

But since you've asked me about the macro, I'll give you my two sense, which is we don't really see much of an abatement in terms of activity levels. The world is changing and it's changing rapidly and companies need to adjust.

And the analog I would give would be restructuring just as there has been a benign macro backdrop, you still see pockets of distress in restructuring, I would argue that in strategic advisory, even if the world is becoming a bit more uncertain there are a whole industries that need to be reshaped and transformed and that has proven to be a catalyst for activity..

Terrific. And then just maybe to touch on restructuring, as well as you mentioned, you know, obviously, I heard the comments about the full-year view, and that being better than, kind of, the last update.

And so I'm curious where you're seeing those pockets, kind of, what's changed here why there is a bit more activity and how much you feel like it is a function of PJT in your development as a firm versus they're actually being kind of more stress in the backdrop that, as you mentioned it's still relatively benign?.

I mean, to some extent Devin, we foreshadowed this for a – for most of the year where we've said that we started to see an uptick in restructuring activity, and we said that if that spike up continued then we might grow progressively more constructive on our restructuring prognosis for 2019.

The reality is that in restructuring they intend to be long cycle from when you get a – an assignment and engagement until there is a resolution. And that's why, what we're seeing is really just a slight uptick in our view, but to the positive for 2019.

And as I mentioned a few moments ago, we expect, if things, you know, halt to enter 2020 with a stronger backlog. And how much of that is the macro? And how much of it is the micro? It's hard to say, but I do think that we're benefiting from both.

So I think there is additional stress in the system it's certainly concentrated in certain areas where there is, demonstrably more stress, and we are clearly a more formidable, more integrated firm and we're benefiting, I think in both regards..

Okay, great. Just one last quick one on the NASDAQ partnership. What will you be able to do that you previously weren't with that partnership? And what are your expectations from that, if you can give us any more color would be helpful..

Well, look, it's an enhanced execution platform. So it means that we're able to provide our clients with increased speed and efficiency. And if we can do that, then we should be able to benefit from enhanced participations from individual institutional investors. Because we streamlined the process.

If we can in turn do that, then we may actually be able to coax out additional GP led transactions, because there's greater confidence and a more robust and successful take up in some of these strategic transaction.

So it really is – just trying to increase the caliber of the experience, it means, there'll be more participations, it means that GPs will be able to do recapitalizations or restructurings of their partnerships, knowing that there is greater participation among limited partners, and it just sort of moves the virtuous circle forward.

This is an area that we've been keenly focused on for a long time, a decade or less ago this industry didn't exist, it's moved quite dramatically in terms of its breadth, sophistication and types of GPs, who are taking advantage of some of these transactions and the more that we can do to have a differentiated best-in-class execution experience, that should deliver real tangible results to us and to our partners and NASDAQ..

Great. Thanks for taking all my questions..

Absolutely. Thank you, Devin..

Thank you. Your next question comes from the line of Richard Ramsden from Goldman Sachs. Please proceed, you're live in the call..

Hi, good morning. This is Sal Saroni filling in for Richard today. Just a quick one from us. On non-comp earlier this year you had previously talked about a $31 million run rate for the remainder of 2019. We saw that materialize in the first half and this quarter came in a little bit lower.

I just wanted to touch based on what you think the right indicator of non-comp activity is for the rest of the year? It really if that's this quarter or the $31 million that was previously discussed? Thank you..

Thanks for all of your questions. Firstly, I would say that we continue to be disciplined in managing our expenses, but there will be some quarterly variability in our non-comps, which is purely business related. And so as we think about operating leverage, we do think that's going to be driven more by growth than any cost control.

But as we look at the fourth quarter and given the fact that we think there'll be increased business activity, we would expect that the non-comps would go up slightly in the fourth quarter, which you've seen in prior years as well.

Sal, did you have an additional question?.

No, that was it for us. Thank you very much..

Thank you very much..

Thank you. Our final question is from the line of Jim Mitchell from Buckingham Research. Please proceed, you're live in the call..

Hey, good morning.

Maybe just a follow-up on the NASDAQ partnership, just how do we think about – is this a volume play, how – just maybe help us think about the economics to you, if by bringing more transparency and efficiency does that put downward pressure on fees, but you make it up in volume? Or the way that business works it's not really an issue on price, it's just really – in the volumes really helped? Just help me think about the economics?.

Well, just because we have a unique partnership with NASDAQ, we're able to provide a differentiated customer experience and because we can provide a differentiated customer experience.

We would hope that over time our ability to win business with GPs and LPs and to potentially expand this into a broader arena should increase, and obviously the more business you do, the better it is for the parties who are doing the business. I think it's as simple as that..

And you don't – and given the structure of how you advise your clients, you don't feel like there is any fee pressure for more transparency or centralization of the business?.

I think the issue right now is we have clients, who want to see more take up in these transactions and because the execution process is cumbersome. There is less take ups, then there would be where the streamline performance.

So we can actually not only increase the success of specific transactions that have already been mandated that's a win for everyone. And as a result of that invites others to consider these transactions that's a win for us. And if we are perceived as we should be as having a differentiated capabilities that should be an additional win for us.

So we just view this as a natural extension of everything else we've been doing at our firm, which is to expand our capabilities and to bring differentiated insights and caliber of execution to everything we do.

So this is just another manifestation of that and we are pleased that NASDAQ chose to partner with us, and we're delighted with the association..

Yes, absolutely makes sense. And maybe, if I could get some thoughts on the macro from you as well, I completely agree your idiosyncratic growth stories. So it doesn't – you have no skin in the game on the macro to say – to speak, but maybe just – I think there's been a lot of consternation about how weak outside the U.S.

has been particularly Europe, Brexit has been a overhang.

What is your sense of – is there any sign over there? Or do we still just need to get Brexit out of the way before we can start to see activity pickup?.

I mean, again, it's quite interesting. We continue to add resources in Europe, we continue to add resources in the UK, we are more active now than we've ever been, and we are finding ways to do business in a significant way there.

And if you just pick-up the papers, you see that there is still a lot of interest in UK companies and there's a lot of interest in UK companies looking to move outside of the home market, there is no doubt that it makes transactions more difficult, but as I've said previously dislocation with sterling creates opportunities, it invites private equity firms to take a renewed and refreshed look in the marketplace.

Many of these UK domiciled companies, when you really look at the underpinnings of their business or global companies, who have been to be headquartered in the UK. And therefore, they're just as attractive with or without the uncertainties of Brexit.

And then you also have global companies, who were domiciled in the UK, who still have strategic imperatives to continue to grow and, if anything, we'd like to have more of their business comes from outside of the UK market. So it will be bumpy as you're dealing with uncertainty.

But fundamentally in many of these accesses the uncertainty is overblown meaning that parties on either side of the transaction can look through that uncertainty, because so much else in the transaction is certain. And in those situations where it is uncertain like everything else ultimately there'll be a resolution.

I think we're a lot closer to a resolution now than we'd ever been.

And there will be impact in the markets and markets will adjust, currency will adjust and we'll get back to a baseline of activity, but we've actually benefited, I think from some of this turmoil, because the value of the advise goes up in an uncertain world and one of the things we're always fighting against is the perception sometimes that advises commoditized, it's not and it's easy to think of it as a commodity when things are just moving along in a very bullion market, it's only when things getting more difficult that you can differentiate yourself, so we are quite comfortable with it.

And when you look at the macro levels of activity in the marketplace just to step way back in terms of transaction volume, number of transactions, it's down, but, A, it's down from quite robust levels; and B, it's not down terribly much. So my sense is, there is probably more anx than is deserved, but if there is anx we're not feeling it..

Thanks Paul. Thanks for all your insights. I appreciate it. Thanks..

Absolutely. Thanks, Jim..

Okay, I think that concludes this earnings call. We look forward to visiting with you again after we report our fourth quarter results. Thank you, all..