PJT Partners Inc.

Good day and welcome to the PJT Partners fourth quarter 2023 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Sharon Pearson, head of investor relations. Please go ahead, ma'am.

Thank you very much, Todd. Good morning and welcome to the PJT Partners full year and fourth quarter 2023 earnings conference call. I'm Sharon Pearson, head of investor relations at PJT Partners. And joining me today is Paul Taubman, our Chairman and Chief Executive Officer, and Helen Metz, our Chief Financial Officer. Before I turn the call over to Paul, I want to point out that during the course of this conference call, we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. We believe that these factors are described in the risk factors section contained in PJT Partners 2022 Form 10-K. It's available on our website at pjtpartners.com. I want to remind you that the company assumes no duty to update any forward-looking statements and that the presentation we make today contains non-GAAP financial measures, which we believe are meaningful in evaluating the company's performance. For detailed disclosures on these non-GAAP metrics and their GAAP reconciliations, you should refer to the financial data contained within the press release we issued this morning, also available on our website. And with that, I'll turn the call over to Paul.

Thank you, Sharon, and thank you all for joining us this morning. Today we reported financial results for quarter end and full year 2023. Revenues were the highest in our firm's history at $1.15 billion, up 12% year-over-year. For the full year, adjusted pre-tax income was $183 million, and adjusted EPS was $3.27 per share. In a very challenging operating environment, we deliver differentiated results, as strong absolute performance in restructuring coupled with strong relative performance and strategic advisory were the drivers of our record revenues. This was also a record year for senior recruiting, as we added 19 partners and managing directors principally in strategic advisory. Many of these hires bring key industry expertise and relationships, which will significantly augment the depth and breadth of our industry footprint. Total strategic advisory partner and MD hit count increased 20% this year, while firm-wide hit count grew 12%. This considerable hiring has weighed on our operating margins, but we are confident that, in time, our shareholders will be rewarded for this investment. During the year, we repurchased almost 2.2 million share equivalents. Even with these significant share repurchases, we ended the year with more than $435 million of cash on hand and the strongest balance sheet in our firm's history. Given the strength of our balance sheet and our continued emphasis on mitigating dilution resulting from our continuing investment in the franchise, our board has authorized a new $500 million share Repurchase Program, which supersedes the current repurchase authorization. After Helen takes you through our financial results, I will review our business performance, recruiting initiatives, and outlook in greater detail. Helen?

Thank you, Paul. Good morning. Beginning with revenues. For the full year 2023, total revenues were $1,153,000,000, up 12% year-over-year. with a significant increase in restructuring, more than offsetting a significant decline in PJT Park Health and a modest decline in strategic advisory revenues compared to year-ago levels. For the fourth quarter, total revenues were 329 million, up 17% year-over-year, with a significant increase in restructuring and a modest increase in strategic advisory revenues, more than offsetting declines in PJT Park Health. Turning to expenses, consistent with prior quarters, we've presented the expenses with certain non-GAAP adjustments. These adjustments are more fully described in our 8 . First, adjusted compensation expense. Full year adjusted compensation expense was $805 million, up 23% year over year, with a compensation ratio of 69.8%. Given we accrued compensation at 69.5%, through the first nine months of the year, the resulting fourth quarter ratio was 70.7%. We will provide guidance on our accrual for compensation expense for 2024 when we report our first quarter results. Turning to adjusted non-compensation expense. Total adjusted non-compensation expense was $165 million for the full year 2023 and $43 million for the fourth quarter. As a percentage of revenues, Our adjusted non-comp expense was 14.3% for the full year 2023 and 13.2% for the fourth quarter. Adjusted non-compensation expense grew 12% in 2023 year over year, driven primarily by higher professional fees and higher occupancy costs. Looking ahead, we expect our total non-comp expense in 2024 to grow at a similar rate compared to 2023. This will primarily be driven by a step function increase in our occupancy costs as we recently renegotiated a 15-year lease in our office space in New York. We are taking on some additional space in other regions that we will grow into over the next several years. Turning to adjusted pre-tax income, we reported adjusted pre-tax income of $183 million for the full year 2023 and $53 million for the fourth quarter. Our adjusted pre-tax margin was 15.8% for the full year and 16.1% in the fourth quarter. The provision for taxes, as with prior years, presented our results as if all partnership units had been converted to shares and that all of our income was taxed at a corporate tax rate. Our effective tax rate for the full year was 25.3%, below the 26.7% estimated rate that we applied for the first nine months of the year, reflecting a final allocation of state-level income taxes. In 2024, we would expect our effective tax rate to be around 25%, and we will refine our view at the end of the first quarter. Earnings per share are adjusted as converted earnings, with $3.27 per share for the full year compared to $3.92 in 2022, and $0.96 in the fourth quarter compared to $1.08 in 2022. The share count. For the year ended 2023, our weighted average share count was 41.7 million shares, essentially unchanged from the prior year. During the year, we repurchased the equivalent of approximately 2.2 million shares, primarily through open market repurchases. For the fourth quarter, our weighted average share count was 42.9 million shares, up 2.7% year over year. A portion of this increase is attributable to the fact that during the fourth quarter, we reached the price hurdle on 1.3 million performance shares, which are partially reflected in our Q4 weighted average share count and will be fully reflected in our Q1 2024 weighted average share count. Of these 1.3 million performance units, 20% have met the service requirements. As Paul mentioned, our board has authorized a new $500 million share repurchase program, and consistent with our capital priorities, We will continue to invest in the franchise while using excess cash to reduce the dilutive impact of share issuance. On the balance sheet, we ended the year with $437 million in cash, cash equivalents and short-term investments, and $456 million in net working capital, and we have no funded debt outstanding. Finally, the Board has approved the dividend of $0.25 per share. The dividend will be paid on March 20, 2024. to Class A common shareholders of record as of March 6th. With that, I'll turn back to Paul.

Thank you, Helen. Beginning with restructuring, we saw significant growth in restructuring activity in 2023, driven by sharply higher interest rates, dislocated capital markets, and slowing economic growth around the globe. Our restructuring business capitalized on its favorable backdrop, delivering stellar results for the fourth quarter and record results for the full year. We were increasingly active across both liability management and in-court restructuring assignments as we continued to be the go-to advisor for complex liability management engagements. For full year 2023, we ranked number one in announced restructurings in both the U.S. and globally, and we were named Global Restructuring Advisor of the Year by IFR for the fourth year in a row. Turning to PJT Park Hill. After record fundraising in 2021 and 2022, the 2023 environment for alternative investments proved to be extraordinarily difficult. The dearth of M&A and IPO activity led to a significant reduction in capital return leaving many alternatives investors over-allocated to the asset class and highly restrained in making new commitments. Last year's environment was best characterized as one of elongated fundraising timelines and downward revisions to fund-size targets, with an uptick in the number of postponed fundraisers. Against this difficult backdrop, our fourth quarter and full-year revenues and PJT Park Hill declined significantly year on year. On the positive side, the gap between public and private valuations has narrowed, and we now see some early signs of a more constructive fundraising environment. Turning to strategic advisory, 2023 marked the second year in a row of meaningfully below trend global M&A activity. with announced global M&A volumes declining to levels not seen in a decade. The uncertainty caused by volatile markets, sharply higher interest rates, and greater economic and geopolitical uncertainty all weighed on the pace of strategic activity. Our fourth quarter strategic advisory revenues were up slightly, and our full year strategic advisory revenues were down slightly year over year. These results compare favorably when measured against the declines in industry-wide volumes. Turning to talent. Our most important strategic priority continues to be the build-out of our strategic advisory franchise. 2023 was a favorable recruiting environment when dislocated M&A markets enabled us to significantly accelerate the pace of senior hiring. While we expect our hiring to remain elevated in 2024, it may not equal 2023's record levels. As we look ahead, in PJT Park Hill, we expect the environment to slowly but steadily improve after a difficult couple of years for fundraising. Narrowing spreads between public and private valuations, more receptive capital markets, and greater capital returns to LPs as M&A and IPO activity picks up should result in an improved backdrop for fundraising. Our private capital solutions business should also benefit from increased demand from GPs to employ continuation funds to create additional monetization opportunities for their LPs. In M&A, while we expect the markets to take time to get back to historical relationships between M&A activity and broader market benchmarks, the direction of travel should be positive, although the pace of such recovery remains unclear. Higher equity valuations, lower volatility, and anticipated rate cuts should cause the macro environment to be more conducive to dealmaking. Executives remain focused on M&A as a strategic tool as they seek to remake their companies in response to the significant disruptions caused by technological innovation. Today, we have a decidedly more formidable team on the field to capitalize on these opportunities. We are better positioned in certain key growth areas, including technology, healthcare, and consumer. Our brand and our capabilities are stronger than ever. We are engaged in an increasing number of strategic conversations and our mandate count is at near record levels of 25% from a year ago. However, given the slowdown in 2023 deal activity, we begin 2024 with a lower than typical backlog of announced pending closed transactions. In restructuring, we are in the early days of what we believe will be a multi-year cycle of elevated activity in liability management and in-court restructurings. While the rebound in capital markets activity and lower interest rates may provide relief for some companies, the sheer quantum of debt that must be refinanced together with an increasing number of companies facing structural pressures will likely extend this restructuring cycle for some time to come. We are confident about our businesses. We are confident about our strategy. And we are confident about our long-term growth prospects. And with that, we will now take your questions.

Ladies and gentlemen, at this time, the floor is open for your questions. To ask a question, please press star 1 on your telephone keypad. you may remove yourself from the queue by pressing star two. Once again, that is star and one to ask a question. Our first question will come from Devin Ryan with J&P Securities. Please go ahead.

Thanks. Good morning, everyone. Good morning, Evan. Good morning. Good morning. So just want to, Paul, start maybe on some of the Outlook commentary and just talk a little bit about the interplay between restructuring and the strategic advisory or M&A advisory business. And I'm curious, does this feel like a 2020 to 2021 environment where You had a record 2020 with restructuring strength, and then into 2021, you kind of saw normalizing restructuring, and that was then offset by kind of the M&A growth and recovery. So do you kind of see that scenario, or based on what you're seeing today, do you see a scenario where maybe both businesses are working and the M&A part of the business is recovering to the extent that kind of macro environment that you laid out plays out?

Yeah, I think it's a far different bridge from 2021 versus 23-24. So let's look at restructuring first. Restructuring was an incredibly accelerated but abbreviated cycle in 2020. And the timeframe for these executions all compressed just given the urgency of the situation. And then it stopped raining. The sun came out and all of the wet grounds dried up seemingly overnight. And we went from incredibly active to inactive on a dime. Here, what we have seen, and we've been talking about this for some period of time, is a multi-year restructuring wave. And we have caught that wave early. We have caught it earlier than most. And we have done a very good job in leveraging the increased footprint in strategic advisory to go hand in hand with our restructuring capabilities to continue to build out and expand our footprint. I expect that this cycle is a multi-year cycle. Clearly, if the economy, you know, strengthens to such an extent and rates come all the way back down, it will have some effect on this restructuring cycle. But as we look out at 24, As we look at even further than 24, we think that we're in the early to middle innings of what should be an extended restructuring cycle. And then I'd also make the point that the default rates that we've experienced for the better part of a decade were so far below trend that simply getting default rates to trend can have a major impact on the quantum of restructuring. That's point number one. Point number two is that if you look at what's going on in terms of innovation, creative destruction, industries being created overnight and having profound effects on others, there can't be winners without there also being losers. Technology helps, but it also pressures other business models. And we're seeing that. So you can have severe disruption and dislocation coexist with a relatively benign macro environment. And then the third point is if you just look at the sheer quantum of debt outstanding, and I've been talking about this for a long time, the maturity walls and the debt that needs to be refinanced in the coming years, And it needs to be refinanced at meaningfully higher rates than that debt was put on the books at. And when you think about all of the ways with these relatively loose covenants to be creative in restructuring balance sheets and assisting companies in creating runway, this should be a long cycle. And on the M&A side, This is different in a very different way, which is 21, the world melted up seemingly on a dime. I don't think we're going to see that here. We've touched bottom. We're building a stronger foundation. I expect this to be an up year in M&A from a global perspective. But if you look historically, the good news is that after two down years, we've never had three. But when you look at that first year of recovery, it typically is a modest recovery. And if you look at sort of how things are playing out sitting here in February, I think this is going to be a slow, steady build, and it's going to continue to gain strength. But I think the pivot from 20 to 21 we saw in M&A globally, you're not going to see from 23 to 24. So very, very different marketplaces.

Yeah, got it. Okay, thanks for all that color, Paul. And then just a follow-up question here just on the comp ratio. In 2023, you obviously meaningfully grew the headcount. We're also operating in an environment where two out of the three businesses that you're in were incredibly subdued, and then there was competitive dynamics as well. So just trying to think about relative to that 69.8% 2023 comp ratio, how you guys would frame kind of the comp ratio in a more normalized environment for all three businesses. And maybe there's another way to kind of explain it from just like incremental margins from here. Thanks.

Sure. Look, to me, it's a pretty simple issue, which is we have made very significant investments in our strategic advisory business. And while it was record levels in 2023, it didn't start in 2023. And if you just look at the quantum of headcount that we have added over the last three years, we are a demonstrably stronger, more formidable, more complete firm as we build out these verticals where the opportunities are extraordinary. And if you're doing that in an environment where M&A is down for two years in a row, you have this conflict between significant investment where you know you're going to get a meaningful return, but in the short term you don't have a return for it and it pressures margins. And as that investment, you know, begins to earn a return, and the principal gating item is you need more constructive M&A markets, and it's not just announcements. You need to get to closings before you see it in the comp ratio. It's going to take a little bit of time. But that's pretty much what we've been doing. We're looking at all of this investment, and we're quite confident with the return. But you don't oftentimes make investment and get a day-one payback. We are going to get a long-term payback, and we're going to amply reward our shareholders. And in the short term, we're going to see our comp ratios go up. And I would just – it would be remiss of me not to add, it's not as if we're the only ones who are seeing our comp ratios move higher, but we're doing it with complete confidence. that it's the right thing. This is not where we expect the business to be when it hits, you know, its normal stride, but it's part of the journey. And on the other side of this, it's a lot of attractive return.

Got it. I mean, is there any way to just drill down a little bit more into like where the cop ratio could revert to or, um,

like any way to quantify the numbers around like where you see it going as the businesses are either more mature or just a the backdrop is called quote normal well look again part of the challenge is what's normal and you know i think one of the things we've always said is anyone who talks about one comp ratio for all conditions it's just not it's not realistic which is you need to overlay Are you in a bull market? Are you in a bear market? Are you in a normalized market? Is your hiring leveled out? There's no reason why our comp ratios should not be in line with peer ratios in time. But you need to sort of assume a set of circumstances. The reality is that most of firms who came well before us were operating in the circa 60% comp ratio, some a little higher, some a little bit lower. So unless and until we have other evidence to suggest that that's not the right ratio, that's pretty much where this should trend over time.

Got it. Okay, that's all I needed. Thank you, guys.

Sure. Thank you. Our next question comes from James Yarrow with Goldman Sachs. Please go ahead.

Good morning, and thanks for taking my questions. Paul, maybe to start. Good morning. Just to start with sort of a bigger picture macro one, I think we're seeing generally mixed but generally somewhat better industry announced M&A trends. I'd love to get your mark to market on how you are thinking about the macro and how that's factoring into conversations in corporate boardrooms, And then separately, how are M&A dialogues evolving with sponsors?

Right. Well, look, it's – I'm not sure that there's a one-size-fits-all answer to that. It depends on geography. It depends on industry. It's size of transaction. It's whether you're talking about strategics or sponsors. Let's just talk about sponsors first. Let's double-click on sponsors. Sponsors, people tend to focus on sponsors as creating demand for M&A as buyers of assets. But the reality is, given their immense portfolios, they're also potential sources of supply and sellers of assets. And when you look at sponsor activity, it gets created when sponsors monetize portfolio investments, as well as when they reload and they make new investments. And the reality is, with many of their portfolio companies on the books because they were acquired in a near zero interest rate environment, the math may not work in the very near term to sell those assets in order for them to get maximum value. And one of the things about the alts world and private equity sponsors is they are incredibly adroit at timing exits. And without an incredible impetus, I think you're seeing more restrained exits, which is dampening M&A. And because you are having more restrained exits, and because there is less DPI for investors, and because This flywheel is slightly out of balance. I think at the margin, their willingness to commit capital has also been subdued. And I have said that when rates actually start to be cut, as opposed to when they have crested, is when you're likely to see that market heat up in a meaningful way. And that most likely will be sometime in the middle of 2024. And on the strategic side, what I've always pointed to is even with these very challenging conditions, companies' desires to pursue M&A, to use M&A as a tool, has never wavered. And that's not something you typically see in a bear market. In many bear markets for M&A, oftentimes executives have no interest in seriously considering M&A. And what we have here is two going on three years of subdued activity, lots of companies have strategic plans and initiatives that they need to execute. And at the first sign that they can finance a transaction, that they can agree on value, they're going to be in the game. And that's why we've seen the leader, if you will, in resuming and reopening the market has been more corporate driven and less sponsor driven. But that too takes a little bit of time because there are still impediments to this. And some of the targets in order to take over a company, the entire cap stack has to be refinanced. And that may be difficult in the current environment. There may be concerns about, and I trust risk, not so much about whether the deal will ultimately be bounced, but more about how long it will take, how long the review process, and what could happen to the underlying business between signing and closing in an extended regulatory review. So you've got lots of different elements, but I think what's clear to say is the direction of travel is positive. But these markets tend to take a little bit of time to reopen and to pick up steam. And then the last point I would make is that a lot of M&A is pro-cyclical, which I cheekily refer to as FOMO, that, you know, transactions beget transactions, and transactions beget competitive responses. are taking advantage and using M&A as a tool, that's probably going to accelerate your timeline. If your competitor isn't doing anything, it probably gives you a sense of security that you can bide your time. So we've clearly touched bottom. We're clearly building a base back up. But just exactly what that recovery curve looks like is hard to tell, although if history is a guide, the first year tends to be subdued.

then it picks up steam okay that's very clear um as i thought a somewhat related question to what you just spoke to on the sponsor side fundraising remains muted and i do appreciate your constructive commentary on parking improving um but maybe you could just update us on what you're hearing from sponsors on their ability to accelerate fundraising at this point relative to 2023 and over the course of 2024, and then what this means for the timeline for Park Hill revenue to fully normalize. Is that a 2024 event or something that's more of a medium-term expectation?

I think the direction of travel begins in a positive direction in 2024, but I don't think it gets fully back to normal levels in 2024. I would defer that for the moment to say 2025. We'll revisit that, but I think it's probably a two-year process to get to where we got to. We saw some weakening in the marketplace in the latter half of 22. It carried over into 23. I think in a similar vein to the M&A commentary, I think we've touched bottom and it's now more constructive, but that will take some time. And one of the challenges is a little bit of an affordability issue, which is you're calling all this capital and you're not returning a lot of capital. And with the IPO market still not really, you know, fully open and vibrant as a monetization tool, and with subdued M&A, that has, you know, put a damper on it. But the lack of capital that's been called is one of the ways in which the system gets back into equilibrium. Also, with the credit markets, you know, ripping, you know, tighter. You're starting to see the early signs with some dividend recap deals and the like. So I think liquidity is beginning to flow back in the marketplace, and I think that's all very positive for the Park Hill business in the intermediate term. But clearly, 24 will be an up year.

Okay. Thank you so much.

Thank you. Our next question will come from Steven Chubach with Wolf Research. Please go ahead.

Hey, good morning, Paul.

Good morning.

Hello. Paul, you flagged election risk in a recent interview as a potential overhang on deal activity. Admittedly, I've asked that of other management, and they've been fairly dismissive of the impact. And so I was hoping you could maybe walk through some of the election game theory and how this overhang is going to impact deal activity across different sectors and just what you're hearing from corporates generally ahead of the upcoming election.

I think just let me be really clear. What I said was that no one was focusing on the election right now. But that come summer, that's all people are going to be talking about. And therefore, what is not a risk today may well be a risk tomorrow. And therefore, I'm not at all surprised that to hear you say that in some of your conversations people are not assigning that as a principal risk today, because it's not. But I do believe that as we get into the election, and as the rhetoric heats up, and as we have competing policy initiatives, and as I expect to have a very close election where it is unclear where we're going to be in terms of policies, tax, immigration, China relations, and the like, that that may have a freezing effect. I've also said I think there is some possibility for some foreign intervention to create mischief near the election. So when people talk about geopolitical risk, that's geopolitical risk, but it comes in the form of an election. And then I've made the point that since we've had two razor thin elections that have been decided by literally tens of thousands of votes, it goes down to a county or two or three. I don't expect this third time around to be any different. And therefore the possibility of a disputed election And what that brings, which is another form of geopolitical risk. So I don't want to be a naysayer. I'm just simply pointing out that I think something that is not on people's radar screens today will get on people's radar screens at some point. And we've seen that with things like the debt ceiling, where no one talks about it, and then all of a sudden they can't stop talking about it. So that would be my perspective.

Very helpful call, Paul. And just for my follow-up on capital management, certainly a meaningful uptick in the repurchase authorization. Certainly nice to see that. Just want to better understand how we should think about the cadence of buyback and the share count trajectory in the year ahead, given some of the impact of prior year awards, which Helen had alluded to in her prepared remarks.

Look, we are big believers in our company and in our prospects, and we also feel an obligation to our shareholders to be good stewards of capital, and those two things go hand in hand. So you should expect us to continue, certainly relative to others, to be very aggressive in using our capital to buy back our stock because we can capture value and we can avoid dilution for our shareholders. And if you look back over the last eight years, how well we've accomplished that goal, that's the playbook we intend to use for the next eight years and the eight years after that and beyond. What we've also said is We happen to come into this year with our best balance sheet in the firm's history, and you measure it on any basis, whether it's cash, cash plus comp payable, net working capital, any dimension. And therefore, we have more firepower now than we've ever had. So you should expect our open market purchases to be as robust, if not more robust, than they've ever been. The other thing that we're also mindful of is if we're going to repurchase, we've typically tried to do it in the front half of the year more so just because we can match repurchases better with awards that get issued. But there's no black box algorithm. It's just a basic philosophy, which is always be prudent with the balance sheet, always put shareholders first, And all else equal, probably bigger buyers in the first half of the year than in the second half of the year, just because it's easier for us to do matchings.

I would just add, if you look over the last two years, repurchases have pretty closely matched what was issued as part of year-end comp. And as you mentioned, there's these additional shares that are coming into the share count. It'll be about 1.3 million shares. And it will be our intention to go get those back, but we may not. perfectly match when they come into the count.

Great, Collier. Thanks so much for taking my questions.

Absolutely. Thanks, Stephen.

Our next question will come from Brennan Hocken with UBS. Please go ahead.

Good morning. Thanks for taking my questions.

Absolutely. Good morning.

Morning, Paul. So, Helen, you touched on this in your prepared remarks, but hoping to drill down a little bit. You touched on hitting the performance metrics. I believe it was a VWAP target. I think you guys hit that in December. So if you could confirm that and then think what you said was that impacted the fully diluted average shares, but there's more to come. Could you give us a sense of how much more we should expect in the first quarter from that averaging in? And did it also impact the compensation expense in 2023 as well?

It did not. I'll answer that question first. It did not impact the compensation expense in 2023, the crystallization of those units. In terms of sizing, of the 1.3 million, 600,000 came in in Q4. And so another $700,000 will come in in Q1. Excellent.

Thank you for that. And I'm sorry, just to clarify, the triggering of the award in no way affected the comp ratio, but clearly the granting of the award back in 22 was expensed beginning in 22, and it continues for a number of years. But it's not the triggering of the investing event.

Understood. Thank you for clarifying that. Staying on expenses. So under, totally appreciate that trying to predict a comp ratio is really challenging, right? Because you've got revenue and you've got expenses and it's very hard to predict revenue in February, beginning of February. So if we were to just maybe lay out a scenario, right? If you were to see total revenue in 2024 grow by 10%, and you were to hire no more bankers, right? So all you had was the existing base of employees. What sort of a magnitude could we expect comp expense to grow in a scenario like that for 2024?

So we're just trying to clarify your assumptions. Revenue's are up 10%, is that what you said?

And revenues up 10% headcount bunch. You know, what kind of operating leverage I just trying to get a sense of the operating leverage that is embedded, given how much recruiting you guys have done, and how much the comp ratio was impacted.

Yeah, I mean, I guess my first reaction to that is it's really hard to answer hypotheticals because you've got to start to then say, okay, if revenues are up 10%, how's that distributed amongst our three businesses? Are they all up 10%? You start to get there. Then you get into what's the broader macro environment for talent and compensation? What are the fixed costs at the more junior levels? What's the associate costs? And VP and on, what's the pyramid cost going to be? Are we having inflation or deflation? Then you've got the next issue, which is, is it up 10% because the next year looks like it's going to be where the business takes off? Or is it up 10%? But then you think, you know, the lock could come right back down. You start to get into so many hypotheticals. If you want to talk about the comp leverage, the way I think about it is over the last three years, we have added 35% headcount. And we've not grown our revenue near 35%. And that's what the drag is. And we're making an investment where we're confident that over time that headcount is going to be reflected in the bottom line. And it's less about, you know, at 10% in one year. It's really sort of trying to get step function change in our revenue as those individuals who we know are going to be quite productive on the platform are not only productive on the platform in a relative sense, but they actually have a constructive M&A backdrop in which to translate client progress into revenues. And then this all kind of gets back to normal. But exactly kind of how it sort of, you know, drifts back in to reduce the ratio, it's it's very hard to answer a hypothetical like that. You've got to really sit down with all the facts at the end of the year, which is why I'm confident that where we are is certainly elevated relative to trend, and I'm confident that it will return to a more normal level. But fundamentally, that's just getting the investment to begin to show a financial return. We see a return by what these individuals are doing and how they're expanding our practice well before you all see it in the P&L, and that's the lag effect.

Yeah, no, I totally appreciate all that, Paul. I just, it'd be great maybe, I know it's sort of challenging to come up with on the fly, but it'd be great if you could try and help, because this is the one question that investors struggle with, is how do you think about the leverage that's embedded into the platform, and how much is from this expansion? And so, maybe you guys could consider adding some more granular color around compensation leverage in the future. Would really appreciate that.

More than happy to revisit it. But as I've said, here's the paradox of the business. When M&A is going gangbusters, and it's easiest financially to absorb new investment, it's hardest to attract the new investment. When M&A markets are dislocated and it's the worst possible time to absorb that investment into your P&L is when you get the best opportunities to build the franchise. And we're just simply trying to, you know, I learned in driver's ed many decades ago was aim high in the steering wheel, you know, look far down the road. That's what we're doing. And we're constantly measuring it to make sure we're doing the right things. But that's really where we're at, and that's the paradox, which is we invested at the depth of the market, because that's when you could get the best talent. That's when people were most willing to move. I think that continues into 24. But consistent with my commentary, as the M&A markets slowly heal, I expect that that environment will still be quite attractive by historic levels, but not as attractive as 23 was. you know, as this market begins to rebound as we know it will for deal-making, then these ratios start to, you know, quickly return to more normal levels.

Am I last in the queue? Because I had one more question, but I can re-queue if there's somebody still there.

No, that's fine. Go ahead.

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 totally appreciate that. But we just had a competitor of yours speak to strength in their private asset advisory business. and that they actually were seeing revenue growth. So are you losing share in that business? Is there 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.

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 quote-unquote growth. It's all a question of what your pace 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 tails at 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, emphasizes 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.

Does Park Hill have a pretty large real estate business, though? Could you give some texture around some of the different asset classes?

Well, it has 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. Got it.

Thank you. Absolutely. Our next question comes from Michael Brown with KBW. Please go ahead. Hey, Greg. Good morning, everyone.

Good morning. So, Paul, I wanted to ask about, you know, the ramping potential here from the talent base. So, if 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, you know, where is the opportunity the highest as the 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?

Yeah. I'm doing this to set new benchmarks for the firm, not to go back to old benchmarks. 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. 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, you know, I don't view that as the ceiling at all on what we're all about. I would observe, though, that, you know, in that period of time, you know, over the last three years, we haven't exactly seen growth in the M&A marketplace. So it's great that you picked 2020. I think the overall M&A market is pretty much flattish, you know, plus or minus. It went up in 21, and it came down in 22, and it came back down in 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, 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 don't 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, in a way, it's the last partner in 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 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, 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've seen that in opening up new corporate and sponsor relationships for our restructuring colleagues. So everywhere we go, that investment finds other ways to be advertised. and to be monetized, but it does take constructive markets. When we've had constructive markets in restructuring, we've had more than enough proof of concept as far as our penetration as sponsors and corporates. And as the M&A market heats up, I expect we'll see the same productivity gains there as well.

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? You know, essentially is there kind of a double rent impact that's impacting the guidance?

So in 2024, there will be a state function increase in occupancy cost and it will stay elevated. So it's not a one-time increase. It's not a double occupancy issue. 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 comes 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 sub-lease income that was below market, so that's being marked 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 out later. 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.

The way I think about it simply is the bad news is we get a step function jump in 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 rent 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.

Okay, great. Good luck continuing to fill up the space. Look forward to hearing more.

We appreciate that. Thank you.

Thank you. That concludes our question and answer period. I would now like to turn the call back over to Mr. Taubman for any closing remarks.

I just again want to thank everyone for their interest and their support, and I look forward to visiting with all of you when we report first quarter earnings in the spring. Thank you very much, and have a great day.