See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements.
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. The Company’s team of senior professionals delivers 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. The Company also provides private fund advisory and fundraising services for alternative investment strategies, including private equity, real estate, hedge funds and private credit.
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 100% of the economic interest in PJT Partners Holdings LP, but has 100% of the voting power and controls the management of PJT Partners Holdings LP. As of June 30, 2022, the non-controlling interest was 38.2%. As the sole general partner of PJT Partners Holdings LP, PJT Partners Inc. operates and controls all of the business and affairs and consolidates the financial results of PJT Partners Holdings LP and its operating subsidiaries. The Company operates through the following subsidiaries: PJT Partners LP, PJT Partners (UK) Limited, PJT Partners (HK) Limited, PJT Partners Park Hill (Spain) A.V., S.A.U., PJT Partners (Germany) GmbH and PJT Partners (France) SAS.
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The Company prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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, 2021.
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 primarily held at four major financial institutions. Also included in Cash and Cash Equivalents are amounts held in bank accounts that are subject to advance notification to withdraw. Such amounts totaled $0.6 million and $41.2 million as of June 30, 2022 and December 31, 2021, respectively.
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)
Treasury securities with original maturities greater than three months when purchased are classified as Investments in the Condensed Consolidated Statements of Financial Condition.
Recent Accounting Developments
In June 2022, the FASB issued updated guidance on the fair value measurement of equity securities subject to contractual sale restrictions. The guidance is effective for annual and interim periods beginning after December 15, 2023, with early adoption permitted. The Company is currently assessing the impact that adoption will have on its condensed consolidated financial statements.
3. |
REVENUES FROM CONTRACTS WITH CUSTOMERS |
The following table provides a disaggregation of revenues recognized from contracts with customers for the three and six months ended June 30, 2022 and 2021:
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Advisory Fees |
|
$ |
186,649 |
|
|
$ |
197,624 |
|
|
$ |
368,307 |
|
|
$ |
350,224 |
|
Placement Fees |
|
|
49,482 |
|
|
|
40,337 |
|
|
|
109,833 |
|
|
|
90,720 |
|
Interest Income from Placement Fees and Other |
|
|
2,035 |
|
|
|
1,822 |
|
|
|
4,157 |
|
|
|
3,602 |
|
Revenues from Contracts with Customers |
|
$ |
238,166 |
|
|
$ |
239,783 |
|
|
$ |
482,297 |
|
|
$ |
444,546 |
|
Remaining Performance Obligations and Revenue Recognized from Past Performance
As of June 30, 2022, the aggregate amount of the transaction price allocated to performance obligations yet to be satisfied was $42.3 million and the Company generally expects to recognize this revenue within the next twelve months. Such amounts relate to the Company’s performance obligations of providing capital advisory services and standing ready to perform.
The Company recognized revenue of $21.0 million and $45.6 million for the three and six months ended June 30, 2022, respectively, and $3.6 million and $10.8 million for the three and six months ended June 30, 2021, respectively, related to performance obligations that were fully satisfied in prior periods, primarily due to constraints on variable consideration in prior periods being resolved. Such amounts related primarily to the provision of capital advisory services. The majority of Fee Revenue recognized by the Company during the three and six months ended June 30, 2022 and 2021 was predominantly related to performance obligations that were partially satisfied in prior periods.
Contract Balances
There were no significant impairments related to contract balances during the three and six months ended June 30, 2022 and 2021.
For the six months ended June 30, 2022 and 2021, $9.9 million and $7.9 million, respectively, of revenue was recognized that was included in the beginning balance of Deferred Revenue, primarily related to the Company’s performance obligation of standing ready to perform. In certain contracts, the Company receives customer deposits, which are also considered to be contract liabilities. As of June 30, 2022 and December 31, 2021, the Company recorded $1.0 million and $1.2 million, respectively, of customer deposits in Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition.
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)
4. |
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES |
Changes in the allowance for credit losses consist of the following:
|
|
Six Months Ended
June 30, |
|
|
|
2022 |
|
|
2021 |
|
Beginning Balance |
|
$ |
1,853 |
|
|
$ |
1,330 |
|
Provision for Credit Losses |
|
|
1,687 |
|
|
|
1,185 |
|
Write-offs |
|
|
(1,372 |
) |
|
|
(501 |
) |
Recoveries |
|
|
— |
|
|
|
63 |
|
Ending Balance |
|
$ |
2,168 |
|
|
$ |
2,077 |
|
Included in Accounts Receivable, Net is accrued interest of $2.6 million and $1.9 million as of June 30, 2022 and December 31, 2021, respectively, related to placement fees.
Included in Accounts Receivable, Net are long-term receivables of $125.5 million and $104.6 million as of June 30, 2022 and December 31, 2021, respectively, related to placement fees that are generally paid in installments over a period of three to four years.
The Company does not have any long-term receivables on non-accrual status. Of receivables that originated as long-term, there were $5.2 million and $3.4 million as of June 30, 2022 and December 31, 2021, respectively, which were outstanding more than 90 days. The Company’s allowance for credit losses with respect to long-term receivables was $0.8 million as of June 30, 2022 and December 31, 2021.
Intangible Assets, Net consists of the following:
|
|
June 30,
2022 |
|
|
December 31,
2021 |
|
Finite-Lived Intangible Assets |
|
|
|
|
|
|
|
|
Customer Relationships |
|
$ |
61,276 |
|
|
$ |
61,276 |
|
Trade Name |
|
|
9,800 |
|
|
|
9,800 |
|
Total Intangible Assets |
|
|
71,076 |
|
|
|
71,076 |
|
Accumulated Amortization |
|
|
|
|
|
|
|
|
Customer Relationships |
|
|
(42,789 |
) |
|
|
(39,797 |
) |
Trade Name |
|
|
(7,691 |
) |
|
|
(6,893 |
) |
Total Accumulated Amortization |
|
|
(50,480 |
) |
|
|
(46,690 |
) |
Intangible Assets, Net |
|
$ |
20,596 |
|
|
$ |
24,386 |
|
Amortization expense was $1.9 million and $3.8 million for the three and six months ended June 30, 2022 and $1.9 million and $3.9 million for the three and six months ended June 30, 2021.
Amortization of Intangible Assets held at June 30, 2022 is expected to be $2.7 million for the remainder of the year ending December 31, 2022; $4.9 million for each of the years ending December 31, 2023 and 2024; $4.8 million for the year ending December 31, 2025; and $3.3 million for the year ending December 31, 2026.
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)
6. |
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS |
Furniture, Equipment and Leasehold Improvements, Net consists of the following:
|
|
June 30,
2022 |
|
|
December 31,
2021 |
|
Leasehold Improvements |
|
$ |
54,060 |
|
|
$ |
56,230 |
|
Furniture and Fixtures |
|
|
18,277 |
|
|
|
18,044 |
|
Office Equipment |
|
|
4,900 |
|
|
|
4,423 |
|
Total Furniture, Equipment and Leasehold Improvements |
|
|
77,237 |
|
|
|
78,697 |
|
Accumulated Depreciation |
|
|
(43,831 |
) |
|
|
(41,550 |
) |
Furniture, Equipment and Leasehold Improvements, Net |
|
$ |
33,406 |
|
|
$ |
37,147 |
|
Depreciation expense was $2.2 million and $4.6 million for the three and six months ended June 30, 2022, respectively, and $1.9 million and $3.7 million for the three and six months ended June 30, 2021, respectively.
7. |
FAIR VALUE MEASUREMENTS |
The following tables summarize the valuation of the Company’s investments by the fair value hierarchy:
|
|
June 30, 2022 |
|
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
Treasury Securities |
|
$ |
— |
|
|
$ |
40,225 |
|
|
$ |
— |
|
|
$ |
40,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
Treasury Securities |
|
$ |
— |
|
|
$ |
40,000 |
|
|
$ |
— |
|
|
$ |
40,000 |
|
Investments in Treasury securities were included in both Cash and Cash Equivalents and Investments as of June 30, 2022 and in Cash and Cash Equivalents as of December 31, 2021 in the Condensed Consolidated Statements of Financial Condition.
The following table summarizes the Company’s tax position:
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Income Before Provision for Taxes |
|
$ |
43,688 |
|
|
$ |
52,446 |
|
|
$ |
93,836 |
|
|
$ |
96,335 |
|
Provision for Taxes |
|
$ |
8,495 |
|
|
$ |
9,590 |
|
|
$ |
14,175 |
|
|
$ |
9,683 |
|
Effective Income Tax Rate |
|
|
19.4 |
% |
|
|
18.3 |
% |
|
|
15.1 |
% |
|
|
10.1 |
% |
The Company’s effective tax rate differed from the U.S. federal statutory tax rate for the three and six months ended June 30, 2022 primarily due to partnership income not being subject to U.S. corporate income taxes and permanent differences related to compensation.
The Company had no unrecognized tax benefits as of June 30, 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)
9. |
NET INCOME PER SHARE OF CLASS A COMMON STOCK |
Basic and diluted net income per share of Class A common stock for the three and six months ended June 30, 2022 and 2021 is presented below:
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Shares of Class A
Common Stock — Basic |
|
$ |
19,168 |
|
|
$ |
23,145 |
|
|
$ |
44,872 |
|
|
$ |
49,827 |
|
Incremental Net Income from Dilutive Securities |
|
|
476 |
|
|
|
14,295 |
|
|
|
1,261 |
|
|
|
31,434 |
|
Net Income Attributable to Shares of Class A
Common Stock — Diluted |
|
$ |
19,644 |
|
|
$ |
37,440 |
|
|
$ |
46,133 |
|
|
$ |
81,261 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Shares of Class A Common
Stock Outstanding — Basic |
|
|
25,141,339 |
|
|
|
25,051,017 |
|
|
|
25,065,684 |
|
|
|
25,010,968 |
|
Weighted-Average Number of Incremental Shares from
Unvested RSUs and Partnership Units |
|
|
1,279,748 |
|
|
|
17,045,018 |
|
|
|
1,421,215 |
|
|
|
17,603,659 |
|
Weighted-Average Shares of Class A Common
Stock Outstanding — Diluted |
|
|
26,421,087 |
|
|
|
42,096,035 |
|
|
|
26,486,899 |
|
|
|
42,614,627 |
|
Net Income Per Share of Class A Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.76 |
|
|
$ |
0.92 |
|
|
$ |
1.79 |
|
|
$ |
1.99 |
|
Diluted |
|
$ |
0.74 |
|
|
$ |
0.89 |
|
|
$ |
1.74 |
|
|
$ |
1.91 |
|
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 40,272,650 and 40,229,485 for the three and six months ended June 30, 2022, respectively, excluding unvested restricted stock units (“RSUs”) and participating RSUs. In computing the dilutive effect, if any, which the aforementioned exchange would have on net income per share, net income attributable to holders of Class A common stock would be adjusted due to the elimination of the non-controlling interests associated with the Partnership Units (including any tax impact). For the three and six months ended June 30, 2022, there were 15,131,311 and 15,163,801 weighted-average Partnership Units, respectively, that were anti-dilutive. For the three and six months ended June 30, 2021, there were no anti-dilutive securities.
Share Repurchase Program
On April 25, 2022, the Company’s Board of Directors authorized a $200 million repurchase program of the Company’s Class A common stock, which is in addition to the previous Board authorizations. As of June 30, 2022, the Company’s remaining repurchase authorization was $199.2 million. Under the repurchase program, shares of the Company’s Class A common stock may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number of shares repurchased depend on a variety of factors, including legal requirements, price, and economic and market conditions. The repurchase program may be suspended or discontinued at any time and does not have a specified expiration date.
During the six months ended June 30, 2022, the Company repurchased 1.3 million shares of the Company’s Class A common stock at an average price per share of $64.98, or $83.9 million in aggregate, pursuant to this share repurchase program.
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)
10. |
EQUITY-BASED AND OTHER DEFERRED COMPENSATION |
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, 2021.
The following table represents equity-based compensation expense and related income tax benefit for the three and six months ended June 30, 2022 and 2021, respectively:
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Equity-Based Compensation Expense |
|
$ |
36,301 |
|
|
$ |
27,290 |
|
|
$ |
95,370 |
|
|
$ |
57,238 |
|
Income Tax Benefit |
|
$ |
4,595 |
|
|
$ |
3,674 |
|
|
$ |
12,617 |
|
|
$ |
7,701 |
|
Restricted Stock Units
The following table summarizes activity related to unvested RSUs for the six months ended June 30, 2022:
|
|
Restricted Stock Units |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Number of |
|
|
Fair Value |
|
|
|
Units |
|
|
(in dollars) |
|
Balance, December 31, 2021 |
|
|
4,098,671 |
|
|
$ |
60.14 |
|
Granted |
|
|
1,879,575 |
|
|
|
63.73 |
|
Dividends Reinvested on RSUs |
|
|
(35,219 |
) |
|
|
38.76 |
|
Forfeited |
|
|
(62,239 |
) |
|
|
64.38 |
|
Vested |
|
|
(1,505,172 |
) |
|
|
50.55 |
|
Balance, June 30, 2022 |
|
|
4,375,616 |
|
|
$ |
65.09 |
|
As of June 30, 2022, there was $161.6 million of estimated unrecognized compensation expense related to unvested RSU awards. This cost is expected to be recognized over a weighted-average period of 1.7 years. The Company assumes a forfeiture rate of 1.0% to 6.0% annually based on expected turnover and periodically reassesses this rate. The weighted-average grant date fair value with respect to RSUs granted for the six months ended June 30, 2021 was $73.08.
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)
RSU Awards with Both Service and Market Conditions
The Company has granted RSU awards containing both service and market conditions. The service condition requirement for these awards is generally three to five years. The market condition will generally be satisfied upon the publicly traded shares of Class A common stock achieving certain volume weighted average share price targets over various trading periods during the life of the award.
Effective February 10, 2022, the Company granted RSU awards containing both service and market conditions. The effect of the service and market conditions is reflected in the grant date fair value of the award. Compensation cost is recognized over the requisite service period, provided that the service period is completed, irrespective of whether the market condition is satisfied. The service condition requirement with respect to such RSU awards is five years with 20% vesting per annum. The market condition requirement will be 50% satisfied upon the dividend-adjusted publicly traded shares of Class A common stock achieving a volume-weighted average share price over any consecutive 20-day trading period (“20-day VWAP”) of $100 and the other 50% will be satisfied ratably upon the dividend-adjusted publicly traded shares of Class A common stock achieving a 20-day VWAP above $100 with the market condition fully satisfied upon achieving a 20-day VWAP of $130 prior to February 26, 2027. No portion of these awards will become vested until both the service and market conditions have been satisfied.
The following table summarizes activity related to unvested RSU awards with both a service and market condition for the six months ended June 30, 2022:
|
|
RSU Awards with
Both Service and Market
Conditions |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Number of |
|
|
Fair Value |
|
|
|
Units |
|
|
(in dollars) |
|
Balance, December 31, 2021 |
|
|
50,280 |
|
|
$ |
36.53 |
|
Granted |
|
|
1,514,748 |
|
|
|
41.97 |
|
Dividends Reinvested on RSUs |
|
|
158 |
|
|
|
34.22 |
|
Vested |
|
|
(4,167 |
) |
|
|
13.52 |
|
Balance, June 30, 2022 |
|
|
1,561,019 |
|
|
$ |
41.87 |
|
As of June 30, 2022, there was $45.7 million of estimated unrecognized compensation expense related to RSU awards with both a service and market condition. This cost is expected to be recognized over a weighted-average period of 2.8 years. The Company assumes a forfeiture rate of 4.0% to 6.0% annually based on expected turnover and periodically reassesses this rate.
The Company estimated the fair value of RSU awards with both a service and market condition at grant using a Monte Carlo simulation. The following table presents the assumptions used for the six months ended June 30, 2022:
Risk-Free Interest Rate |
|
|
2.0 |
% |
Volatility Factor |
|
|
37.0 |
% |
Expected Life (in years) |
|
|
5.0 |
|
Restricted Share Awards
In connection with the acquisition of CamberView Partners Holdings, LLC, certain individuals were issued restricted shares of the Company’s Class A common stock. Based on the terms of the award, compensation expense will be recognized over four years. For the six months ended June 30, 2022, no restricted share awards were granted. As of June 30, 2022, there were 2,592 restricted shares outstanding and $24 thousand of estimated unrecognized
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)
compensation expense related to such restricted share awards. This cost is expected to be recognized over a weighted-average period of 0.3 years.
Partnership Units
The following table summarizes activity related to unvested Partnership Units for the six months ended June 30, 2022:
|
|
Partnership Units |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
Number of |
|
|
Grant Date |
|
|
|
Partnership |
|
|
Fair Value |
|
|
|
Units |
|
|
(in dollars) |
|
Balance, December 31, 2021 |
|
|
248,595 |
|
|
$ |
53.42 |
|
Granted |
|
|
47,588 |
|
|
|
59.84 |
|
Vested |
|
|
(79,268 |
) |
|
|
49.26 |
|
Balance, June 30, 2022 |
|
|
216,915 |
|
|
$ |
56.35 |
|
As of June 30, 2022, there was $7.9 million of estimated unrecognized compensation expense related to unvested Partnership Units. This cost is expected to be recognized over a weighted-average period of 1.0 years. The Company assumes a forfeiture rate of 4.0% annually based on expected turnover and periodically reassesses this rate. The weighted-average grant date fair value with respect to Partnership Units granted for the six months ended June 30, 2021 was $68.10.
Partnership Unit Awards with Both Service and Market Conditions
Effective February 10, 2022, the Company granted Partnership Unit awards containing both service and market conditions. The effect of the service and market conditions is reflected in the grant date fair value of the award. Compensation cost is recognized over the requisite service period, provided that the service period is completed, irrespective of whether the market condition is satisfied. The service condition requirement with respect to such Partnership Unit awards is five years with 20% vesting per annum. The market condition requirement will be 50% satisfied upon the dividend-adjusted publicly traded shares of Class A common stock achieving a 20-day VWAP of $100 and the other 50% will be satisfied ratably upon the dividend-adjusted publicly traded shares of Class A common stock achieving a 20-day VWAP above $100 with the market condition fully satisfied upon achieving a 20-day VWAP of $130 prior to February 26, 2027. No portion of these awards will become vested until both the service and market conditions have been satisfied.
The following table summarizes activity related to unvested Partnership Unit awards with both a service and market condition for the six months ended June 30, 2022:
|
|
Partnership Unit Awards with
Both Service and Market
Conditions |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
Number of |
|
|
Grant Date |
|
|
|
Partnership |
|
|
Fair Value |
|
|
|
Units |
|
|
(in dollars) |
|
Balance, December 31, 2021 |
|
|
— |
|
|
$ |
— |
|
Granted |
|
|
1,107,768 |
|
|
|
39.10 |
|
Balance, June 30, 2022 |
|
|
1,107,768 |
|
|
$ |
39.10 |
|
As of June 30, 2022, there was $32.1 million of estimated unrecognized compensation expense related to Partnership Unit awards with both a service and market condition. This cost is expected to be recognized over a
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)
weighted-average period of 2.9 years. The Company assumes a forfeiture rate of 4.0% annually based on expected turnover and periodically reassesses this rate.
The Company estimated the fair value of Partnership Unit awards with both a service and market condition at grant using a Monte Carlo simulation. The following table presents the assumptions used for the six months ended June 30, 2022:
Risk-Free Interest Rate |
|
|
2.0 |
% |
Volatility Factor |
|
|
37.0 |
% |
Expected Life (in years) |
|
|
5.0 |
|
Units Expected to Vest
The following unvested units, after expected forfeitures, as of June 30, 2022, are expected to vest:
|
|
|
|
|
|
Weighted-
Average |
|
|
|
|
|
|
|
Service Period |
|
|
|
Units |
|
|
in Years |
|
Restricted Stock Units |
|
|
5,469,003 |
|
|
|
2.0 |
|
Partnership Units |
|
|
1,219,646 |
|
|
|
2.5 |
|
Restricted Share Awards |
|
|
2,591 |
|
|
|
0.3 |
|
Total Equity-Based Awards |
|
|
6,691,240 |
|
|
|
2.1 |
|
Deferred Cash Compensation
The Company has periodically issued deferred cash compensation in connection with annual incentive compensation as well as other hiring or retention related awards. These awards typically vest over a period of one to four years. Compensation expense related to deferred cash awards was $7.6 million and $14.6 million for the three and six months ended June 30, 2022 respectively, and $8.1 million and $15.6 million for the three and six months ended June 30, 2021, respectively. As of June 30, 2022, there was $28.5 million of unrecognized compensation expense related to these awards. The weighted-average period over which this compensation cost is expected to be recognized is 2.2 years.
The components of lease expense were as follows:
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Operating Lease Cost |
|
$ |
6,868 |
|
|
$ |
6,980 |
|
|
$ |
13,592 |
|
|
$ |
13,826 |
|
Short-Term Lease Cost |
|
|
— |
|
|
|
37 |
|
|
|
— |
|
|
|
37 |
|
Variable Lease Cost |
|
|
1,083 |
|
|
|
733 |
|
|
|
2,087 |
|
|
|
1,585 |
|
Sublease Income |
|
|
(196 |
) |
|
|
(219 |
) |
|
|
(406 |
) |
|
|
(489 |
) |
Total Lease Cost |
|
$ |
7,755 |
|
|
$ |
7,531 |
|
|
$ |
15,273 |
|
|
$ |
14,959 |
|
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)
Supplemental information related to the Company’s operating leases was as follows:
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
Cash Paid for Amounts Included in Measurement of Lease Liabilities |
|
|
|
|
|
|
|
|
Operating Cash Flows from Operating Leases |
|
$ |
11,268 |
|
|
$ |
10,578 |
|
Right-of-Use Assets Obtained in Exchange for Operating Lease Liabilities |
|
$ |
2,804 |
|
|
$ |
6,765 |
|
|
|
June 30,
2022 |
|
|
December 31,
2021 |
|
Weighted-Average Remaining Lease Term (in years) |
|
|
7.3 |
|
|
|
7.6 |
|
Weighted-Average Discount Rate |
|
|
4.6 |
% |
|
|
4.7 |
% |
The following is a maturity analysis of the annual undiscounted cash flows of the Company’s operating lease liabilities as of June 30, 2022:
Year Ending December 31, |
|
Operating |
|
2022 (July 1 through December 31) |
|
$ |
14,548 |
|
2023 |
|
|
29,674 |
|
2024 |
|
|
28,170 |
|
2025 |
|
|
24,755 |
|
2026 |
|
|
19,187 |
|
Thereafter |
|
|
53,671 |
|
Total Lease Payments |
|
|
170,005 |
|
Less: Imputed Interest |
|
|
26,166 |
|
Total |
|
$ |
143,839 |
|
12. |
TRANSACTIONS WITH RELATED PARTIES |
Exchange Agreement
The Company has entered into an exchange agreement with the limited partners of PJT Partners Holdings LP pursuant to which they (or certain permitted transferees) have the right, subject to the terms and conditions set forth in the limited partnership agreement of PJT Partners Holdings LP, on a quarterly basis, to exchange all or part of their Partnership Units for cash or, at the Company’s election, for shares of PJT Partners Inc. Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for splits, unit distributions and reclassifications. Further, pursuant to the terms in the partnership agreement of PJT Partners Holdings LP, the Company may also require holders of Partnership Units who are not Service Providers (as defined in the partnership agreement of PJT Partners Holdings LP) to exchange such Partnership Units.
Further information regarding the exchange agreement is described in Note 13. “Transactions with Related Parties—Exchange Agreement” in the “Notes to Consolidated Financial Statements” in “Part II. Item 8. Financial Statements and Supplementary Data” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Certain Partnership Unitholders exchanged 0.2 million and 0.9 million Partnership Units, respectively, for cash in the amounts of $11.0 million and $65.2 million, respectively, for the six months ended June 30, 2022 and 2021, respectively. Such amounts are recorded as a reduction of Non-Controlling Interests in the Condensed Consolidated Statements of Financial Condition.
The Company intends to exchange 20 thousand Partnership Units for cash on August 2, 2022 for cash for an aggregate payment of $1.4 million. The price per Partnership Unit to be paid by the Company is $70.59, which is equal to the volume-weighted average price per share of the Company’s Class A common stock on July 28, 2022.
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)
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 85% of the benefits, if any, that PJT Partners Inc. is deemed to realize as a result of the increases in tax basis related to such exchanges of Partnership Units and of certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. As of June 30, 2022 and December 31, 2021, the Company had amounts due of $31.3 million and $31.1 million, respectively, pursuant to the tax receivable agreement, which represent management’s best estimate of the amounts currently expected to be owed in connection with the tax receivable agreement. Actual payments may differ significantly from estimated payments.
Aircraft Lease
The Company makes available to its partners, and on occasion, family members of these individuals, personal use of a Company leased business aircraft when the aircraft is not being used for business purposes, for which the partners pay the full incremental costs associated with such use. Such amount is not material to the condensed consolidated financial statements.
13. |
COMMITMENTS AND CONTINGENCIES |
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 $60.0 million, which aggregate commitments may be increased, on the terms and subject to the conditions set forth in the Renewal Agreement, to up to $80.0 million during the period beginning December 1 each year through March 1 of the following year. The revolving credit facility was scheduled to mature and the commitments thereunder were scheduled to terminate on October 1, 2022, subject to extension by agreement of the Borrower and Lender. On April 25, 2022, the Renewal Agreement was further amended to extend the maturity date to October 1, 2023.
Outstanding borrowings under the revolving credit facility bear interest equal to the greater of a per annum rate of (a) 2.75%, or (b) the prime rate minus 1.0%. During an event of default, overdue principal under the revolving credit facility bears interest at a rate 2.0% in excess of the otherwise applicable rate of interest. In connection with the closing of the Renewal Agreement, the Borrower paid the Lender certain closing costs and fees. In addition, on and after the closing date, the Borrower will also pay a commitment fee on the undrawn portion of the revolving credit facility of 0.125% per annum, payable quarterly in arrears.
As of June 30, 2022 and December 31, 2021, there were no borrowings outstanding under the revolving credit facility.
20
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 Renewal Agreement requires the Borrower to maintain certain minimum financial covenants and limits or restricts the ability of the Borrower (subject to certain qualifications and exceptions) to incur additional indebtedness in excess of $20.0 million. Outstanding borrowings under the Renewal Agreement are secured by the accounts receivable of PJT Partners LP.
As of June 30, 2022 and December 31, 2021, the Company was in compliance with the debt covenants under the Renewal Agreement and the Amended Restated Loan Agreement, respectively.
Contingencies
Litigation
From time to time, the Company is named as a defendant in legal actions relating to transactions conducted in the ordinary course of business. Some of these matters may involve claims of substantial amounts. Although there can be no assurance of the outcome of such legal actions, in the opinion of management, after consultation with external counsel, the Company believes it is not probable and/or reasonably possible that any current legal proceedings or claims would individually or in the aggregate have a material adverse effect on the condensed consolidated financial statements of the Company. 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 $3.8 million and $4.1 million as of June 30, 2022 and December 31, 2021, respectively. In connection with this guarantee, the Company currently expects any associated risk of loss to be insignificant.
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.
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 $0.9 million as of June 30, 2022 and December 31, 2021.
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. As of June 30, 2022 and December 31, 2021, the Company had accrued $2.5 million and $2.6 million, respectively, which the Company anticipates will be payable to Blackstone after the Company files its respective tax returns. The tax deduction and corresponding payable to Blackstone related to such deliveries will fluctuate primarily based on the price of Blackstone common stock at the time of delivery.
21
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)
Certain subsidiaries of the Company are subject to various regulatory requirements in the United States, 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 United States and is subject to the net capital requirements of Rule 15c3-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). PJT Partners LP computes net capital based upon the aggregate indebtedness standard, which requires the maintenance of minimum net capital, as defined, which shall be the greater of $100 thousand or 6 2/3% of aggregate indebtedness, as defined, and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. PJT Partners LP had net capital of $73.7 million and $79.4 million as of June 30, 2022 and December 31, 2021, respectively, which exceeded the minimum net capital requirement by $71.7 million and $77.6 million, respectively.
PJT Partners LP does not carry customer accounts and does not otherwise hold funds or securities for, or owe money or securities to, customers and, accordingly, has no obligations under the SEC Customer Protection Rule (Rule 15c3-3).
PJT Partners (UK) Limited is authorized and regulated by the United Kingdom’s Financial Conduct Authority and is required to maintain minimum capital of the greater of the permanent minimum requirement of £75 thousand or a fixed overhead requirement, defined as 25% of fixed overheads of the preceding year. One third of the fixed overhead requirement must be held in liquid assets. PJT Partners (HK) Limited is licensed with the Hong Kong Securities and Futures Commission and is subject to a minimum liquid capital requirement of HK$3 million. PJT Partners Park Hill (Spain) A.V., S.A.U. is an investment firm authorized and regulated by Spain’s National Securities Market Commission and is required to maintain minimum capital of the greater of the permanent minimum requirement of €75 thousand or 25% of the fixed overheads of the preceding year. One third of the fixed overhead requirement must be held in liquid assets. As of June 30, 2022 and December 31, 2021, these entities 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 single operating segment and therefore a single reportable segment.
The Company is organized as one operating segment in order to maximize the value of advice to clients by drawing upon the diversified expertise and broad relationships of senior professionals across the Company. The chief operating decision maker assesses performance and allocates resources based on broad considerations, including the market opportunity, available expertise across the Company and the strength and efficacy of professionals’ collaboration, and not based upon profit or loss measures for the Company’s separate product lines.
22
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. The following tables set forth the geographical distribution of revenues and assets based on the location of the office that generates the revenues or holds the assets and therefore may not be reflective of the geography in which the Company’s clients are located.
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
203,450 |
|
|
$ |
197,062 |
|
|
$ |
420,429 |
|
|
$ |
361,342 |
|
International |
|
|
29,691 |
|
|
|
43,619 |
|
|
|
59,031 |
|
|
|
86,039 |
|
Total |
|
$ |
233,141 |
|
|
$ |
240,681 |
|
|
$ |
479,460 |
|
|
$ |
447,381 |
|
|
|
June 30,
2022 |
|
|
December 31,
2021 |
|
Assets |
|
|
|
|
|
|
|
|
Domestic |
|
$ |
835,209 |
|
|
$ |
824,963 |
|
International |
|
|
145,401 |
|
|
|
162,662 |
|
Total |
|
$ |
980,610 |
|
|
$ |
987,625 |
|
The Board of Directors of PJT Partners Inc. has declared a quarterly dividend of $0.25 per share of Class A common stock, which will be paid on September 21, 2022 to Class A common stockholders of record on September 7, 2022.
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.”
23