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 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 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.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 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. While the global economy continues to face headwinds, Piper Sandler delivered solid results during the third quarter. As I've stated before, our diversified business model continues to perform well, and I'm particularly pleased with the results we've achieved in our equities business. While we remain focused on adding scale and increasing market share in our financing and brokerage businesses, our number one priority remains growing our advisory business through sector and product expansion. Thus far in 2022, we have completed three acquisitions and made multiple senior hires, which has moved us forward on both objectives. To that point, in October, we closed on our acquisition of DBO Partners, a technology investment banking firm. DBO roughly doubles the number of senior producers and provides additional scale to our technology practice. DBO's franchise also enhances our credibility with both large cap corporate and large cap sponsor clients within the technology landscape, given their established track record of working with market leading clients on high profile transactions. In addition, DBO adds a general partner advisory practice that is highly complimentary and increasingly important to our private equity clients. We're excited to welcome the DBO team to the Piper Sandler family. Turning to our financial results, during the third quarter of 2022, we generated adjusted net revenues of $335 million, a 17.3% operating margin, and adjusted diluted EPS of $2.32. During the first nine months of 2022, we recorded adjusted net revenues of $1 billion, an 18.6% operating margin, and adjusted diluted EPS of $7.93. Our results, although lower compared to the exceptional prior year period, reflect the increased earnings capacity of our platforms, driven by the investments we have made over the last several years. Next, let me review our corporate investment banking business, beginning with advisory services. Advisory revenues of $175 million during the third quarter of 2022 increased 3% sequentially and declined 18% from the strong third quarter of last year. Our revenues improved compared to the second quarter as we advised on more transactions with larger fees. However, market volatility continues to impact transaction timelines. Performance during the quarter was diversified across our business sectors. Our energy and power team had a particularly strong quarter, benefiting from renewed interest and increased activity in this space. In addition, our revenues continue to reflect meaningful contributions from our healthcare and financial services teams. More broadly, Piper Sandler was the number two advisor for US M&A deals under $1 billion, based on number of announced transactions during the first nine months of this year. Our advisory pipelines across verticals remain strong, and we expect the fourth quarter of 2022 to be stronger than the prior two quarters. However, conversion of these pipelines is being increasingly impacted by the more challenging market environment. Turning to corporate financing, we generated $40 million of financing revenues during the third quarter of 2022, an increase of 37% compared to the prior quarter, and down 49% from the third quarter of last year. Although the equity capital markets remain largely shut, we improved on a sequential basis driven by a brief window in August when the market was more accommodating. Overall, we underwrote 20 equity deals during the quarter, serving as book runner on 18th. We also completed several preferred and debt capital raises for financial services companies. Despite the improved performance during the quarter, market conditions continue to remain challenging. However, in the coming quarters, we expect increased capital markets activity as clients that require access to capital will take advantage of market window opportunities or more stable conditions. Turning to investment banking managing director headcount, inclusive of the DBO acquisition, we now have 159 managing directors, the most in our history. 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. In closing, there is no question that market conditions remain challenged and have had an impact on asset prices and market activity. That said, we remain focused on factors that we can control and executing on our growth initiatives. We've transformed our business model significantly during the past five years, which has put the company in a position of relative strength that should drive growth in the coming years. Client engagement remains strong and we're enthusiastic about the opportunities in front of us. I am confident in our ability to navigate the market environment and deliver long-term value to our shareholders. 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 generated $27 million of municipal financing revenues during the third quarter, down 25% from the second quarter of 2022. Higher nominal interest rates and increased rate volatility negatively impacted activity for us and the market. In particular, refinancing activity has essentially come to a halt. Overall market issuance during the quarter declined to approximately $94 billion, with the number of issues down 33% from the second quarter of 2022. We've seen investor demand weaken as the market experienced significant municipal fund outflows. During the third quarter of this year, we underwrote 93 municipal negotiated issues with an aggregate par value of $3.4 billion and ranked as the number two underwriter based on number of issues in this market. Activity for us was led by our governmental business. Looking ahead, we expect the fourth quarter of 2022 to be similar to the third quarter based upon current market conditions and investor sentiment. Our backlog of specialty sector financings is significant, and we could experience upside if market conditions allow for execution of this pipeline. Turning to equity brokerage. Equity markets continue to experience elevated volatility and volumes during the third quarter. Our equity brokerage business generated record quarterly revenues of $53 million, benefiting from the elevated volumes and the addition of cornerstone macro to our platform. Performance during the quarter was broad, with our high-touch, derivatives, program, and algo trading all generating increased activity, highlighting our robust trading platform. We are experiencing strong momentum across our platform, and client votes and market share metrics have been increasing. We maintain the fourth largest U.S. active client base and rank as one of the largest research platforms in the SmidCap category based on companies under coverage. In addition, our market-leading macro research franchise combined with our full suite of trading capabilities make us an attractive destination for clients. We continue to pursue opportunities to deepen client relationships and cross-sell products across the platform. From an Outlook perspective, We expect to finish 2022 strong, driven by continued volatility, market share gains, and clients positioning their portfolios for 2023. Lastly, turning to our fixed income business. Market conditions became extremely challenging during the quarter, driven by increased rate volatility, as well as aggressive Federal Reserve monetary tightening and expectations for further tightening. Inflation has remained elevated, and the market has begun pricing in a recession, resulting in an inverted yield curve. For the third quarter of 2022, we generated fixed income revenues of $37 million, down 31% from a strong second quarter this year, as market dynamics have significantly muted client activity. Our depository client activity was particularly soft, driven by lower deposit levels combined with an increase in bank lending. Activity among our municipal-centric clients has been reasonably solid given the relative value in municipal securities. While the near-term outlook for fixed income is challenging and difficult to predict, over the long term, our business will benefit from interest rate stabilization at higher rates. Now, I will turn the call over to Tim to review our financial results and provide an update on capital use.