Piper Sandler(PIPR) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company generated adjusted net revenues of $362 million for Q1 2022, a decrease of 13% year-over-year and a 43% decline from the record Q4 2021, primarily due to low equity capital markets activity [29][35] - The operating margin for Q1 2022 was 20.8%, marking the seventh consecutive quarter with an operating margin above 20% [32][35] - Adjusted EPS for Q1 2022 was$ 3.12, with net income reported at $57 million [32][35] Business Line Data and Key Metrics Changes - Corporate investment banking revenues totaled$ 230 million, with M&A advisory contributing 74% and corporate debt business generating $55 million [9][10] - Advisory revenues increased by 38% year-over-year to$ 211 million, driven by larger transactions and higher average fees [10][11] - Equity brokerage business achieved record revenues of $50 million, benefiting from increased volumes and the acquisition of Cornerstone Macro [21][22] - Fixed income revenues were$ 55 million, up 9% compared to Q4 2021, driven by rising interest rates [25][26] Market Data and Key Metrics Changes - Municipal financing revenues were flat at $27 million, with market issuance down approximately 12% year-over-year due to fewer refinancing activities [18][20] - The 10-year treasury rate increased by 55% from December 31 to March 31, reflecting market expectations of future inflation and Federal Reserve tightening [25][26] Company Strategy and Development Direction - The company remains focused on long-term growth, with ongoing investments in talent and acquisitions to strengthen its platform [15][16] - The acquisition of Cornerstone Macro is expected to enhance the company's capabilities in equity brokerage and research [21][22] - The company anticipates strong advisory revenues for the first half of 2022, with potential growth in the second half if market conditions remain supportive [13][35] Management's Comments on Operating Environment and Future Outlook - Management acknowledged increased uncertainty in financial markets due to geopolitical risks and inflation but emphasized the resilience of their diversified business model [7][35] - The company expects M&A activity to remain strong, with robust pipelines across various industry verticals [12][13] - Management noted that while equity capital markets have slowed, there is a backlog of companies looking to raise capital when market conditions improve [50][51] Other Important Information - The company returned$ 195 million to shareholders through buybacks and dividends in Q1 2022, repurchasing approximately 789,000 shares [33][34] - The Board approved a quarterly cash dividend of $0.60 per share to be paid on June 10 [34] Q&A Session Summary Question: Insights on M&A advisory business outlook - Management indicated that while some deals have been impacted by public stock prices, the sponsor business remains strong, with a good pace of new deals [40] - Energy and financial sectors showed strong performance, while technology and software sectors have seen some slowdown due to valuations [42] Question: Capital return strategy amidst stock price decline - Management expressed a commitment to being opportunistic with buybacks, especially given the current stock price levels [44][45] Question: Equity capital markets activity - Management noted no significant pickup in ECM activity in early Q2, with a backlog of companies wanting to finance when the market stabilizes [50][51] Question: Fixed income trading outlook - Management highlighted that fixed income activity is correlated with interest rates, and they expect continued strong activity as clients rebalance portfolios [56] Question: Operating margin expectations - Management believes they can maintain an operating margin in the low 20s, supported by diversified revenue streams [64][66] Question: Recruiting environment and MD additions - Management is optimistic about recruiting new Managing Directors and has seen momentum in hiring despite market challenges [68] Question: Impact of liquidity changes on fixed income brokerage - Management acknowledged potential declines in depository client activity as liquidity decreases but emphasized strategies to leverage financial advisory services [70]