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 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. 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 today to talk about our third quarter results. I am here with Deb Shoneman, our president, and Tim Carter, our CFO. Market conditions continue to be challenging during the third quarter. Our broad product capabilities and industry diversification has provided some resiliency to our results, and our relative performance was strong in several of our businesses. Against this backdrop, we are pleased with our momentum, and we recorded our best quarter of the year in terms of adjusted net revenues and operating margin. we generated adjusted net revenues of $306 million, an operating margin of 15.3%, and adjusted EPS of $1.76. Although activity incrementally improved during the third quarter, current geopolitical concerns, as well as the continued macroeconomic uncertainties, could impact this progress in the fourth quarter and into 2024. Turning to corporate investment banking, we generated $192 million of corporate investment banking revenues, our best quarter of the year thus far. Highlighting the benefits of our diversified product set, revenues from M&A and debt capital raises increased sequentially. Restructuring activity continues to be robust, and equity financing reflects a gradually improving market. As we've stated previously, scaling our industry groups and adding new product capabilities have enhanced our ability to deliver strong results against mixed economic conditions. Specific to advisory services, revenues of $155 million for the quarter reflect a moderate improvement to M&A and debt markets. We completed 51 advisory transactions during the quarter and benefited from a higher average fee and aggregate transaction value. Performance was led by our financial services and healthcare teams, with solid contributions from our consumer, energy and power, and restructuring groups. Advisory services accounted for 50% of adjusted net revenues during the third quarter. Healthcare remains a very large and continually evolving component of the economy, and a more substantial share of the overall banking fee pool. With one of the largest and most experienced teams in the marketplace, We continue to gain market share as we leverage our deep sector expertise to advise clients. Financial services is another large and critical component of the economy where we have leading market share. For the nine-month period of 2023, we maintained our number one rank based on both the number and deal value of announced U.S. bank M&A transactions and advised on seven of the ten largest completed deals. In addition, we have grown our non-bank verticals within the financial services group over the last few years, and the third quarter represents another quarter with significant contributions from asset management, insurance, and specialty finance. Overall, our performance on a relative basis remains solid. Completed U.S. M&A market activity is down approximately 30% to 40% compared to the first nine months of last year, while our advisory revenues are down 23%. On a year-to-date basis, we maintained our ranking as the number two advisor on announced US M&A transactions under $1 billion. In terms of outlook, we are encouraged by the direction of advisory activity, and the fourth quarter has historically been our strongest quarter. We have a number of large announced deals expected to close by year-end, and absent events that could cause a delay in the closing of these, and other transactions in our pipeline, we expect that advisory revenues for the fourth quarter will continue to show sequential improvement. Turning to corporate financing, the market for equity financing has improved relative to last year. However, activity continues to remain below historic levels. We generated $37 million of corporate financing revenues during the third quarter of 2023, consistent with the improved results we generated for the second quarter. We completed 21 equity and debt financings, raising $5 billion in capital for corporate clients. Activity was driven by our market-leading healthcare franchise. The team ran the books on all 12 deals they completed during the quarter. Highlighting our strong relative performance, on a year-to-date basis, our economic fees from sub-$5 billion market cap companies increased approximately 88% over last year, compared to a 26% 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 start the fourth quarter, corporate financing activity during October has been similar to our third quarter run rate. Turning to investment banking managing director headcount. We finished the quarter with 168 managing directors. Over the last few years, we have significantly grown our MD headcount. We are up net nine managing directors on a year-to-day basis. With this significant growth, we're focused on strategically managing headcount and driving productivity while continuing to look at opportunities to strengthen our sector coverage and product capabilities. As we look ahead, we expect sequential improvement during the fourth quarter. It's difficult to predict when market activity will return to more normalized levels, but we currently expect improvement in 2024. The macro backdrop remains uncertain, but our priorities have not changed. We remain focused on executing our strategy of scaling industry groups, expanding reach and share, increasing transaction fee size, and adding new MDs and verticals to our platform. Before handing it off to Deb, I'd like to highlight a senior executive transition we announced on September 12th. After a long, successful 28-year career at Piper Sandler, Tim Carter will be retiring in the first quarter of next year. At the same time, we announced that Kate Kloon has been selected to succeed Tim as Chief Financial Officer. Kate will join the firm in November and is expected to take over as CFO on January 1st. With that, I will turn the call over to Deb to discuss our public finance and brokerage businesses.

Thanks, Chad, and congratulations to Tim. During the third quarter of 2023, our public finance business generated $20 million of municipal financing revenues, up modestly compared to the second quarter. Market conditions remain challenging with higher nominal rates, interest rate volatility, and weak investor demand. For the quarter, we underwrote 108 municipal negotiated transactions, raising $4 billion of par value for our clients. We completed several significant deals during the quarter, including two landmark deals in Texas, as well as a large senior living offering and an affordable housing deal. Though activity was episodic, these transactions highlight the strength and breadth of our platform and ability to get deals done in a tough market. As we look ahead, we expect market issuance will be lower than historical levels until rates stabilize, issuers adjust to higher nominal rates, and more investors return to the municipal investment space. Moving to our equity brokerage business, we generated $50 million of revenues for the third quarter, flat compared to the second quarter. Equity markets experienced lower average volatility, which moderated volumes down 3% sequentially. Despite softer conditions, we performed well, driven by quality research and the broad capabilities of our platform. During the quarter, we traded 2.5 billion shares on behalf of our clients. Client research votes continued to increase, Our most recent vote ranking is the highest in our history, which should drive further market share gains in this business over time. Historically, the fourth quarter has been our best quarter of the year for equity brokerage revenues, and we expect to finish 2023 strong as clients position their portfolios for 2024. Moving to fixed income, market conditions continue to be challenging. Long-term yields moved higher during the quarter, with the 10-year Treasury increasing 73 basis points to end the quarter at 4.6%. For the third quarter of 2023, we generated revenues of $40 million, up modestly compared to the second quarter. Clients are beginning to take advantage of higher yielding securities, and we are increasingly being engaged to assist clients with balance sheet yield optimization. While we expect the near-term outlook to remain challenging, we are starting down the path to more constructive fixed income markets. The stability, scale, and vision of our fixed income platform makes us a natural destination of choice for talented fixed income professionals. Interest in our firm continues to be robust, and as a result, we see opportunities to selectively expand our market reach across all of our client verticals. Now, I will turn the call over to Tim to review our financial results and provide an update on capital use.