Piper Sandler Companies

Good morning and welcome to the Piper Sandler Company's conference call to discuss the financial results of the fourth quarter and full year 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 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 that are anticipated are identified in the company's earning 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 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 and 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 fourth quarter and full year 2020 call. I am here with Deb Shoneman, our president, and Tim Carter, our CFO. We will go through our prepared remarks and then open up the call for questions. Reflecting on the year, from the global pandemic, and its impact on the economy and workers, to a watershed movement in racial justice, to a polarized election, 2020 has brought more change than many could have imagined. Through all of this, my employee partners remained focused on serving our clients, and I could not be more proud of their dedication and resiliency. Our business is heavily influenced by economic conditions and the financial markets. 2020 was a roller coaster with equity markets notching all-time highs in February before plunging 34% and then rapidly rebounding with broad indices again setting all-time highs by year-end. Volatility was extreme during March and April and remained elevated for much of the year in both equity and fixed-income markets. Against this backdrop, on a full-year basis, we generated over $1 billion in revenues and more than $10 of adjusted EPS, both for the first time in our history. Beyond this record performance, we also moved our business forward through a number of strategic actions during the year. Our record results demonstrate the strength and diversification of our business and our deep client relationships. Despite the challenges, and maybe in part because of them, 2020 was a year of tremendous growth and transformation for us. Highlighting the year, we closed on the combination with Sandler O'Neill and became Piper Sandler Companies. We grew market share in all of our business lines. We underwrote a record number of equity and debt financings. We helped clients navigate extreme volatility and executed record equity volumes. We raised a record level of par value for clients in the municipal negotiated market and completed the second most transactions nationwide. We more than doubled our fixed income business by providing differentiated advice to clients navigating the changing markets. We invested in our advisory business by completing the acquisition of the Valence Group in April 2020 to expand our industry coverage while strengthening our European presence. We acquired TRS Advisors on December 31st, a restructuring advisory firm, to broaden our investment banking product capabilities. We increased our investment banking managing director headcount by 68% to 138% through focused investments, namely Sandler and Valence, as well as internal development. And we rapidly transitioned to a remote working environment while closing and integrating three acquisitions, demonstrating the best in class service our corporate support departments continue to provide. Next, let me provide some comments on our overall financial results before turning to corporate investment banking. During the fourth quarter, We generated $400 million of adjusted net revenues and $4.17 of adjusted EPS, both quarterly records. Our strong finish to the year led to adjusted net revenues of $1.2 billion for 2020, an operating margin of 20.3%, and adjusted EPS of $10.02, all records. Key drivers of our success in 2020 include a record year from our market-leading healthcare investment banking franchise, significant contributions from the financial services group, remarkable performances from both trading businesses, and a record year from our public finance franchise. In addition to benefiting from favorable markets in 2020, our strong relative performance was particularly encouraging. A key component of our value proposition is consistent and profitable market share growth anchored by our leading franchises and relentless focus on serving clients. Both our revenue and earnings growth since 2011 illustrate our success. We have increased revenues in eight of the last nine years and grown adjusted EPS at a compounded annual growth rate of 32%. Another key component of our value proposition is the strength and durability of our platform. Through our combination with Sandler, we knew we were partnering with a market leader, but what has been equally impressive is the resiliency of the franchise during challenging markets. During 2020, Sandler outperformed our expectations and registered one of their most successful years. Their broad product capabilities combined with deep client relationships and sector expertise, continue to drive strong and consistent performance across market cycles. Turning now to our corporate investment banking results. We generated total corporate investment banking revenues, including advisory services and corporate financing, of $256 million in the fourth quarter of 2020, up 45% sequentially. Revenues of $739 million for 2020 were up 35% year-over-year, driven by our market-leading healthcare and financial services franchises. The breadth of our product expertise and the multiple ways we can assist clients is demonstrated in our full-year revenue mix. During 2020, M&A activity generated 44% of revenues. Equity financings contributed 36%, and debt and capital advisory engagements produced 20% of total corporate investment banking revenues. Specific to advisory services, we generated $169 million of revenues during the fourth quarter of 2020, up sharply from the third quarter. For us, activity was led by our financial services and health care groups and included strong contributions from diversified industrials, energy, and consumer. In addition, we saw the benefits of increased CEO and boardroom confidence and more clarity on a post-pandemic outlook. Advisory services revenues of $443 million for 2020 were in line with 2019. Despite M&A activity slowing appreciably during the second and third quarters of 2020, as pandemic uncertainty put many engagements on hold. Our revenues for the year benefited from the addition of the financial services group. The team retained their number one ranking in bank M&A based on the number of announced deals in the U.S. during 2020 and advised on six of the 10 largest bank mergers announced during the year. With market leadership in healthcare, financial services, consumer, and energy, we are the number two investment bank in terms of U.S. deal activity in the middle market. Conditions for M&A in the market are strong. Optimism for the rollout of COVID-19 vaccines and a possible end to the pandemic has fueled many businesses to reposition for a post-pandemic landscape. Demand from PE investors and SPACs, attractive valuations, low financing rates, Increasing CEO confidence and an expectation of continued economic growth has accelerated the pace of M&A activity. Our pipeline is strong across our industry verticals. Turning to corporate financing, our momentum continued and we generated $87 million of revenues in the fourth quarter of 2020 and a record $295 million of revenue for the full year, up 181% over 2019. Our results were driven primarily by equity financing activity, which continued at a torrid pace during the fourth quarter as market valuations hit peak levels and investor demand remained strong. In total, we completed 137 equity financings during 2020, raising $62 billion of capital. For us, equity financing activity during the year was concentrated in the health care sector, Our healthcare team had a standout year delivering record revenues, underwriting 96 transactions and raising $20 billion of equity capital for clients. In addition, we ranked in the top five for investment banks based on the number of book-run IPOs and follow-ons for sub-$5 billion market cap companies in healthcare. In recent years, we have made significant strides to build our capital markets leadership to complement our market-leading healthcare M&A platform. The reputation and strength of this team positioned us nicely for the influx of healthcare companies looking to raise equity capital in 2020. Our financial services group was also very active in the capital markets during the year, completing 58 debt and preferred stock offerings for banks and other financial services companies raising $17 billion of capital. Looking forward to 2021, we're already off to a strong start, and we expect equity and debt capital raising activity to remain strong, albeit at reduced levels from 2020. Lastly, I want to emphasize our focus on investing in and growing our corporate investment banking platform. When we announced the Sandler acquisition in July of 2019, Our goal was to grow annual corporate investment banking revenues to $750 million. In 2020, we recorded close to $740 million. Our overall investment banking managing director headcount finished the year at 138, driven primarily by the additions of Sandler and Valence. We have a strong pipeline of new hires, and the strength of our platform makes us a destination of choice for talented professionals. In addition, on December 31st, we closed on the acquisition of TRS Advisors, an independent restructuring firm. TRS Advisors was founded by Todd Snyder, a veteran banker with 30 years of restructuring experience. Todd will lead our combined restructuring and special situations practice consisting of 20 professionals, including seven managing directors. We see synergistic opportunities to assist clients in many of our industry verticals, especially energy and consumer, which have seen significant changes to business models. We continue to see opportunities in certain sectors to broaden and deepen our industry teams through strategic hires or tuck-in acquisitions, as well as to grow banker productivity. We also believe there is an opportunity to capitalize on the strength of our U.S. franchises by expanding in Europe. As a result, over the next several years, we now see a clear path to grow annual corporate investment banking revenues to over $1 billion. 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. Equity markets in the fourth quarter saw elevated volatility and volumes. Market indices traded higher, driven by optimism on COVID-19 vaccine results and an economic recovery. Client activity increased, with positioning before and after election results in November. Our equity brokerage business generated revenues of $40 million for the quarter, up 18% sequentially, and $161 million for the year, up meaningfully compared to the prior periods. Entering 2020, we were confident there was a significant market share opportunity in front of us as buy-side participants consolidate research, spend, and trading towards larger, broader, and higher quality providers. Our acquisition of Whedon positioned us well for this trend, and our thesis has played out as anticipated, driving market share and revenue gains. We traded 11.6 billion shares, up 149% over 2019, as clients continue to seek our trusted relationships and our reputation for premier trade execution. Our 2020 revenues were up 84% year-over-year. The number of clients trading with us reached an all-time high in December. The breadth of our client base allowed us to cross a significant portion of executed cash trades, resulting in no market impact for our clients. The collaboration within our entire platform to get the best result for our clients is a valuable differentiator. Our client retention through the Whedon and Sandler combinations has been exceptionally high and our vote rank with institutional clients has improved significantly. We are capturing mind and market share. The increased scale of the platform has driven efficiencies in our cost structure and profitability is significantly higher. In addition to our trading capabilities, the quality of our research and specialized equity Salesforce are key differentiators for us in supporting our record equity financing activity. For context, we are ranked number one in terms of breadth of both small cap and mid cap coverage and have over 920 stocks under coverage. Our Salesforce is ranked number one in the healthcare, financials, and consumer sectors. As we look forward to 2021, While the market wallet is likely to be down, our goal is to maintain our momentum. We believe there's additional opportunity for market share gains as we continue to demonstrate the full capabilities of our platform and the buy side continues to consolidate towards high quality firms with scale. Our success is resonating externally and our growth opportunities are robust. Turning to municipal financing. Our public finance business finished the year strong with $40 million of revenues for the fourth quarter of 2020, up 51% from the third quarter and 28% from a year ago. We continued to benefit from strong new issuance in the governmental space as clients took advantage of low rates. In addition, we completed several higher fee financings in our specialty sectors as demand for high-yield municipal offerings returned. For the full year, we generated $120 million of municipal financing revenues, up 44% from 2019. Low interest rates combined with strong investor demand drove record market issuance of $475 billion, 5% higher than the previous peak set in 2017. Taxable issuance in particular was significantly higher in 2020, comprising 30% of new issuance volume. relative to 15% in 2019. The increase was driven by a decline in treasury yields, allowing for taxable advanced refunding to be an attractive refinancing option. Against this market batra, we executed well and picked up meaningful market share. Our strong relative performance is a result of our consistent focus over the last decade of steadily building this business. For us, total municipal negotiated issuance of $19.1 billion for 2020 was up 55% year-over-year relative to the market, which was up 17%. In this market, we ranked second based on number of deals nationwide. Our outstanding performance in 2020 was driven by a combination of strong governmental issuance, especially in school districts where we have market leadership. and the investments we have made last year to strengthen our presence in Nebraska, Colorado, and Pennsylvania. As we look ahead to 2021, we expect issuance to moderate some from record levels, particularly on the governmental side. Our significant presence in the specialty segment of the market should help offset this decrease as high yield investor demand has meaningfully improved. In addition, we have taken a number of key steps in our business to retain momentum in 2021. In Q4, we made significant hires in Colorado, adding a team and special district financing. Lastly, turning to our fixed income business. Although yields rose slightly late in the fourth quarter, causing some steepening of the curve, rates still remain at historic lows. We continue to help clients invest in a low-rate environment within a market flush with liquidity by seeking any available yield curve or spread opportunities that are attractive on a risk-adjusted basis for our clients. For the fourth quarter, we generated fixed income revenues of $53 million flat on a sequential basis. Activity was robust across all our client verticals, especially among our financial services clients as they repositioned heading into 2021. For the full year, we produced $196 million of revenues benefiting from the combination with Sandler. Heightened volatility, robust client activity, strong execution, and deep relationships drove a very successful year for our fixed income franchise. From an outlook perspective, in 2021, we anticipate less volatility, which should drive lower bid-ask spreads and reduced volumes. Notwithstanding less robust market conditions, we aim to retain the tremendous momentum in our fixed income business by providing differentiated advice and analytics tailored to define client verticals. serving those clients with product expertise that goes far beyond traditional bonds to include derivatives, loan strategies, and securitizations. We also provide clients with access to the breadth of our new issue taxable and tax exempt product. In addition, we believe we are in the early innings of realizing synergies driven by the Sandler combination, We see opportunities to increase productivity by capitalizing on our expanded client base and successfully cross-selling the unique product and strategic capabilities of both firms. Now, I will turn the call over to Tim to review our financial results and provide an update on capital use.