PJT Partners Inc. Q1 FY2025 earnings call

• First quarter revenues were $325 million, adjusted pre-tax income $56 million, and adjusted EPS $1.05, with record Q1 adjusted net income and EPS. • Operating environment poses risks like volatile capital markets, subdued M&A activity, fragile business confidence, and delayed investments. • Firm is uniquely positioned with strong franchise and broad mix of businesses. • Restructuring: In a multi-year period of elevated liability management activity, full-year expectations track last year's record levels. • PJT Park Hill: Subdued IPO and M&A activity weighing on capital return, but private capital solutions business seeing increased activity. • Strategic Advisory: First quarter activity muted but revenues increased, with full-year revenues expected strongly up; added 10 partners in Q1, on pace for strong recruiting year.

Restructuring: First quarter revenues were modestly below last year's strong Q1 results, but full-year expectations track last year's record-setting levels; potential for increased activity if economic stresses persist. PJT Park Hill: Revenues were modestly below last year's strong results; subdued IPO and M&A activity weighing on capital return, but private capital solutions business seeing increased activity related to LP stake sales and GP-led fund continuation vehicles. Strategic Advisory: First quarter activity was muted, but revenues increased; full-year revenues expected strongly up from 2024, with most revenue increase likely in the second half; mandate count at all-time highs, but macro uncertainties could delay pipeline benefits.

• Full-year firm outlook remains substantially unchanged from before. • Restructuring full-year expectations closely track last year's record-setting results, with potential for increased activity if economic stresses persist. • Strategic advisory full-year revenues expected strongly up from 2024, with most revenue increase in the second half. • Board approved a dividend of $0.25 per share, to be paid on June 18, 2025 to class A common shareholders of record as of June 4.

• Volatile capital markets, subdued M&A activity, fragile business confidence, and delayed investments pose risks to the US and global economies. • Economic uncertainties and potential reshaping of global trading relationships weigh heavily on market sentiment.

Q: Hey Paul. Hey Helen. This is Alex Jenkins filling in for Devin. Hope you guys are doing well. Appreciate you taking my questions. Just to start on strategic advisory and partner productivity there, I would just love to get your thoughts on how you think about the order of magnitude to the upside for partner productivity that you think you could get to if we got back to what, like a more normal operating environment. Thank you.

A: Sure. Well, again, I think the first point is the, that in your question is the most important, which is you have to assume an environment. And if we're in a normalized environment, we think that there's meaningful increase in partner productivity. And we've talked about this repeatedly because partner productivity is the end result of a lot of elements working together. So, if you think about it, a lot of our investment continues where we have partially built networks. We have our first partner in a particular geography. We have our first or second partner in an industry vertical. And those are necessary but not sufficient for us to really show the power of our firm. But as more and more of those individual networks go from unbuilt or partially built to fully built, there should be a meaningful increase in the economic results from that investment. That's one element. I think another element is there's simply the network effect and the franchise value of the firm. And the more talented individuals who join this platform, the greater that network effect, the more walk-in business, the easier it is to sell through and our fee realizations go up. So, all of that works to increase partner productivity, but it’s not a formula and it is not a precise input output result. But if we continue to do the things that we're doing for any given economic environment that we're in, the productivity should be meaningfully higher than it is today.

Q: Good morning, and thanks for taking my questions. I wanted to touch on the discussions that you're having with private equity today. To what extent are they slowing their previous plans to conduct M&A and IPOs this year and potentially beyond? And then as a corollary, what are your expectations for the growth of the secondaries business, perhaps for this year and 2026 as well?

A: Look, I think the, in the alternative space, sponsors continue to transact. There's not a cessation of activity, but there's a slowing of activity, and it starts with capital return. The reality is capital return is far more challenged today than what it should be, you know, in the normalized economic cycle. The IPO market is clearly challenged. There have been relatively few companies that have gone public. Most of those that have gone public have not traded particularly well. And then also, if you do take a company public and most of the proceeds are primary as opposed to secondary, you're still not getting capital return. You're simply positioning a portfolio company for future capital return. And with all of the volatility in the market, you run the risk that having recently listed one of your assets, it ends up trading meaningfully below where you have it marked. So, all of that has slowed the return of capital in the ecosystem, and that does hamper deployment of capital. At the same time, private equity, when they see quality assets that are available, are still bidding and bidding robustly. And if you look in the marketplace recently, you've seen high-quality assets where you have a line around the block from sponsors to acquire those assets. But those are fewer, and those are farther between than we would all like. So, activity continues, and an interesting way when we're dealing with maximum uncertainty and you're a sponsor, the ability to take a couple of shots on goal in disrupted or dislocated markets is arguably easier because you're taking a diversified portfolio approach than it is for a corporate to have the conviction to bring to their shareholders a significant transaction in the midst of all of this market uncertainty. So, we see activity not stopping, but clearly, it's slowing and it is not anywhere near normalized levels, but this too shall pass and we're going to get back to a more normal cadence. While that's being sorted out, there is undoubtedly a very significant uptick in interest in continuation vehicles. There is more allocated monies being directed to these strategies, and we think it continues to be a significant growth engine, and we are well positioned to be a leader and to continue to participate in that. And that should over time be reflected in our financials as well.

Q: Hey, good morning. Paul, you kind of highlighted, you highlighted the high yield market showing some signs of stress, right. Does that at also, at least temporarily hurt your ability to execute liability management assignments? And I guess if that persists, do we start to see some of those assignments get pushed into towards Chapter 11? Just curious how you're seeing that dynamic.

A: Look, I think the reality is we're in a risk-off environment. We're not in a risk on environment. When you're in a risk-off environment, that tends to be where borrowers and lenders alike recognize that there needs to be a restructuring in the transaction. I think there's always been a view that liability management is a more efficient way to do it than Chapter 11. Not exclusively, but principally. It's a way with fewer friction costs and for parties to come together more quickly. And with prices starting to reflect more distress, there's probably more opportunity to capitalize on some of that. So, I actually think you're going to see more of both. You're going to see more liability management, and you are going to see more bankruptcies, I think. Both are going to be present as we move into this next economic phase. That's my own personal belief. I think at a minimum you'll see some modest upticks, and we'll end up somehow reverting a more pronounced economic recession. But if we don't, you're going to see a major league uptick in, in both in-court and out-of-court restructurings.

Q: Thank you, for taking my questions. This a lot of noise in the -- I was just wondering if you could, what you're seeing on the regulatory front is obviously the, and that would accommodate. So, I just want to get a sense as to whether there's using scrutiny relative to what we saw.

A: I heard every other word, because of a poor connection, but I think the gist of it is, can we try and make sense of what the current administration's regulatory posture is on M&A deals and what are the implications for M&A? Do I get that mostly right?

Q: Yes, sorry about the for connection.

A: Okay. So, if that's the question, let me give it a go. Look, it's a mixed bag, because with new administrations, you typically want early declarations on large deals as a weather van on how much the weather has changed from before. And part of the challenge here is you're not seeing enough deal flow, and you're not seeing enough regulatory review to really determine what is the direction of travel in this administration, contrasted with the last administration. And there's also no doubt, while a different approach there are within this administration some reasonably consistent views about competition in certain areas that align more closely than some had thought with the prior administration. So, my own view is it's better. I think there's, more confidence in moving forward in most industries, but not all. I think when it comes to media technology areas that affect, end prices of what consumers pay and groceries and the like, that, there's not a relaxed view on consolidation, but in other parts of the economy, I think there's no doubt that this is a more favorable climate, but maybe not as favorable as some had thought. And for a lot of companies around all of this swirling with a lot of rhetoric, what they're looking for are a couple of large defining transactions to come before them so that they have a much clearer sense as the roadmap. So, I think that's also in a nuanced way, curtailing some large M&A for the moment, but not necessarily for very long.

Q: Hi. Thanks for taking my questions. I thought the commentary that your full year outlook has not changed, was actually pretty encouraging. And in 2024, obviously, you guys had record revenue across your three businesses. So, I'm just curious, how are you thinking about the different growth trajectories across Park Hill restructuring and strategic advisory in light of the uncertainty? And then also, you mentioned in your prepared remarks that your backlog remains at record levels. So, just curious, has there been any shift in either the quality or expected timing of your M&A pipeline thus far in April? Thank you.

A: Sure. Let me try. And since you started out asking about the totality of the firm, let me start there and then we'll come back. I think we're coming off record results in all three of our principal businesses. What I have said repeatedly is that restructuring and liability management, we don't see any meaningful slowdown, and we expect levels to be consistent with last year, certainly in the same range. I do think that with every passing day, maybe that vector goes from flattish to slightly up, but that's we're going to need to see more of the year playing out. But if you said to me, as the year progresses, how are we thinking about that, it is reasonably consistent with last year's record levels? And as I've said, none of that reflects that call option, if you will, that if these stresses and strains persist for an extended period of time, we could see a meaningful uplift. So, we're kind of flattish with maybe watch and wait that maybe if the world becomes stuck for longer and if the markets continue to be challenged, there could be an uptick from here. I think what we've also said about our capital raising fundraising businesses is that the primary business continues to be quite difficult and challenging from a macro perspective. There's ever more interest in LP monetization’s and GP solutions to create liquidity. And you sort of got that ying and the yang there. So those two businesses should approach last year's levels. And as the year progresses, how it affects individual sub-sectors and a more precise view. We will need more of the year to play out. But those two forecasts are substantially intact from where they were at the beginning of the year, even though the composition may change. And in strategic advisory, we have the benefit of a record announced pending close pipeline. We have the benefit of a record level of mandates. We're stronger every day, every day. We are a stronger and more powerful franchise. And all of that suggests that we should have very strong results and strong increases in strategic advisory year-on-year. And exactly the degree, how much will be a function of how the environment plays out over the next eight months and what our perspectives are for ‘26 will be defined by how the second half of ‘25 plays out. But in almost any scenario, we still think we're positioned for strong increases in strategic advisory for the year. And as a result, that is an outlook, which is remarkably consistent to what we talked about three months ago.