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spk02: Good morning and welcome to the Piper Sandler Company's conference call to discuss the financial results for the first quarter of 2024. 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.piperstandler.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. Good morning, everyone.
spk03: Thanks for joining us. It's great to be with you to talk about our first quarter 2024 results. I am here with Deb Shoneman, our president, and Kate Kloon, our CFO. During the first quarter, we generated adjusted net revenues of $334 million and a 16.8% operating margin, and adjusted EPS of $2.79. While market headwinds persist, we're encouraged by the improvement in certain businesses, most notably equity capital markets. Our diversified platform continues to perform well through varied cycles. Corporate investment banking generated revenues of $210 million during the first quarter and a 25% increase over the same period last year, driven by higher revenues from both advisory and corporate financing. We benefited from the sector and product diversification of our business, along with increased revenues from private equity clients. Advisory services revenues were $157 million during the quarter and increased year-over-year, driven by higher average fees. The trend of advising on larger transactions and generating larger fees continues to be a key driver of our results. We completed 57 advisory transactions during the first quarter. Performance was led by the best quarter on record from our energy and power team, with solid contributions from our financial services, consumer, and healthcare groups. In addition, following a record 2023 Both our restructuring and debt advisory groups started this year with strong results. The outlook for M&A has improved as CEO confidence strengthens. We expect our second quarter advisory revenues to be consistent with the first quarter before improving in the second half of 2024, resulting in revenue seasonality similar to last year. Turning to corporate financing. The market for equity underwriting improved considerably during the quarter, driven by a more accommodative backdrop and increased demand from companies looking to raise capital. For context, the economic fee pool was approximately $2 billion during the quarter, almost double the average of the last eight quarters and more in line with normalized levels. The sub-$5 billion market cap fee pool also increased meaningfully and included an outsized contribution from health care. Corporate financing revenues were $53 million during the first quarter, nearly double the prior year quarter, driven by higher average fees and more completed transactions. We completed 35 equity, debt, and preferred financings, raising over $10 billion for corporate clients. Performance was led by our market-leading healthcare franchise, which served as book runner on 19 of the 20 equity deals priced during the quarter. Looking ahead, if this level of market activity is sustained, we expect participation will broaden across sectors. Turning to investment banking managing director headcount. Our approach has not changed, and we continue to target the addition of five to seven MDs annually. We added a net two managing directors during the quarter, finishing with 171 MDs. We remain focused on strengthening sector coverage and expanding our product offerings. and we are well positioned to drive revenue growth as markets continue to normalize. During the last several years, we have grown our market leadership meaningfully, and Piper Sandler is increasingly seen as a destination of choice for talented professionals and teams looking to leverage our full suite of products to better serve their clients and grow their book of business. Our recruiting pipeline is robust, with a number of investment banking managing directors slated to start during the second and third quarters of this year. Over the long term, we remain focused on growing our corporate investment banking revenues by continuing to advance corporate development, scaling industry teams, gaining market share with a focus in technology, increasing our product delivery to private equity clients, and continuing to build out our equity capital markets business with a disciplined focus in each of our industry sectors. With that, I will turn the call over to Deb to discuss our public finance and brokerage businesses.
spk10: Thanks, Chad. I'll begin with an update on our public finance business. While interest rates trended higher during the quarter, the market for higher yielding municipal debt offerings has thawed. Credit spreads have tightened due to increased investor demand, allowing us to execute on a number of specialty transactions. We generated $21 million of municipal financing revenues during the first quarter of 2024, up 23% year over year, driven by our specialty sector business. We underwrote 86 municipal negotiated transactions, raising $4 billion of par value for our clients. Performance during the quarter was driven by our real estate, healthcare, and affordable housing sectors, as well as our state and local government practice in Texas and Washington. As we look ahead, we believe a period of sustained municipal fund inflows and lower nominal interest rates are needed for middle market issuance to increase. Turning to our equity brokerage business, equity markets saw muted volatility during the first quarter as markets ground higher with indices hitting new highs. We generated revenues of $49 million for the first quarter of 2024, down 8% from the first quarter of last year, which benefited from increased volatility. We traded 2.6 billion shares during the quarter on behalf of over 1,200 unique clients as they sought our market-leading research, corporate access, and trading capabilities. We continue to see client research votes increasing as we demonstrate the value of our capabilities and ability to assist clients generate alpha. During the quarter, we hired a senior research analyst in healthcare with coverage focused on biotech companies, a key addition in the build-out of our biotech franchise. With muted volatility, we see near-term results to be relatively consistent with the first quarter while expecting increased volumes and activity in the second half of the year. Lastly, turning to fixed income, we generated revenues of $42 million for the first quarter of 2024, consistent with the year-ago quarter. Client activity is slowly improving but remains fairly muted as market participants wait for more certainty on interest rates. The breadth of our client relationships and product capabilities continues to provide a level of resiliency to our results. Public entity clients were active as they found relative value in the short end of the yield curve, while insurance companies were active due to the higher rate environment. Now I will turn the call over to Kate to review our financial results and provide an update on capital use.
spk09: Thanks, Deb. As a reminder, my comments will address our adjusted non-GAAP financial results which should be considered in addition to and not a substitute for the corresponding GAAP financial measures. Net revenues of $334 million for the first quarter of 2024 increased 15% compared to the year-ago quarter, driven by higher corporate investment banking revenues, primarily equity capital markets. Turning to operating expenses and margins, our compensation ratio was 63.1% for the first quarter of 2024, lower compared to the prior year quarter driven by increased net revenues. Our compensation philosophy remains unchanged. We will continue to exercise solid operating discipline, balancing employee retention, investment opportunities, and near-term margin. Based on our current outlook of improving conditions and recruiting opportunities, we continue to expect our compensation ratio for the full year of 2024 to be near this level. Non-compensation expenses for the first quarter of 2024, excluding reimbursed deal expenses, were $61 million. We continue to focus on managing the actionable non-compensation expenses as they are a key driver of operating leverage. During the first quarter of 2024, we generated operating income of $56 million and an operating margin of 16.8%, highlighting the earnings capacity of our platform. Our income tax rate was 10.7% for the first quarter of 2024. Income tax expense for the first quarter was reduced by $11 million of tax benefits related to restricted stock award vestings. Excluding these benefits, our first quarter tax rate was 29.6%. We continue to expect our full-year tax rate to be within a range of 27% to 29%, excluding the impact from stock vestings. During the first quarter of 2024, we generated net income of $50 million and the diluted EPS of $2.79. Let me finish with an update on capital allocation. Our earnings resilience and capacity, combined with our capital-light approach, enables us to generate meaningful amounts of excess cash to deploy through share repurchases, dividends, and corporate development. We remain committed to returning capital to shareholders through market cycles. During the first quarter of 2024, we returned an aggregate of $88 million to shareholders through buybacks and dividends paid. We repurchased approximately 289,000 shares of our common stock, or $52 million, related to employee tax withholding on the vesting of restricted stock awards. These repurchases more than offset the share count dilution from this year's annual stock grants. We also paid an aggregate of $36 million, or $1.60 per share, to our shareholders through our quarterly and special cash dividends. In addition, the Board approved a quarterly cash dividend of $0.60 per share to be paid on June 7th to shareholders of record as of the close of business on May 24th. Our first quarter results demonstrate the firm's resiliency during the mixed market conditions. and our profitability metrics reflect strong performance relative to our peer set. We remain focused on providing near-term value to our shareholders while continuing to grow our platform, and we're strongly positioned to accelerate earnings growth as markets continue to normalize. With that, we can open up the call for questions.
spk02: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions.
spk08: And we'll take our first question from Devin Ryan with Citizens JMP. Please go ahead.
spk05: Great. Good morning, everyone. How are you?
spk04: Hey, Devin. Hey. First question, just want to hit on kind of the advisory outlook. And, Chad, I heard you comment that private equity clients were more active or drove a bigger contribution in the quarter. And I'd love to get a little more color around that client base and, you know, how, I guess, recent moves in interest rates are affecting kind of the recovery you're seeing there and whether – uh, you know, the, the recovery is coming back, um, at a, at a fast pace, or if you think this is going to play out over, you know, a couple of years, just trying to think about what the current conditions look like and then how you think about kind of a normalization for sponsors, which have really been out of the market for the past couple of years.
spk03: Yeah, I think, I think Devin, we all got to keep in mind that, uh, compared to the first couple quarters of 2023, that was sort of a trough level. And so, you know, our PE, you know, contribution to M&A was definitely better than first quarter of last year. But again, off of a pretty Pretty low comp. So we've definitely seen an improvement for the most part, at least on the middle market deals. If a sponsor wants to do the deal, they can get financing. But it's still not, by any means, a great environment. So I think this build is just a pretty slow build. And then, as we've talked about many times, you know, if we look back many years, our sponsor business just tends to be a little more seasonal in the back half versus the front half. And a lot of that just has to do with a lot of processes kind of starting in the spring, you know, hoping to close in the fall, trying to get, you know, full credit for that year's financials.
spk05: Okay, got it. Really helpful.
spk04: Thanks, Chad. And then, uh, Follow-up here just on the recruiting landscape. You mentioned that a couple times on the call, and 2023 was a little bit of a slower year of recruiting, but you had very active years, maybe more so than some of the peers in the couple years leading into 2023. So is there any way to kind of frame out what you're hoping to accomplish on recruiting in 2024? And then beyond recruiting, how you're thinking about maybe inorganic activities lift out or opportunities to do small M&A. Thanks.
spk03: Yeah, I would say on the investment banking side of recruiting, you know, we actually did about the same amount of hiring in 23. I would say when you hit these, you know, tough periods like 22 and 23, you know, we're a little more careful. You know, there's some... You know, there's, you know, some MDs that, you know, if they're not productive, work off the platform. So, you know, there's a little bit of a netting going on there for us, probably in 23 more than other years, just given the environment. But we do feel pretty good about the recruiting pipeline. You know, we called out that, you know, both in Q2 and Q3, we should have some good announcements. We have a, you know, a good slate of the five to seven kind of MDs that, you know, we usually talk about adding. We have that number sort of lined up ready to go. And then, you know, I would say our outlook, yeah, I think if you look back, you know, 10 years, we've, you know, unless we do a big M&A deal, we've just kind of been averaging that number. And I think, you know, we'll just keep that Steady pace, I would say we're, you know, given relative performance, we're probably seeing more opportunities than we usually do, but we're also being, you know, very careful with the environment to kind of add the right people and really try to add MDs that, you know, boost productivity and boost the average and boost the franchise and quality.
spk05: Okay, terrific.
spk04: Maybe squeeze one more in just on kind of the comp ratio interplay. You heard the commentary from Kate around the 63% level. As we think about a recovery scenario for capital markets, how should we think about it? I know you guys have given ranges before, but just think about the comp leverage that will be inherent in the model and maybe what a more normalized compensation ratio for you guys looks like now as the firm evolves.
spk03: Yeah, I mean, I've sort of given this answer before. I mean, obviously, you know, we've had, you know, not a lot, but years where we've gotten it closer to 60 or 61. You know, we always think about 61 and a half or 62 probably is closer to, you know, in a good environment normalized. I do think, you know, we're being careful this year given some of the hiring opportunities and, you know, even though you know, Q124 was up over Q123. I mean, it was all marginal. So I think, you know, we're still being careful about that comp ratio, which is why we made the comment that, you know, we expect it for this year to stay in and around that level. You know, obviously, if we get some revenue upside, you know, we'll do better than that.
spk05: Yep. Okay. Terrific. I'll get back in the queue. Thanks, guys.
spk02: And we'll take our next question from Steven Chewbacca with Wolf Research. Please go ahead.
spk01: Good morning. This is Brendan O'Brien filling in for Steven. To start, I just want to get an update on the opportunity with your bank clients, given it's now been a little over a year since the SBB and SBNY collapses. I just want to get a sense as to what you're hearing from your bank clients across your different business lines and How has the potential rollback of Basel III Endgame impacted your expectation for the sizing or timing of this opportunity?
spk03: Yeah, what I would say about our depository business, you know, obviously we got pretty diversified across sectors. You know, honestly, Q1 was probably on the lower side for our financial services group and our depository group. And I would actually argue the last couple quarters, the environment for M&A and depositories, it may have even gotten tougher just with the different regulatory agencies looking at things and just looking at the financial results, how the stocks are performing. So I think like we've been saying for the last couple quarters, we expect the depository environment to stay difficult, you know, there's still opportunities within that, you know, when there's some capital raising, you know, some ability to do some, you know, recapitalization on the equity side, you know, some debt financing, and we're still have, you know, a steady stream of smaller deals, but, you know, anything of size, you know, continues to be very difficult.
spk01: Got it. And I guess for my follow-up, I want to move over to, you know, ECM and underwriting. You know, while the biotech ECM market has been dormant for much of the past two years, as you know in your prepared remarks, there's been no pickup in activity year-to-date. However, I just want to get a sense as to whether this result is sustainable in your view, or did 1Q benefit from what is likely significant pent-up demand for capital in this space?
spk03: Yeah, I would honestly say it's probably somewhere in between there. I made some comments just about the total overall fee pool across the street. It was a good quarter for ECM. We definitely had a good quarter. We had some outsized biotech Performance, I would say, you know, we have a really good backlog there. You know, as I think, you know, obviously people can see our deal logic numbers. You know, if I think about April, you know, we're probably still on that same kind of run rate for ECM. But, you know, this isn't a business where we have visibility six months out. You know, it depends on what happens with the equity markets and the mood of investors, you know, that particular week. But, you know, I think based on what we're seeing now and the deals we're doing, we feel pretty good, you know, we feel pretty good about that environment. And I would say we've, you know, we've just started to see, you know, across some of the other industry teams, you know, a little more activity in IPOs, a little more activity in energy. You know, we were on an IPO in financials. So a little bit of discussion around some broadening to some of the industries, but that's going to be very tied to the overall markets. I mean, if we get some big you know, negative correction, you know, that's never good for the mood of new issues.
spk07: That's great, Kelly. Thank you for taking my questions.
spk08: And we'll take the next question from James Yarrow with Goldman Sachs.
spk02: Please go ahead.
spk06: Hey, good morning, and thanks for taking my questions. Chad, these were excellent advisory results, and I think especially strong versus the publicly available data. Maybe you could just help us understand some of the moving parts here. I know you talked about higher fees, but maybe just on the other businesses within advisory, aside from M&A, such as restructuring and then I guess other advisory and perhaps the outlook for these. And then secondly, do you feel more or less comfortable about the cadence of the advisory build versus the beginning of the year when we had five or six rate cuts in expectation?
spk03: Yeah, so... Maybe just a few comments on, you know, Q1 advisory. We had a, you know, one business we're incredibly proud of right now is our energy business. You know, that obviously we did the Simmons deal in 2015 and we've had various cycles, but I would say relative to peers, you know, some people that really cut back in energy, you know, we stayed pretty committed and, you know, we've really broadened that out. Obviously, we've got a lot of history in oil field services, but we're doing a lot in E&P and development. We're doing a lot in our midstream and that business, and frankly, now in energy transition. We've got a great pipeline in energy, but also had pretty balanced, I think, healthcare and financials and industrials. They were all about the same size, so we're just benefiting from that diversification. As far as the cadence, like I said, while the results were good on a peer basis versus last year, still relatively depressed levels, and that's not getting a lot better any time quick. It's getting better and it's improving, but it's a pretty slow slow pace. You know, can I see a noticeable difference in the last few weeks with sort of the different inflection points on rates? You know, probably not, but, you know, it obviously can't be great for the business. So I think our conclusion and based on our pipeline is private equities definitely picked their head up. They're definitely, you know, we're definitely seeing more pitches. We're definitely starting more processes and we'll definitely continue to see an improvement But I think like we've been saying, it'll be a slow improvement.
spk06: Okay, that makes a lot of sense. Maybe just on non-coms, you did demonstrate strong non-coms discipline again this quarter. Maybe just an update on the outlook for non-com costs for the rest of the year.
spk09: Good morning, James. This is Kate. So for non-coms, we kind of reiterate our guidance of that $62 million per quarter, excluding those reimbursed deal expenses. You know, we remain really committed to a lot of discipline in that space and want to ensure we're controlling the expenses that we're able to control. That being said, we've seen a little bit of a pickup in terms of T&E expense, as expected, and there's going to be continued pressure as it pertains to things like data comm services and occupancy. So, again, maintaining that discipline around the areas we can control, consistent guidance with that $62 million a quarter, excluding those deal expenses, and really focused on maintaining that level.
spk07: Okay, really appreciate it. Thank you.
spk08: And as a reminder, it's star one to ask a question.
spk02: We'll take our next question from Michael Grondel with Northland Securities. Please go ahead.
spk00: Hey, thank you. Hey, Chad, when you talked about recruiting and kind of having five to seven banking MDs ready to go for 2Q and 3Q, could five to seven end up proving low? Is that something kind of coming out of your messaging there, that this could be sort of a higher level than that by the time we get to 24?
spk07: Yeah, I mean, the –
spk03: Randy, the reason we sort of said the five to seven is, you know, typically it's sort of 90 to 100 days to onboard. There's garden leave. There's the various sectors. That's sort of the group we have lined up today. Now, you know, we happen to be in sort of the heavy recruiting season. Could it be a couple higher than that? Maybe, but, you know, the chances of adding people the later we get into the year, you know, you know, is less. But I would say, you know, compared to a normal year, particularly on the banking side, yeah, we've done a little bit more than we normally would by this time in May. So, you know, we feel pretty good about where we're going to be with those ads towards the end of the year.
spk00: Got it. Got it. And then on the corporate finance comments, it sounded like you were saying that you know, you had a very robust 53 million in one queue and that April was pretty solid or kind of maintain that level. But the outlook, you know, the visibility isn't that far out, but at least into April, it kind of maintained that level. Did I hear that right?
spk07: Yeah.
spk03: I mean, um, nothing's really changed. Uh, We've got a great pace. We've done a bunch of good deals in April that is on the same run rate as March. If things don't change, we'd feel great about that for the quarter. But this is also a business that you just don't get five months of visibility. And even if you do and you have deals lined up, things change quick. So we definitely feel better about the ECM business and, frankly, our debt situation. financing business. And so pending not a lot of change in the overall market, it'll be a nice up year in ECM. It's just I don't like to make comments on ECM two and three quarters out because things can change pretty fast.
spk07: Sure. Okay. Hey, thanks a lot.
spk02: It appears there are no further questions at this time. I will now turn the conference back to Mr. Chad Abraham for any additional or closing remarks.
spk03: All right. Thank you, operator and everyone that joined. We look forward to updating you on our second quarter results. Have a great day and a good weekend.
spk02: This concludes today's call. Thank you for your participation. You may now disconnect.
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