Piper Sandler Companies

Good morning and welcome to the Piper Sandler Company's conference call to discuss the financial results for the fourth quarter and the full year of 2021. During the question and answer session, security 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 risks and uncertainties. Factors that would cause actual results to differ materially from those anticipated are identified in a 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-GAF financial measures. The non-GAAP measure should be considered in addition to and not a substitute for measure of financial performance prepared in accordance with GAAP. Please refer to the company's earnings release issued today for reconciliation of this non-GAAP financial measure to the most direct comparable GAAP measure. The earnings release is available on the investor relation page of the company's website and at the SEC website. As a reminder, this call is being recorded. And now I would like to turn the call over to Mr. Chad Abraham. Mr. Abraham, you may begin your call.

Thank you. Good morning, everyone. 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. Piper Sandler delivered a record quarter and another record year of revenues and earnings during 2021. We entered the year with strong momentum as the global economy began to reopen. We grew our business over 60% in 2021, and performance was strong across each of our business lines, including exceptional growth in some of our recently acquired businesses. Clearly, the firm's performance exceeded the expectations we had for 2021, and I'd like to thank my employee partners for their continued hard work and dedication. During the fourth quarter, the firm generated $634 million of adjusted net revenues, 29% higher than our previous quarterly record. Operating margin was 30.7%, and adjusted EPS for the quarter was $7.84, also quarterly records. On a full year basis, the firm generated $2 billion of adjusted net revenues, a 27.8% operating margin, and adjusted EPS of $21.92. Again, all records. I'd like to review a few of the highlights from 2021. First, we generated nearly $1.4 billion in corporate investment banking revenues, significantly exceeding the long-term target of $1 billion we set last year. We generated advisory revenues of over $1 billion, driven by record levels of activity strong execution, and market share gains. We underwrote a record number of financings, raising $106 billion for our corporate clients. We finished the year strong in public finance with record fourth quarter and full-year revenues and the highest economic market share in our history. We generated record institutional brokerage results and grew revenues despite lower volatility and volumes in the market compared to last year. We strengthened diversity of our board and hired a director of diversity and inclusion to further advance our strategic priority of becoming a more diverse and inclusive firm. We successfully added talent across the firm, growing our headcount on an organic basis by 9% from 2020. And last, we grew investment banking managing director headcount on a net basis for the ninth consecutive quarter finishing the year with 148 MDs, up 7% over last year. As I reflect on the transformation in our business over the last two years, we have significantly increased the sustainable earnings power of our platform. During the last two years, the firm more than doubled its revenues. We've grown our investment banking MD headcount by 80%, creating a platform that is significantly larger and more diversified. We more than doubled the size of our brokerage businesses with a considerably broader client base and product capabilities. We generated significantly higher operating margins, profitability, and cash flow from our enhanced scale. And we've grown our total firm headcount by 33% and exceeded $1 million in revenue per employee, an 80% increase in productivity. Beyond the record performance over the last two years, We continue to execute on a number of strategic initiatives to drive growth during 2022 and beyond. We added Cornerstone Macro, an independent research firm that offers best-in-class macro research and equity derivatives trading. We strengthened our advisory business with the announced acquisition of Stanford Partners, a highly complementary specialist M&A boutique focused on European food and beverage companies. We remain focused on filling white spaces within investment banking, including technology, health care services, renewable energy, and further European expansion. We continue to drive market share growth in our institutional brokerage businesses by taking advantage of our expanded product depth to identify synergies. And we continue to strengthen our public finance specialty sectors. Our success, culture, and momentum resonate in the marketplace, and we remain a destination of choice for top-tier talent. Turning to our corporate investment banking business, we generated total corporate investment banking revenues of $476 million for the fourth quarter of 2021, up 62% sequentially and 85% from the fourth quarter of last year. Revenues of $1.4 billion for 2021 were up 88% from 2020, driven by tremendous performance across our platform. Sector performance was broad-based, with financial services, health care, diversified industrials and services, consumer, chemicals, and technology all registering record years. During 2021, M&A and restructuring activity generated 60% of revenues. Equity financings contributed 24%. and debt advisory and underwriting engagements produced 16% of total corporate investment banking revenues. Specific to advisory services, we generated $410 million of revenues during the fourth quarter, up 65% from our previous quarterly record in the second quarter of 2021. For the year, we generated over $1 billion of advisory revenues for the first time in our history, driven by strong absolute and relative performance. For context, global completed M&A volumes in the market increased more than 40% compared to last year. Our advisory deal count was up 54%, with our advisory revenues increasing 131%. With a core focus on taking longer strides rather than taking more, the trend of advising on larger transactions and generating larger average fees to our advisory growth. During 2021, we closed or announced 285 deals with over $109 billion in aggregate transaction value, including 26 deals over $1 billion in value. Our advisory work with private equity firms continues to be market leading and a growth driver for us. During 2021, our sponsor-driven revenues were up 300% compared to 2020. PE clients and portfolio companies generated 50% of our overall advisory revenues during 2021 and were clients or counterparties on roughly two-thirds of our advisory revenues. During the year, we were engaged 220 times by over 160 PE firms, highlighting the scale of our PE business and the increased relevance of our platform to a broader universe of financial sponsors. We expect PE activity will continue to be a driver of secular growth in the M&A market. Private equity firms continue to engage in high levels of deal activity to deploy record amounts of capital. We've witnessed portfolio company exit multiples rival public company valuations, contributing to a decrease in hold periods and more deal velocity. With one of the largest middle market PE advisory businesses on the street, our M&A and capital advisory businesses are well positioned to benefit from the secular growth in PE deal activity. Looking forward, we expect M&A activity to remain strong in 2022. We do anticipate advisory revenues to decline meaningfully during the first half of 2022 relative to the second half of 2021. given the high close rate on our fourth quarter pipeline and typical seasonality. However, we expect economic growth, CEO confidence, and capital availability to continue to support a high level of deal activity. As a result, if market conditions remain supportive, we believe our first half 2022 advisory revenues will be at similar levels to the first half of 2021. Turning to corporate financing, issuance volumes moderated during the fourth quarter, but remained solid as we generated 65 million of revenues. For the full year, we had a record 363 million of revenues, up 23% from 2020's record results. Investor demand and healthy valuations, combined with relatively stable rising markets, drove record-setting equity issuance volumes in 2021. the U.S. equity issuance fee pool surpassed $20 billion for the first time and was more than double the last 10-year average. Against this favorable backdrop, we completed 214 equity financings during 2021, raising $90 billion of capital with notable contributions from our healthcare, financial services, technology, and consumer teams. For the second consecutive year, our healthcare team had a standout year in corporate financings. The team completed 97 transactions, of which 92 were bookrun, raising over $20 billion in capital for our clients. We rank as a top three investment bank based on number of bookrun IPOs and follow-ons for healthcare companies with less than $5 billion of market cap. Innovation, investor demand, and significant capital requirements have led healthcare companies to raise record amounts of money. We believe there is a structural change in the size of the healthcare financing market that will support higher levels of activity relative to historical averages. The fee pool for sub-$5 billion market cap companies in healthcare has consistently grown over the last decade, finishing 2021 at $3.6 billion, nearly double the last 10-year average. The strength of our market-leading healthcare team should benefit us on this long-term secular growth trend. Another key driver of our growth in 2021 was our performance in the technology and consumer sectors, where we priced 84 equity financings, of which 37 were book-run, raising $58 billion in capital for clients. Our financial services group was also very active in the capital markets during the year. The team completed 53 debt and preferred stock offerings raising $16 billion of capital for banks and other financial services companies. Our portfolio of clients was more diverse than last year. In addition to our established presence in depositories, we leveraged our market leadership and differentiated distribution to assist several non-bank clients to raise capital during 2021. That said, we expect the 2022 issuance market to decline substantially from the record levels of the last two years, Turning to investment banking managing director headcount, we finished the year at 148 managing directors, up 10 as we bolstered capabilities across the platform. We added TRS advisors to significantly strengthen our restructuring practice. We built our European healthcare team, adding coverage in healthcare and pharma services. We added MDs to our energy and power franchise in renewables and clean energy, and energy services. We added capabilities to our technology platform in industrial software and internet technology. Broadened our diversified industrials and services coverage by adding talent in automotive aftermarket. We added expertise to our consumer team in the retail and direct-to-consumer space. And continued to grow our sponsor business with the addition of a senior officer to cover European PE firms. Over the past decade, we have executed on our strategic vision and delivered strong growth and shareholder returns. We have built a diverse platform with significant scale, margin, and cash flow. In 2015, our investment banking business was dependent on four industry sectors, healthcare, consumer, diversified industrials and services, and technology. Since then, we have expanded from four to seven industry verticals grown the number of managing directors from 65 to 148, and more than quadrupled revenues. Our investment banking business now covers most of the economy. We are more relevant, provide more deal flow, and offer more product capabilities to a larger, more diverse client base. This added breadth to our business has resulted in more stability. The enhanced scale and capabilities of our investment banking platform also provide meaningful opportunity for growth. I'd like to close my comments by sharing a new firm long-term target. Looking ahead to the next five years, we see a path to grow annual corporate investment banking revenues to $2 billion. With that, 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 driving equity brokerage revenues of $42 million for the quarter, up 23% sequentially and 6% from the prior year. For the full year, equity brokerage generated revenues of $154 million, down 5% from the strong prior year, which benefited from extreme pandemic-related volatility and volumes early in the year. In addition to our trading capabilities, the quality of our research and specialized equity sales force are key differentiators for us in supporting our record equity financing activity. For context, we are ranked number one based on the number of both small cap and mid cap companies under coverage. And in total, we have over 1,000 stocks under coverage. Our equity sales force helped distribute the 214 equity underwriting deals, of which 141 were book run totaling $90 billion in value. As we look forward to 2022, we're excited to have the Cornerstone Macro research team on our platform. The acquisition closed on February 4th. We believe the high-quality macro, thematic, and quantitative research product will be complementary to our company-specific research and offer a wide range of cross-selling opportunities. Additionally, We believe there are opportunities for market share gains as we integrate Cornerstone and continue demonstrating the full capabilities of our platform and the buy side continues to consolidate towards high-quality firms with scale. After the full integration of Cornerstone, we believe we will have an equity brokerage platform that can generate close to $200 million in annual revenues. Turning to municipal financing. Our public finance business finished the year extremely strong, with $59 million of financing revenues for the fourth quarter of 2021, up 39% from a strong third quarter and 47% from the fourth quarter of last year. As we highlighted last quarter, we have been building our high-yield specialty sector client base, which drove our record-setting performance during the quarter. Demand for higher-yielding municipal securities was robust. And through strong execution, we assisted specialty sector clients to construct new housing, build senior living facilities, construct charter schools, and improve transportation, among other things. Municipal issuance in the governmental space remained healthy as clients took advantage of low rates. For the full year of 2021, we generated $164 million of municipal financing revenues, a firm record and up 37% from last year. We underwrote 933 municipal negotiated transactions, raising over $18 billion of par value for our clients. Municipal issuance for the total market during 2021 was $475 billion, driven by low interest rates and strong investor appetite for municipal bonds, and nearly reached the 2020 record of $485 billion. With our revenues up 37% year over year, relative to a market that was essentially flat, we have significantly grown our economic market share. We have built one of the largest public finance franchises on the street, ranking number eight based on par value and number two based on the number of deals in the municipal negotiated market. The strength of our franchise resonates externally, and we are a premier destination for talent and see continued opportunity to extend our geographic reach in both our governmental business as well as specialty sector coverage. With the investments we've made expanding our specialty sectors, combined with our historically strong governmental business, we believe we are on the path to building a 200 million public finance franchise over the next several years. As we look ahead to 2022, we expect a continuation of the trend experienced in 2021. Absent a dramatic turn in economic conditions, we expect overall market issuance levels to be consistent with the last two years as new money continues increasing and refunding opportunities are declining. Lastly, turning to our fixed income business. For the fourth quarter, we generated fixed income revenues of $50 million, down 10% on a sequential basis and 5% compared to the fourth quarter of last year. Client activity was a bit more muted during the fourth quarter as clients were more cautious as they digested the changing interest rate outlook and uncertain governmental fiscal policies. Despite some softness in the market, our performance has been solid with the fourth quarter of 2021 representing the sixth consecutive quarter with over $50 million in revenues, highlighting the breadth and scale of our platform. For the full year of 2021, we produced $234 million of revenues, a firm record, and up 19% from last year. In 2021, we saw a surge in client volumes during the first quarter, resulting from rising interest rates. followed by gradually decreasing client activity as yields flattened, and then an uptick in activity late in the fourth quarter as clients began positioning for higher rates. Activity during the year was strongest within our financial institution client base as they put excess liquidity to work in mortgage-backed securities and loan products. Our deep expertise in banks has enabled us to advise clients on repositioning their balance sheets and investing in a changing rate environment. Our trading underwriting and distribution is a key differentiator for us within fixed income. And our Salesforce was very active during 2021 distributing over 1000 new issue deals in both public finance and debt capital markets, raising over 40 billion for clients. We continue to invest in our platform and have made several targeted sales and trading hires in 2021 that will increase the depth in both product and client vertical knowledge and specialization. From an outlook perspective, in 2022, we expect to repeat the strong performance of the last two years as we assist clients in navigating a changing interest rate environment. In the near term, we've seen client volumes increase in reaction to rising interest rates. Inflation and changes in Federal Reserve interest rate posturing has increased uncertainty with rates, which may inject a bit more volatility in revenue generation as clients react to an ever-changing rate environment. Now I will turn the call over to Tim to review our financial results and provide an update on capital use.