Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record Q2 revenues, the highest in the firm's history.
- Adjusted pre-tax income up 19% year-over-year and adjusted EPS up 20% from year-ago levels.
- Year-to-date performance showed strength across all businesses with record revenues of $690 million, up 26% year-over-year.
- Continued investment in talent, industry expertise, product capabilities, and global reach.
- Record mandate count in strategic advisory, indicating strong future business potential.
Negative Points
- Restructuring revenues were below the prior year's record levels.
- Non-compensation expenses increased by 11% year-over-year, driven by higher occupancy costs, travel, and investments in communications and information services.
- Full-year growth is unlikely to approach the 26% seen in the first half.
- The fundraising environment, although improved, remains subdued compared to previous years.
- Continued challenges in bringing deals to completion due to regulatory reviews and valuation discrepancies.
Q & A Highlights
Q: I appreciate all the outlook commentary, Paul, and particularly just on the broader M&A market and kind of what you are seeing and expecting. If you are looking at PJT specifically, I heard the comment about a record mandate count and strategic advisory, which I believe would imply an improvement from last quarter. I think last quarter you mentioned record pre-announced pipelines, so I'm not sure if there's any distinction there, but just curious how that's trended. Then just more broadly, whether you're seeing any change in tone around the speed to progress deals. I appreciate there could be kind of an inflection post-election, but are you actually seeing an acceleration here even in recent months, maybe post the prior quarter? Thank you.
A: Well, I mean, everyone – it's a Rorschach test. Everyone probably looks at every situation a little bit differently. I continue to think that deals are still hard to bring to the goal line, and that there has always been in this downturn, what has made this downturn so different than prior periods of inactivity is the desire to transact remains very robust. There is a clear desire to investigate transactions, to diligence transactions, to try and be creative in bringing them to fruition, but it has just been more difficult and there have been different issues along the way. At one point in this recovery it was more about access to financing. I think financing is far more plentiful today. I think there continues to be a bid ask on valuations, although I believe that has narrowed. There continues to be the soul searching issue of do you want to subject your company and the target company to an extended period of regulatory review and who bears the risk of degradation and performance between signing and closing. That one I think continues. The others have probably gotten a bit better, but we're not at a place where it's easy to get deals done and those deals that have been announced still are set up particularly larger transactions and consolidating transactions. The regulatory review process remains quite long and uncertain, but I definitely see a healing in the marketplace. I've always had the belief that while we've never had three down years in a row, we had two. This was going to be an up year. I think people were driving past their headlights a little bit in the sense that the first year of a rebound tends to be reasonably modest and you've seen the year-to-date activity levels, they were tracking in the 30's, up 30% year-over-year, that's continued come down. We focus much more on just what the annualized run rate is and it's up single digits. Even if we end the year stronger, it's still going to be a reasonably pedestrian, first year of a recovery, but we see more and more of the elements building and we're very focused on 2025 and beyond.
Q: Okay, that's great color Paul, thanks. And then I'll just ask another one on the advisory, but we're structuring business and leaning [ph] out a little bit, so I appreciate some of the more near term color and expectation for 2024 and obviously you're kind of operating at record level here. Do you see any potential catalysts that could drive maybe even a further acceleration in activity outside of an economic stress period? Is there anything that you think could actually drive an acceleration from here? How should we think about the backdrop for restructuring in the next couple of years in your mind, relative to what does sound like potential inflecting higher M&A market? Clearly historically those two don't go together, but we'll just get an update on more of an intermediate term view of how these businesses could relate together here in the next couple of years.
A: Well, look, I think this sets up potentially where they can both coexist, and one of the reasons for that, and I've talked about this repeatedly, is in a world of technological innovation and disruption, not everyone is a winner. The issue is not whether it's the macroeconomic conditions necessarily that cause a lot of companies to need to restructure their balance sheets, but whether or not their business models have been severely disrupted. So when I just look out with a crystal ball, my crystal ball is equally cloudy to yours, it's far from perfect, but I look at a world where there's tremendous disruption, innovation, which is creating more disruption, and whether it's generative AI, whether it's electrification, whether it's digitization, the world is changing, and that means that not everyone is going to be a winner. Regardless of macro environment, if you are going to have industries that are going to be severely disrupted, that's going to pressure balance sheets and lower interest rates are not going to bail out those companies. So there are industries that will be right for liability management. That is one issue. The second is you are just dealing with a sheer quantum of debt, which is greater today than it was in prior cycles. So if you apply the same percentage of companies that are likely to get caught up and need balance sheet repair, it's the same constant percentage multiplied against a much bigger debt stack. That would suggest greater restructuring activity. And then I think the third is, in a world where there have been relatively few governors on how borrowers can conduct themselves, because of stripped-down covenant packages and the like, the opportunity to more creatively figure out how to restructure or recapitalize the balance sheet, there's more options available. So to me, those are the secular tailwinds which suggest elevated activity for a considerable period of time. Now, what may be a headwind to that business is if rates come down precipitously, that may just mean that the capital markets may be so open and inviting that a lot of those companies will be able to find other ways to muddle through. So I don't know exactly where it's going, but I certainly see a reasonable probability that you could have a more active transaction marketplace and you could have a more active liability management marketplace.
Q: Good morning, and thanks for taking my questions. Paul, maybe just starting with the M&A side of the business, could you just touch on the dialogues that you are having with sponsors? I think we've heard from some of your peers that those are improving, but how are you seeing those dialogues relative to the beginning of the year. Let's say, over what time period would you expect those to fully normalize, and do we need rate cuts for a full normalization of activity among those clients?
A: I think the answer – we'll start at the back. I think the answer is, yes, on the back end. I think you do need rate cuts for full normalization. So you can just look at the data. The data shows a quite sluggish sponsor activity level in Q1. It was stronger in Q2, and it happened to be particularly active in the month of July. So those are just the facts. The facts are you've seen more sponsor activity as the year has progressed. I think the more interesting question is for attractive assets, there are multiple sponsor bids, and sponsors do have capital that they need to put out. And when there are attractive assets out there, you are certainly seeing robust competition, because when those highly sought-after assets are put to market, you have an awful lot of dry powder, clear access to financing,
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
