Piper Sandler Companies

Good morning and welcome to the Piper Sandler Companies conference call to discuss the financial results for the second quarter of 2020. During the question and answer session, securities industry professionals may ask questions of management. The company has asked that I remind you that the statements on this call that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements that involve inherent risk 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 the FAL with the SEC, which are available on the company's website at www.pipersandler.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 are not substitute for measures of financial performance prepared in accordance with GAAP. Please refer to the company's earnings release issued today for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure. The earnings release is available on the investor relations page of the company's website or at the SEC website. Also, as a reminder, this call is being recorded. And now I'd like to turn the call over to Mr. Chad Abraham. Mr. Abraham, you may begin your call.

Good morning, everyone. Deb Schoneman, our president, and Tim Carter, our CFO, and I would like to thank you for joining our second quarter 2020 call. We will go through our prepared remarks and then open up the call for questions. I would like to start by thanking all of my employee partners. I continue to be impressed by your hard work, perseverance, and determination during these challenging times. Your continued display of partnership with one another and dedication to our clients is remarkable. The vast majority of our workforce continues to work remotely using technology and ingenuity to provide access to the financial markets and innovative solutions to our clients. The resiliency of our employees and technology and unfettered dedication to delivering outstanding client service is driving financial results, benefiting our brand and driving shareholder value. Before I discuss the performance of the business, I would like to address our commitment to diversity and inclusion. A core tenet of our guiding principles is to attract, retain, and develop a diverse group of the best people in a high quality inclusive environment. Piper Sandler is unequivocally committed to the principles of integrity, respect, diversity, inclusiveness, and service to our communities. We know that what we do next is more important than what we say now. We have begun a number of initiatives to accelerate our goals of diversity and inclusion. and we are demonstrating our commitment to rebuilding our communities by seeding a special disaster relief fund dedicated to local efforts where we live and work. Next, I'll provide some overall comments on our financial results before turning to our corporate investment banking businesses. After historic volatility in Q1, equity markets rebounded and fixed income markets stabilized, aided by record federal monetary and fiscal support. During the second quarter, we produced strong results driven by our capital raising in brokerage businesses, which offset the declines in M&A activity. Adjusted net revenues were robust at $293 million, up 19% on a sequential basis. We generated adjusting earnings of $1.93 per share with a 17.7% pre-tax margin. Performance for the second quarter was Thank you for joining us. Up 50% year over year. The strength and diversity of our business model has greatly benefited our clients, franchise, and shareholders in 2020. The financial services group continues to perform very well, exceeding our expectation in terms of revenue for the first half of 2020. Through our combination with Sandler, we knew we were partnering with the market leader. What has been equally impressive Thank you. Thank you. We believe we are well positioned to continue benefiting from active equity and fixed income capital raising as well as strong brokerage activity. Our advisory practice slowed appreciably in the early months of the outbreak as many engagements were put on hold until business conditions became more clear. We expect to continue to see the effects of this pause in the third quarter. However, the gradual reopening of the economy Combined with stabilization in the debt and equity markets has resulted in an improvement in sentiment towards M&A. If these trends continue, we expect to launch a number of assignments in the coming months. Turning now to corporate investment banking results. We generated total corporate investment banking revenues including advisory services and corporate financing of $169 million in the second quarter of 2020. Up 24% sequentially. Revenues of $305 million for the first half of 2020 were up 33% year over year. The range of our banking platform and products was apparent in the first half of 2020, with corporate financings making up 36% of total corporate investment banking revenues, compared to 19% for the full year of 2019. Specific to corporate financings, We generated $83 million of revenues in the second quarter of 2020, an all-time record for the quarter and $109 million on a year-to-date basis. Capital markets were extremely active as both public and private companies looked to strengthen their balance sheets as a ballast against the uncertain outlook. Our capital raising performance has also been strong on a relative basis as our revenues on equity offerings For sub $5 billion market cap companies are up 144% for the first half of 2020 versus the fee pool in this market being up 46%. Healthcare companies were especially active in the quarter as interest in this sector has accelerated, valuations are strong, and companies are seeking more capital than ever to speed the development of medical solutions. The strength of our franchise allowed us to be a very active participant in the market. For the first half of 2020, we book ran 33 equity deals for healthcare companies with sub $5 billion of market cap, ranking 7th and raising $4.5 billion of capital. Highlighting the strength of our healthcare franchise across the firm, we served as book runner on over 95% of the IPOs and follow-ons we underwrote this year. We have one of the largest and strongest platforms in the industry, with close to 140 professionals, including 24 managing directors in banking and equity capital markets, and 13 publishing analysts covering over 200 healthcare companies. We've made investments to continue broadening this franchise into important subsectors like biopharma, and our performance for the quarter and year-to-date is a result of consistently strengthening our healthcare platform. Our financial services group was also active in the capital markets during the quarter, completing 21 debt and preferred stock offerings for banks and other financial services companies. This team continues to lead the market for community bank issuance. We believe that corporate financing markets will remain strong in the third quarter as July has been another very strong month. Turning to advisory, we generated $86 million of revenues For the second quarter of 2020, down 23% sequentially. In total, we advised on 55 transactions with an aggregate value of $7.8 billion. Our financial services team was the largest contributor as they completed several significant M&A deals in the quarter. The team ranked as the number one advisor in bank and thrift M&A based on both the number and value of deals announced in the market for the first half of 2020. Announced M&A activity market-wide for the second quarter declined significantly on a sequential basis. We expect our advisory revenues to decline in the third quarter, reflecting the pause on M&A engagements experienced in the early months of the COVID outbreak. As we look ahead, we are mindful of the challenges in our markets and for our clients. Despite these near-term challenges, our long-term strategy of building enduring market-leading franchises has not changed. 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 $41 million for the second quarter of 2020, as equity market volumes and volatility remained elevated from historical levels, which drove solid performance in the quarter, although off 15% from our strong first quarter revenues. Clients continue to seek out trusted relationships to find liquidity during these volatile market conditions, and our reputation for premier trade execution drove our results for the quarter and first half of 2020. Year-to-date, we traded 6.6 billion shares, up 73% from the volumes traded in the second half of 2019. The breadth of our client base allows us to cross a significant portion of our cash trades, resulting in minimal market impact, which is a significant differentiator for us. Equity brokerage revenues for the first half of 2020 were $88 million, exceeding the full year of 2019 results, demonstrating the success in integrating Whedon onto our platform and the trust placed in us by our clients. We expect our equity brokerage revenues to decline in the third quarter as we have seen volatility and volumes decline in July and the market typically experiences a summer slowdown. As we look ahead, we are excited about our prospects. and believe we are in the early stages of demonstrating the full capabilities of our larger platform across the breadth of our account base. The combination of top ranked research, trading and capital markets capabilities creates a premier client destination and indications are that market share and voting ranks with clients have meaningfully improved. Let me turn to fixed income services. The Federal Reserve injected massive liquidity into the market toward the end of March which helped stabilize markets in the second quarter. We generated revenues of $49 million in the second quarter of 2020, up 18% sequentially. Our continued focus on defined client verticals, combined with the strength of our product expertise, analytics, and deep client relationships, is paying dividends. This dynamic is also driving a strategic shift towards a more advisory-centric model. Our financial services team contributed strong revenues as they leveraged their deep expertise with banks to advise clients on managing the dislocations in the market This group is adept at providing deleveraging strategies for their banking clients, helping reposition bank balance sheets to maximize interest yields and manage risk, while increasing reserve positioning. We are seeing strength across many of our other client verticals as well, including our public entity clients as we work with them on developing the optimal portfolio structure given COVID-related budget challenges. We expect our fixed income revenues to remain strong as clients continue to reposition in a changing market. Turning to our public finance business. For the quarter, we generated $31 million of municipal financing revenues, up 36% sequentially and 73% year-over-year. Our public finance business benefited from a stabilizing market, low yield, strong investor demand, and market share gains. We completed 223 negotiated transactions, the number one issuer nationally, raising $5.9 billion for issuer clients in the quarter. We saw strong governmental issuance, especially for school districts, which is a strength of our franchise. Additionally, higher grade taxable refundings in the healthcare and higher education space were active in the quarter, taking advantage of the low rate environment. Investor demand for high quality paper remained strong with investor inflows into municipal funds. For the first half of 2020, we generated revenues of $53 million, An increase of 75% over the prior year. Through negotiated and private placement transactions, we raised an aggregate par value of $9.5 billion for clients, up 98% year-over-year, relative to the market that was up 34%, demonstrating significant market share gains. This activity drove an improvement in our market position as we ranked fifth based on aggregate par value of negotiated and private placement issues, our highest rank ever. We expect Q3 revenues will likely moderate from these levels. With that said, higher yielding specialty sector issuances have been noticeably absent from the first half. Further stability in the market and demand for higher yielding issues could provide upside. Now I'll turn the call over to Tim to review our financial results and provide an update on capital use.