Piper Sandler Companies

Good morning and welcome to the Piper Sandler Company conference call to discuss the financial results for the second 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 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 measure 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. At this time, I would like to turn the call over to Mr. Chad Abraham. Mr. Abraham, you may begin your call.

Good morning, everyone. Thanks for joining us today to talk about our second quarter results. I am here with Deb Shoneman, our president, and Tim Carter, our CFO. In a challenging second quarter of 2023, Piper Sandler generated adjusted net revenues of $277 million, and adjusted EPS of $1.13. Activity across most of our businesses continued to be muted as a cloudy economic outlook has kept many clients and transactions on the sidelines waiting for the inflection point to better market conditions. We remain focused on helping our clients navigate a highly dynamic economic landscape. When markets stabilize, we expect activity levels to accelerate and we believe that we are strongly positioned to help our clients transact across our various product and business lines. Turning to corporate investment banking, we generated revenues of $167 million during the second quarter of 2023, flat compared to the first quarter. Highlighting the benefits of our diversified product and industry set, increased corporate financing activity offset a decline in advisory service revenues, for the quarter. Specific to advisory services, revenues of $130 million for the quarter reflect the continuing challenges in the M&A and debt markets. We completed 61 advisory transactions during the quarter. Performance was led by our healthcare group, with solid contributions from our energy and power and restructuring teams. The decline in our advisory activity for the quarter was largely driven by a market-wide reduction in bank advisory transactions. The outlook for bank M&A over the next six months remains challenging, negatively impacted by company and portfolio valuations, a lack of clarity around credit quality, and an uncertain regulatory capital framework. However, the longer-term outlook for consolidation and capital markets activity in the depository space is compelling. and our market-leading bank franchise is well-positioned to advise clients when the market improves. Overall, our performance on a relative basis remains solid. Completed US M&A market activity is down approximately 50% compared to the first half of last year, while our revenues are down 29%. On a year-to-date basis, we maintained our ranking as the number two advisor on announced US M&A transactions under $1 billion. Importantly, the outlook for M&A is improving. We have a number of larger announced deals expected to close in the second half of this year, as well as a strong pipeline of deals that have kicked off a sale process. We expect advisory services revenues for the second half of 2023 to be better than the first half. Turning to corporate financing, The equity financing market improved during the second quarter with lower volatility levels and an increase in investor demand for new issuance. However, activity continues to remain below historic levels. For context, 21 IPOs priced in the market during the second quarter of 2023 compared to an average of 102 IPOs per quarter for the last five years. We generated $37 million of corporate financing revenues during the second quarter of 2023, up on a sequential basis. We completed 24 equity and debt financings, raising $5 billion in capital for corporate clients. Activity was driven by our market-leading healthcare franchise, which ran the books on all 14 deals completed during the quarter, including one of the largest biotech IPOs in history. Highlighting our strong relative performance, On a year-to-date basis, our economic fees from sub-5 billion market cap companies increased approximately 200% compared to a 30% increase in the fee pool for this market. In addition, we ranked as a top-five investment bank based on the number of book-run deals for healthcare companies with less than $5 billion of market cap. As we look ahead, we expect financing activities to continue building as we progress through 2023. Turning to investment banking managing director headcount. MD headcount remained flat sequentially, finishing the quarter at 171 managing directors. We added two MDs during the quarter, one to continue growing our real estate team and one to further expand our restructuring practice. These additions were offset by planned attrition. We remained focused on strategically managing headcount and driving productivity, while at the same time continuing to strengthen our sector coverage and product capabilities to ensure we have the resources to execute against market opportunity as conditions improve. With that, I will turn the call over to Deb to discuss our public finance and brokerage businesses.

Thanks, Chad. During the second quarter of 2023, our public finance business generated $17 million of municipal financing revenues, flat compared to the first quarter. Market conditions remain challenging with higher nominal rates, interest rate volatility, and weak investor demand. For the quarter, we underwrote 109 municipal negotiated transactions, raising $2.4 billion of par value for our clients. Our results continue to be disproportionately impacted relative to the overall market issuance due to our meaningful presence in the high-yield sector and our middle market focus within the governmental business. As we look ahead, our pipeline is large and diverse. We have several significant high-quality transactions scheduled for the second half of this year and a number of high-yield issuers looking to raise capital. As a result, we expect revenue generation to improve modestly during the second half of 2023 with additional upside if there is increased demand for the high-yield offering. Moving to our equity brokerage business, we generated $50 million of revenues for the second quarter down modestly from the first quarter. Equity markets experienced lower volatility, which moderated volumes as well as our results. We traded 2.7 billion shares during the quarter on behalf of our clients, down 4% sequentially relative to a 9% decline in market volumes. Client research votes and affirmation of the quality and capabilities of our platform continue to increase, and we see opportunity for further market share gains in this business over time. However, with the expectation of reduced volatility in the near term, we expect our equity brokerage revenues in the second half of 2023 to be consistent with the first half. Moving to fixed income, market conditions continue to be challenging. The yield curve inversion grew steeper during the quarter, keeping investors on the sidelines, awaiting more clarity on when the Fed will end its interest rate tightening. For the second quarter of 2023, we generated revenues of $37 million, down compared to the first quarter. The breadth of our client relationships and product capabilities provided some level of resiliency to our results. Asset managers and public entity clients were active as they found relative value in the short end of the yield curve. Trading among our depository clients remained slow as they continued to focus on building liquidity and evaluating their capital and funding positions. Advising clients on hedging strategies drove an increase in derivative activity, and we remain active assisting clients with loan sales. While we expect the near-term outlook to remain challenging, we anticipate more clarity on interest rates as the year progresses, which should provide a turning point to more constructive fixed income markets. Like our investment banking group, we remain focused on broadening our fixed income platform. Our recruiting pipeline is active, and we see opportunities to continue expanding our market reach. We believe we are well positioned to gain share and assist clients when market conditions improve. Now, I will turn the call over to Tim to review our financial results and provide an update on capital use.