Piper Sandler Companies (NYSE:PIPR) Q4 2023 Earnings Call Transcript

Piper Sandler Companies (NYSE:PIPR) Q4 2023 Earnings Call Transcript February 2, 2024

Piper Sandler Companies isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the Piper Sandler Companies conference call to discuss the financial results for the Fourth Quarter and Full Year 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 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 pipersandler.com and on the SEC website at 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 on 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.

Chad Abraham: Good morning, everyone, and thanks for joining us today to talk about our fourth quarter and full year results for 2023. I am here with Deb Schoneman, our President; and Kate Clune, our newly appointed CFO. I’d like to welcome Kate to her first of many earnings calls. She is an excellent addition to Piper Sandler and our leadership team. Kate has an impressive skill set, and we look forward to leveraging that to help drive the firm’s next stage of growth. We also have Tim Carter with us today, our former CFO, who is serving as Senior Vice President of Finance through the transition before retiring in April. I’d like to thank Tim for his leadership. He has been an incredible partner to me and instrumental in helping guide us through our growth over the years, including several transformative acquisitions.

Tim Carter: Thanks, Chad. I feel incredibly fortunate to have spent over 28 years at Piper Sandler, and I’m really proud of everything we’ve accomplished. The firm is well positioned, and I’m excited to have Kate in the CFO seat to guide us through the next stage of growth. It’s been an absolute honor to work side-by-side with so many fantastic people at Piper Sandler, which is what I’ll miss most.

Chad Abraham: Thanks, Tim. Now turning to our results. Our diversified platform performed well during 2023 despite challenging market conditions for much of the year. We finished the year strong with the fourth quarter representing our best quarter of 2023 as well as our third highest quarterly revenues on record. We generated adjusted net revenues of $457 million, a 21.7% operating margin and adjusted EPS of $4.03. On a full year basis, adjusted net revenues were $1.3 billion, generating a 16% operating margin and adjusted EPS of $9.28. There are a number of highlights worth noting from 2023. Advisory services revenues represented over half of our total net revenues for the third consecutive year. The business delivered its second strongest quarter on record and accounted for 60% of total net revenues for the fourth quarter.

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Q&A Session

We grew market share in our advisory, equity capital markets and equities brokerage businesses. We generated record revenues in our restructuring practice and in our agent and debt business, demonstrating the strength of differentiated product offerings for clients. And we repaid $125 million of senior notes upon maturity, which completes the repayment of our long-term debt financing procured for the acquisition of Sandler O’Neill. Overall, 2023 marks another successful year as we continue to grow market share and maintain strong operating discipline, to generate $166 million of adjusted net income, demonstrating how durable our diverse platform is in a challenging market environment. Now, I’ll provide an update on our corporate investment banking business.

We generated revenues of $314 million for the fourth quarter of 2023. A significant increase on a sequential basis as well as an increase from the fourth quarter of last year, driven by the strong performance of our advisory business. For the year, corporate investment banking revenues of $840 million declined 7% from 2022 but delivered a strong performance relative to the overall market. Contributions were relatively diverse across sectors, led by our market-leading health care and financial services franchises followed by another strong year from the energy and power team and record results from our restructuring group. Our performance within health care was powered by med tech advisory and increasing market share in biopharma equity capital raising.

Health care remains a large and growing fee pool and with one of the largest and most respected teams in the marketplace, we’re well positioned to benefit from this growth. Our performance within financial services was led by depositories where we were the number 1 adviser in U.S. bank M&A based on number of announced transactions and aggregate deal value and we advised on seven of the largest 10 bank mergers and acquisitions completed during 2023. Additionally, we saw increased contributions from our insurance team. We had another record year in this vertical as the team leveraged our robust financial sponsor coverage to win larger mandates. Contributions from our asset and wealth management team continue to grow as well. Another sector with strong performance in 2023 was our energy and power group.

We retained our leadership in oilfield services where we were one of the top advisers based on the number of completed deals. With one of the largest and most tenured teams in the Street, we continue to feel great about our market position. Specific to advisory services, we generated $284 million of revenues during the fourth quarter, nearly double the sequential quarter and up year-over-year. We benefited from a higher average fee and more completed transactions as we experienced an elevated close rate during the quarter. For the year, we generated $709 million of advisory revenues, which were more resilient than the overall market. Our revenues declined 9% from 2022 while M&A market activity was down approximately 20% to 30%. We maintained our rank as the number 2 adviser on announced U.S. M&A deals under $1 billion.

The sector and product diversification of our business, along with balanced coverage between strategic and private equity clients drove our strong performance for the year. Private equity activity in the market was down sharply in 2023. However, our advisory revenues from PE clients grew in 2023 highlighting the scale of our PE business and the increased relevance of our platform to a broader universe of financial sponsors. A key contributor to our strong performance with PE clients was our debt advisory business. Our debt advisory team excels at finding creative and tailored financing solutions to help clients navigate a challenging leverage finance landscape. Another success was record revenues from our restructuring team including advising the FDIC on the sale of substantially all of the deposits and loans of both Silicon Valley Bank and Signature Bank in March of 2023.

In addition to partnering with our financial services franchise, the team completed a number of restructuring deals in collaboration with our health care, energy and power and consumer groups. Looking forward, our advisory pipelines remain strong. With improving market conditions, we expect the first quarter of 2024 to be modestly better year-over-year. Given the elevated close rate in the fourth quarter of 2023, we anticipate a similar seasonality in our 2024 advisory revenues to what we experienced last year. Turning to corporate financing. We generated revenues of $30 million for the fourth quarter of 2023, down sequentially and year-over-year. For the year, corporate financing revenues of $131 million improved from 2022. Equity financing revenues increased 28%, which was offset in part by a decline in debt financing activity for financial services companies.

We completed 88 equity and debt financings, raising $20 billion in capital for corporate clients. Equity issuance has remained depressed after robust activity in 2021. The equity capital markets fee pool for 2023 represented approximately 51% of the average over the last 10 years. Our relative performance in equity capital raising for 2023 was strong with fees from sub-$5 billion market cap companies increasing 46% over the last year versus a 17% increase in the market fee pool. Health care again led our equity issuance activity, serving as a book-runner on 45 of the 46 deals priced this year. Additionally, we ranked as a top 5 investment bank based on the number of book-run deals for sub-$5 billion market cap companies within the biopharma space.