Piper Sandler Companies

Good morning and welcome to the Piper Sandler Companies conference call to discuss the financial results for the first quarter of 2020. During the question and answer session, securities industry professionals may ask questions. The company has asked that I remind you that statements on this call that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements that involve inherent risks and uncertainties. Factors that could cause actual results to differ materially from those anticipated are identified in the company's earnings release and reports on file with the SEC, which are available on the company's website at www.piperstandler.com and on the SEC website at www.sec.gov. This call will also include statements regarding certain non-GAAP financial measures. The non-GAAP measures should be considered in addition to and not a substitute for Good morning everyone. Deb Schoneman, our president,

and Tim Carter our CFO and I would like to thank you for joining our first quarter 2020 call. We hope you and your families are staying healthy and safe. We will go through our prepared remarks and then open up the call for questions. First, let me start by thanking all of my employee partners. I continue to be impressed by your hard work, perseverance and determination during these unprecedented times. Your continued display of incredible partnership with one another and dedication to our clients is remarkable. Deb, Tim and I were with you at the end of January discussing record 2019 results and our optimism for 2020 as all of our businesses started the year strong. But as we entered March, it became increasingly apparent that the impact of COVID-19 would change our world. On March 11th, the World Health Organization characterized the COVID-19 outbreak as a global pandemic. The rising uncertainty wreaked havoc in the equity and fixed income markets, and the volatility and the speed of change was historic and unprecedented. The human toll this pandemic has inflicted in terms of lives and economic hardship is staggering. It is difficult to overstate how profound the world has changed in the last eight weeks. We are doing our part in response to COVID-19 while continuing to focus on the needs of our stakeholders. Our first and top priority continues to be the health and well-being of our employees. We shifted to a remote working environment with over 90% of our employees working from home and have expanded certain employee benefits for those impacted by COVID-19. For our clients, we are focused on delivering the best guidance and service, We are in constant communication with our clients, sharing best practices, discussing the impact of this environment on their strategic initiatives, evaluating current and future capital needs, and finding liquidity in rapidly changing markets. Our technology infrastructure has been resilient, supporting our remote workforce and this surge in activity. For our shareholders, we are prudently managing capital and costs. We entered this crisis with a strong balance sheet and ample liquidity and we are taking actions to reduce costs, maintain liquidity, and preserve capital to ensure we remain in this position, as we believe this strength will be our advantage in this current environment and beyond. For our communities, we established a special employee giving campaign with a corporate match program. Contributions will support local food banks in each of our major markets. Let me provide some overall comments on our financial results before turning to our corporate investment banking businesses. For the first quarter of 2020, we generated $245 million of adjusted net revenues. This quarter marks the first quarter with Sandler on our platform, and they performed very well. Our financial services business has a broad range of activities which allows for more consistent performance across varying market cycles. It is worth noting, as we go through these difficult times, how the legacy Sandler team performed during the last crisis. Sandler was the most active financial advisor in recapitalizing banks and restructuring their balance sheets. In addition, we have already seen significant referrals and closed a healthcare M&A deal in April that was referred by our financial services team. As I noted at the outset of the call, the year began with solid performances through February and as extreme volatility struck in March, our investment banking businesses slowed appreciably while our brokerage businesses delivered strong revenues. The breadth of the Sandler Financial Services Group and deep expertise with banks contributed to our strong fixed income revenues in the quarter. On the equity side, the expanded platform we built last year in terms of account coverage and execution capabilities through our acquisition of Whedon was a significant driver of the impressive Q1 performance this business delivered. From where we sit today, the timing and path to recovery from COVID-19 and its related effects remain unclear, and we expect some of our businesses to be impacted meaningfully for the remainder of the year. Turning now to advisory services. We generated $111 million of revenues for the first quarter of 2020. Down from a very strong fourth quarter of 2019 and in line with the year ago quarter, which included a couple of large fees. Our healthcare team was the largest contributor in the quarter, followed by the financial services group and a solid contribution from the consumer team. We advised on 57 transactions with an aggregate value of $7.6 billion. Activity in the market both announced and completed deal values were down approximately 30% sequentially. We expect M&A revenues to decline in the second quarter as companies evaluate the changing and uncertain environment and transactions take longer and become more difficult to close. Turning now to corporate financing, which includes both equity and debt capital raising for our corporate clients. Corporate financing activity generated revenues of $25 million for the first quarter of 2020 led by our healthcare team. Revenues in the quarter declined compared to a strong fourth quarter and increased compared to the prior year quarter as the result of more book run deals. The heightened volatility in March shut down equity capital raising activity. Our corporate financing activity has started out strong in the second quarter as we have already completed several equity financings in the healthcare space. Debt financing has also started to show signs of improvement and we are excited about our prospects, especially in the financial services sector, to assist clients raising debt to manage through this challenging environment. Let me finish with some updates on our strategic initiatives and headcount for investment banking. As we discussed before, our partnership with Sandler is off to a great start with wide collaboration across business areas. We believe we are a destination of choice for talented professionals and high-quality franchises Looking to Grow Their Businesses During the quarter, we hired three investment banking managing directors to our diversified industrials and services group. We ended the quarter with 128 investment banking managing directors, and our platform represents one of the broadest in the middle market. This headcount includes our largest class of MD promotes. Developing our own talent is the most sustainable and profitable growth, and we remain focused on building from within. Lastly, in February, we announced our plan to acquire the Valence Group, a premier international investment bank specializing in the chemicals, materials, and related sectors. The Valence Group consists of 29 professionals with offices in New York and London. The acquisition, which closed in April, strengthens our presence in Europe, another strategic priority, while adding another industry-leading advisory practice to our platforms. We believe that the acquisitions of Sandler, Whedon, and Valence have collectively strengthened our platform by adding scale and diversification, broadening our industry verticals, and expanding our product capabilities. Working through the current environment and its challenges has reinforced for us the importance of each of these attributes. As we look ahead, we are mindful of the volatility and challenges in our markets and for our clients. Despite a difficult operating environment in the near term, Our long-term strategy of building enduring, market-leading franchises has not changed. Deep sector expertise built on multi-decade relationships is more important than ever in this environment. Within the middle market, we have one of the broadest and deepest footprints. For example, refinitive rankings of mid-market M&A and financial advisors show that for the first quarter of 2020, we were ranked number one Based on the number of announced deals in the U.S. While near term we expect our M&A revenues to decline, reflecting the overall market environment, we are starting to see some activity in restructuring and balance sheet advisory, and we anticipate a continued ramp in corporate equity and debt new issues. However, we don't expect this ramp in activity will fully offset the impact to our M&A business. We believe the diversification and scale of our businesses will be resilient and position us for success over the longer term. Now I will turn the call over to Deb to discuss our public finance and brokerage businesses.

Thanks, Chad. Let me begin with an update on our equity brokerage business. We generated revenues of $48 million for the first quarter of 2020, up 49% on a sequential basis. Equity markets began the year with moderate volumes and rising valuations in the major indices, with the S&P 500 peaking mid-February. As the severity of the coronavirus spread, the equity markets began a rapid fall. The S&P 500 plummeted more than 30% from peak levels over the course of four weeks, registering its worst first quarter on record. Trading volatility spiked to record levels, with the VIX reaching 82 at its peak, driving tremendous volume. Clients sought out trusted relationships to find liquidity in these volatile market conditions, and our reputation for premier trade execution drove our results for the quarter. We traded 3.7 billion shares in Q1, up 63% from the volumes traded in the fourth quarter of 2019. The breadth of our client base allows us to cross a significant portion of our cash trades, resulting in no market impact, which is a significant differentiator for us, especially in a volatile market. From a personnel, technology, and overall capability perspective, we are well positioned to continue benefiting from the increased trading volumes. Volatility and volumes remain elevated, but down from the extreme levels experienced in the second half of Q1. Similarly, we expect our equity brokerage revenues to remain strong, albeit down from the Q1 levels. Let me turn to fixed income services. We generated revenues of $41 million in the first quarter of 2020. The fixed income markets also experienced extreme volatility in March, creating liquidity and pricing dislocations in a number of asset classes. In particular, municipal securities experienced severe dislocation, with the 10-year muni to treasury ratio skyrocketing to over 350% in March, the highest spread recorded to date. For us, activity was robust across products as clients repositioned in a rapidly changing market. Our financial services team contributed strong revenues as they leveraged their deep expertise with banks to provide advice and assist clients in managing interest-sensitive businesses given the difficult interest rate environment, as well as to find liquidity. Our municipal product offerings saw tremendous client activity as muni funds experienced record outflows from investors in March. We were able to identify crossover buyers who entered the market to take advantage of meaningfully higher yields. The robust client activity was offset in part by trading losses in municipal securities due to the sharp sudden dislocation of the market. The Federal Reserve injected massive liquidity into the market toward the end of March, which helped stabilize the market somewhat. However, volatility and the muni to Treasury ratios remain elevated. We expect our fixed income revenues to remain strong as clients continue to reposition in a changing market However, similar to equities, not likely at Q1 levels. Turning to our public finance business. For the quarter, we generated 23 million of municipal financing revenues down from a strong Q4 of 2019 and up 78% from a slow year ago period. Our public finance business started the first two months of the year strong, driven by new issuance and refinancing activity as rates remain low. Activity in March fell off significantly, driven by the extreme volatility in the fixed income markets. We completed 146 negotiated transactions, the second most nationally, raising $3.6 billion for issuer clients in the quarter. We have a strong pipeline of governmental business, and as volatility subsides and rates stabilize, we are starting to see demand resume for high-grade governmental paper. Dramatic outflows from muni high yield bond funds will curtail demand for higher yielding issuers, which we expect may impact our specialty sectors. Now I will turn the call over to Tim to review our financial results and provide an update on capital use.