r
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED |
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification No.) |
(Address of principal executive offices)(Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Non-Accelerated Filer |
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Smaller Reporting Company |
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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
As of April 24, 2023, there were
TABLE OF CONTENTS
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PART I. |
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Unaudited Condensed Consolidated Financial Statements — March 31, 2023 and 2022: |
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Condensed Consolidated Statements of Financial Condition as of March 31, 2023 and December 31, 2022 |
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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PART II. |
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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 Blackstone 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 are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict, many of which are outside our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance upon any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: (a) changes in governmental regulations and policies; (b) cyberattacks, security vulnerabilities, and internet disruptions, including breaches of data security and privacy leaks, data loss, and business interruptions; (c) failures of our computer systems or communication systems, including as a result of a catastrophic event and the use of remote work environments and virtual platforms; (d) the impact of catastrophic events, including business disruptions, pandemics, reductions in employment and an increase in business failures on (1) the U.S. and the global economy, (2) our employees and our ability to provide services to our clients and respond to their needs; (e) the failure of third-party service providers to perform their functions; and (f) volatility in the political and economic environment, including as a result of inflation, rising interest rates, international conflict, and instability in the banking system as a result of several recent bank failures.
2
Any of these factors, as well as such other factors discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022, 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. 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.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PJT Partners Inc.
Condensed Consolidated Statements of Financial Condition (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data)
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March 31, |
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December 31, |
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Assets |
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Cash and Cash Equivalents |
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$ |
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$ |
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Investments (at fair value) |
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Accounts Receivable (net of allowance for credit losses of $ |
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Intangible Assets, Net |
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Goodwill |
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Furniture, Equipment and Leasehold Improvements, Net |
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Operating Lease Right-of-Use Assets |
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Other Assets |
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Deferred Tax Asset, Net |
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Total Assets |
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$ |
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$ |
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Liabilities and Equity |
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Accrued Compensation and Benefits |
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$ |
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$ |
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Accounts Payable, Accrued Expenses and Other Liabilities |
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Operating Lease Liabilities |
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Amount Due Pursuant to Tax Receivable Agreement |
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Taxes Payable |
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Deferred Revenue |
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Total Liabilities |
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Equity |
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Class A Common Stock, par value $ |
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Class B Common Stock, par value $ |
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Additional Paid-In Capital |
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Retained Earnings |
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Accumulated Other Comprehensive (Loss) |
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Treasury Stock at Cost ( |
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Total PJT Partners Inc. Equity |
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Non-Controlling Interests |
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Total Equity |
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Total Liabilities and Equity |
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$ |
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$ |
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See notes to condensed consolidated financial statements.
4
PJT Partners Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data)
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Three Months Ended |
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2023 |
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2022 |
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Revenues |
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Advisory Fees |
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$ |
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$ |
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Placement Fees |
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Interest Income and Other |
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Total Revenues |
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Expenses |
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Compensation and Benefits |
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Occupancy and Related |
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Travel and Related |
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Professional Fees |
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Communications and Information Services |
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Depreciation and Amortization |
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Other Expenses |
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Total Expenses |
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Income Before Provision for Taxes |
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Provision for Taxes |
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Net Income |
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Net Income Attributable to |
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Net Income Attributable to PJT Partners Inc. |
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$ |
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$ |
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Net Income Per Share of Class A Common Stock |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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Weighted-Average Shares of Class A Common |
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Basic |
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Diluted |
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See notes to condensed consolidated financial statements.
5
PJT Partners Inc.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in Thousands)
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Three Months Ended |
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2023 |
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2022 |
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Net Income |
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$ |
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$ |
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Other Comprehensive Income (Loss), Net of Tax — |
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Comprehensive Income |
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Less: |
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Comprehensive Income Attributable to Non- |
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Comprehensive Income Attributable to PJT Partners Inc. |
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$ |
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$ |
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See notes to condensed consolidated financial statements.
6
PJT Partners Inc.
Condensed Consolidated Statements of Changes in Equity (Unaudited)
(Dollars in Thousands, Except Share Data)
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Three Months Ended March 31, 2023 |
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Shares |
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Accumulated |
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Class A |
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Class B |
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Class A |
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Class B |
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Additional |
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Other |
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Non- |
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Common |
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Common |
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Treasury |
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Common |
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Common |
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Paid-In |
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Retained |
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Comprehensive |
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Treasury |
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Controlling |
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Stock |
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Stock |
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Stock |
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Stock |
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Stock |
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Capital |
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Earnings |
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Loss |
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Stock |
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Interests |
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Total |
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Balance at December 31, 2022 |
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$ |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Net Income |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Other Comprehensive Income |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Dividends Declared ($ |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Equity-Based Compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net Share Settlement |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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( |
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Deliveries of Vested Shares of |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Change in Ownership Interest |
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— |
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— |
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— |
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— |
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— |
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— |
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( | ) |
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( | ) |
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Treasury Stock Purchases |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Balance at March 31, 2023 |
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( |
) |
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$ |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
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Three Months Ended March 31, 2022 |
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Shares |
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Accumulated |
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Class A |
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Class B |
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Class A |
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Class B |
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Additional |
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Retained |
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Other |
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Non- |
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Common |
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Common |
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Treasury |
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Common |
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Common |
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Paid-In |
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Earnings |
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Comprehensive |
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Treasury |
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Controlling |
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Stock |
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Stock |
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Stock |
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Stock |
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Stock |
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Capital |
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(Deficit) |
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Income (Loss) |
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Stock |
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Interests |
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Total |
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Balance at December 31, 2021 |
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( |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
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$ |
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Net Income |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Other Comprehensive Loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
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Dividends Declared ($ |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Equity-Based Compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net Share Settlement |
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— |
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— |
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— |
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— |
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( |
) |
Deliveries of Vested Shares of |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Change in Ownership Interest |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( | ) |
|
|
( | ) |
||
Treasury Stock Purchases |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2022 |
|
|
|
|
|
|
|
|
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
See notes to condensed consolidated financial statements.
7
PJT Partners Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Operating Activities |
|
|
|
|
|
|
||
Net Income |
|
$ |
|
|
$ |
|
||
Adjustments to Reconcile Net Income to Net Cash Used in |
|
|
|
|
|
|
||
Equity-Based Compensation Expense |
|
|
|
|
|
|
||
Depreciation and Amortization Expense |
|
|
|
|
|
|
||
Amortization of Operating Lease Right-of-Use Assets |
|
|
|
|
|
|
||
Provision for Credit Losses |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
( |
) |
|
Cash Flows Due to Changes in Operating Assets and Liabilities |
|
|
|
|
|
|
||
Accounts Receivable |
|
|
( |
) |
|
|
( |
) |
Other Assets |
|
|
( |
) |
|
|
( |
) |
Accrued Compensation and Benefits |
|
|
( |
) |
|
|
( |
) |
Accounts Payable, Accrued Expenses and Other Liabilities |
|
|
|
|
|
( |
) |
|
Operating Lease Liabilities |
|
|
( |
) |
|
|
( |
) |
Taxes Payable |
|
|
|
|
|
( |
) |
|
Deferred Revenue |
|
|
( |
) |
|
|
|
|
Net Cash Used in Operating Activities |
|
|
( |
) |
|
|
( |
) |
Investing Activities |
|
|
|
|
|
|
||
Purchases of Investments |
|
|
( |
) |
|
|
( |
) |
Proceeds from Sales and Maturities of Investments |
|
|
|
|
|
|
||
Purchases of Furniture, Equipment and Leasehold Improvements |
|
|
( |
) |
|
|
( |
) |
Net Cash Provided by (Used in) Investing Activities |
|
|
|
|
|
( |
) |
|
Financing Activities |
|
|
|
|
|
|
||
Dividends |
|
|
( |
) |
|
|
( |
) |
Proceeds from Revolving Credit Facility |
|
|
|
|
|
|
||
Payments on Revolving Credit Facility |
|
|
( |
) |
|
|
( |
) |
Employee Taxes Paid for Shares Withheld |
|
|
( |
) |
|
|
( |
) |
Cash-Settled Exchanges of Partnership Units |
|
|
( |
) |
|
|
( |
) |
Treasury Stock Purchases |
|
|
( |
) |
|
|
( |
) |
Net Cash Used in Financing Activities |
|
|
( |
) |
|
|
( |
) |
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
|
|
|
( |
) |
|
Net Decrease in Cash and Cash Equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and Cash Equivalents, Beginning of Period |
|
|
|
|
|
|
||
Cash and Cash Equivalents, End of Period |
|
$ |
|
|
$ |
|
||
Supplemental Disclosure of Cash Flows Information |
|
|
|
|
|
|
||
Payments for Income Taxes, Net of Refunds Received |
|
$ |
|
|
$ |
|
||
See notes to condensed consolidated financial statements.
8
PJT Partners Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(All Dollars Are in Thousands, Except Share and Per Share Data, Except Where Noted)
PJT Partners Inc. and its consolidated subsidiaries (the “Company” or “PJT Partners”) offer a unique portfolio of advisory services designed to help clients achieve their strategic objectives.
On October 1, 2015, Blackstone 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
Basis of Presentation
The Company prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. (“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, 2022.
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, 2022.
Cash, Cash Equivalents and Investments
Cash and Cash Equivalents include short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less from the date of purchase. Cash and Cash Equivalents are maintained in U.S. and non-U.S. bank accounts and are held at five financial institutions. Also included in Cash and Cash Equivalents are amounts held in bank accounts that are subject to advance notification to withdraw, which totaled $
Treasury securities with original maturities greater than three months when purchased are classified as Investments in the Condensed Consolidated Statements of Financial Condition.
9
PJT Partners Inc.
Notes to Condensed Consolidated Financial Statements – Continued (Unaudited)
(All Dollars Are in Thousands, Except Share and Per Share Data, Except Where Noted)
The following table provides a disaggregation of revenues recognized from contracts with customers for the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Advisory Fees |
|
$ |
|
|
$ |
|
||
Placement Fees |
|
|
|
|
|
|
||
Interest Income from Placement Fees and Other |
|
|
|
|
|
|
||
Revenues from Contracts with Customers |
|
$ |
|
|
$ |
|
||
Remaining Performance Obligations and Revenue Recognized from Past Performance
As of March 31, 2023, the aggregate amount of the transaction price allocated to performance obligations yet to be satisfied was $
The Company recognized revenue of $
Contract Balances
There were no significant impairments related to contract balances during the three months ended March 31, 2023 and 2022.
For the three months ended March 31, 2023 and 2022, $
Changes in the allowance for credit losses consist of the following:
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Beginning Balance |
|
$ |
|
|
$ |
|
||
Provision for Credit Losses |
|
|
|
|
|
|
||
Write-offs |
|
|
( |
) |
|
|
— |
|
Ending Balance |
|
$ |
|
|
$ |
|
||
Included in , Net is accrued interest of $
10
PJT Partners Inc.
Notes to Condensed Consolidated Financial Statements – Continued (Unaudited)
(All Dollars Are in Thousands, Except Share and Per Share Data, Except Where Noted)
Included in Accounts Receivable, Net are long-term receivables of $
The Company does not have any long-term receivables on non-accrual status. Of receivables that originated as long-term, there were $
Intangible Assets, Net consists of the following:
|
|
March 31, |
|
|
December 31, |
|
||
Finite-Lived Intangible Assets |
|
|
|
|
|
|
||
Customer Relationships |
|
$ |
|
|
$ |
|
||
Trade Name |
|
|
|
|
|
|
||
Total Intangible Assets |
|
|
|
|
|
|
||
Accumulated Amortization |
|
|
|
|
|
|
||
Customer Relationships |
|
|
( |
) |
|
|
( |
) |
Trade Name |
|
|
( |
) |
|
|
( |
) |
Total Accumulated Amortization |
|
|
( |
) |
|
|
( |
) |
Intangible Assets, Net |
|
$ |
|
|
$ |
|
||
Amortization expense was $
Amortization of Intangible Assets held at March 31, 2023 is expected to be $
Furniture, Equipment and Leasehold Improvements, Net consists of the following:
|
|
March 31, |
|
|
December 31, |
|
||
Leasehold Improvements |
|
$ |
|
|
$ |
|
||
Furniture and Fixtures |
|
|
|
|
|
|
||
Office Equipment |
|
|
|
|
|
|
||
Total Furniture, Equipment and Leasehold Improvements |
|
|
|
|
|
|
||
Accumulated Depreciation |
|
|
( |
) |
|
|
( |
) |
Furniture, Equipment and Leasehold Improvements, Net |
|
$ |
|
|
$ |
|
||
Depreciation expense was $
11
PJT Partners Inc.
Notes to Condensed Consolidated Financial Statements – Continued (Unaudited)
(All Dollars Are in Thousands, Except Share and Per Share Data, Except Where Noted)
The following tables summarize the valuation of the Company’s investments by the fair value hierarchy:
|
|
March 31, 2023 |
|
|||||||||||||
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
||||
Treasury Securities |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2022 |
|
|||||||||||||
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
||||
Treasury Securities |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Investments in Treasury securities were included in Investments as of March 31, 2023 and in Investments as of December 31, 2022 in the Condensed Consolidated Statements of Financial Condition.
The following table summarizes the Company’s tax position:
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Income Before Provision for Taxes |
|
$ |
|
|
$ |
|
||
Provision for Taxes |
|
$ |
|
|
$ |
|
||
Effective Income Tax Rate |
|
|
% |
|
|
% |
||
The Company’s effective tax rate differed from the U.S. federal statutory tax rate for the three months ended March 31, 2023 primarily due to partnership income not being subject to U.S. corporate income taxes and permanent differences related to compensation.
The Company had
During the quarter ended March 31, 2023, the Company's holding partnership, PJT Partners Holdings LP, received a notice from the Internal Revenue Service that its Form 1065, U.S. Return of Partnership Income, was selected for examination for the tax year ended December 31, 2020. The Company currently does not expect the results of the audit to have any material impact on its consolidated financial statements.
12
PJT Partners Inc.
Notes to Condensed Consolidated Financial Statements – Continued (Unaudited)
(All Dollars Are in Thousands, Except Share and Per Share Data, Except Where Noted)
Basic and diluted net income per share of Class A common stock for the three months ended March 31, 2023 and 2022 is presented below:
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net Income Attributable to Shares of Class A |
|
$ |
|
|
$ |
|
||
Incremental Net Income from Dilutive Securities |
|
|
|
|
|
|
||
Net Income Attributable to Shares of Class A |
|
$ |
|
|
$ |
|
||
Denominator: |
|
|
|
|
|
|
||
Weighted-Average Shares of Class A Common |
|
|
|
|
|
|
||
Weighted-Average Number of Incremental Shares from |
|
|
|
|
|
|
||
Weighted-Average Shares of Class A Common |
|
|
|
|
|
|
||
Net Income Per Share of Class A Common Stock |
|
|
|
|
|
|
||
Basic |
|
$ |
|
|
$ |
|
||
Diluted |
|
$ |
|
|
$ |
|
||
The ownership interests of holders (other than PJT Partners Inc.) of the common units of partnership interest in PJT Partners Holdings LP (“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
Share Repurchase Program
During the three months ended March 31, 2023, the Company repurchased
Overview
Further information regarding the Company’s equity-based compensation awards is described in Note 10. “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, 2022.
13
PJT Partners Inc.
Notes to Condensed Consolidated Financial Statements – Continued (Unaudited)
(All Dollars Are in Thousands, Except Share and Per Share Data, Except Where Noted)
The following table represents equity-based compensation expense and the related income tax benefit for the three months ended March 31, 2023 and 2022, respectively:
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Equity-Based Compensation Expense |
|
$ |
|
|
$ |
|
||
Income Tax Benefit |
|
$ |
|
|
$ |
|
||
Restricted Stock Units
The following table summarizes activity related to unvested RSUs for the three months ended March 31, 2023:
|
|
Restricted Stock Units |
|
|||||
|
|
|
|
|
Weighted- |
|
||
|
|
|
|
|
Average |
|
||
|
|
|
|
|
Grant Date |
|
||
|
|
Number of |
|
|
Fair Value |
|
||
|
|
Units |
|
|
(in dollars) |
|
||
Balance, December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Dividends Reinvested on RSUs |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Vested |
|
|
( |
) |
|
|
|
|
Balance, March 31, 2023 |
|
|
|
|
$ |
|
||
As of March 31, 2023, there was $
RSU Awards with Both Service and Market Conditions
The following table summarizes activity related to unvested RSU awards with both a service and market condition for the three months ended March 31, 2023:
|
|
RSU Awards with |
|
|||||
|
|
|
|
|
Weighted- |
|
||
|
|
|
|
|
Average |
|
||
|
|
|
|
|
Grant Date |
|
||
|
|
Number of |
|
|
Fair Value |
|
||
|
|
Units |
|
|
(in dollars) |
|
||
Balance, December 31, 2022 |
|
|
|
|
$ |
|
||
Dividends Reinvested on RSUs |
|
|
|
|
|
|
||
Balance, March 31, 2023 |
|
|
|
|
$ |
|
||
As of March 31, 2023, there was $
14
PJT Partners Inc.
Notes to Condensed Consolidated Financial Statements – Continued (Unaudited)
(All Dollars Are in Thousands, Except Share and Per Share Data, Except Where Noted)
Partnership Units
The following table summarizes activity related to unvested Partnership Units for the three months ended March 31, 2023:
|
|
Partnership Units |
|
|||||
|
|
|
|
|
Weighted- |
|
||
|
|
|
|
|
Average |
|
||
|
|
Number of |
|
|
Grant Date |
|
||
|
|
Partnership |
|
|
Fair Value |
|
||
|
|
Units |
|
|
(in dollars) |
|
||
Balance, December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Balance, March 31, 2023 |
|
|
|
|
$ |
|
||
As of March 31, 2023, there was $
Partnership Unit Awards with Both Service and Market Conditions
The following table summarizes activity related to unvested Partnership Unit awards with both a service and market condition for the three months ended March 31, 2023:
|
|
Partnership Unit Awards with |
|
|||||
|
|
|
|
|
Weighted- |
|
||
|
|
|
|
|
Average |
|
||
|
|
Number of |
|
|
Grant Date |
|
||
|
|
Partnership |
|
|
Fair Value |
|
||
|
|
Units |
|
|
(in dollars) |
|
||
Balance, December 31, 2022 |
|
|
|
|
$ |
|
||
Balance, March 31, 2023 |
|
|
|
|
$ |
|
||
As of March 31, 2023, there was $
Units Expected to Vest
The following unvested units, after expected forfeitures, as of March 31, 2023, are expected to vest:
|
|
|
|
|
Weighted- |
|
||
|
|
|
|
|
Service Period |
|
||
|
|
Units |
|
|
in Years |
|
||
Restricted Stock Units |
|
|
|
|
|
|
||
Partnership Units |
|
|
|
|
|
|
||
Total Equity-Based Awards |
|
|
|
|
|
|
||
15
PJT Partners Inc.
Notes to Condensed Consolidated Financial Statements – Continued (Unaudited)
(All Dollars Are in Thousands, Except Share and Per Share Data, Except Where Noted)
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 to
The components of lease expense were as follows:
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Operating Lease Cost |
|
$ |
|
|
$ |
|
||
Variable Lease Cost |
|
|
|
|
|
|
||
Sublease Income |
|
|
( |
) |
|
|
( |
) |
Total Lease Cost |
|
$ |
|
|
$ |
|
||
Supplemental information related to the Company’s operating leases was as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash Paid for Amounts Included in Measurement of Lease Liabilities |
|
|
|
|
|
|
||
Operating Cash Flows from Operating Leases |
|
$ |
|
|
$ |
|
||
Right-of-Use Assets Obtained in Exchange for Operating Lease Liabilities |
|
$ |
|
|
$ |
|
||
|
|
March 31, |
|
|
December 31, |
|
||
Weighted-Average Remaining Lease Term (in years) |
|
|
|
|
|
|
||
Weighted-Average Discount Rate |
|
|
% |
|
|
% |
||
The following is a maturity analysis of the annual undiscounted cash flows of the Company’s operating lease liabilities as of March 31, 2023:
Year Ending December 31, |
|
Operating |
|
|
2023 (April 1 through December 31) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total Lease Payments |
|
|
|
|
Less: Imputed Interest |
|
|
|
|
Total |
|
$ |
|
|
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
16
PJT Partners Inc.
Notes to Condensed Consolidated Financial Statements – Continued (Unaudited)
(All Dollars Are in Thousands, Except Share and Per Share Data, Except Where Noted)
their Partnership Units for cash or, at the Company’s election, for shares of PJT Partners Inc. Class A common stock on a
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, 2022.
Certain holders of Partnership Units exchanged
The Company intends to exchange
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 to maintain the effectiveness of a registration statement covering the shares owned by individuals covered by such agreement.
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
Sublease
The Company has entered into a Sublease Agreement (the "Sublease") with Dynasty Equity Partners Management, LLC ("Dynasty") to sublease a portion of its office space to Dynasty. K. Don Cornwell, a member of the Board as of January 2023, is the CEO and co-founder of Dynasty. The sublease commenced on
Aircraft Lease
The Company makes available to its partners and, on occasion, their family members personal use of a company leased aircraft when it is not being used for business purposes, for which the partners pay the full
17
PJT Partners Inc.
Notes to Condensed Consolidated Financial Statements – Continued (Unaudited)
(All Dollars Are in Thousands, Except Share and Per Share Data, Except Where Noted)
incremental costs associated with such use. Such amount is not material to the condensed consolidated financial statements.
Commitments
Line of Credit
On February 1, 2021, PJT Partners Holdings LP, as borrower (the “Borrower”), entered into a Renewal and Modification Agreement (the “Renewal Agreement”) and related documents with First Republic Bank, as lender (the “Lender”), amending the terms of the Borrower’s revolving credit facility with the Lender under the Amended and Restated Loan Agreement dated October 1, 2018 (the “Amended and Restated Loan Agreement”). The Renewal Agreement provides for a revolving credit facility with aggregate commitments in an amount equal to $
As of March 31, 2023 and December 31, 2022, there were
As of March 31, 2023 and December 31, 2022, the Company was in compliance with the debt covenants under the Renewal Agreement and the Amended and Restated Loan Agreement.
Contingencies
Litigation
From time to time, the Company may be 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. 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 $
Indemnifications
The Company has entered and may continue to enter into contracts that 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.
18
PJT Partners Inc.
Notes to Condensed Consolidated Financial Statements – Continued (Unaudited)
(All Dollars Are in Thousands, Except Share and Per Share Data, Except Where Noted)
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 accrual for these forfeitures was $
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. Amounts are payable annually (for periods in which a cash benefit is realized) within nine months of the end of the relevant tax period. The Company had accrued $
Certain subsidiaries of the Company are subject to various regulatory requirements in the U.S., United Kingdom, Hong Kong and Spain, which specify, among other requirements, minimum net capital requirements for registered broker-dealers.
PJT Partners LP is a registered broker-dealer through which advisory and placement services are conducted in the U.S. 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 had net capital of $
As of March 31, 2023 and December 31, 2022, PJT Partners (UK) Limited, PJT Partners (HK) Limited and PJT Partners Park Hill (Spain) A.V., S.A.U. were in compliance with local capital adequacy requirements.
The Company’s activities providing advisory and placement services constitute a single reportable segment. An operating segment is a component of an entity that conducts business and 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 operating segment and therefore a 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.
19
PJT Partners Inc.
Notes to Condensed Consolidated Financial Statements – Continued (Unaudited)
(All Dollars Are in Thousands, Except Share and Per Share Data, Except Where Noted)
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.
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Revenues |
|
|
|
|
|
|
||
Domestic |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
|
|
March 31, |
|
|
December 31, |
|
||
Assets |
|
|
|
|
|
|
||
Domestic |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
As publicly reported, on May 1, 2023, First Republic Bank ("FRB") was acquired by JPMorgan Chase & Co. following a seizure by the U.S. Federal Deposit Insurance Corporation. The Company maintained cash deposits and a revolving credit facility with FRB. The Company expects no material impact on its consolidated financial statements or day-to-day operations as a result of these recent developments.
The Company has evaluated the impact of subsequent events through the date these financial statements were issued, and determined there were no subsequent events requiring adjustment or further disclosure to the financial statements besides those described in Note 12. “Transactions with Related Parties—Exchange Agreement.”
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with PJT Partners Inc.’s Condensed Consolidated Financial Statements and the related notes included in this Quarterly Report on Form 10-Q.
Our Business
PJT Partners is a premier, global, advisory-focused investment bank that was built from the ground up to be different. Our highly experienced, collaborative teams provide independent advice coupled with old-world, high-touch client service. This ethos has allowed us to attract some of the very best talent in the markets in which we operate. We deliver leading advice to many of the world's most consequential companies, effect some of the most transformative transactions and restructurings and raise billions of dollars of capital around the globe to support startups and more established companies.
We have world-class franchises in each of the areas in which we compete:
Strategic Advisory
Our team of leading professionals delivers strategic advice and innovative solutions to various opportunities and often highly complex challenges. We advise clients on transactions including mergers and acquisitions (“M&A”), spin-offs, activism defense, contested M&A, joint ventures, minority investments and divestitures. Additionally, we advise private and public company boards and management teams on strategies for building productive investor relationships with a focus on shareholder engagement; complex investor matters; environmental, social and governance transition solutions; and other critical strategic, governance and shareholder matters. Our capital markets advisory team advises and executes public and private capital raises in the debt and equity capital markets, including debt financings, acquisition financings, structured product offerings, public equity raises including IPO and SPAC offerings, private capital raises for early and later stage companies as well as other capital structure related matters. Our geopolitical and policy advisory practice assists boards and managements team navigate changing geopolitical relationships against the backdrop of evolving political landscapes.
Restructuring and Special Situations
Our Restructuring and Special Situations business is one of the world’s leading advisors in financial debt restructurings, liability management, distressed M&A and Chapter 11 matters, around the globe. We have been named IFR Restructuring Advisor of the Year for three years running beginning in 2020 and are consistently ranked among the top three financial advisors in announced global restructuring volume. With expertise in highly complex capital structure challenges, we advise management teams, corporate boards, sponsors and creditors in situations where a company is experiencing financial distress.
PJT Park Hill
PJT Park Hill, our leading global alternative asset advisory and fundraising business, 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, private credit, real estate, directs and private capital solutions groups. PJT Park Hill’s Private Capital Solutions business is a leading advisor to GPs and LPs on liquidity and other structured solutions.
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, 2022 for a discussion of some of the factors that can affect our performance.
21
M&A is a cyclical business that is impacted by macroeconomic conditions. There are several factors weighing on global M&A activity in the intermediate-term, including monetary policy, a downturn in equity markets, greater economic and geopolitical uncertainty and slowing global growth. Worldwide M&A announced volumes during the first quarter of 2023 were down 44% compared with first quarter of 20221 as these factors adversely impacted the strength of strategic activity. While the pace of activity has changed, we expect corporate boards and management teams to continue to use M&A as a strategic tool.
Continued adverse macroeconomic conditions, particularly in the debt and equity capital markets led to an uptick in global restructuring activity in the first quarter of 2023. In particular, out-of-court liability management transactions, principally driven by financial sponsor activity led to an increase in active restructuring mandates. Restructuring opportunities remain across most sectors and geographies including healthcare, consumer-driven businesses and industrials driven by a mix of financial debt restructurings, liability management and in-court Chapter 11 matters.
Given the global macroeconomic environment and supply of alternative investment opportunities in the market seeking capital, limited partners have become more discerning in their deployment of capital for both existing and new fund manager relationships. Investors continue to focus on existing relationships and, as a result, the bar for fund managers to attract new investors remains high as a flight to quality persists. As it relates to private capital activity, market volatility has increased resulting from rising inflation, supply chain disruption and geopolitical events. As a result, market sentiment has shifted away from highly concentrated portfolio structures in favor of diversification.
1Source: Refinitiv Global Mergers & Acquisitions Review for First Quarter of 2023 as of March 31, 2023.
Key Financial Measures
Revenues
Substantially all of our revenues are derived from contracts with clients to provide advisory and placement services. 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.
We provide a range of strategic advisory, capital markets advisory, restructuring and special situations and shareholder advisory services to corporations, financial sponsors, institutional investors and governments around the world. In conjunction with providing restructuring advice, we may also assist with raising various forms of financing, including debt and equity. Our private capital solutions services include providing GP solutions and investing solutions to clients seeking portfolio liquidity, unfunded commitment relief and investments in secondary markets. Our fund placement services primarily serve alternative investment strategies, including private equity, real estate, hedge funds and private credit. We advise on all aspects of the fundraising process including competitive positioning and market assessment, marketing materials and related documentation including partnership terms and conditions most prevalent in the current environment. We also provide public and private placement fundraising services to our corporate clients and recognize placement and underwriting fees based on the successful completion of the transaction.
The amount and timing of the fees paid vary by the type of engagement and are typically based on retainers, completion of a transaction or a capital raise. 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, such as the Secured Overnight Financing Rate or an alternate reference rate, 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 four year 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.
22
A transaction can fail to be completed for many reasons, including global and/or regional economic conditions, 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.
Interest Income and Other – Interest Income and Other represents interest typically earned on Cash and Cash Equivalents, investments in Treasury securities and outstanding placement fees receivable; miscellaneous income; foreign exchange gains and losses arising from 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 as mutually agreed upon with the receivable counterparty. Interest receivable is included in Accounts Receivable, Net in the Condensed Consolidated Statements of Financial Condition.
Expenses
Compensation and Benefits – Compensation and Benefits expense includes salaries, cash bonuses and restricted cash awards, benefits, employer taxes and equity-based compensation associated with the grants of equity-based awards to partners and employees. Changes in this expense are driven by fluctuations in the number of employees, composition of our workforce, business performance, compensation adjustments in relation to market movements, changes in rates for employer taxes and other cost increases affecting benefit plans. 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.
Non-Compensation Expense – Non-Compensation expenses are the other costs typical to operating our business, which generally consist of Occupancy and Related, Travel and Related, Professional Fees, Communications and Information Services, Depreciation and Amortization and Other Expenses. Further information regarding these expenses 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, 2022.
Income Taxes – PJT Partners Inc. is a corporation subject to U.S. federal, state and local income taxes in jurisdictions where it does business. Our 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 state and local as well as non-U.S. jurisdictions, as applicable. These taxes have been reflected in our 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).
Non-Controlling Interests
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
23
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 portion of net income attributable to the non-controlling interests is presented separately in the Condensed Consolidated Statements of Operations.
Condensed Consolidated Results of Operations
The following table sets forth our condensed consolidated results of operations for the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|||
|
|
(Dollars in Thousands) |
|
|||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|||
Advisory Fees |
|
$ |
168,090 |
|
|
$ |
181,658 |
|
|
|
(7 |
)% |
Placement Fees |
|
|
27,585 |
|
|
|
60,351 |
|
|
|
(54 |
)% |
Interest Income and Other |
|
|
4,313 |
|
|
|
4,310 |
|
|
|
0 |
% |
Total Revenues |
|
|
199,988 |
|
|
|
246,319 |
|
|
|
(19 |
)% |
Expenses |
|
|
|
|
|
|
|
|
|
|||
Compensation and Benefits |
|
|
133,043 |
|
|
|
159,232 |
|
|
|
(16 |
)% |
Occupancy and Related |
|
|
10,011 |
|
|
|
8,942 |
|
|
|
12 |
% |
Travel and Related |
|
|
6,972 |
|
|
|
4,458 |
|
|
|
56 |
% |
Professional Fees |
|
|
6,927 |
|
|
|
7,051 |
|
|
|
(2 |
)% |
Communications and |
|
|
4,077 |
|
|
|
4,423 |
|
|
|
(8 |
)% |
Depreciation and |
|
|
3,443 |
|
|
|
4,307 |
|
|
|
(20 |
)% |
Other Expenses |
|
|
6,322 |
|
|
|
7,758 |
|
|
|
(19 |
)% |
Total Expenses |
|
|
170,795 |
|
|
|
196,171 |
|
|
|
(13 |
)% |
Income Before Provision |
|
|
29,193 |
|
|
|
50,148 |
|
|
|
(42 |
)% |
Provision for Taxes |
|
|
1,207 |
|
|
|
5,680 |
|
|
|
(79 |
)% |
Net Income |
|
|
27,986 |
|
|
|
44,468 |
|
|
|
(37 |
)% |
Net Income Attributable |
|
|
10,650 |
|
|
|
18,764 |
|
|
|
(43 |
)% |
Net Income Attributable to |
|
$ |
17,336 |
|
|
$ |
25,704 |
|
|
|
(33 |
)% |
Revenues
The following table provides revenue statistics for the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Total Number of Clients |
|
|
237 |
|
|
|
239 |
|
Total Number of Fees of at least $1 Million from |
|
|
37 |
|
|
|
49 |
|
Total Revenues were $200.0 million for the three months ended March 31, 2023, a decrease of $46.3 million compared with $246.3 million for the three months ended March 31, 2022. Advisory Fees were $168.1 million for the three months ended March 31, 2023, a decrease of $13.6 million compared with $181.7 million for the three months ended March 31, 2022. The decrease in Advisory Fees was due to decreases in strategic advisory and private capital solutions revenues. Placement Fees were $27.6 million for the three months ended March 31, 2023, a
24
decrease of $32.8 million compared with $60.4 million for the three months ended March 31, 2022. The decrease in Placement Fees was principally due to a decrease in fund placement revenues.
Expenses
Expenses were $170.8 million for the three months ended March 31, 2023, a decrease of $25.4 million compared with $196.2 million for the three months ended March 31, 2022. The decrease in expenses was principally attributable to a decrease in Compensation and Benefits of $26.2 million, which was partially offset by increases in Travel and Related of $2.5 million and Occupancy and Related of $1.1 million. The compensation accrual rate increased for the current quarter principally reflecting increased fixed compensation expenses combined with lower revenues. Aggregate Compensation and Benefits decreased in the quarter notwithstanding the higher accrual rate due to lower revenues compared with the prior year. Travel and Related increased due to increased levels of business travel. Occupancy and Related increased principally due to expansion of our New York office.
Provision for Taxes
The Company’s Provision for Taxes for the three months ended March 31, 2023 was $1.2 million, which represents an effective tax rate of 4.1% on pretax income of $29.2 million. The Company’s Provision for Taxes for the three months ended March 31, 2022 was $5.7 million, which represents an effective tax rate of 11.3% on pretax income of $50.1 million.
The change in tax rate between the three months ended March 31, 2023 and three months ended March 31, 2022 was principally due to a lower pretax income.
Non-Controlling Interests
Net Income Attributable to Non-Controlling Interests is derived from the Income Before Provision for Taxes and the percentage allocation of the income 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.
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 been historically comprised of cash and cash equivalents, investments, receivables arising from advisory and placement engagements and operating lease right-of-use assets. Our liabilities generally include accrued compensation and benefits, accounts payable and accrued expenses, taxes payable and operating lease liabilities. We expect to pay a significant amount of incentive compensation toward the end of each year and 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 the end of the year and during the first quarter of each year after incentive compensation is paid to our employees. We then expect cash to build throughout the remainder of the year.
On February 1, 2021, PJT Partners Holdings LP, as borrower (the “Borrower”), entered into a Renewal and Modification Agreement (the “Renewal Agreement”) and related documents with First Republic Bank, as lender (the “Lender”), amending the terms of the Borrower’s revolving credit facility with the Lender under the Amended and Restated Loan Agreement dated October 1, 2018 (the “Amended and Restated Loan Agreement”). On February 7, 2023, the Renewal Agreement was further amended to extend the maturity date to October 1, 2024. Further information regarding the Renewal Agreement and Amended and Restated Loan Agreement can be found in Note 13. “Commitments and Contingencies—Commitments, Line of Credit” in the “Notes to Condensed Consolidated Financial Statements” in “—Item 1. Financial Statements” of this filing. As of March 31, 2023 and December 31, 2022, we were in compliance with the debt covenants under the Renewal Agreement and Amended and Restated
25
Loan Agreement, respectively. Additionally, as of March 31, 2023 and December 31, 2022, there were no borrowings outstanding under the revolving credit facility.
We evaluate our cash needs on a regular basis in light of current market conditions. During the quarter ended March 31, 2023, certain U.S. and international government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns which caused significant disruptions to the banking system and financial market volatility. Further, as publicly reported, on May 1, 2023, First Republic Bank was acquired by JPMorgan Chase & Co. following a seizure by the U.S. Federal Deposit Insurance Corporation. As of March 31, 2023 and December 31, 2022, we had cash, cash equivalents and short-term investments of $98.5 million and $223.5 million, respectively. The vast majority of these balances are either held in institutions labeled by the Financial Stability Board as global systemically important banks, fully insured cash sweep accounts or Treasury securities.
Although we maintain multiple banking relationships with both global and regional banks and actively monitor the financial stability of such institutions, a failure at any institution where we maintain a banking relationship could impact our liquidity.
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 March 31, 2023 and December 31, 2022, total accounts receivable, net of allowance for credit losses, were $319.6 million and $317.8 million, respectively. As of March 31, 2023 and December 31, 2022, the allowance for credit losses was $2.3 million and $1.9 million, respectively. Included in Accounts Receivable, Net are long-term receivables of $131.7 million and $133.3 million as of March 31, 2023 and December 31, 2022, 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, exchanging of Partnership Units for cash, repurchasing shares of the Company’s Class A common stock, paying income taxes, making distributions to our shareholders in accordance with our dividend policy, partnership tax distributions, capital expenditures, making payments pursuant to the tax receivable agreement, 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.
Additionally, our ability to generate positive cash flow from operations will be impacted by global economic conditions. If our cash flows from operations are significantly reduced, we may need to borrow from our revolving credit facility, incur debt, or issue additional equity. Although we believe that the arrangement we have in place, and our ability to renew that arrangement, will permit us to finance our operations on acceptable terms and conditions for the foreseeable future, our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including: (a) business performance, (b) our credit ratings or absence of a credit rating, (c) the liquidity of the overall capital markets, (d) the current state of the economy, and (e) stability of our lending institution. 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.
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 14. “Regulated Entities” in the “Notes to Condensed Consolidated Financial Statements” in “—Item 1. Financial Statements” of this filing for further
26
information. The licenses under which we operate are meant to be appropriate to conduct our business. 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.
Exchange Agreement
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 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 holder of Partnership Units.
Certain holders of Partnership Units exchanged 0.1 million Partnership Units for cash in the amount of $10.7 million for the three months ended March 31, 2023 and 0.1 million Partnership Units for cash in the amount of $6.6 million for the three months ended March 31, 2022.
Share Repurchase Program
During the three months ended March 31, 2023, the Company repurchased 0.9 million shares of Class A common stock at an average price per share of $77.37, or $66.2 million in aggregate, pursuant to the share repurchase program. As of March 31, 2023, the Company’s remaining repurchase authorization was $107.5 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, 2022. There have not been any material changes to our contractual obligations since December 31, 2022.
Commitments and Contingencies
Litigation
With respect to our litigation matters, including any litigation discussed under the caption “Legal Proceedings” 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. While the ultimate outcome and the costs associated with litigation are inherently uncertain and difficult to predict, 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.
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
27
guaranteed was $3.0 million and $3.3 million as of March 31, 2023 and December 31, 2022, respectively. In connection with this guarantee, we currently expect any associated risk of loss to be insignificant.
Indemnifications
We have entered and may continue to enter into contracts that 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.
Tax Receivable Agreement
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. As of March 31, 2023 and December 31, 2022, the Company had amounts due of $31.7 million and $30.3 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.
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, 2022.
Other
See Notes 8, 10, 11 and 13 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 and commitments, respectively.
Critical Accounting Estimates
A discussion of critical accounting estimates 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, 2022.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk and Credit Risk
Our business is not capital-intensive and we do not invest in derivative instruments or, generally, borrow. As a result, we are not subject to significant market risk (including interest rate risk, foreign currency exchange rate risk and commodity price risk) or credit risk. Notwithstanding the foregoing, current economic and geopolitical uncertainty and slowing global growth could have a material adverse effect on the Company's condensed consolidated financial statements.
Risks Related to Cash, Cash Equivalents and Investments
Our cash and cash equivalents include short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less from the date of purchase. Cash and cash equivalents are maintained in U.S. and non-U.S. bank accounts and are held at five financial institutions. In addition to cash and cash equivalents, we hold investments in Treasury securities, certain of which are classified as Investments in our Condensed Consolidated Statements of Financial Condition. We believe our cash, cash equivalents and short-term investments are not subject to any material interest rate risk, equity price risk, credit risk or other market risk based on our diversified use of global and regional financial institutions and the short-term nature of the securities.
Credit Risk
We estimate our allowance for credit losses using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. We maintain an allowance for credit losses that, in our opinion, reflects current expected credit losses. As of March 31, 2023 and December 31, 2022, the allowance for credit losses was $2.3 million and $1.9 million, respectively.
Exchange Rate Risk
We are exposed to the risk that the exchange rate of the U.S. dollar relative to other currencies may have an adverse effect on the reported value of our non-U.S. dollar denominated or based assets and liabilities. In addition, the reported amounts of our revenues may be affected by movements in the rate of exchange between the transaction currency and the U.S. dollar, the currency in which our financial statements are denominated. The principal non-U.S. dollar currencies include the pound sterling, the euro, the Hong Kong dollar and the Japanese yen. For the three months ended March 31, 2023 and 2022, the impact of the fluctuation of foreign currencies in Other Comprehensive Income (Loss), Net of Tax – Currency Translation Adjustment in the Condensed Consolidated Statements of Comprehensive Income was a gain of $1.4 million and a loss of $1.4 million, respectively, and in Interest Income and Other in the Condensed Consolidated Statements of Operations, a loss of $0.8 million and a gain of $0.1 million, respectively. We have not entered into any transaction to hedge our exposure to these foreign currency fluctuations through the use of derivative instruments or other methods at this time. Given the geopolitical uncertainty and the ongoing economic impact, rising interest rates and heightened inflation, exchange rate fluctuations between the U.S. dollar and other currencies could unfavorably affect our condensed consolidated financial statements.
ITEM 4. CONTROLS AND PROCEDURES
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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 undertake 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.
ITEM 1A. RISK FACTORS
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, 2022.
The risks described in our Annual Report on Form 10-K for the year ended December 31, 2022 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities in the First Quarter of 2023
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Total Number |
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Approximate Dollar |
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of Shares |
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Value of Shares |
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Purchased as |
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that May Yet Be |
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Total Number |
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Part of Publicly |
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Purchased Under |
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of Shares |
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Average Price |
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Announced Plans |
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the Plans or |
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Repurchased |
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Paid Per Share |
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or Programs (a) |
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Programs (a) |
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January 1 to January 31 |
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— |
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$ |
— |
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— |
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$ |
173.7 million |
February 1 to February 28 |
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625,548 |
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77.52 |
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625,548 |
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125.2 million |
March 1 to March 31 |
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229,570 |
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76.96 |
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229,570 |
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107.5 million |
Total |
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855,118 |
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$ |
77.37 |
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855,118 |
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$ |
107.5 million |
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Unregistered Sales/Issuances of Equity Securities and Use of Proceeds
In connection with the issuance during the first quarter of 2023 of LTIP Units in PJT Partners Holdings LP to certain personnel and the transfer of Partnership Units in PJT Partners Holdings LP, PJT Partners Inc. issued six corresponding shares of its Class B common stock, par value $0.01 per share, to these limited partners. 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS
Exhibit Number |
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Exhibit Description |
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2.1 |
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3.1 |
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3.2 |
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*10.1 |
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PJT Partners Inc. Amended and Restated Bonus Deferral Plan, dated as of February 22, 2023. |
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10.2 |
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31.1 |
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Certification of the Chief Executive Officer pursuant to Rule 13a-14(a). |
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31.2 |
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Certification of the Chief Financial Officer pursuant to Rule 13a-14(a). |
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32.1 |
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32.2 |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because iXBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Indicates management or compensation plan or arrangement
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.
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SIGNATURES
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: May 3, 2023 |
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PJT Partners Inc. |
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By: |
/s/ Paul J. Taubman |
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Name: |
Paul J. Taubman |
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Title: |
Chief Executive Officer |
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By: |
/s/ Helen T. Meates |
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Name: |
Helen T. Meates |
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Title: |
Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
33