Piper Sandler Companies

Good morning and welcome to the Piper Sandler Company's third quarter 2025 earnings conference call. Today's call is being recorded and will include remarks by Piper Sandler management followed by a question and answer session. I'll begin by turning the call over to Kate Winslow. Please go ahead.

Thank you, operator. Good morning and thank you for joining the Piper Sandler Company's third quarter 2025 earnings conference call. Hosting the call today are Chairman and CEO Chad Abraham, our President, Deb Shoneman, and CFO, Kate Kloon. Earlier this morning, we issued a press release announcing Piper Sandler's third quarter 2025 financial results, which is available on our website at pipersandler.com slash earnings. Today's discussion of the results is complimentary to the press release. A replay of this call will also be available at that same website later today. Before we begin, let me remind you that remarks made on today's call may contain forward-looking statements 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 reports on file with the SEC, which are available on our website at PiperSandler.com and on the SEC website at SEC.gov. Today's discussion also includes statements regarding certain non-GAAP financial measures that management believes are meaningful when evaluating the company's performance. The non-GAAP measure should be considered in addition to, and not a substitute for, measures of financial performance prepared in accordance with GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in our earnings release issued today. I will now turn the call over to Chad.

Thank you, Kate. Good morning, everyone. Thank you for joining our third quarter 2025 earnings call. The market environment improved significantly in the third quarter. Equity markets reached record highs, and with lower volatility, equity underwriting meaningfully improved. Investor sentiment was helped by a calmer outlook on trade tensions and easing of monetary policy. Against this backdrop, we performed well with quarterly adjusted net revenues of $455 million, a 21.2% operating margin, and adjusted EPS of $3.82, all higher compared to the same period last year. Our strategy, anchored in deep sector expertise, market leadership, and a comprehensive suite of products across the client lifecycle, continues to resonate with clients. We have now achieved eight consecutive quarters of year-over-year growth, underscoring our consistent execution and sustained momentum. This progress is supported by our investments in the business, the diversification of our platform, and an improving market backdrop. During the third quarter, we generated $292 million in corporate investment banking revenues, reflecting significant growth over the prior year, and delivered one of our strongest third quarter performances on record. Our leading financial services and healthcare franchises each generated strong advisory and corporate financing revenues during the quarter. While both franchises have been perennial market leaders, we continue to expand these industry teams with additional subsector capabilities, product expertise, and connectivity with private equity clients. Our healthcare and financial services investment banking groups are among the largest teams in these sectors, led by senior bankers who have long tenures at Piper Sandler, a testament to our commitment to internal development and continuity. Additionally, we continue to advise on some of the most significant transactions in these sectors. We advised on the largest U.S. bank M&A deal that has closed in 2025 and served as book runner for one of the largest biopharma capital raises in the market. As the outlook improves in both healthcare and financial services, We are well positioned to support our clients and deliver strong results for our shareholders. Specific to the advisory component of corporate investment banking, revenues for the quarter were $212 million, up 13% year-over-year as we completed 82 transactions. Sector performance was led by our financial services group, with results bolstered by a resurgence in bank M&A activity. We advised on six of the ten largest bank mergers that closed during the third quarter, and we rank as the top advisor to banks based on the number of announced U.S. M&A transactions this year. We also had strong contributions from our healthcare, consumer, and energy, power, and infrastructure teams during the quarter. In addition, our non-M&A advisory teams continue to drive revenue growth. In recent years, we have made substantial investments in the advisory capabilities, which include debt capital markets advisory, private capital advisory, and restructuring to expand client offerings and increase market share, especially with private equity. Our debt capital markets advisory business is on pace to deliver a third consecutive record year, reflecting higher average fees as well as a broader and more diversified client base. The combination of our industry expertise and deep relationships with a broad range of capital providers enables us to deliver best-in-class outcomes for our clients. Looking ahead, our advisory pipeline is robust and building. The fourth quarter is typically our strongest quarter, and this year is shaping up to be no different. We expect advisory revenues for the fourth quarter of 2025 to be similar to last year's fourth quarter. Turning to corporate financing, markets were strong throughout the quarter and we generated 80 million of revenues, our strongest quarterly results since 2021. We completed 38 financings, raising 14 billion for corporate clients. Increased transaction activity and significantly higher average fees contributed to our strong relative performance. Revenues for the quarter were driven by health care and financial services. Piper Sandler served as book runner on all 13 of the equity deals completed for health care companies, driven by an improved capital raising environment for biotech clients, fueled by M&A activity, promising drug therapies, and lower interest rates. We were also active during the quarter, raising both equity and debt capital for financial services companies. Our performance underscores the strength of our execution capabilities and the earnings potential in a favorable market environment for our core sectors. As we look ahead, our pipeline remains strong and diverse. However, we expect fourth quarter corporate financing revenues to moderate from the particularly strong third quarter. Shifting to Talent. We finished the quarter with 183 investment banking managing directors. Three MDs joined our technology group as we closed the G-squared acquisition, which adds expertise in government services and defense technology. Early in the fourth quarter, we announced the hiring of two MDs focused on enterprise risk and resiliency and artificial intelligence. In total, we have added eight new MDs to our technology group this year. Building out this franchise remains a strategic priority given the sector's fee pool. Overall, our third quarter results were strong and we are pleased with our performance year to date. The combination of improved activity levels, strong execution across business lines, and a constructive market environment positions us well as we head into year end. We are entering the fourth quarter with good momentum. strong client engagement, and meaningful opportunities to gain share. 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. Market conditions remain favorable, with elevated issuance levels which are on track to surpass last year's record. For the third quarter of 2025, we generated $39 million of municipal financing revenues, down from the exceptionally strong second quarter, but up 8% year over year. We underwrote 133 municipal negotiated transactions, raising $6 billion of par value for our clients. Activity was broad-based across geographies, with strong performance from our governmental business in Texas, California, and Iowa, as well as our special districts and healthcare sectors. For the first nine months of 2025, our revenues increased 31% over last year, outpacing the market issuance growth in par value of 12%. With record levels of issuance in the first half of this year, we saw some pull forward of activity, which has impacted the typical seasonality of this business. Our pipeline remains strong, particularly in the specialty sectors, and we expect our fourth quarter revenues to be similar to the third quarter. Turning to our equity brokerage business, we generated $54 million of revenues for the third quarter of 2025, down 7% from the second quarter as volatility moderated from elevated levels in April. Throughout the year, we've seen strength in our derivatives and electronic trading businesses. Our broad product capabilities, combined with the scale we have built over the last few years, have provided resiliency and upside to our performance, and our year-to-date revenues are up 8% compared to 2024. Lastly, turning to fixed income. We generated $56 million of revenues for the third quarter of 2025, consistent with a strong second quarter and up 15% from the year-ago period. Activity was solid across most products and client verticals in anticipation of further rate cuts. We also continued to advise on balance sheet repositioning resulting from bank M&A activity and as depository clients adjust to the changing rate environment. Our broad product capabilities The breadth of our client base and robust distribution allows us to provide both differentiated advice and liquidity across all aspects of the balance sheet, including loans, securities, and derivatives. Now, I will turn the call over to Kate to review our financial results and provide an update on capital use. Thanks, Deb.

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. For the third quarter of 2025, we generated net revenues of $455 million, operating income of $96 million, and an operating margin of 21.2%. Net income totaled $69 million, and diluted EPS was $3.82. For the first nine months of 2025, net revenues totaled $1.2 billion, operating income was $238 million, and our operating margin was 19.2%. We generated 195 million of net income and $10.86 of diluted EPS. Net revenues for the third quarter of 2025 increased 12% from the sequential quarter, driven by robust equity capital markets activity. Net revenue for the quarter grew 29% over the third quarter of last year, driven by strong execution across all of our businesses in more accommodative markets. For the year-to-date period of 2025, Net revenues increased 19% compared to the prior year, reflecting broad-based strength across the firm, turning to expenses. We reported a compensation ratio of 61.7% for the third quarter of 2025 and 62% for the first nine months of the year. Both ratios improved from the comparable periods of 2024, driven by increased net revenues. We continue to exercise strong operating discipline while balancing employee retention and strategic investment opportunities. For the third quarter of 2025, non-compensation expenses, excluding reimbursed deal costs, were $65 million and in line with our guided range. Non-compensation costs for the quarter, excluding reimbursed deal expenses, increased 6% year-over-year, driven by higher occupancy costs associated with relocating our Minneapolis headquarters office. Non-compensation costs for the first nine months of 2025, excluding reimbursed deal expenses, totaled $204 million, an increase of 9% compared to the prior year period. Moving to income tax expense, our income tax rate for the quarter was 28.8%. For the year-to-date period, income tax expense was reduced by $27 million of tax benefits related to the vesting of restricted stock awards, which resulted in an income tax rate of 18.2%. Excluding the $27 million of benefits, our effective tax rate was 29.6%. Now finishing with capital. During the quarter, we returned an aggregate of $16 million to our shareholders, of which the majority related to our quarterly dividend payment. For the first nine months of this year, we returned an aggregate of $204 million to shareholders. This includes repurchases of approximately 362,000 shares, or $105 million, of our common stock primarily related to employee tax withholding on the vesting of restricted stock awards. It also includes an aggregate of $99 million, or $5 per share, paid to shareholders through our quarterly and special cash dividends. Lastly, I am pleased to announce that today, the Board approved a quarterly cash dividend of 70 cents per share. The dividend will be paid on December 12th to shareholders of record as of the close of business on November 25th.

Thank you, Kate. With that, we can now open the call for questions. 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 the signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for a moment to allow everyone the opportunity to signal for questions. We will take our first question from Brendan O'Brien with Wolf Research.

Good morning, and thanks for taking my questions. To start, I just wanted to touch on the bank M&A environment. You know, clearly seeing the benefits of the pickup in activity, and I believe that last quarter was the most active in terms of the number of bank deals announced in the U.S. in some time. I just want to get a sense as to how you'd frame the size of the opportunity that you see over the next few years within this space. And maybe what are some of the key risks that you're mindful of that could derail this momentum over the next couple of years?

Yeah, yeah, thank you. Yeah, no, it's obviously we talked last quarter, you know, started to see the pickup over the summer, June, July, August. Clearly, when you just look at the announced transactions in September and October, that pace has accelerated. uh we do expect that you know accelerated pace um uh to continue you know relative to what the you know size of the opportunity is you know obviously depositories is only uh half our you know fs fsg business and that you know obviously fsg is a uh a percentage of the total so it we do expect a good increased depository business. And it's not just impacting sort of the M&A, but helps with the balance sheet restructurings. And so expect that pace to continue. What could derail that? I would say the biggest thing is just what happens with stock prices. And I would say, even though we're seeing an increased pace, You know, on a lot of the base sort of stock prices, you know, a lot of the depository stocks haven't moved, which, you know, isn't a perfect starting point to do a transaction. Obviously matters less if you're using equity. But I think just kind of what that base valuation is and, you know, what the market has is probably one of the bigger risks to that.

That's helpful, Culler. And I guess for my follow-up, I wanted to touch on margins. You know, you guys have done a really good job managing expenses over the past couple of years and what has been a challenging backdrop. I know you've talked about getting to 20% plus over time, but given you're already running at a 19% margin year-to-date and you have all these tailwinds at your back as we enter into 2026, I just wanted to get a sense as to how you're thinking about the margin potential for the business as things start to normalize or in some cases really, really accelerate from here.

Good morning. Yeah. Thank you for the question.

Go ahead, Kate.

I was going to, I'll start here. You know, Brennan, we typically guide to things that we are quite confident in and very focused on. And similar to the discussion we have around the comp ratio range, We're certainly looking for opportunities for discipline and leverage as the top line continues to improve. So is that 20% a maximum? It certainly isn't. Will we look for opportunities to accelerate that where they present themselves? Of course we will. That was sort of our first target starting point there. And to your point, we're quite pleased with where we've been performing to date. And we'll continue to look for opportunities to enhance that as we move forward.

Great. Thank you for taking my questions.

We will take our next question from James Yarrow with Goldman Sachs.

Good morning, and thanks for taking the question. Chad, you saw a really good corporate financing print this quarter. You talked a little bit about the fourth quarter already, but maybe you could just help us think about the risks to this business from the government shutdown, whether that's temporary, and if you see any more permanent impacts if this persists.

Yes, I've definitely been getting that question a lot, and it's a difficult one. Honestly, what I think about sort of September and October and what happened, we haven't seen a lot of material results to revenues, but I do think the next three or four weeks are going to get more painful on that front. It's a complicated question relative to corporate finance because it sort of depends on what what type of transactions. There are time periods that lapse when you're trying to get reviewed that if you don't, you're fine. There are other situations where if you had done an IPO in the prior year and you're trying to do a follow-on and you're not auto-registered, then you do need to do a review. So I really do believe it's going to start both with financing and M&A starting to impact revenues, you know, if we're still talking about this a few weeks from now.

Okay, really interesting. Just wanted to touch on the tech sector build-out within investment banking. You've seen strong market share gains. You just closed the G-squared acquisition in the space. Help us think through where you are in the build-out of that sector, and what are your aspirations?

Yeah, I mean, I would say, obviously, it's been something we've been talking about for three or four years, and we've made progress along the way. We've also sort of made some changes to the existing group. We've added some new hires. We've done some acquisitions. So I would kind of say we're halfway to where we want to be kind of on the team, but our Our long-term goal is this fee pool and just the backdrop in this sort of evolution should provide an opportunity for us to have as big a business as we have in financials and healthcare. And so, you know, I imagine it'll stay our number one priority the next couple years. So I sort of view it as kind of halfway there. Made good progress, starting to see the results in revenue.

but still a lot of opportunity for growth. Super helpful. Thanks a lot.

We will take our next question from Devin Ryan with Citizens Bank.

Great. Good morning, everyone. How are you? Good, Devin. Thank you.

Good. So we just want to come back to the outlook for M&A Advisory. Great to hear about some of the you know, improving trends there and kind of the expectation for a strong end of the year for revenues. But it'd be great to just take a step back and think about kind of the cadence of activity, what you've been seeing, kind of how things trended through the third quarter, you know, post-Labor Day, kind of everything kicked off or just like how to think about that trend. And then as you think across sectors, like what are outside of depositories, which you talked about in depth, like what are some of the big drivers of that are supporting more activity and, you know, just the kind of impetus for sponsors to really more aggressively reengage in the market.

Thank you. Yeah, thanks, Devin.

Yeah, I would say, you know, for us, it's been a pretty steady build throughout the spring and summer and into the fall. There's no question the last couple of months, especially the Pitch activity and new mandates has increased significantly. Obviously, we already talked about just what's going on in the depository sector and just the volume there increasing pretty rapidly. I would say a couple other things for us. Healthcare is a big sector for us, and I think we've seen You know, we had a pretty tough year in healthcare M&A last year. We're having a much better year this year. And frankly, just the pace of new engagements there has been really good, you know, especially in med tech and in some other areas within healthcare. But I would also say just our areas that touch private equity, I think with some of the results private equity is seeing on some of the uh, transactions, you know, the longer that goes, the more and more people are going to try to get, uh, uh, liquidity to some of the things they've had in the pipeline. And so we're, we're definitely seeing that. And, and, you know, uh, and, and that's pretty broad, you know, certain parts of services, certain parts of commercial and residential services, um, you know, obviously places where tariffs don't matter. We're still, you know, still having a tough time in, uh, Parts of consumer, but for us, things that touch private equity really touches all of our industry groups. And, you know, in those areas, we expect to pick up and not just in M&A. You know, we're having another record year in debt advisory and a big chunk of that business is working with sponsors as well.

Great. I appreciate that color.

And then one for Deb, just trying to think about some of the underlying drivers of the fixed income brokerage business. So first off on the depository side, I guess probably a similar question you guys got earlier on Bank M&A. How should we think about what a normalization for that part of the business looks like as rates come down and just there's more engagement. Like how much is there a way to frame kind of the revenue upside to normalization or at least how you guys think about it? And then also, Deb, if you can just give a little bit more color for what you're seeing with municipal demand and just remind us how we should think about that trending, I guess, to the extent rates lower as well. Thanks.

Yeah, great. Thanks, Devin. On the depository in fixed income, of course, as rates come down and the yield curves deepens, we, I mean, overall see increased client engagement and that includes with depository clients as they then have an ability to reposition their balance sheets. Now, normalization is going to be tricky to figure out exactly what that looks like because the other thing we're seeing pick up are larger revenue events that come from balance sheet restructurings that are specifically tied to an M&A transaction, and that's where we've seen Some of the pickup over the last couple quarters, those tend to be a little bit larger transactions. And so we do expect that to continue. If you think about the commentary that Chad just discussed relative to the bank M&A business, those are very correlated as most often when these bank M&A transactions happen, we are seeing these restructurings happen with them. So I would just say there's a correlation here to these larger restructurings in the M&A business. It's just a little difficult to determine the timing of them and when they'll hit. But we do expect to see positive trends in our fixed income businesses as all these dynamics continue to play out in the marketplace. Specifically to the municipal side, we saw strong fund flows in the beginning of the year. They softened a little in the second quarter, and we saw them coming back. Again, and that's very helpful and healthy for the environment. On the high-yield side, one of the other things we're seeing is just investors having discipline. So even with the strong fund flows are discerning, I would say, in a good way, healthy market for well-structured transactions to come. Relative to rates, which was part of your question earlier, As those rates come down, refundings will pick up. We have seen some of that really modestly start to happen in Q3. As we look out and talk to our clients now, I think many are also choosing to wait and see what happens into next year. So the refinancing activity picking up is likely more of a 2026 phenomenon than a 2025.

Excellent. Thank you. Just as a follow-up, Deb, just on the bank M&A driven kind of balance sheet restructuring, obviously, Chunky, those can be nice fees for you. Is that primarily going to be tied to deals where you're directly advising, or is there an opportunity to get involved when maybe you're not working on the M&A side of the deal, but there's just need for your expertise?

Yeah, great question. It is really both. We have seen some transactions where we have strong relationships where given the approach we take, the team we have that does that work, being very well recognized in the marketplace, we are seeing some of these balance sheet restructurings that we're doing that were not associated with us on the M&A side.

Yeah, but for the record, Devin, but for the record, Devin, we'd love a significant M&A fee and we want to do the restructuring on everything.

Exactly.

As a reminder, if you would like to ask a question, please press star one. We will take our next question from Mike Grondahl with Northland Securities.

Hey, guys. Thanks. Congrats on a nice quarter. Chad, anything else to call out on this good momentum you're seeing entering 4Q?

No, I would just say...

you know, probably the strongest thing we had in Q3 was just our equity financing business. Now, obviously, that was off really low levels the first couple quarters, but that was pretty diverse. You know, we're doing obviously a lot in healthcare, and I would say we're seeing, you know, just more significant healthcare transactions. You know, a few large ones where we have a significant role, you know, that's made an impact. Obviously, that's augmented by financial services and financing, both on the debt and equity side. So financing was strong. I think there were just so many big things in Q3, which is just why we made the comment that, you know, I don't know if we'll get back to those levels in Q4, but still significantly better than where we've been. And then we, you know, we were obviously starting to see IPO activity and deals work, which bodes well for more IPO activity. Again, you know, If we can get those approved and launched, you know, will be another question with the government shutdown. But the backdrop has been pretty good for a pickup in financing, you know, across a lot of our sectors. So I'd call that out in addition to the comments I've already made about M&A.

Perfect, perfect. And, Deb, how are you feeling, maybe not so much for QA, but just kind of 26 in general after two Fed cuts and maybe a little bit more. How are you thinking about fixed income in municipal for 26?

Yeah, I think as I was making the comments, when we see the rates coming down, more importantly, almost really the normalization of the yield curve, that'll be the thing to watch probably most importantly. We're just, you know, you will see increased activity. One of the most important things it feels like that drives that is just more certainty when uncertainty enters, you know, the investors pause a bit. So I think it's a favorable environment from that perspective. Really, again, rate cuts, but more importantly, a normalization of the yield curve.

Got it. Got it. Well, hey, congrats on 3Q and good luck the rest of the way this year.

Thanks, Mike. Thank you.

We will take a follow-up question from James Yarrow with Goldman Sachs.

Thanks for taking the follow-up. Chad, would it be possible for you to just comment on the momentum in your non-M&A advisory business, and maybe if you could just size how much this contributed in the quarter? Sure.

Yeah, we still don't disclose the percentage of sort of non-M&A advisory. We are looking at that as it becomes more and more significant. What I would say is the last three years, the pace of growth has been more significant than M&A. And just as a reminder, there's, you know, There's multiple pieces to that. We obviously talked about the agent and debt business that we do a lot with sponsors. And that's just growing significantly as there's just so many providers of that capital. And I would say we're doing larger and larger deals there. A lot of our deals used to be $50, $100, $150 million there. And now we're seeing opportunities in sort of agent and debt where we're doing $400, $500, $600 million raises, which makes a a big difference. Another piece for us is obviously restructuring. I would say that business is, the longer we get into it, the more and more we're doing with more industry teams. In general, the market backdrop there probably has that as a flatter market, but given that's a small fee pool for us, we still feel like we can And then obviously another big piece for us is we're having success with the private capital advisory and the Avidity team we added closed a recently significant secondary transaction. And so the more wins we get there, the more stories we have with clients. So all of those make up the lion's share of that business. And I would say that business continues to grow faster than M&A.

Thanks for the call, Eric.

There are no further questions at this time. I will turn the conference back to Mr. Abraham for any additional or closing remarks.

All right. Thanks, everyone that joined us this morning. We look forward to updating you on our fourth quarter and full year 2025 results early next year. Have a great day and happy Halloween.

This concludes today's call. Thank you for your participation. You may now disconnect.