Piper Sandler Companies

Good morning and welcome to the Piper Sandler Company's conference call to discuss the financial results for the third 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 statements on this call 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.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 not a 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. 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. Thank you for joining our third quarter 2020 call. I hope you and your families continue to be in good health during this difficult period. Deb Shoneman, our president, Tim Carter, our CFO, and I will go through our prepared remarks and then open up the call for questions. Let me start by providing some overall comments on our financial results before turning to our corporate investment banking businesses. The scale and diversity of our business model, resiliency of our employees, and deep client relationships have generated strong and consistent results this quarter and throughout a turbulent 2020. Adjusted net revenues for the third quarter of 2020 were $298 million, up on a sequential basis and year over year. Our record revenues during the quarter were led by exceptional capital raising, we generated a pre-tax margin of 20.4% and adjusted earnings of $2.38 per share. Year-to-date, we have achieved impressive results with revenues of $835 million and EPS of $5.73, both representing high watermarks for the firm for the first nine months of a year. Our operating margin was also strong at 17% for the year-to-date period. While many of the challenges presented by the global pandemic persist, corporations and public entities continue to adapt, and our clients are consistently turning to us for advice. We are raising capital for clients as they consider current financial conditions, we are helping clients reposition balance sheets and portfolios, and we are advising clients on how to best achieve their strategic goals in the current market environment. We are delivering on the investments we have made in the business and benefiting from current market trends, which is driving strong growth for our shareholders. Looking forward, we expect to finish the year strong as advisory revenues start to rebound and our other businesses continue to generate strong results. Turning now to our corporate investment banking results. We generated total corporate investment banking revenues, including advisory services, and corporate financing of $177 million in the third quarter of 2020, up 5% sequentially. Revenues of $482 million for the first nine months of 2020 were up 34% year-over-year. The range of our product expertise and the multiple ways we can assist clients is demonstrated in our year-to-date revenues, with M&A activity generating 44% of revenues equity financings contributing 38%, and debt and capital advisory engagements producing 18% of total corporate investment banking revenues. Specific to corporate financing, we generated $100 million of revenues in the third quarter of 2020 and $208 million during the first nine months of the year. Both are all-time records for our firm. Capital markets remained very active during the third quarter as strong investor demand rising valuations, and stable markets fueled near-record new issuance volumes. Activity for us during the third quarter was principally in the healthcare sector, with contributions from financial services and technology. Our healthcare team completed 26 transactions during the quarter and served as a book runner on all 26, which reflects the strength of our franchise and the trust clients place in our expertise and execution capabilities. Within healthcare, capital raises were concentrated in biopharma, one of our areas of strength. For sub-$5 billion market cap companies in biopharma, we book ran 20 equity deals during the quarter, ranking in the top three. And during the first nine months of 2020, we book ran 43 deals and maintained our top five ranking. In financial services, activity was focused on debt financings as banks raise capital at historically low interest rates and position balance sheets for future uncertainty. We offer a comprehensive, differentiated value proposition for our banking clients where we maintain nearly 60% market share in debt issuance for community and regional banks. Technology issuance volumes remain strong in the market and we participated in 13 offerings during the quarter. On a year-to-date basis, we participated in 19 offerings, up 138% over the prior year. We have eight publishing research analysts covering over 120 technology stocks, a 50% increase in coverage since the beginning of last year, driven by a significant expansion of our software footprint. The technology sector is a large fee pool where we are underpenetrated. representing a growth opportunity for us. Supported by our recent activity in October, we believe that our corporate financing results will remain relatively strong in the fourth quarter. Turning to advisory. Our advisory practice slowed in the early months of the pandemic as many engagements were put on hold until business conditions became more clear. That said, we maintained our market position and we believe Q3 will mark the trough in the cycle. We're seeing a nice increase in the number of new M&A assignments and older assignments that were paused have been restarted. Further, active discussions with clients remain very encouraging, increasing our confidence as our M&A pipeline builds. Valuations remain strong, financing markets are open with historically low interest rates for debt capital, and CEO confidence is building. We generated 77 million of revenues for the third quarter of 2020, down 10% sequentially. We completed a total of 66 transactions during the quarter, consisting of 31 M&A deals spread across our industry verticals and 35 capital advisory transactions, which were concentrated in financial services, as the team continues to advise on a high volume of debt transactions. Revenues for the first nine months of the year were $274 million, down 8% compared to an M&A market that was down approximately 30%. We believe that this demonstrates the quality of our team as well as the breadth and scale of our advisory business. A key component of our strategy is to drive overall market share gains through accretive combinations and selective hiring, and our strong relative performance on a year-to-date basis illustrates successful execution of this strategy. As an example, we've retained our leading position in Bank M&A this year, having worked on seven of the ten largest bank mergers by deal value in the U.S., and every bank merger in the U.S. with an announced deal value greater than $1 billion. Secular drivers of M&A, like innovation, a changing market landscape, and low organic growth are driving client activity. Also pointing to an improved outlook, M&A deal announcements market-wide increased during the third quarter, and more recently we've seen several announcements of large-cap transactions. We also have seen an increase in new M&A deal announcements in our areas of strength, specifically health care, financial services, consumer, and energy. As I noted earlier, our M&A pipeline continues to build, and we expect to see advisory revenues grow in the fourth quarter and continue into 2021. Before turning the call over to Deb, I want to reiterate the importance of investing in and growing our corporate investment banking platform. Our investment banking managing director headcount of 137 is up 7% from the beginning of the year. and represents one of the deepest and broadest platforms amongst our peers. Just as our strong relative performance, market leadership, and broad product capabilities are helping us to build client relationships, they are also making our platform a destination of choice for talent looking to best serve their clients. Our pipeline of hires is robust with several bankers looking to partner with us to help grow our product sector, and geographic capabilities. 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 $33 million for the third quarter of 2020, down 18% on a sequential basis. As expected, equity market volumes declined in the third quarter as the market took a breather from the tumultuous first half of the year. Early August marked the one-year anniversary of our combination with Weeden, and we couldn't be more pleased with the success of integrating the team onto our platform. With Weeden's trading expertise and our research capabilities, we are a premier destination for clients. Our institutional vote ranks continue to improve with clients of all sizes, and we are capturing mind and market share. On a year-to-date basis, we've recorded $122 million of revenues up 120% from the prior year. The quality of our research and specialized equity sales distribution are key differentiators for us in supporting our record equity financing activity. We continue to build out our research platform, and based on number of stocks under coverage, we are ranked number one in small cap and number three in smid cap. And based on the Greenwich survey of smid cap portfolio managers, Our sales force is ranked number one in the healthcare, financials, and consumer sectors. We expect our equity brokerage revenues to increase in the fourth quarter as market volumes pick up and there is potential for increased volatility stemming from the upcoming U.S. elections. Next, let me turn to fixed income services. The Federal Reserve continues to inject liquidity into the market and has signaled low interest rates will extend into 2023. We generated fixed income revenues of $53 million in the third quarter of 2020, up 10% sequentially, and on a year-to-date basis, revenues totaled $143 million, up 145% over the prior year. We continue to benefit from the synergies of our combination with Sandler by capitalizing on our expanded client base and successfully cross-selling the unique product and strategic capabilities of both of our firms. All of our client verticals were active in the quarter. Clients have continued to reposition their balance sheets and portfolios as they adjust their strategies to accommodate the prolonged low-rate environment by putting more cash to work and seeking any available yield curve or spread opportunities. In addition, our market leadership in both public finance and community bank debt underwriting continues to provide proprietary deal flow that differentiates us with clients and drives incremental secondary sales and trading activity. We expect our fixed income revenues to remain strong as clients continue to strategically reposition in a changing market, barring a potential pause in activity related to the upcoming U.S. elections. Turning to our public finance business. For the third quarter of 2020, we generated $26 million of municipal financing revenues, down 14% sequentially and up 21% year-over-year. Our public finance business is benefiting from a stable market, low yields, strong investor demand, and market share gains. We completed 200 negotiated transactions, the number two issuer nationally, raising 4.5 billion for clients during the quarter. We saw strong governmental issuance, especially for school districts, where we have market leadership in multiple states. For the first nine months of 2020, we generated revenues of 80 million, an increase of 53% over the prior year. Through negotiated and private placement transactions, we raised an aggregate par value of $14.1 billion for clients, up 83% year-over-year relative to the market that was up 36%, demonstrating significant market share gains. We expect Q4 revenues to remain strong as market conditions are conducive to new issuance and refinancing. Now I will turn the call over to Tim to review our financial results and provide an update on capital use.