Piper Sandler Companies

Good morning and welcome to the Piper Sandler Company's conference call to discuss the financial results for the second quarter of 2021. 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 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.pipersambler.com and on the SEC website at www.pipersambler.com. This call will also include statements regarding certain NANGAP financial measures. The NANGAP 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 this NANGAP 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 the call to review our second quarter 2021 results. 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. We delivered the fifth consecutive quarter of increased revenues, highlighting our momentum and demonstrating the earnings capacity of our business model. While we continue to experience strong client activity across our business segments, broad-based investment banking activities drove the increase in revenues during the second quarter. we generated adjusted net revenues of $493 million for the second quarter, a 27.7% operating margin, and adjusted EPS of $5.37, all quarterly records. For the first half of 2021, we recorded adjusted net revenues of $906 million, a 26.4% operating margin, and adjusted EPS of $9.51. Again, record-setting activity. The outlook for the second half of 2021 remains strong as our pipeline of deals is at peak levels. Our success is resonating with potential new partners, and we are continuing to pursue our growth initiatives. Turning to our corporate investment banking business, we generated total corporate investment banking revenues of $351 million in the second quarter of 2021. up 31% from the previous peak in the first quarter of this year. Performance in the quarter was strong across industry verticals and product offerings, highlighting the scale and diversification of our business. Our healthcare, financial services, and diversified industrials and services teams had terrific quarters. Highlights for the quarter included our healthcare franchise continues to produce very strong results with performance balanced in both advisory and equity financing during the quarter. The breadth of our financial services group was apparent with strong performance across subsectors, including depositories, insurance, real estate, and fintech. Further strengthening our non-depository sectors remains an area of focus and growth for us. Diversified Industrials and Services produced a record quarter driven by outstanding advisory activity, primarily with our private equity client base. We continue to invest in building our sector coverage within this group, and we currently have 70 investment banking professionals, including 12 MDs on the platform. Debt activity, both advisory and underwriting, continues to be strong. Our deep structuring expertise and strong distribution provide us with multiple ways to assist our clients. Collectively, these teams generated over $70 million of revenues for the quarter. And our restructuring business was further enhanced with the acquisition of TRS advisors, and the team is contributing in line with our expectations. During the quarter, M&A and restructuring activity generated 53% of total corporate investment banking revenues. Equity financings contributed 24%, and debt financing and capital advisory engagements produced 23% of revenues. We expect the mix of our corporate investment banking revenues to shift as our advisory pipeline builds and equity capital markets activity begins to moderate. Within corporate investment banking, our advisory services business generated record revenues of $249 million during the quarter. up 63% sequentially and 191% over the second quarter of last year. Our performance was strong both on an absolute and relative basis. We completed 58 M&A and restructuring transactions and 40 capital advisory deals during the second quarter. Our consistent focus and investments in people, industry coverage, and products for our investment banking business continue to drive new highs in our revenues. M&A activity was strong across industry verticals with high volumes and increased transaction sizes. Our average M&A fee has increased, reflecting our fee discipline and larger average transaction size as our brand continues to strengthen. As an example, our chemicals and materials team, which we added with the 2020 acquisition of Valence, has recently announced six deals with an aggregate transaction value of $14.5 billion. Ample availability of debt and equity, a favorable rate environment, strong business performance, and CEO confidence continue to drive strong M&A activity. The potential for tax law changes is an added catalyst and may pull forward activity into 2021. As a result, Our pipeline of deals is at record levels across most of our industry teams. We believe the M&A market is experiencing strong secular growth, and we are well positioned to benefit. Turning to corporate financing. During the second quarter of 2021, we generated 102 million of revenues and completed 67 equity, debt, and preferred financings, raising 24 billion in new capital, for our clients. With strong equity valuations, low interest rates, reduced market volatility, and high demand from investors, market conditions remained conducive for equity and debt capital raising during the quarter. Our healthcare team led the quarter, followed by financial services and technology. In healthcare, we continue to be a market leader where we ran the books on 22 of the 24 deals. we completed during the quarter. In financial services, we were particularly active in subordinated debt financing for community and regional banks, where we maintain over 50% market share based on deal value. Technology is an important area of growth for us, and we have made significant progress on increasing the number of book run deals and average fee size. It was an active quarter in terms of recruiting, and we finished the second quarter with 145 MDs in investment banking and capital markets, hiring five new managing directors to strengthen our presence in healthcare services, med tech, renewables and clean energy, oil field services and equipment, and industrial software and technology. Our success and momentum continue to resonate in the marketplace. Our strong performance during the second quarter of 2021 also resulted in corporate investment banking revenues crossing the $1 billion mark for the last 12-month period. Our people and expanding expertise makes us increasingly diverse and well positioned to take advantage of secular growth. We continue to expand our sector coverage, develop new product capabilities, increase market share, and add great talent to our platform. I would like to thank our team, for making Piper Sandler a leading brand and destination of choice for our clients. Now I will turn the call over to Deb.

Thanks, Chad. I'll begin with our equity brokerage business. For the second quarter of 2021, we generated equity brokerage revenues of $35 million, down 19% sequentially and 14% from the second quarter of last year. Equity markets saw reduced volatility and volumes during the second quarter. Market indices marched higher, driven by strengthening economic conditions and accommodative Federal Reserve policies, providing ample liquidity. We believe that current market valuations are muting trading activity and we expect revenues to continue near these levels in the third quarter. We remain focused on providing value-added research and premier execution capabilities. Specific to research, we continue to build out our industry coverage, which in 2021 included expanding our coverage of the technology sector. Based on our current roster of publishing analysts, we rank number one in terms of the number of SMID cap companies under coverage, and in total, we have over 950 stocks under coverage. Turning to municipal financing. For the second quarter, our public finance business generated $36 million of financing revenues, up 33% from the first quarter of this year, and 17% compared to the second quarter of last year. We underwrote 239 municipal negotiated issuances during the quarter, raising $4.3 billion for our clients. With low interest rates and a strong credit outlook, municipal market issuance continues to remain strong, driven by new money issuance as well as continued refinancing activity. While our governmental business, which drove our strong results last year, remains strong, The upside to our performance this quarter was driven by great results from our specialty sector clients, which include special districts, health care, senior living, education, hospitality, housing, and transportation. We were able to assist our clients in pricing a number of higher margin transactions in the quarter. Our high-yield platform within public finance, centered around specialty sectors, differentiates us in the marketplace and provides diversification to our governmental business. This combination of sector expertise provides us with one of the largest specialty businesses in the market, and these segments continue to be an important growth driver for us. On a year-to-date basis, municipal financing revenues of $63 million represent our strongest first half on record. Our relative performance was also strong, with first half revenues up 18% from 2020 relative to a 3% increase in the overall market based on par value of municipal negotiated issuances. Looking forward, our pipeline remains strong and we expect the second half of this year to be similar to the first half. Turning to fixed income. For the second quarter, we generated fixed income revenues of $61 million, down 8% on a sequential basis and up 25% compared to the second quarter of last year. The 10-year Treasury rate decreased from 1.74% at March 31st to 1.47% at June 30th. The reduction in yields has driven some market participants to the sidelines, awaiting more clarity in the direction of rates. However, activity within our financial services clients continues to remain strong as banks are flush with excess liquidity. Our deep expertise, market leadership, and breadth of relationships has enabled us to advise these clients on repositioning their balance sheets and investing in a low-rate environment to seek any available yield curve or spread opportunities that are attractive on a risk-adjusted basis. Activity among many of our other clients was softer relative to the first quarter of this year, as tight spreads and low yields led clients to remain on the sidelines, resulting in a decline in secondary trading, particularly in tax-exempt municipals. We continue to build our fixed income sales team, focused on hiring highly productive individuals who have deep relationships and product expertise, and who can leverage our platform capabilities to grow their book of business. As part of that initiative, we hired two senior salespeople in the second quarter, both specializing in non-agency structured products. In addition to hiring, we see opportunities to increase client penetration and the productivity of our existing sales force by leveraging our platform's full capabilities and serving clients with advice and product expertise that goes far beyond traditional bonds. From an outlook perspective, with the current low rates and uncertainty over the direction of interest rates, in July we have experienced a slowdown in client activity. Now I will turn the call over to Tim to review our financial results and provide an update on capital use.