Piper Sandler Companies

Good morning and welcome to the Piper Sandler Company's conference call to discuss the financial results for the first quarter of 2023. During the question and answer session, securities industry professionals may ask questions of management. The company will make forward-looking statements on this call that are not historical or current facts, including statements about beliefs and expectations and involve inherent risks and uncertainties. Factors that can 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, everyone. Thanks for joining us. It's great to be with you to talk about our first quarter results. I am here with Deb Shoneman, our president, and Tim Carter, our CFO. Despite volatility during the first quarter of 2023, Our diversified platform generated adjusted net revenues of $289 million, a 14.1% operating margin, and adjusted EPS of $2.35. Persistent inflation, rapid central bank rate increases, and stress on the banking system led to a lack of confidence that continues to reduce overall market activity. Although volatility benefits our equity brokerage business, it adversely impacts our other businesses which rely on constructive market conditions and a more stable outlook. The bank turmoil has further extended uncertainty and reduced confidence levels, delaying the inflection point to better market conditions. Turning to corporate investment banking, we generated total corporate investment banking revenues of $167 million during the first quarter of 2023, down from the first quarter of last year, driven by lower advisory revenue. That said, we continue to diversify our platform across sectors, products, and clients. Scaling our industry groups and adding new capabilities enhances our ability to deliver strong results against mixed economic conditions. Specific to advisory services, revenues of $141 million for the quarter decreased year over year, reflective of the continuing challenges in the M&A and debt markets. Despite this, we completed 69 advisory transactions during the quarter and maintained our position as the number two advisor on announced US M&A transactions under $1 billion. Sector performance was led by our financial services and healthcare groups, with solid contributions from our energy and power and consumer teams. In addition, following a record year in 2022, our restructuring group started this year strong with record quarterly revenues. The quality of this team combined with our market-leading industry groups is driving strong collaboration and positioned us to win two high-profile restructuring assignments. During the first quarter, we advised the FDIC on the sale of substantially all of the deposits and loans of both Silicon Valley Bank and Signature Bank. These advisory assignments demonstrate our market-leading restructuring capabilities and financial services expertise. The near-term outlook for M&A remains soft, driven by economic uncertainty and difficult debt financing conditions, which continue to impact deal timelines and the conversion of our pipeline. We remain cautiously optimistic towards the second half of 2023, but that will depend on sustained market improvements. Turning to corporate financing. Although our equity financings increased from a year ago, overall market activity remains below historic levels. Commercial banking concerns increased volatility, resulting in a pause in equity financings late in the quarter. We generated $27 million of financing revenues during the first quarter of 2023, up year over year. We completed 23 equity, debt, and preferred financings, raising over $4 billion for corporate clients. Activity for us was concentrated in the healthcare sector, with additional contributions from financial services and energy and power. Equity capital markets have been largely shut down for over five quarters, a long period by historical standards. As we look ahead, we expect financing activities to build as we progress through 2023. Turning to investment banking managing director headcount, we remain focused on building out our subsector coverage. We added 13 MDs, finishing the quarter at 171 managing directors, the most in our history. Development of our own talent continues to be a priority, and 2023 was a large promote class, adding 10 new managing directors across our industry and product teams. We also hired three managing directors to our platform during the quarter, broadening our coverage in healthcare services, asset and wealth management, and real estate. Adding new MD talent is critical to our strategic goals and key to driving incremental revenues over time. We continue to increase the earnings power of our franchise, and we see significant opportunity to grow our market share further over the long term. We remain focused on helping our clients navigate a highly dynamic economic landscape. When markets stabilize, we expect activity levels to accelerate from both sponsor and strategic clients. and we believe that we are uniquely positioned to advise our clients to meet their objectives. We remain focused on our strategic goals, scaling our industry groups, consistently expanding market reach and share over time, increasing transaction fee size, and adding MDs and competencies. With that, I will turn the call over to Deb to discuss our public finance and brokerage businesses.

Thanks, Chad. During the first quarter of 2023, our public finance business generated $17 million of municipal financing revenues down year over year. With higher nominal rates, increased interest rate volatility, and weak investor demand, municipal issuance has declined significantly across the industry. Market issuance during the quarter was approximately $75 billion, down roughly 25% from a year ago, and represented one of the slowest quarters in the last decade. High yield new issuance volume declined even more by approximately 57% relative to the first quarter of last year. This negatively impacted our relative performance as a meaningful component of our public finance business is in high yield specialty sectors. As we look ahead, our pipeline is large and diverse, but we believe a period of sustained municipal fund inflows and interest rate stability is needed for issuance to increase from current levels. Our equity brokerage business was a bright spot as it generated quarterly revenues of $54 million up from the first quarter of last year. Equity markets saw elevated volatility during March. However, overall volatility and volumes for the first quarter of 2023 were lower year over year. Market share gains and the addition of Cornerstone Macro drove our strong relative performance. 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 brand and broad trading expertise to execute quickly and efficiently. With client research votes continuing to increase and our ability to further cross-sell products to clients, we see opportunity for continued market share gains in this business over time, which should help mitigate a declining fee pool and less volatility. Moving to fixed income, for the first quarter of 2023, we generated revenues of $42 million down compared to the first quarter of last year. Market conditions in fixed income were challenging during the quarter with large interest rate swings. Uncertainty on the direction of interest rates largely kept most clients on the sidelines. Trading among our depository clients was particularly slow as banks focused on building liquidity and continued to evaluate their capital and funding position. Activity among our municipal-centric clients was also subdued, as municipal bonds remain expensive on a relative basis compared to treasuries driven by the lack of new supply. The breadth of our client relationships and product capabilities provided some level of resiliency to our results. Insurance companies and public entity clients were active as they found relative value in the short end of the yield curve. Advising clients on hedging strategies drove an increase in derivative activity. However, we expect the near-term outlook to remain challenging. Like our investment banking group, we remain focused on broadening our fixed income platform, and during the quarter, we hired five talented and seasoned professionals to help build out our trading and distribution capabilities, primarily in non-agency structured credit. Our recruiting pipeline is robust, and we see opportunities to continue expanding our market reach. Now, I will turn the call over to Tim to review our financial results and provide an update on capital use.