PJT Partners Inc.

Good morning. Welcome to the PJT Partners' third quarter and nine-month 2025 Earnings Conference Call. Joining the Earnings Conference Call today is Paul Taubman, Chairman and Chief Executive Officer, Helen Yates, Chief Financial Officer. During the course of this conference call, management 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. These factors are described in the Risk Factors section contained in PJT Partners 2024 Form 10-K, which is available on PJT Partners' website at pjtpartners.com. The company assumes no duty to update any forward-looking statements. The presentation made today contains non-GAAP financial measures, which the company believes are meaningful in evaluating the company's performance. For detailed disclosures on these non-GAAP metrics and their GAAP reconciliations, please refer to the financial data contained within the press release the firm issued this morning, also available on the firm's website. With that, I'll turn the call over to Paul Taupman.

Good morning. Thank you all for joining us today. This morning we reported record results. Revenue adjusted pre-tax income and adjusted EPS all reaching record highs for both the three and nine month periods. Third quarter revenue was $447 million, up 37%. Adjusted pre-tax income was $94 million, up 86%. and adjusted EPS was $1.85, up 99 percent from year-ago levels. For the nine months, revenues increased 16 percent to $1.18 billion, adjusted pre-tax income increased 34 percent, and adjusted EPS increased 43 percent from year-ago levels. Since our last earnings call, We have seen further improvements in the macro environment. Equity prices are near record highs, volatility across equities and credits near historic lows, debt issuance is strong, and the IPO market has reopened. This favorable capital markets backdrop has been an important catalyst in the M&A recovery. greater clarity on regulatory outcomes as well as increased CEO confidence has further amplified deal-making momentum with many companies revisiting their strategic wish list. That said, we still operate in a world fraught with risk, continuing geopolitical uncertainty, a weakening labor market, stubbornly high interest rates, Tariff dislocations coupled with concerns of an AI bubble have the potential to derail this pickup in activity levels. While we remain optimistic about the near to intermediate operating environment, it is a tempered optimism when balanced against these risks. After Helen takes you through our financial results, I will review our business performance and outlook in greater detail. Helen?

Thank you, Paul. Good morning. Beginning with revenues. Total revenues for the third quarter were $447 million, up 37% year-over-year, and for the nine months into September 30, total revenues were $1,179,000,000, up 16% year-over-year. Revenue growth for the third quarter and first nine months was primarily driven by strategic advisory. which was up significantly for both periods. Restructuring revenues rose slightly in the third quarter and first nine months, while PKP Park Hill revenues were flat in the third quarter and down modestly for the first nine months. Turning to expenses, consistent with prior quarters, we presented the expenses with certain non-GAAP adjustments, which are more fully described in our 8K, first adjusted compensation expense. We accrued compensation expense at 67.5% of revenues for the first nine months of the year, compared to 69.5% for the same period last year. This ratio represents our current best estimate for the full year 2025. Turning to adjusted non-compensation expense. Total adjusted non-compensation expense was $51 million in the third quarter, up 5% euro the year, and 153 million for the first nine months, up 10.5% year-over-year. As a percentage of revenues, 11.5% in the third quarter and 13% in the first nine months. The main drivers of the expense increase for the first nine months of the year were higher occupancy costs, which are up 19% year-over-year, reflecting the expansion of our New York and London offices, and higher travel and related expenses, which are up 25% year over year, primarily reflecting higher levels of business-related travel. Overall, for the full year, we continue to expect that our non-comp expense will grow at around 12%, a similar rate to our 2024 growth rate. Turning to adjusted pre-tax income, we reported adjusted pre-tax income of $94 million in the third quarter and $230 million for the first nine months. Our adjusted pre-tax margin for the third quarter was 21%, compared with 15.5% for the same period last year, and 19.5% for the first nine months, compared with 16.9% for the same period last year. The provision for taxes, as with prior years, we've presented our results as if all partnership units had been converted to shares and that all of our income was taxed at corporate tax rates. Our effective tax rate for the first nine months of 2025 was 15.5%, which now represents our current expectations for the full year. This rate is slightly below our previous full year estimate of 16.5%. As a result, the effective tax rate for the third quarter was 14%. The reduction in the full year rate is primarily due to an updated estimate of our income allocation across state and foreign entities. Earnings per share are adjusted if converted earnings were $1.85 per share for the third quarter, up 99%, and $4.43 per share for the first nine months, up 43% from the same period last year. For the quarter, our weighted average share count was 43.8 million shares, down 2% versus a year ago. And during the third quarter, we repurchased the equivalent of approximately 186,000 shares, primarily through exchanges. Our repurchases in the first nine months of the year totaled approximately 2.3 million shares. We are in receipt of exchange notices for an additional 115,000 partnership units, and subject to a board approval, we intend to exchange these units for cash. On the balance sheet, we entered the quarter with $520 million in cash, cash equivalents and short-term investments, and $558 million in net working capital, and we have no funded debt outstanding. Finally, the Board has approved a quarterly dividend of 25 cents per share. Back to Paul.

Thank you, Helen. Beginning with restructuring. Notwithstanding favorable economic and capital markets conditions, demand for liability management and restructuring activity remains high. Even with a relatively benign credit environment, our market-leading restructuring team continues to deliver strong performance. with third quarter and year-to-date revenues at record levels. At the same time, certain corners of the economy are feeling the weight of relatively high interest rates, dislocations caused by higher tariffs, disruptions resulting from accelerating technological innovation, and changing consumer preferences. While these headwinds may not yet be broad-based, They are being felt in certain industries, including technology, media, healthcare, automotive, and consumer. For the current year, we expect our restructuring results to meet or exceed last year's record results. Looking ahead, we expect our restructuring bankers to remain highly active as they continue to address liability management opportunities resulting from this concentrated stress. Turning to PJT Park Hill. The primary fundraising environment continues to be challenged by historically low levels of capital return, coupled with a significant increase in the number of managers seeking to raise capital. This in turn has elongated fundraising timelines and pressure the quantum of capital raised. As GPs and LPs seek additional paths to liquidity, the same forces that have dampened primary fundraising activity have also served to catalyze continuation fund activity. And more capital has flown into the space as investors have come to better appreciate the attractive return profiles associated with secondary products, creating a virtuous cycle. For PJT Park Hill, third quarter revenues were comparable to a year ago, with strength in private capital solutions offsetting lower primary revenues. For the full year, we expect overall PJT Park Hill revenues substantially in line with last year's record levels. Turning to strategic advisories. Many of the pieces necessary for a meaningful rebound in M&A activity have fallen into place as the year has progressed. However, the recovery has been uneven. While we have seen a market increase in larger M&A transactions, we have not yet seen an increase in the overall number of transactions. Even though the average deal size is up almost 40%, the aggregate number of transactions has actually declined. For the three and nine month periods, our strategic advisory business delivered record revenues substantially above prior year levels. Our mandate count has increased meaningfully from a year ago and now stands at record levels. Overall, our strategic advisory business remains on track to deliver another record year as the significant investments we have made over an extended period of time continue to bear fruit. On the talent front, we continue to add talent as we invest in our strategic advisory franchise and the firm more broadly. As a result of our active recruiting efforts, our headcount overall has increased 7% from a year ago, and four partners joined our strategic advisory franchise in the third quarter. A decade ago, we set out to build a next-generation investment bank. We envisaged a firm where complex challenges would meet creative solutions, where top professionals would build their careers, and where success would be defined by excellence, impact, and integrity. Ten years in, our firm has grown substantially, and so too have our aspirations. Today's mission is clear, to be the world's best investment bank. As we celebrate our 10th anniversary, we would like to take this opportunity to acknowledge the dedication of our colleagues and the trust and support of our clients. And to our shareholders, thank you for your partnerships. We continue to see tremendous opportunity ahead, and we remain determined to capitalize on our enormous potential. As before, we remain confident in our near, intermediate, and 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 get out of the queue press star 2. we'll take a question from devin ryan of citizens please go ahead your line is open great good morning paul good morning helen uh congratulations on 10 years

Thank you. Good to speak, Devin. Good morning.

Yeah, absolutely. So I want to start, Paul, on the restructuring outlook and appreciate the framing that you gave and still sounds like you expect a strong kind of backdrop there. We've been hearing somewhat mixed trends, I would say, through earnings. And so I just want to get a sense of how you're thinking about PJP-specific relative to the broader macro backdrop for trends, because you guys have a leading practice and so potentially outperform the industry in different environments. So do you still see the environment being very good, or is this more just about PJT maintaining or even gaining share as you're kind of always going to be active in that business? Thank you.

Well, it's always hard to deconstruct, you know, the market versus your position in the market precisely. But we don't see any real diminution in restructuring activity. We just don't see it. So we're operating at elevated levels relative to historic levels, but as I've pointed out repeatedly, for most of that history, we're looking back at a baseline where the macroeconomic environment was far more constructive than it is today, and where money was nearly free and interest rates were nearly zero. We're also looking at a baseline where the quantum of debt outstanding was meaningfully less. And we're also looking at a baseline where there was not as much disruption, innovation, and what we refer to as concentrated stress. So in an overall accommodative environment, you can have a higher baseline of restructuring activity. We've talked about this repeatedly. We continue to see that. Now, as it relates to our practice, the growth pillars beyond what the overall market conditions are, are continued penetration of sponsor clients, which will give us a broader addressable market. Second is continued growth outside the United States as we build out local presence around the globe. And the third is, as we continue to build out our industry footprint, we have more relationships with which to leverage. So I don't spend a lot of time talking about or thinking about the exact interplay of the two, but as we look at our activity levels, they remain elevated, and we expect them to be elevated for the foreseeable future. And I do think there's a call option on a meaningful shock to the system, because we we're not experiencing any of that today. I'm not predicting it, but none of this, you know, assumes, you know, any real deviation from the current environment.

Yeah. Got it. Okay. Appreciate all that color, Paul. And then just for my follow-up, when I look at partner productivity, I appreciate it's kind of a crude number from the outside, but on a blended basis, looks like you're on track for a record year of productivity, on my numbers at least, and you appreciate some of that very strong restructuring, and then you have strategic advisory ramping pretty materially as those partners on the platform mature. I'd love to just get an update on how you think about the productivity potential of partners from here. Particularly as strategic advisory still feels like the environment's getting better, but then also that the bankers on the platform are maturing as they've been doing. And I guess in that question, just love to hear about how you think about What is a reasonable number of revenue per partner for strategic advisory when you're hiring somebody externally? Are you targeting $15 to $20 million, or is there a number? Any more color you can give on how you're thinking about the potential from here, given that you're going to have what looks like a record year there. Thank you.

I never think about a number. I never talk about a number. I don't believe in a number. What I believe is if you hire difference makers, you'll ultimately make a difference in your financial results to the positive. I really do. And I think it's so hard to come up with a number because you need to assume an environment. You need to assume how active that sector or that product is at that time. You need to look at what else has been built out at the firm, which creates either tailwind or headwinds. for those individuals, and then you need to ask yourself, are you looking in year two, year four, year six, year eight? So we don't believe in that. And as far as the number, in a perverse way, I'd love nothing more than to take the number down. I mean, if tomorrow we could find 10 incredible partners to add to the platform. On day one, by definition, our so-called partner productivity would go down because those same revenues would be divided by an extra 10 individuals. So it's a number that we don't spend a lot of time with, but we have great confidence that what we're building is highly additive and accretive to our overall financial results and to our brand and to the service of our clients. And that's how we think about it. I think it's more of a relative construct. And if you ask me, do I think we've hit maximum levels, I'd say no, not close, because there are a lot of partially built systems in our franchise, whether it's just beginning to put our toe in the water in a geography or just beginning the journey to build out an industry group. or we have that, but we don't yet have full recognition, or we have the recognition from the clients, but it hasn't yet translated into revenues. So I think we feel very good about the direction of travel, but I don't spend a lot of time thinking about it as a number.

Got it. Okay. Well, appreciate the response there, Paul, and look forward to catching up soon.

Absolutely. Thanks for your questions.

We'll take a question from James Yarrow of Goldman Sachs. Your line is open. Please go ahead.

Good morning, and thanks for taking the questions. Paul, I'd love to just get your perspective on the impact of the government shutdown on the business. Do you expect this to have an impact on the fourth quarter? But really, more importantly, how are you thinking about the impact going forward? Is there anything beyond the temporary impact?

Look, I think it has real implications to a lot of individuals in this country who are suffering because of the shutdown, but I don't think that it really affects our business in a meaningful way. It creates some complexities and complications and maybe some timing issues, but I think those pale in comparison to other implications. What I worry about more is ultimately what does this do to the broader macroeconomic environment in the country, which is really a function of how long does this shutdown continue, which workers aren't paid for how long, what resolution do we end up with, and what are those implications? I think it's the macro implications that matter more, and the reality is no one knows. has answers to that so we're all watching and waiting. I think that's the bigger question is what, if anything, does this do to overall economic output and consumer confidence and business confidence?

That's super clear. Thanks. Just maybe turning to the primary fundraising business, I'd love to just get your perspective on the ability for that to continue to improve. Obviously, it was down for a couple years there and And you've seen a nice bounce back there over the past few quarters. So is this sustainable, and how are you thinking about the outlook for that business?

Well, there's good news, bad news, and, in fact, a good news. So the good news is it's getting better. The bad news is as it gets better, everyone is going to want to come to tap the market because they've been on the sidelines, so that's going to make it a crowded trade. And then the good news from the bad news is, in a crowded market, they're going to want, you know, the best fundraising team, and that's going to play to our strength. So I think overall it's positive, but it's like everything else. It's never 100% positive. There are some puts and takes there.

Thanks a lot, McCullough.

Sure.

We'll take our next question from Brennan Hawken of Bank of Montreal. Your line is open.

Good morning, Paul. Good morning, Helen. Thanks for taking my question. I was hoping that you could – I know, Paul, I heard you sort of loud and clear that the $67.5 is your expectation for the full year. But, you know, taking a step back, what's the best way we should be thinking about operating leverage, right, and the path for pre-tax margin as you continue to see this strong revenue growth, as you see the investments that you've made in strategic advisory begin to bear fruit? You know, how should we be thinking about that either in the year end and then, of course, you know, into the coming years? Thanks.

Well, I think into year end we've given you our best estimate for this year. You talked about operating leverage, which I appreciate the question, because to me operating leverage is what's the pre-tax margin? Because ultimately that's what drives shareholder value. And if you look at our operating margin for this year and you look at it in the historical context of where we've operated, I suspect that if you X out 2020 and 2021 when we lived in this surreal world where there was no travel, there was no entertainment, there was no discretionary spend, and margins were overly inflated, I think our margins this year are going to be at the high end of anything we've produced in our 10-year journey as a public company. So we're quite proud of that. and we are focused on it. We, we don't like to focus on any one individual component of that because a, there's a lot of interrelationship between all of these, these, uh, line items and B you're trying not to manage the firm for the here and now you're trying to manage it for, for the longterm. But if you're asking me, do we think that there's, you know, further margin improvement along the journey? I think the answer is yes. And, uh, I just don't want to lose sight of the fact that while we may be running with comp to revenue margins that are higher than our historical levels have been, we also have run this firm at, I think, the lowest non-comp to revenue margins that we've had as a firm. And if you take all of that together, the overall output is quite attractive. But to answer your question, there's There's more upside from here, and we're going to get at it. But exactly how and when, I don't know. But when I look at it over 10 years, this is going to be X, those two operational years, I think, our best operating margin year in a decade.

And that's great. And when you think about the operating margin and the improvement that you guys are likely to generate here in 2025, is that a good way to be thinking about a path forward? You never want to anchor overly on one particular year, obviously, because things will move around. But is that a decent way to be thinking about it going forward? Or what other factors should we consider? Thanks.

Well, look, I think as a general matter, we believe in operating leverage in the business. Let's just start there. We also believe in disciplined cost, but not an obsession with cost at the expense of long-term value-enhancing growth. So that's the mix. And since we continue to believe that we should be able to grow our top line faster than our expenses, we think that there's more operating margin to be had. But in any given quarter, any given year, you're buffeted by a lot of very specific things, which makes it very difficult to manage to a number in the short term, which is why I like to sort of step back a little bit. And what I just suggested is if you look back at our journey as a public company over 10 years and you take out the two fantasy years where it just wasn't, a normalized world because no one was traveling, no one was entertaining, there were no conferences, there was no travel expense, there was no entertaining expense. If you just strip those out, we're sitting here today saying we're still seeing the fruits of our investment and we're going to post on a relative basis our best or near best operating margins. So that to me is just a proof point that A, there's operating leverage in the business and B, we can get at that operating leverage.

Thanks for taking my questions, Paul.

Absolutely.

Thank you.

We'll take a question from Brendan O'Brien of Wolf Research. Your line is open. Please go ahead.

Good morning, Paul. Thank you for taking my questions. To start, I just wanted to touch on a dynamic you flagged, which is the divergence of deal value versus deal count, which is something we've been keeping an eye on ourselves. The drivers of the increase in the larger activity is apparent around DREG and things of that nature. I just want to get a sense as to what you think is behind the lack of breadth in activity so far and what could maybe drive you know, an improvement in that dynamic over the next coming year?

Look, I think there's some of this is there's you have to you have to really deconstruct the market. So I'll just give you two. I don't want to turn this into a treatise. I'll give you two two thoughts. Number one, we clearly are dealing in a more favorable regulatory environment. Where's that going to create more momentum? It's going to be in the larger transactions. And if you're dealing with sub-billion dollar deals or one to five billion sizes and everything, but it's probably a pretty good correlation that that's not where there's regulatory complexity. So it should be no surprise that But as you're dealing with a more pro-growth, pro-business administration, you would see more of a skew to the high end. And that gets picked up in dollar values. It doesn't get picked up in number of transactions as much. The second would be the velocity of capital with sponsors. And I continue to think that we haven't really gotten the reset with sponsor activity. We will. We hope. And when we get that, you'll start to see that reflective in number of transactions and in transaction count. I think those would be the two that I would highlight.

That's helpful, Culler. And for my follow-up, I just wanted to unpack your commentary on the Park Hill business a bit. You noted in your prepared remarks that Park Hill revenues were down year on year so far this year and PCS revenues were up, but the placement line was also up. So I just wanted to, if you could just unpack that piece a bit more, whether there's some non-Park Hill fees in that placement line. And then also last quarter you noted that you expect a significant acceleration in PCS fees in second half. Based on the commentary, it doesn't seem like that came through in 3Q, so just wanted to get an update here.

Well, let me just take the latter part. I think it did, and just to recall, those get booked in advisory. Yep. So just to be clear, what we said is exactly what happened, and that strength is counted as advisory as distinct from placement in most instances, and that's reflected in our financials. But on the former, I'll turn it back to you.

Yeah, and then on the, just a reminder that the placement line includes Park Hill placement, but it also includes any corporate placement. So we did have some placement fees earned that were outside of Park Hill.

Which is just another, I think all you're doing is you're putting a highlight on the fact that I think we maybe need to transition away from these advisory placement designations because I'm not sure it helps give anybody any real clarity on the business. And we don't spend a lot of time, you know, apportioning it one way or the other. At the end of the day, they're advisory with a capital A revenues because they all relate to intellectual capital and intellectual advice. But I appreciate your question.

Thanks for the call, guys. Thank you.

We'll take a question from Alex Bond of KBW. Your line is open.

Hey, good morning, everyone. Just wondering if there's anything that stood out from you in your recent dialogues with clients in regard to the overall credit backdrop. I'm curious how you're thinking about this, probably given your obviously strong presence in the restructuring market, the fact that private credit remains in the headlines, and we've got a couple of high-profile bankruptcies here recently. So any call you can add here would be great. Thanks. Yeah.

Well, look, I'll just make some general observations. One is, you know, when you see spreads, you know, tighten as much, I'm not sure that credit's been appropriately priced. I think that's maybe more the issue. And I suspect that over time you'll probably see sort of more normalized, you know, spreads. And as it relates to these situations, unfortunately malfeasance, you know, is a risk factor, and it occurs in bull markets, it occurs in bad markets, and I'm not yet seeing evidence that this is widespread. But when you're putting out an enormous quantum of capital, it does put pressure on diligence, diligent standards, and if you're dealing with individuals or entities that are not forthright and are engaged in improper activity, you're not going to catch All of it, which is why I just come back to some of this may not have been fully reflected in just how credit overall has been priced. What we're much more focused on is the fact that you can't have a world of enormous technological dislocation. All this innovation changes in market sizes, customer behaviors, demand, and not have losers alongside winners. Everyone can't be a winner. And as we're creating all of these new economy technology companies and new ways for efficiency, there are going to be companies left behind. So I suspect that if you just take a slightly longer-term lens, the number of companies that are going to need to address their balance sheets is probably more likely to grow than to shrink. It may not happen immediately, but I think there's a longer-term trend ahead. at play.

Got it. That makes sense. And then maybe for my follow-up, I suppose just trying to understand to what degree maybe the strong restructuring activity has been a benefit to the comp ratio in recent periods. The headcount here is obviously a little bit lower than the strategic advisory business. So yeah, I guess just in a scenario where maybe the restructuring activity does slow a bit, is it you know, is there anything that would lead you to believe that there might be less comp leverage just given the smaller headcount there? And maybe if there's anything else we should be considering in that regard. Thank you.

Look, obviously, if there are big dislocations to our revenue, good or not, that will affect because there's a roll-up of all of the businesses. But if we continue to have steady growth or if we're going to have a reasonable match between headcount growth and revenue, then you're just going to see a steady decline in the comp ratio. If you see a disconnect between those, as we saw in 23, where you have the overall strategic advisory market meaningfully down, at the same time you're adding meaningful heads, you're going to see real pressure to the comp line. So it's like anything else. we'd see a baseline direction of travel, which is to get our comp ratio lower. But if there is a shock to the system in one place, good or bad, that could either accelerate or retard the improvement. But that's why we never want to lock in precisely to a number. We're much more comfortable talking about the direction of travel and what factors would cause that to no longer the operative.

Got it.

Makes sense. Thank you, Paul.

Thank you.

We have a follow-up question from James Yarrow of Goldman Sachs. Your line is open. Please go ahead.

Thanks for taking the follow-up. I just wanted to ask a nitty-gritty one. Any, I guess, pull forward in the quarter that we should be aware of

it was relatively modest this was eight million dollars this quarter last year it was six million so pretty similar thanks so much thank you that concludes our question and answer period i would now like to turn the call back over to mr taubman for closing remarks well we thank everyone for their interest and for participating in this morning's

earnings report and we look forward to speaking with all of you in the new year when we report full year results. Thank you and have a good day.