Piper Sandler Companies

Good morning and welcome to the Piper Sander Company's conference call to discuss the financial results for the first quarter of 2022. 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 the 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 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, and thank you for joining us. 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. Financial markets experienced increased uncertainty during the quarter, including the war in Ukraine, persistent inflation, and expectations for continued tightening of monetary policy. Despite this quickly changing and challenging backdrop, Our diversified and resilient business model continues to generate strong results. While equity underwriting activity was soft across the industry, market conditions remained constructive across many of our industry and product verticals, and our advisory business was a highlight during the quarter. During the first quarter of 2022, we generated adjusted net revenues of $362 million. a 20.8% operating margin, and adjusted EPS of $3.12. I am pleased to report that we delivered strong performances across our advisory, debt financing, and brokerage businesses. Turning to corporate investment banking. We generated total corporate investment banking revenues of $230 million during the first quarter of 2022. Our results were driven by our M&A advisory business, which generated 74% of our investment banking revenues. Our corporate debt business, which includes financing and debt advisory, had a successful quarter generating $55 million of revenues, or 23% of total corporate investment banking revenues. Clients were quick to execute debt capital raises in anticipation of rising rates. We completed 33 debt advisory and financing deals during the quarter, raising over $5 billion of capital for our clients. Turning to advisory services, advisory revenues of $211 million during the quarter increased 38% year-over-year and reflect strong absolute and relative performance. The trend of advising on larger transactions and generating larger average fees increased continues to be a key driver to our advisory growth. We completed 81 advisory transactions during the quarter, with an aggregate transaction value of more than $26 billion. Performance was led by our financial services group, which advised on four of the five largest U.S. bank M&A transactions that closed during the quarter. In addition, our healthcare, diversified industrial and services, energy and power, and chemicals industry verticals all recorded year-over-year growth. Our advisory pipelines with private equity clients continue to be robust. We expect our sponsor activity to remain strong as PE firms and portfolio companies continue to engage in high levels of deal activity and maintain record amounts of capital to deploy. An additional catalyst for growth is our market-leading energy and power franchise. Oil and gas sectors are experiencing renewed interest and increased activity levels. The team has persevered through the most recent down cycle and we believe they are well positioned to benefit from increasing activity in both traditional and new energy sectors. Looking ahead, M&A activity remains strong and pipelines are good across all of our industry verticals. With this backdrop, we expect advisory revenues for the first half of this year to be similar to the first half of 2021. And if market conditions remain supportive and we maintain a high close rate, we anticipate our pipelines could lead to increased revenues for the second half compared to the first half of this year. Turning to corporate financing, market volatility, a drop in valuations, and a more cautious investor outlook driven by economic concerns and geopolitical risk have largely shut down the equity capital markets. After two years of unprecedented activity, the pause was not unexpected. During the first quarter of 2022, we generated $19 million of financing revenues, primarily debt financing for corporate clients. Turning to investment banking managing director headcount, we finished the quarter at 149 managing directors, representing our 10th consecutive quarter of MD headcount growth on a net basis. Our success and momentum continue to resonate in the marketplace. Both our recruiting efforts and the development of our own talent continue to be priorities. We continue to invest for long-term growth and to strengthen our platform. During the quarter, we closed on the acquisition of Cornerstone, and I'd like to welcome all of our new partners. We are excited to have you as part of the Piper Sandler team. In addition, we expect the pending acquisition of Stanford to close in the second quarter of 2022. We recognize that markets can ebb and flow, but we remain focused on elevating the earnings capacity of our platform across market environments. And we see numerous opportunities to continue to grow market share and expand our platform capabilities. With that, I will turn the call over to Deb to discuss our public finance and brokerage businesses.

Thanks, Chad. I'll begin with an update on our public finance business. We started the year with $27 million of municipal financing revenues, flat compared to the first quarter of last year. Market issuance during the quarter was $99 billion, down approximately 12% from a year ago, driven by fewer refinancing. Higher nominal interest rates and increased interest rate volatility contributed to the year-over-year decline in issuance. The diversification of our public finance business, both in the governmental space as well as specialty sectors, continues to drive benefits. We were able to outperform the market by executing on specialty sector offerings during the quarter. As an example of our expertise, we raised $400 million for a Texas hotel issuer partnering with a local governmental entity. Our expertise in the hospitality sector, combined with our distribution capabilities, allowed us to underwrite a complex transaction in a more challenging market. Highlighting our exceptional distribution capabilities, for 2021, we ranked as the number one underwriter in the nation for non-rated tax exempt debt. Looking ahead, we expect governmental issuance to continue to moderate from 2021 levels. While our backlog of specialty sector financings is very strong, Our execution of this backlog in 2022 will be dependent on market conditions. Turning to equity brokerage. Equity markets in the first quarter saw elevated volatility and volumes. Our equity brokerage business generated record quarterly revenues of $50 million, benefiting from the increased volumes and the addition of Cornerstone Macro to our platform. The acquisition of Cornerstone Macro closed on February 4th Cornerstone adds over 50 professionals, including 21 publishing research analysts specializing in producing high-quality, thought-leading macro, thematic, and quantitative research. In addition, Cornerstone Macro's option strategy team provides derivative strategy advice and trading capabilities to institutional investors. Integration of the team has gone well, and feedback from clients has been fantastic. With approximately 1,700 combined clients on the platform, we see opportunities to cross-sell across our franchise. We traded 2.8 billion shares during the quarter on behalf of our clients as they repositioned portfolios and sought our premier trade execution capabilities. In periods of heightened volatility, clients consistently trust our high-touch trading expertise to execute quickly and efficiently. We continue to increase the number of clients transacting with us on a monthly basis and reached an all-time high in March. The breadth of our client base allows us to cross a significant portion of executed cash trades, resulting in no market impact for our client, a valuable differentiator. Lastly, turning to our fixed income business. For the first quarter of 2022, we generated fixed income revenues of $55 million, up 9% compared to the fourth quarter of 2021. The market experienced rising interest rates in the first quarter, which drove client activity. The 10-year Treasury rate increased 55% from December 31st to March 31st. This increase in risk-free Treasury yields reflects market expectations of future inflation and further Federal Reserve tightening. The work we have done over the last few years to significantly reduce our inventories and lead with advice versus capital has served us well through this period of interest rate volatility. Client activity was strong as higher yields across products enticed investors off the sidelines. Clients invested in shorter-dated securities and began the work of repositioning their portfolios in an effort to shorten duration. In addition, our bank clients increased their bond purchases as investments began to offer attractive yields relative to lending opportunities on a risk-adjusted basis. Our municipal-centric clients took advantage of higher municipal rates and executed tax swap transactions. Our near-term outlook continues to remain constructive. Inflation and higher yields are driving increased client engagement, and our capabilities position us to assist clients as they navigate a volatile environment. Now I will turn the call over to Tim to review our financial results and provide an update on capital use.