Piper Sandler(PIPR) - 2024 Q1 - Quarterly Results

Executive Summary & Q1 2024 Highlights Piper Sandler Companies reported a solid start to 2024 with net revenues exceeding $330 million, with adjusted revenues up 15% YoY, and returned $88 million to shareholders Q1 2024 Financial Overview Piper Sandler reported Q1 2024 net revenues over $330 million, with adjusted revenues up 15% YoY, and returned $88 million to shareholders - Net revenues for Q1 2024 were over $330 million, representing a solid start to the year, with improvement noted in advisory and equity capital markets despite persistent market headwinds[2] - The company returned $88 million of capital to shareholders during the quarter through share repurchases and dividends[2] Q1 2024 Key Financial Metrics (U.S. GAAP & Adjusted) | Metric (Dollars in millions, except per share data) | Q1 2024 (U.S. GAAP) | vs. Q4-23 | vs. Q1-23 | Q1 2024 (Adjusted) | vs. Q4-23 | vs. Q1-23 | | :------------------------------------------------- | :------------------ | :-------- | :-------- | :----------------- | :-------- | :-------- | | Net revenues | $343 | -27 % | 15 % | $334 | -27 % | 15 % | | Pre-tax margin | 15.3 % | -2.9pp | 6.6pp | 16.8 % | -4.9pp | 2.7pp | | Net income attributable to Piper Sandler Companies | $42 | -18 % | 66 % | $50 | -31 % | 18 % | | Earnings per diluted common share | $2.43 | -19 % | 63 % | $2.79 | -31 % | 19 % | Business & Talent Highlights The company saw strong performance in corporate investment banking, particularly in advisory services led by the energy & power team, and corporate financing which had its best quarter since 2021 - Advisory services revenues were diversified across most sector and product groups, with a record quarter from the energy & power team[5] - Corporate financing activity was strong, generating $53 million in revenues, marking the best quarter since 2021[5] - Key senior hires included Brian White as co-head of technology investment banking, Paul Robinson as head of equity-linked capital markets, Rich Steiner as head of global market structure and algorithmic trading strategies, Biren Amin as senior research analyst for healthcare equity research, and Ryan Hallam as co-head of high-yield trading[5] Capital Allocation Highlights Piper Sandler declared a quarterly cash dividend of $0.60 per share and returned $88 million to shareholders through dividends and share repurchases - Declared a quarterly cash dividend of $0.60 per share of common stock on April 26, 2024, payable on June 7, 2024[5] - Returned an aggregate of $88 million to shareholders during the quarter through share repurchases and dividends[5] - Repurchased approximately 289,000 shares, or $52 million, of common stock related to employee tax withholdings on the vesting of restricted stock awards[5] U.S. GAAP Financial Results This section details Piper Sandler's Q1 2024 U.S. GAAP financial performance, covering net revenues, expenses, and profitability metrics Net Revenues For Q1 2024, U.S. GAAP net revenues were $343.1 million, a 27% decrease QoQ but a 15% increase YoY, primarily driven by a 25% YoY increase in investment banking revenues Net Revenues (U.S. GAAP) | Metric (Dollars in thousands) | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | Change vs. Q4-23 | Change vs. Q1-23 | | :---------------------------- | :------------ | :------------ | :------------ | :--------------- | :--------------- | | Net revenues | $343,056 | $471,851 | $297,905 | -27 % | 15 % | - Net revenues decreased 27% compared to Q4 2023 and increased 15% compared to Q1 2023[10] Investment Banking Revenues Investment banking revenues reached $230.5 million in Q1 2024, up 25% YoY, driven by strong corporate financing and advisory services, despite a QoQ decline Investment Banking Revenues (U.S. GAAP) | Category (Dollars in thousands) | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | Change vs. Q4-23 | Change vs. Q1-23 | | :------------------------------ | :------------ | :------------ | :------------ | :--------------- | :--------------- | | Advisory services | $157,189 | $284,317 | $140,664 | -45 % | 12 % | | Corporate financing | $52,581 | $30,178 | $26,805 | 74 % | 96 % | | Municipal financing | $20,753 | $29,280 | $16,935 | -29 % | 23 % | | Total investment banking | $230,523 | $343,775 | $184,404 | -33 % | 25 % | - Advisory services revenues increased 12% YoY driven by a higher average fee, despite fewer completed transactions[11] - Corporate financing revenues increased 96% YoY and 74% QoQ, driven by more completed deals and an improved equity financing market, particularly for biopharma companies[11] Institutional Brokerage Revenues Institutional brokerage revenues were $91.4 million in Q1 2024, decreasing 11% QoQ and 5% YoY, with equity brokerage declining and fixed income services remaining flat Institutional Brokerage Revenues (U.S. GAAP) | Category (Dollars in thousands) | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | Change vs. Q4-23 | Change vs. Q1-23 | | :------------------------------ | :------------ | :------------ | :------------ | :--------------- | :--------------- | | Equity brokerage | $49,488 | $55,003 | $53,831 | -10 % | -8 % | | Fixed income services | $41,954 | $47,892 | $42,482 | -12 % | -1 % | | Total institutional brokerage | $91,442 | $102,895 | $96,313 | -11 % | -5 % | - Equity brokerage revenues decreased 10% QoQ due to lower research services and 8% YoY due to lower volatility and volumes[17] - Fixed income services revenues decreased 12% QoQ and were essentially flat YoY, as interest rate uncertainty continued to mute client activity[17] Other Revenues (Interest Income, Investment Income) Interest income increased 14% QoQ but decreased 5% YoY to $8.3 million, while investment income was $14.2 million, a 30% decrease QoQ but a 27% increase YoY Other Revenues (U.S. GAAP) | Category (Dollars in thousands) | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | Change vs. Q4-23 | Change vs. Q1-23 | | :------------------------------ | :------------ | :------------ | :------------ | :--------------- | :--------------- | | Interest income | $8,306 | $7,302 | $8,712 | 14 % | -5 % | | Investment income | $14,168 | $20,235 | $11,115 | -30 % | 27 % | - Investment income primarily related to alternative asset management funds managed by the company[13] Expenses Total non-interest expenses for Q1 2024 were $290.6 million, decreasing 25% QoQ but increasing 7% YoY, with compensation and non-compensation expenses showing similar trends Non-Interest Expenses (U.S. GAAP) | Category (Dollars in thousands) | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | Change vs. Q4-23 | Change vs. Q1-23 | | :------------------------------ | :------------ | :------------ | :------------ | :--------------- | :--------------- | | Compensation and benefits | $222,446 | $301,154 | $199,394 | -26 % | 12 % | | Non-compensation expenses | $68,188 | $84,851 | $72,702 | -20 % | -6 % | | Total non-interest expenses | $290,634 | $386,005 | $272,096 | -25 % | 7 % | - Non-compensation expenses decreased due to lower other operating expenses and acquisition-related intangible asset amortization, including a $3.5 million reduction in accrual for potential regulatory settlements[18] Profitability & Earnings Pre-tax income for Q1 2024 was $52.4 million, a 39% decrease QoQ but a 103% increase YoY, with net income at $42.5 million, or $2.43 per diluted common share Profitability Metrics (U.S. GAAP) | Metric (Dollars in thousands, except per share data) | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | Change vs. Q4-23 | Change vs. Q1-23 | | :------------------------------------------------- | :------------ | :------------ | :------------ | :--------------- | :--------------- | | Income before income tax expense/(benefit) | $52,422 | $85,846 | $25,809 | -39 % | 103 % | | Pre-tax margin | 15.3 % | 18.2 % | 8.7 % | -2.9pp | 6.6pp | | Net income attributable to Piper Sandler Companies | $42,493 | $52,025 | $25,634 | -18 % | 66 % | | Earnings per diluted common share | $2.43 | $3.00 | $1.49 | -19 % | 63 % | - The effective tax rate for Q1 2024 was 5.4%, including $10.6 million of tax benefits related to restricted stock award vestings[16] - Q1 2024 net income and EPS decreased QoQ due to lower net revenues and pre-tax margin, but increased YoY due to higher net revenues and pre-tax margin[17] Business Metrics Operational metrics showed a mixed performance in Q1 2024, with M&A transactions decreasing while corporate equity and debt transactions priced saw significant increases Key Business Metrics | Metric | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | Change vs. Q4-23 | Change vs. Q1-23 | | :---------------------------------------- | :------------ | :------------ | :------------ | :--------------- | :--------------- | | Completed M&A and restructuring transactions | 62 | 48 | 55 | -23 % | -13 % | | Total equity transactions priced | 14 | 25 | 19 | 79 % | 32 % | | Total debt and preferred transactions priced | 5 | 10 | 4 | 100 % | 150 % | | Aggregate par value of municipal issues priced (in billions) | $3.2 | $4.0 | $2.8 | 25 % | 43 % | | Number of shares traded (in billions) | 2.6 | 2.6 | 2.8 | — % | -7 % | Non-GAAP Adjusted Financial Results This section presents Piper Sandler's Q1 2024 financial performance on an adjusted, non-GAAP basis, detailing revenues, expenses, and profitability Adjusted Net Revenues Adjusted net revenues for Q1 2024 were $333.9 million, a 27% decrease QoQ but a 15% increase YoY, primarily driven by corporate investment banking activity Adjusted Net Revenues | Metric (Dollars in thousands) | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | Change vs. Q4-23 | Change vs. Q1-23 | | :---------------------------- | :------------ | :------------ | :------------ | :--------------- | :--------------- | | Adjusted net revenues | $333,905 | $457,393 | $289,226 | -27 % | 15 % | - The YoY increase in adjusted net revenues was driven by corporate investment banking activity, notably corporate equity financing[22] Adjusted Operating Expenses Adjusted operating expenses totaled $278.0 million in Q1 2024, decreasing 22% QoQ but increasing 12% YoY, with the compensation ratio slightly down Adjusted Operating Expenses | Metric (Dollars in thousands) | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | Change vs. Q4-23 | Change vs. Q1-23 | | :---------------------------- | :------------ | :------------ | :------------ | :--------------- | :--------------- | | Adjusted compensation and benefits | $210,698 | $290,144 | $183,144 | -27 % | 15 % | | Adjusted non-compensation expenses | $67,261 | $68,182 | $65,306 | -1 % | 3 % | | Adjusted total operating expenses | $277,959 | $358,326 | $248,450 | -22 % | 12 % | - Adjusted compensation ratio decreased to 63.1% in Q1 2024, down from 63.4% in Q4 2023 and 63.3% in Q1 2023, driven by higher adjusted net revenues[27] - Adjusted non-compensation expenses were $67.3 million, in line with both the fourth and first quarters of 2023[27] Adjusted Operating Income & Margin Adjusted operating income was $55.9 million in Q1 2024, a 44% decrease QoQ but a 37% increase YoY, with the adjusted operating margin at 16.8% Adjusted Operating Income & Margin | Metric (Dollars in thousands) | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | Change vs. Q4-23 | Change vs. Q1-23 | | :---------------------------- | :------------ | :------------ | :------------ | :--------------- | :--------------- | | Adjusted operating income | $55,946 | $99,067 | $40,776 | -44 % | 37 % | | Adjusted operating margin | 16.8 % | 21.7 % | 14.1 % | -4.9pp | 2.7pp | - Adjusted operating margin decreased QoQ primarily due to lower adjusted net revenues, but increased YoY primarily due to higher adjusted net revenues[24] Adjusted Effective Tax Rate The adjusted effective tax rate for Q1 2024 was 10.7%, lower than Q4 2023's 26.7%, primarily due to $10.6 million in tax benefits from restricted stock award vestings Adjusted Effective Tax Rate | Metric | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | | :------------------ | :------------ | :------------ | :------------ | | Adjusted effective tax rate | 10.7 % | 26.7 % | -8.0 % | - The Q1 2024 adjusted effective tax rate included $10.6 million of tax benefits related to restricted stock award vestings[25] Adjusted Net Income & EPS Adjusted net income was $50.0 million, or $2.79 per diluted common share, in Q1 2024, including $10.6 million in income tax benefits from restricted stock award vestings Adjusted Net Income & EPS | Metric (Dollars in thousands, except per share data) | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | Change vs. Q4-23 | Change vs. Q1-23 | | :------------------------------------------------- | :------------ | :------------ | :------------ | :--------------- | :--------------- | | Adjusted net income | $49,984 | $72,374 | $42,296 | -31 % | 18 % | | Adjusted earnings per diluted common share | $2.79 | $4.03 | $2.35 | -31 % | 19 % | - Adjusted net income for Q1 2024 included $10.6 million, or $0.59 per adjusted diluted common share, of income tax benefits related to restricted stock award vestings[26] - Q1 2024 results decreased QoQ due to lower adjusted net revenues and operating margin, but increased YoY due to higher adjusted net revenues and operating margin, partially offset by a higher adjusted effective tax rate[26] Capital Management & Shareholder Information This section outlines Piper Sandler's capital allocation strategies, including dividends, share repurchases, and key human capital and shareholder data Dividends The Board of Directors declared a quarterly cash dividend of $0.60 per share and during Q1 2024, the company paid a quarterly cash dividend of $0.60 per share and a special cash dividend of $1.00 per share, totaling $35.7 million - A quarterly cash dividend of $0.60 per share was declared on April 26, 2024, to be paid on June 7, 2024[28] - During Q1 2024, the company paid a quarterly cash dividend of $0.60 per share and a special cash dividend of $1.00 per share, totaling $35.7 million[28] Share Repurchases In Q1 2024, Piper Sandler repurchased approximately 289,000 shares of common stock for $52.1 million, primarily to cover employee tax obligations on restricted stock awards - Approximately 289,000 shares of common stock were repurchased for $52.1 million during Q1 2024, at an average price of $180.26 per share[29] - Share repurchases were primarily related to employee tax withholdings on the vesting of restricted stock awards[29] Human Capital & Shareholder Data As of March 31, 2024, Piper Sandler had 1,706 full-time employees and 171 corporate investment banking managing directors, with common shareholders' equity at $1,100.6 million Human Capital & Shareholder Information | Metric | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | | :---------------------------------------- | :------------ | :------------ | :------------ | | Full-time employees | 1,706 | 1,725 | 1,779 | | Corporate investment banking managing directors | 171 | 169 | 171 | | Common shareholders' equity (in millions) | $1,100.6 | $1,085.5 | $1,036.8 | | Common shares outstanding (in millions) | 15.6 | 15.2 | 14.8 | | Restricted shares outstanding (in millions) | 2.2 | 2.6 | 3.0 | | Total shares outstanding (in millions) | 17.8 | 17.8 | 17.8 | Company Information & Forward-Looking Statements This section provides details on Piper Sandler's Q1 2024 conference call, company overview, and cautionary notes regarding forward-looking statements Management Conference Call Piper Sandler's management team hosted a conference call on April 26, 2024, to discuss Q1 2024 financial results, with details provided for access - A conference call to discuss financial results was hosted on Friday, April 26, 2024, at 9 a.m. Eastern Time[31] - The call featured Chad Abraham (chairman and chief executive officer), Deb Schoneman (president), and Kate Clune (chief financial officer)[31] About Piper Sandler Piper Sandler Companies is a leading investment bank offering securities brokerage, investment banking, alternative asset management, and fixed income advisory services globally - Piper Sandler Companies (NYSE: PIPR) is a leading investment bank[32] - Services include securities brokerage and investment banking in the U.S., U.K., and Hong Kong, as well as alternative asset management and fixed income advisory services[32] Cautionary Note Regarding Forward-Looking Statements The report contains forward-looking statements subject to significant risks and uncertainties, including market conditions and revenue variations, which could cause actual results to differ materially - Forward-looking statements are subject to significant risks and uncertainties that are difficult to predict[34] - Key risks include variations in revenues from corporate advisory and financing transactions, market, geopolitical and economic conditions, interest rate volatility, and stock price fluctuations[36] - Readers are cautioned not to place undue reliance on forward-looking statements, and the company undertakes no obligation to update them[36] Financial Statements & Reconciliations This section provides detailed U.S. GAAP and non-GAAP financial statements, along with reconciliations and explanatory notes for adjusted measures U.S. GAAP Results of Operations This section provides the detailed unaudited U.S. GAAP income statement for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023, covering revenues, non-interest expenses, income before tax, net income, and earnings per share U.S. GAAP Results of Operations (Selected Data) | Metric (Amounts in thousands, except per share data) | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | | :------------------------------------------------- | :------------ | :------------ | :------------ | | Net revenues | $343,056 | $471,851 | $297,905 | | Total non-interest expenses | $290,634 | $386,005 | $272,096 | | Income before income tax expense/(benefit) | $52,422 | $85,846 | $25,809 | | Net income attributable to Piper Sandler Companies | $42,493 | $52,025 | $25,634 | | Diluted EPS | $2.43 | $3.00 | $1.49 | Non-GAAP Selected Summary Financial Information This section presents the preliminary selected summary financial information on an adjusted, non-GAAP basis for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023, providing a comparative view of adjusted revenues, expenses, income, and earnings per share Non-GAAP Selected Summary Financial Information (Selected Data) | Metric (Amounts in thousands, except per share data) | Mar. 31, 2024 | Dec. 31, 2023 | Mar. 31, 2023 | | :------------------------------------------------- | :------------ | :------------ | :------------ | | Adjusted net revenues | $333,905 | $457,393 | $289,226 | | Adjusted total operating expenses | $277,959 | $358,326 | $248,450 | | Adjusted operating income | $55,946 | $99,067 | $40,776 | | Adjusted net income | $49,984 | $72,374 | $42,296 | | Adjusted earnings per diluted common share | $2.79 | $4.03 | $2.35 | Reconciliation of U.S. GAAP to Non-GAAP Measures This section provides a detailed reconciliation of U.S. GAAP financial measures to their corresponding non-GAAP adjusted measures for key metrics, outlining specific adjustments made for each period - Detailed reconciliation tables are provided for net revenues, compensation and benefits, non-compensation expenses, income before income tax, income tax expense, net income attributable to Piper Sandler Companies, and earnings per diluted common share[39][40] - Adjustments include items such as investment income related to noncontrolling interests, interest expense on long-term financing, compensation from acquisition-related agreements, restructuring and integration costs, amortization of intangible assets, and non-compensation expenses from potential regulatory settlements[39][40] Notes to Non-GAAP Financial Schedules This section provides explanations for the non-GAAP financial measures presented, detailing specific exclusions and adjustments made to U.S. GAAP measures to offer a more meaningful basis for comparing operating results - Non-GAAP measures are presented to provide a more meaningful basis for comparison of operating results across periods by excluding certain items not indicative of core operating results[43] - Specific adjustments include exclusions for investment income and non-compensation expenses related to noncontrolling interests, acquisition-related compensation and non-compensation expenses, restructuring and integration costs, amortization of acquisition-related intangible assets, and non-compensation expenses from potential regulatory settlements[43]