Piper Sandler(US:PIPR)2022-05-05 16:00PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for Piper Sandler Companies for Q1 2022, encompassing key financial statements and detailed notes Consolidated Statements of Financial Condition The company's total assets decreased to $1.88 billion as of March 31, 2022, from $2.57 billion at year-end 2021, primarily driven by a significant reduction in cash and cash equivalents and accrued compensation, while total shareholders' equity saw a slight decrease to $1.16 billion from $1.23 billion over the same period Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $247,039 | $970,965 | | Total financial instruments owned | $459,813 | $348,974 | | Goodwill | $237,426 | $227,508 | | Total assets | $1,882,454 | $2,565,307 | | Liabilities & Equity | | | | Accrued compensation | $220,832 | $900,079 | | Total liabilities | $726,091 | $1,338,452 | | Total shareholders' equity | $1,156,363 | $1,226,855 | | Total liabilities and shareholders' equity | $1,882,454 | $2,565,307 | Consolidated Statements of Operations For the three months ended March 31, 2022, the company reported net revenues of $350.6 million, a decrease from $428.6 million in the prior-year period, with net income applicable to Piper Sandler Companies falling to $36.7 million, or $2.12 per diluted share, compared to $49.5 million, or $3.00 per diluted share, in Q1 2021, primarily due to lower investment banking revenues and an investment loss Q1 2022 vs Q1 2021 Performance (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Investment banking revenues | $257,502 | $296,074 | | Institutional brokerage revenues | $104,562 | $109,488 | | Investment income/(loss) | ($13,074) | $23,768 | | Net revenues | $350,645 | $428,607 | | Compensation and benefits | $247,899 | $280,328 | | Net income applicable to Piper Sandler | $36,651 | $49,459 | | Diluted EPS | $2.12 | $3.00 | Consolidated Statements of Cash Flows Net cash used in operating activities was $484.2 million for the first three months of 2022, a significant increase from $263.6 million in the prior-year period, largely due to a decrease in accrued compensation, while net cash used in financing activities also increased to $208.8 million, driven by higher share repurchases and dividend payments, resulting in a net decrease in cash and cash equivalents of $723.9 million Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($484,242) | ($263,576) | | Net cash used in investing activities | ($29,691) | ($9,259) | | Net cash used in financing activities | ($208,765) | ($83,550) | | Net decrease in cash and cash equivalents | ($723,926) | ($356,125) | Notes to the Consolidated Financial Statements This section details the company's accounting policies and financial results, covering acquisitions, fair value measurements, goodwill, equity activities, compensation, and segment revenues - On February 4, 2022, the company completed the acquisition of Cornerstone Macro Research LP for a purchase price of $34.0 million, resulting in $9.9 million of goodwill and $18.6 million of intangible assets293033 - On January 5, 2022, the company announced a definitive agreement to acquire Stamford Partners LLP, a specialist investment bank in the European food and beverage sector, with the transaction expected to close in Q2 202239 - The company's board authorized a new $150.0 million share repurchase program effective May 6, 2022, and during Q1 2022, the company repurchased 653,029 shares for $92.9 million under a separate authorization113114 - In Q1 2022, the company paid a quarterly dividend of $0.60 per share and a special cash dividend of $4.50 per share, totaling $81.4 million119 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2022 financial performance, including decreased revenues and net income, macroeconomic impacts, strategic acquisitions, detailed operational results, liquidity, capital resources, and risk management Q1 2022 Financial Highlights (U.S. GAAP) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net revenues | $350,645 | $428,607 | | Net income applicable to Piper Sandler | $36,651 | $49,459 | | Earnings per diluted common share | $2.12 | $3.00 | | Pre-tax margin | 10.2% | 19.3% | - Management expects moderate U.S. economic growth for the remainder of 2022 but notes increased uncertainty from geopolitical risks, inflation, and rising interest rates, with equity capital raising activity substantially halted in Q1 2022, a dynamic that may persist174176 - The advisory services pipeline is described as robust, and the business is positioned for a strong 2022 if market conditions remain supportive, with the acquisition of Cornerstone Macro expected to drive cross-selling opportunities and market share gains in equity brokerage177178 Results of Operations Net revenues for Q1 2022 decreased 18.2% year-over-year to $350.6 million, with investment banking revenues falling 13.0% due to a sharp decline in corporate financing despite a 38.0% increase in advisory services revenues, and institutional brokerage revenues decreasing 4.5% as lower fixed income results offset higher equity brokerage revenues boosted by the Cornerstone Macro acquisition, while non-interest expenses decreased 8.9% primarily due to lower compensation tied to reduced revenues Revenue Breakdown (in thousands) | Revenue Source | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Investment Banking | $257,502 | $296,074 | | Advisory services | $210,899 | $152,849 | | Corporate financing | $19,186 | $116,136 | | Municipal financing | $27,417 | $27,089 | | Institutional Brokerage | $104,562 | $109,488 | | Equity brokerage | $49,805 | $43,234 | | Fixed income services | $54,757 | $66,254 | - Corporate financing revenues dropped 83.5% as the market for equity capital raising was largely shut due to market volatility and a cautious investor outlook206 - Marketing and business development expenses increased significantly to $8.6 million from $2.1 million in the prior-year period, driven by higher travel and entertainment costs as COVID-19 restrictions eased190 Liquidity, Funding and Capital Resources The company maintains a robust liquidity strategy, with the majority of assets being readily convertible to cash, key funding sources including clearing arrangements with Pershing and CIBC, a $100 million committed credit line, and a $65 million revolving credit facility, while long-term financing consists of $125 million in senior notes due 2023, and the adjusted leverage ratio decreased to 2.0x from 2.8x at year-end 2021, with the company's broker-dealer subsidiary, Piper Sandler & Co., maintaining net capital of $338.2 million, significantly exceeding the $1.0 million regulatory minimum Leverage Ratios | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total assets (in thousands) | $1,882,454 | $2,565,307 | | Total shareholders' equity (in thousands) | $1,156,363 | $1,226,855 | | Leverage ratio | 1.6x | 2.1x | | Adjusted leverage ratio | 2.0x | 2.8x | - At March 31, 2022, the company's net capital was $338.2 million, exceeding the minimum SEC requirement by $337.2 million237 - The company has off-balance sheet investment commitments of $78.7 million with no specified call dates243246 Risk Management The company employs a formal risk management process to identify, assess, and monitor strategic, market, liquidity, credit, operational, human capital, and legal/regulatory risks, with oversight provided by the board of directors and internal committees, and market risk managed through limits and hedging, with an estimated $0.6 million decrease in fixed income inventory value from a 50 basis point adverse rate change, while credit risk is monitored daily, with the majority of the fixed income portfolio rated AA or A, and operational risk mitigated through internal controls, segregation of duties, and business continuity plans - A parallel 50 basis point adverse change in interest rates would result in an estimated decrease of approximately $0.6 million in the carrying value of the company's fixed income securities inventory as of March 31, 2022258 Credit Rating of Long Fixed Income Portfolio (as of March 31, 2022) | Rating | % of Total | | :--- | :--- | | AAA | 10.1% | | AA | 67.6% | | A | 17.0% | | BBB | 0.4% | | BB | 0.6% | | Not Rated | 4.3% | - The company has concentrated counterparty credit exposure with four non-publicly rated entities totaling $18.8 million, with one counterparty representing $12.5 million of this exposure273 Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the information provided under the "Risk Management" section within Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - The report refers to the 'Risk Management' section in the MD&A for disclosures about market risk282 Controls and Procedures The company's principal executive officer and principal financial officer concluded that as of the end of the period, the company's disclosure controls and procedures were effective, and there were no material changes in the company's internal control over financial reporting during the first quarter of 2022 - Management concluded that disclosure controls and procedures are effective as of the end of the reporting period283 - No material changes to internal control over financial reporting occurred during the first quarter of 2022284 PART II. OTHER INFORMATION Legal Proceedings This section incorporates by reference the discussion of legal proceedings from the company's Annual Report on Form 10-K for the year ended December 31, 2021 - Information regarding legal proceedings is incorporated by reference from the company's 2021 Form 10-K285 Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021 - There have been no material changes to the risk factors disclosed in the company's 2021 Form 10-K287 Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended March 31, 2022, the company repurchased a total of 789,469 shares of its common stock at an average price of $144.24 per share, including 653,029 shares purchased under its publicly announced repurchase program Q1 2022 Share Repurchase Activity | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | Jan 2022 | 82,639 | $149.92 | 71,396 | | Feb 2022 | 436,814 | $150.44 | 311,666 | | Mar 2022 | 270,016 | $132.47 | 269,967 | | Total | 789,469 | $144.24 | 653,029 | - As of March 31, 2022, $57 million remained available for repurchase under the plan authorized effective January 1, 2022, and a new $150 million authorization was approved effective May 6, 2022289 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and financial data formatted in iXBRL