PJT Partners Inc. (NYSE:PJT) Q4 2023 Earnings Call Transcript

Brennan Hawken: Am I last in the queue, because I had one more question, but I can requeue if there’s somebody still there?

Helen Meates: No, that’s fine. Go ahead.

Brennan Hawken: Okay. Great. I would love to ask about Park Hill. So Park Hill has been struggling. You spoke a good deal about, the headwinds to that business broadly and the environment. So, I totally appreciate that. But we just had a competitor of your speed to strength in their prior private asset advisory business. And that they actually were seeing revenue growth. So are you losing share in that business? Is there – so maybe some indexing to certain asset classes like real estate that happens that’s causing Park Hill to show a bit of weakness when others are showing some more resilience. Could you speak to maybe consolidation in the industry, creating some problems? What do you think might be causing those divergent data points? Thank you.

Paul Taubman: It’s always hard to mix and match everything, but I’ll make a few observations. Number one, Park Hill had another record year in 2022. So just to put this in perspective, after setting record after record after record, you’ve got to look at that. So sometimes, it’s easy for someone to have “growth”, it’s all a question of what your base is. So, we’re dealing with record results in 2022, number one. Number two, you’ve got to look at the composition within that business as to how much of it is primary versus secondary and how the firms are weighted one versus the other. And the third is, it’s not unlike the M&A business, particularly with fundraisers that are long tailed and all, timing plays a very important role and there’s an idiosyncratic nature to this as to, what actually gets closed in the year, what gets pushed into the next year.

And I think, if you’ve listened to my earlier commentary, you’ve no doubt heard that we – are quite constructive on a rebound in our results in 2024, which I think, just again emphasize the fact that with a slightly longer lens a lot of things that appear to be important moves one way or the other, tend to be more noise than anything else.

Brennan Hawken: Okay. Does Park Hill have a pretty large real estate business, though, could you give some texture around some of the different asset classes?

Paul Taubman: Well, as a real estate business, but its principal, its largest primary fundraising business, is on the PE side and probably second largest, would be hedge funds, credit funds, and the like.

Brennan Hawken: Got it. Thank you.

Paul Taubman: Absolutely.

Operator: Our next question comes from Michael Brown with KBW. Please go ahead.

Michael Brown: Hi great. Good morning, everyone.

Paul Taubman: Good morning.

Michael Brown: So Paul, I wanted to ask about the ramping potential here from the talent base. So maybe you could dive into where you see the productivity expansion as greatest. And I assume the expansion potential for the strategic advisory would be higher than restructuring. And so if you focus on the strategic advisory side – where is the opportunity, the highest as a recent higher season on the PJT platform? And what would be – would it be possible to get back to kind of the 2020 peak, which I think was the peak for you guys in terms of advisory revenue per partner?

Paul Taubman: I’m doing this set new benchmarks for the firm, not to go back to old benchmark. So my goal would be to be more productive, than we were in 2020. So there’s absolutely no reason why we can’t be and that we won’t be at some point. So that’s – but in order to do that, it’s a function of what’s the macro environment and it’s a function of how much harvesting you’re doing with established partners versus how much investing you’re doing with new partners. So you need all of those things. But absolutely, I don’t view that as the ceiling at all on what we’re all about. I would observe, though, that in that period of time over the last three years, we haven’t exactly seen growth in the M&A marketplace. So it’s great that you pick 2020 I think the overall M&A market is pretty much flattish, plus or minus.

It went up in ’21, and they came down in ’22, and they came back down to ’23. And it was more or less a round trip. But over that period of time, we’ve added significant headcount. That would be the first thing. I think the second is, ultimately, where you want to be, is you want to be where the biggest wallets are. And those wallets have historically been technology, healthcare, consumer or industrials, among others. But you can’t start a firm and then just focus on where the biggest wallets are. Because if you do that, you may end up fishing in the best waters in terms of wallet opportunity, but you get the best bankers. If you want to get the best bankers, you’ve got to be opportunistic about when those opportunities present themselves. And that’s why it takes time, and that’s why we continue to build out in areas where we heretofore hadn’t been.

It’s not because we necessarily didn’t have an interest in the space. It was we perhaps couldn’t find the right people, to occupy that space. And then when you get to the productivity, so in a way, it’s the last partner and that’s the most productive as opposed to the first partner, because the first partner in a new space, that’s a very large order for one individual, to come into a new space and have the critical mass and the expertise, and the totality of the relationships. So you tend to make investment, investment, investment. And all the while you’re being stronger and more competitive and you’re starting to light up the network, but it’s really it’s that last individual. Now as we’ve made this journey of investment and we have what I would call mostly built, but not fully built networks, industry group-by-industry group, we’re starting to now close off and complete some of those networks.

And when you do that, that’s when you get big spikes in productivity. And then as we play a longer game as we start to now compete in some areas where there’s very rich wallets like the technology space like, we end up with another bump. So, those are all the ways in, which we continue to strengthen the firm. And then finally, a lot of this investment also has utility beyond just strategic advisory, and we see that in opening up new corporate and sponsor relationships for our restructuring colleagues. So everywhere we go, that investment finds other ways to be amortized and to be monetized, but it does take constructive markets. Where we’ve had constructive markets in restructuring. We’ve had more than enough proof-of-concept as far as our penetration and sponsors and corporates.

And as the M&A market heats up, I expect we’ll see the same productivity gains there as well.

Michael Brown: Okay. Maybe just a quick one for Helen on the non-comp guide. I understand that the occupancy sounds like that’s going up as your business grows, that makes sense. Is this increase that you talked about for 2024? Is that a kind of one year, or a transitory impact, or that essentially a permanent increase? Essentially, is there kind of a double rent impact that’s impacting the guidance?

Helen Meates: So in 2024, there will be a step function increase in occupancy costs, and it will stay elevated. So it’s not a one-time increase. It’s not a double occupancy issue. So, we’re just pointing out that, that increase is more significant in 2024, and then it will level out a bit beyond that. And the majority of that increase has come from, the fact that we’ve renegotiated these leases, as I mentioned. It’s a 15-year lease. So rents are higher. We also had some sublease income that was below market. So that’s being mark-to-market. We are taking on some additional space. And then there is an accounting straight lining of that 15-year lease, which means in the early years we’re expensing more than our cash outlay, that that’s just an accounting issue.

So, we’re just trying to highlight that. As I mentioned, as we sit here today and look at the non-comps overall, we expect that growth will be around the growth that we had in 2023, and we’ll refine that as we get further into the year.

Paul Taubman: I mean, by the way the way I think about it simply is the bad news is, we get a step function jump in our real estate expense. The good news is, we have a lot of space to grow without having to make additional commitments and that rent from an accounting perspective, just stays fixed at that number and doesn’t grow. So over time, we have the same nominal debt expense – and as we add more and more people to that space, we use it more efficiently and effectively. So, we kind of take our lumps on the front end and then we get the benefit over time.