Piper Sandler Companies (PIPR) Earnings

Management highlights

• Chad mentioned strong start to the year with adjusted net revenues of $470M, 10th consecutive quarter of y-o-y growth, 20% operating margin, and adjusted EPS of $1. Corporate investment banking had first quarter record revenues of $324M (up 30% y-o-y). Healthcare franchise set new revenue high. Financial services group ranked number one in U.S. bank M&A by deal value. Advisory revenues were first quarter record of $251M (up 16% y-o-y). Ranked 2nd in USM&A for deals under $2B and 3rd under $5B. Debt capital markets and private capital advisory showing positive momentum. • Deb discussed public finance business with $24M municipal financing revenues (down 9% y-o-y), 98 municipal negotiated transactions underwritten, $3B par value raised. Equity brokerage had record revenues of $60M (up 11% y-o-y) due to higher volatility. Fixed income business had $50M revenues (up 6% y-o-y) but impacted by March volatility. • Kate reviewed financial results: net revenues $470M, up 22% y-o-y. Operating income grew 37% y-o-y. Compensation ratio 61.6% (improvement of 90 basis points). Non-compensation expenses $86M (up 15% y-o-y, including $8.5M litigation-related expense). Income tax expense reduced by $7M tax benefits. Returned $171M to shareholders including dividends and share repurchases. Board approved 14% increase in quarterly cash dividend.

Guidance

• Expect second quarter advisory revenues to be similar to first quarter. • Expect second quarter corporate financing revenues to decline from strong first quarter. • Anticipate second quarter public finance revenues to improve modestly from first quarter. • Expect second quarter equity brokerage revenues to decline from record first quarter levels. • Margin expansion remains a strategic priority as they continue to scale the platform.

Segment performance

First quarter adjusted net revenues were $470 million. Corporate investment banking had revenues of $324 million (up 30% y-o-y). Healthcare franchise had strong revenues, with med tech and biopharma teams driving growth, and ranked top advisor in U.S. MedTech M&A by number of announced deals. Financial services group had strong quarter with bank M&A transactions, ranking number one advisor in U.S. bank M&A by deal value. Advisory revenues were a first quarter record of $251 million (up 16% y-o-y), ranked 2nd in USM&A for deals under $2B and 3rd under $5B. Debt capital markets advisory had strong start. Private capital advisory group showing positive momentum. Public finance business had $24M municipal financing revenues (down 9% y-o-y). Equity brokerage had record first quarter revenues of $60M (up 11% y-o-y) due to higher volatility. Fixed income business had $50M revenues (up 6% y-o-y) but impacted by March volatility.

Risks & headwinds

• Near-term macroeconomic environment remains uncertain. • Volatility in fixed income business negatively impacted regular-weight client activity in March. • Uncertainty regarding the timing of transactions influenced by market conditions. • Impact of litigation-related expense ($8.5M) in the quarter. • Potential impact of geopolitical events on trading volumes and fixed income business. • Slow start to second quarter fixed income business due to ongoing geopolitical developments keeping clients on the sidelines.

Analyst Q&A

• Q: Update on bank M&A activity and rate vol impact on hedging business.

  A: Announced Bank M&A a little slower than anticipated, but decent volume on smaller transactions. Derivatives desk busy with hedging conversations but volatility makes it challenging to determine positioning.

• Q: Equity capital markets activity sustainability, especially healthcare.

  A: Good quarter for market and Piper Sandler, but first quarter market share not sustainable, but market remains open and biotech market trades differently.

• Q: Advisory outlook, sectors with slowdown, backlog visibility.

  A: Advisory fees expected to be down sequentially. Impact varies by sector, with banks and sponsor activity having some impact, but no real panic, market fine but not accelerating.

• Q: Software M&A outlook amidst AI disruption.

  A: Technology is an area of investment, impacted relatively less historically, but slower, cautious outlook due to valuations and AI shifts.

• Q: Non-M&A contribution and outlook.

  A: Non-M&A had good Q1 with debt capital markets advisory being a bright spot, private capital advisory showing progress across industry teams.

• Q: Fixed income revenues, moving parts.

  A: Resilient due to balance sheet restructuring trades with bank closings, but 2Q started slowly due to volatility and geopolitical environment.

• Q: Comp ratio outlook.

  A: Now consistently at low end of guided range (61.5-62.5), pleased with progress, but comp model variable, balance between leverage and additive investment opportunities.

• Q: Advisory pipeline winter to spring activity.

  A: Q1 always challenge, strong Q4 impacted Q1 pace, commentary on similar Q2 advisory due to Q1 and Q4 combination.

• Q: What markets need to see for upward slope.

  A: Difficult to pinpoint, but stability in various segments like energy, stock prices, and sponsor certainty of close needed.