Piper Sandler Companies

Please stand by. Good morning and welcome to the Piper Sandler Companies second quarter 2026 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 Companies Second Quarter 2026 Earnings Conference Call. Hosting the call today are Chairman and CEO Chad Abraham, our President Deb Schoneman, and CFO Kate Clune. Earlier this morning, we issued a press release announcing Piper Sandler's second quarter 2026 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 Thank you for joining us. The non-GAAP measures 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 us. We posted second quarter adjusted net revenues of $491 million, a 21.8% operating margin, and adjusted EPS of $1.04, all up significantly compared to the prior year. This marks our 11th consecutive quarter of year-over-year revenue growth, a testament to the durability of our model. Corporate investment banking revenues were $312 million for the quarter, Up 31% year-over-year, driven by robust advisory activity. Financial services and healthcare remain our two largest franchises, and both delivered impressive quarterly results. During the first half of 2026, corporate investment banking revenues totaled $636 million, a 30% increase over last year, and our strongest first-half performance on record. Our growth was broad-based, with nearly all of our sectors and products contributing. This momentum validates our strategy of combining deep sector expertise with a broad suite of products to serve our clients throughout their life cycles and through a wide range of market conditions. Advisory services achieved record second quarter revenues of $274 million, up 34% over last year. Marking our sixth consecutive quarter of year-over-year growth. We completed 83 advisory transactions, a 17% increase in volume, and earned more, larger fees. Performance was led by financial services with meaningful contributions from healthcare and services and industrialists. Within financial services, our depository practice remains a market leader. While large-scale M&A activity continued to be lacking, middle market volume improved. We ranked as the number one advisor in U.S. bank M&A by both announced transaction counts and deal value in the first half, reinforcing our position as the go-to partner for bank clients across the size spectrum. Our insurance and asset management franchises also contributed to our success, Investments in these franchises over the past several years, combined with increased alignment with our broader private equity relationships, have driven meaningful growth. We are also experiencing positive momentum within our private capital advisory group, which recorded their best quarter on our platform, driven by the secondary business. By leveraging our sponsor relationships and sector expertise, we are well positioned to capture share in this high growth space. Our market-leading position, deep sector coverage, and extensive portfolio of solutions drove first-half advisory revenues of $525 million, up 25% over last year. In addition to financial services, our healthcare group contributed strong results, led by our MedTech team, which advised on several of the largest deals announced in the sector. Thank you for joining us. Advisory revenues from private equity clients 10% year-over-year, outperforming the broader U.S. private equity market. This resilience highlights the value of our coverage model. As we continue to prioritize our private equity partners, we recently transitioned two senior leaders from our services and industrial group to serve alongside our existing head of financial sponsors, where they will focus on our private equity advisory efforts. Debt Capital Markets Advisory, Continuation Vehicles, and IPOs. Thank you for watching. We completed 28 financings, raising $13 billion for corporate finance, primarily in the healthcare space. While corporate financing activities and our revenues fluctuate based on client and sector-specific dynamics, as well as macroeconomic data, our first-half performance reflects a strong underlying trend. Revenues of $111 million are up 65% year-over-year, driven by a 33% increase in book-run transactions and higher average fees. Shifting to talent, we finished the quarter with 193 investment banking managing directors, 6% increase year-over-year. Since the beginning of 2026, we have added 12 new MDs for promotion and hiring. We remain focused on productivity by collectively adding top producers to offset retirement and the departure of less productive bankers in order to align the platform for long-term success. With that, I will turn the call over to Deb to discuss our public finance and brokerage business.

Our performance for the first half of 2026 was strong on a relative and absolute basis. Municipal financing revenues increased 7% over last year, outpacing the 4% par value growth in the municipal tier 2 department. As we look ahead, as measured by notional volume. During the first half of 2016, equity brokers revenues over $123 million, a 10% increase over the prior year and many, many more. With advisory revenues increasing 25% year-over-year, accounting for 55% of total net revenue, the corporate financing revenues spread to 65%.

In addition, our municipal financing and equity brokerage businesses reached new revenue highs for the half-year period.

Our strategy of sustaining revenue growth while yielding best-in-class profitability continues to play out. Operating income for the first half grew 42% over 2025, outpacing our 22% revenue growth and illustrating the inherent scalability of our model, turning to expenses. We continue to exercise operating discipline. Our compensation ratio of 61.5 for both the second quarter and the first half of 2026 improved year over year, reflecting our commitment to balancing employee retention with strategic investment. Non-compensation expenses for the second quarter of 2020 were $82 million, or 16.7% of net revenue. For the first half, non-compensation expenses totaled $168 million, up 8% year-over-year, primarily due to litigation-related expense taken during the first quarter. Non-compensation costs represented 17.5% of net revenue, a 230 basis point improvement from the first half of last year. Our effective tax rate was 30.5% for the quarter and 27.1% for the first half of this year. Year-to-date tax expense was reduced by $7 million of benefits related to the vesting of restricted stock awards. Excluding these benefits, our effective tax rate for the first half was 30.7%. Now, finishing with capital. During the second quarter, we repurchased approximately 391,000 shares of our common stock for $31 million and paid an aggregate of $14 million to our shareholders through our quarterly cash dividends. In the first half of this year, we returned an aggregate of $215 million to shareholders. This includes $115 million in cash dividends for $1.60.5 per share. Thank you for joining us. We anticipate third quarter net revenues will be in line with the third quarter of 2025. We enter the remainder of this year with a healthy pipeline and active client engagement. With our differentiated platform and proven ability to execute, we are well positioned to drive continued long-term growth and value for our shareholders. With that, we can open up the call for questions.

Thank you. If you are dialed in via the telephone and 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. We'll go first to Devin Ryan with Citizens Bank.

Hey, this is Noah Katz on for Kevin. Thanks for taking my questions. So to start, I think maybe we should focus a little bit on the middle market more broadly. Advisory results are strong this quarter, but the middle market still appears to be developing gradually. Are you seeing a more meaningful shift in dialogue and pitching? Does the current level of activity give you confidence that the middle market M&A can Thank you.

Yeah, obviously we've seen sort of results all over the place from the peers, so I do think it matters and depends on kind of... Thank you for joining us. Thank you for watching.

Those rates have been a little lower than in the past, so we'll have to see.

That's great. Thanks for answering my question. And then switching gears a little bit, Sophie, focusing specifically on fixed income, if short-term rates were to move higher from here, how much is that changing activity levels? And how would you think about the potential impact across fixed income brokerage and then the municipal underwriting business?

Yeah, so I would say one of the things that is very close to the positive story, which is about half of our fixed income business is very focused on that client set. And the fed funds to five years finally got into the positive territory, which is good for banks. So if we see that turn around again, that's going to put some pressure on that segment of our client base for sure. I would say... When you think about the municipal business, which is another part of your question, and how rates ultimately impact that, of course, that we're looking out at longer-term rates, right? Think about all the way up to 30 years. So that's going to have less of an impact there. Really, what does that do to overall investment? Where do rates go 10 years out to 30 years? That's going to have a bigger impact on the municipal financing business. So I don't know if I've answered all your questions there. I just have a follow-up.

We'll go next to James Yarrow with Goldman Sachs.

Thank you for the first half. In total, it's pretty good. It's really hard to benchmark on the quarter.

We happen to have a high single-digit biotech fee come into a quarter, out of a quarter. It can impact those numbers. I do think we feel pretty good about the back half because the lion's share of our The lion's share of our ECM business is biotech, healthcare related. I think that backlog's good. Where those indices and stocks is trading is good. Obviously, if we had a second half like we had first half, it would be in total a pretty good ECM year. Some of the other spaces were a little undervalued.

It really helps us to sort of have a pretty diverse society. Thank you for joining us.

Thank you for watching.

It's very helpful.

Thank you both. We'll go next to Mike Grondahl with Northland Securities.

Hey guys, this is Luke Dunn for Mike. Congrats on the quarter. Just wanted to touch on advice for revenues. If you were to complete a stamp action during the quarter, I was wondering how much of that would average in the construction role. Yeah, I think relative to some of my comments from other sectors, still being a little tougher in the middle market, probably just being taxed at total volume. And I would say, I don't think we think we're going to see the same total deal volume up next. We saw it last year, and it's clearly in the back end. But our mix of larger pieces actually I do think that there's going to be a little more of a design story than just volume. Okay, got it. And then on the musical, you've got a nice uptick, especially, I guess, how much of that was timing or cold floors or maybe some last order versus genuine?

I would say there was hope. Normally we would see it go We'll go next to Stephen Chubach with Wolf Research.

Hi, this is Annie on for Steven. I just had a quick question on the Outlooks Advisory. So in prior years, you've seen meaningful growth in the back half of the year relative to the first half, and given momentum in the business, so a more challenging backdrop for sponsor activity, and basically, do you think it's paired on the right with a similar ramp in the back half of 2016, similar to prior years?

Yeah, I think, I mean, I Obviously for us, our back half last year was really, really strong. And so the comps get much tougher. So no, we do not think the growth rate on the back half is going to be the same as on the front half. I would say, as I just said, some of that's going to depend on this big list of larger fee transactions closing in Q4. We have had some good depository announcements, which we'll Close in the back half. So we still feel really good about our growth for the year, but this is a hard business to look always at just quarter over quarter growth.

Okay, great. Thanks so much for taking my question.

And once again, to ask a question on today's call, that is star one on your telephone keypad. We'll go next to Gabriel Angelli with Think America.

Maybe to just ask on the non-compensation costs in a slightly different way, honestly, the $236,000 interview that was in the first half is encouraging, but I think some of your peers have highlighted maybe accelerated investments and growth there just because of the generational shift that we're going through in terms of technology with AI. So maybe you can talk to us about how you're thinking about switching that up there and whether you've thought about maybe taking the interest route or the backdrop to explore it in the future.

Thank you for the question. Yeah, and something obviously we're focused on, we have started that spent and investment. I think the firm has done a really nice job of prioritizing the way we're thinking about that, rolling things out in batches rather than wholesale, and then doing some auditing in terms of how we're using the tooling in the most efficient way to deploy it from there. So I think we're starting to see the impact from that investment, but I think we're

Several money center banks have announced a renewed focus on middle market banking and advisory. Maybe you can just give us a mark to market on how you're thinking about the competitive backdrop there and whether the reentry of some of these larger banks would change your view on the competitive environment. Thank you.

Yeah, I mean, this answer might sound a little sarcastic, but I've been doing this 35 years and this is probably the Thanks for watching. and many more.

All right, thank you, operator, and thanks to everyone that joined us this morning.

We look forward to updating you on our third quarter results. Have a great day. This concludes today's call. Thank you for your participation. You may now disconnect.