PIPR - Earnings call transcript Q2 2018

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Operator

Good morning and welcome to the Piper Jaffray Companies’ conference call to discuss the financial results for the second quarter of 2018.

During the question-and-answer session, securities industry professionals may ask questions of management. The company has asked that I remind you that statements on this call are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements that involve inherent risks and uncertainties. Factors that could cause actual results to 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 www.piperjaffray.com and on the SEC website at www.sec.gov. This call will also include statements regarding certain non-GAAP financial measures. be measures addition in of GAAP. should a and accordance measures for substitute financial non-GAAP considered to in not with The performance prepared refer most comparable today measure. release these Please financial GAAP company’s reconciliation non-GAAP the a of issued to measures the to for earnings company’s release earnings the on at the Relations page the The or Investor SEC available of is website website.

begin is over your I’d like Abraham, the call to As Chad now, you a to call. And may reminder, being recorded. this Mr. Mr. call Abraham. turn

Chad Abraham

morning, our CFO. like Schoneman, the Carter, you Good XXXX. Jaffray’s here President; our of first Deb joining quarter Piper I’ll everyone. with markets comments And deployment. on I’m our of provide review results with and Tim overview second overall for equity over call for of to and our to and discuss call the would the an the finish we businesses, update thank handing lines. Deb some then to capital the capital to financials the Tim will and of discuss before business rest advisory an

for then Revenues call open the were to quarter first for up modestly questions. quarter. will the up We compared the

to both and expect to businesses, on in our banking we basis gain be a continue full-year weighted. momentum revenues back-half of We

far management are banking QX brokerage market our businesses year. disclosed in investment July so public our month Market asset off As for expect we solid in face conditions strong and earnings is this continue as strongest challenging finance, a revenues and of we release, remain conditions. start to will improving our to while be

and revenues in to first difficult, changing quarter in headcount headwinds to providing shareholders. results adapt We reduce appropriate model. we market meaningfully market the margins. brokerage the remain committed business maintain estimate management and while our are pipeline advisory and to our assuming half. necessary our Given a to as asset businesses major These we no costs for took from disruptions, our up half be We to actions reductions, bottom-line second strong

on advisory equity color I’ll lines. our and markets more business capital Now, provide

was business levels. down QX and Market are advisory Our from transaction up at values modestly record year-over-year.

number sequential down basis. is a year-over-year middle typically deals, a is on market of of the activity, and However, better completed which indicator

context year-to-date down half market-wide. the consistent of advisory performance, on deals For compared completed with our to were which number XX% revenues XXXX, of first the seems

of constructive, up several conditions noted past, market can activity have of on for be we setting depending As quarter-to-quarter pipeline advisory timing uneven strong significant in and transactions transactions. a year. second with robust believe remain the the size is half from our We and the

have M&A prior by million made of LTM our activity compared we health its investments an significantly the not for approximately exclusive market-leading and of to in is yet the This in $XXX up As announced healthcare and an financial are $X of from animal transactions the transaction on deal pipeline, in On advisory revenues years, adviser XXXX, that example our sale to to reflects basis, access have the of closed. largest business. as a we one strong diagnostics driven has team. type Zoetis served billion, QX

As grown durability. our has and has it grown diversity size, advisory in platform in

our performance. example, have last different the teams For quarters, over industry three led

still overall and wholesale continue several vertical, True This retailers. invested grown hardware this industrials in the to we look the to quarter Relative we sector, of space. further sale was are in hiring underpenetrated grow for opportunities market, team, majority largest including driven significant our in of revenues. and have bankers to the this by distributors the Value, completed transactions, independent one our to as in they industrials several stake We’ve

specializes and in formation to value financing synergistic Another market. leverage capability In clients The we the first to Finance, the our debt market loans loan of announced the targeting is proposition providing quarter, which middle expands is large this that pool our fee introduction with business. Piper we companies. are of Jaffray advisory

We’re started on clients the very the already February for mandates our client have several product this driver and and new revenue transactions be closed a we’ve quarter. us a encouraged will marketing increasingly won reception in received. first the this We growth by two believe substantial differentiator in We and marketplace.

upstream to added E&P is subsectors other further one In into Simmons build sector. initiative franchises. out July, important expand MD market-leading in to our Another the

added to Our our the Managing Director healthcare services new capabilities grow a also payers providers. in healthcare vertical serving franchise and

in market up business. meaningfully revenue believe the the and is We the million market market second year-to-date, breadth billion as year-over-year there on fee generated up market believe We was was sub Turning pool, $X organic year reputation opportunity strong a cap strength mandate $XX was relationships. Markets our underwriting and revenue strong of pace to In to that which growth equity from our leveraging is on basis. the is equity have platform a we’re Equity active, the by to up XX% increasing our pool significant quarter, of share. X%. down our a increase our our Capital while but fee QX, and We underwriting

the rest Now, businesses. our to will the to turn call of I Deb over discuss

Deb Schoneman

Thanks, Chad.

albeit both brokerage market headwinds, the equity As businesses call, and reasons. outset our income of different the have for at been Chad facing fixed noted

the the equity appropriate address impacting our and maintain to will finance income Then fixed discuss brokerage businesses. will public margins. I business First, we’ve and market actions to dynamics I changes taken

governing for effect into equity $XX year-over-year. European the for from and Our participants execution on went X% business was regulations down which II pay X% million research of revenues but market up January X. services brokerage quarter, how generated MiFID QX,

indirectly global participants across the through regulation, asset low-touch equity as from and trading for are managers MiFID trend. research brokerage unbundling execution pool fee to market U.S. several trades services. this equity II years, been transparency this likely for separately research many increased the exacerbate Although will adapt consistent paying a providers executing of has all and The impacts markets European Increasingly, regime geographies. compliant contracting

these Our response been twofold. to changes have market

First, franchise. is banking to complement value research our imperative team equity high- a to our quality and demonstrate clients

and maintain biopharma out talent now to cost TheStreet invest client with to demonstrated further coverage hiring stocks. feedback progression have the We’ve the ranks continue up senior recent biopharma the one and appropriate talent, over of also business six platforms our to in margins capacity been We positive resources with expanded vote the broadest We XXX teams the clients. by and our two of We focus buy-side on analysts on research as research with our has taken biotech. opportunities. and research best in of to cover

reduced of Swiss Switzerland efficiently our we clients as closing are including Kepler able to quarter, headcount, our office, the partnership. more with we Cheuvreux This service our

brokerage finance businesses. the generated our public $XX market. second revenue as volume issuance municipal in to fixed of finance million Turning the income increased quarter Public and in

tax market the the impacted As quarter enacted by reform call, this of first was end XXXX. significantly on we discussed at

During the to XXXX, to historical issuance, close $XXX line levels. of of is quarter second in municipal more with rebound, billion volumes which began with

the Our finance year. drive strong to public half in is pipeline and second expect increased the of we revenues

returns. to In quarter, state as a strengthen high-quality to business has second for prior expect in and rates optimize local However, remain this Investing as reducing the be southwest fixed government our we volumes, a down us With income overall we talent. the issuance in our been and team brokerage interest hired priority XX% capital depress low in the this a curve and flattening XX% cost to Phoenix region. conditions from business challenging to we trading are practice look carry-on year. Market market on add dynamic, and spreads we inventories. in to yield focused

reduced Our fixed brokerage sized we income structure as quarter. our headcount right this was cost

the environment, trading low. reduced is also activity We current inventories coincide our to where market with

finance dynamic, important investors revenues rallied about in the second the and due for their in for space. services gains experienced platforms down business Revenue in asset value decline. asset distribution year-over-year a be to in and for clients. erasing positive sequentially expect the increased management. market XXXX. with outflows due critical we the finish full-year quarter, we see our essentially this basis. as our as and the were flat to Given provides MLPs AUM also was flows MLP I’ll also period liquidity QX up business provides Net proposition this execution on our This XX% down public to

We I will managers. continue by to turn financial focus now results. on improving faced our margins, to call active given difficult Tim the over through the conditions our go to

Tim Carter

non-GAAP Thanks, Deb. results. My comments on be our based will adjusted financial

compared XXXX, the to $XXX period. year-ago Our of compared but to quarter the first quarter for were million revenues the up of down

expect half the Chad in be first As half. to revenues better the we significantly year the of discussed, than second

detail in lower three to tax and to remarks. sequential quarter, more lower sequential year-ago vesting. Our charge. was diluted revenues advisory The restructuring to non-compensation benefit lower due EPS $X.XX as my these stock timing our the and a decline of $X.XX on the later our expenses, compared to was of decline in the related lower for by activity revenues as in XX% period, each due an items due basis. restructuring charge, of decline well year-over-year both driven items: I’ll discuss to the EPS in lower was a

standard impact our deal quarter to the reflects operating year, compared deal within within with new expenses with and model. consistent a which ratio for XX%. performance. target XX% ratio XX.X%, client-reimbursed revenue nature netted our consistent decline to previous was revenue. The the of range of after second period was XXXX under quarter are recognition the Turning adjusting of impact this our comp The of comp quarter year-over-year the the our lower the longer adopted year-ago for to of basis, Despite on variable revenues no the demonstrating expenses, the

in $XX expenses per In $XX $XX was restructuring and $XX due reductions businesses. market cost, appropriate in in million cost $X.XX of incurred reduced Non-comp fixed million. the returns. charge an sales This asset response the end people first to quarter expenses. were undertook and and This maintain also of primarily and quarter, the timing million conditions non-comp quarter to to per our order were XX We to the the higher high This headcount of of excluding level expenses, below range. challenging trading, approximately at EPS and reduce share. we management million $X.X related our expenses deal across these our to restructuring cost, by of quarter, actions million

our So are within the on still for year, range. average per-quarter we

As be our that will target impact was quarter when year we expense cost, diligent million the than expect this occur. pronounced award price. tax tax majority was In of in date million. our The benefit their vestings the grant greater first $X more Tax of at prices half $X.X restricted is a by tax impacted equity first we related vesting this our to non-comp favorably range. continue expenses stock remain in managing in to benefit the quarter, the

benefit, can Excluding our was low of for estimated capital, end. Finishing this up and fluctuate quarter our tax the XX%, of We recognize the on was that a annual but tax slightly tax quarter-to-quarter, fixed basis, we stock excluding but inventories of the vestings. our we XX.X% Deb basis, continue our tax of impact year-to-date above range, have the to XX.X% adjusted rate XX% to on reduced rate rate at an estimate rate on mentioned, income. as

was balance billion at just down $X.X approximately million inventory end XX% of over the the at Our quarter-end, year. from $XXX

these market in trading and of We conditions opportunities. believe levels out taking We’re are this conditions with in line and market activity. to response business slow inventory

aggregate basis, return per in first cash This the was capital an or $X.XX continue that to we special dividends. We a year-to-date dividend through have $XX the quarter. $X.XX returned share per share. to cash On includes out of of shareholders paid million

paid shareholders September declared today be In on of close of per as business $X.XXX to the of we dividend August XXth. quarterly of XX share addition, on record to

drive strong our to position, capital wide available capital opportunities. including deployment of power given and to corporate options earnings development growth, a Finally, range are market position, us

we As the our themselves, selective questions. present opportunities continue now and up the be call we to use can explore in for open that of strategic will We capital.

Operator

[Operator Instructions].

from Ryan comes Securities. JMP Devin question first of Your

Devin Ryan

Thanks. are Good guys. How morning, you?

Chad Abraham

Hi, Devin.

Tim Carter

Devin. Hi,

Deb Schoneman

morning. Good

Devin Ryan

Piper the Finance – I for on Jaffray question guess initiative. the first thanks update

well. Sounds like it’s going

you think here of could revenues in be potential have I million the longer-term more. $XX guys or highlighted kind

it’s think kind So, you success already launched that I’m here, might how now the long just take of and about that trying kind it you’re some think to of early to as seeing kind to rate run deals Like think or Just from be? of here. to scale? a it how many of get about that of trying more would little matures fully kind it that maybe

Chad Abraham

Devin. I’ll take Yeah. that one. Sure,

near half our expected. product. the the I – full but back – as a the financial it’s tracking of train think make would basically in of bankers, understand have sponsored it it light clients all right impact sure just sort We all year, we to potential this nowhere takes a knew ramp while as the

Those I think quarter. product related to We to opportunities. seeing. both we obviously continue I from And It we’ll quarter. run I acquisition close think transactions say at in a we couple be Good that we what we rate, I were but be quarter. – which just done got around were to the to when pleased. we three think revenues this. will financed, we’re deals grow every that we’ll the of sort said that would us growing takes expect probably launched expect every be Clearly, years

Devin Ryan

half the fact appreciate it update Thanks there. will then okay. that step-up well. the of commentary nice back And the it, for a advisory year. And Got the be the as into

just Is of the specific some an way half’s the modeled was it and was anything question. and on is seems the much progressed, they could this we’re little negative. that flow period sounds picture activity actually be could has a bigger of half like a business, big timing now, kind And air there than back that softer As and environment that’s the a of I we hearing normal little close? ebb year kind get of of been trade it so we kind think there had bit right of first quite of strong. bit like tensions just just it And be. pretty we’ve impacting events where just or then of about and where since when to just one or just kind about not trying the that’s now reaccelerated? pocket guess, step-up little sense Or I’m

of curious anything of there’s coming that recently. kind just kind changed point are that into I’m pipeline new trajectory So of the to announcements bad, you would that’s or the if good

Chad Abraham

be the you That certainly would tend better certainly longer-term period, true better we a in – two were I to year, than – feeds half do just especially year. the But half. of the little that’s most that we so first large to this or this more quarters relative advisory just two lumpiness, to half. say, quarters. It handful year are happens might Devin. pretty The year, magnified than and large the Yes, for mostly at, all feeds have for those if year. each over back think first just look I back the was of last a towards business, a related it this last weighted

of just would sponsor see in and kind the market of a I also the sort now mean, that visibility sort had transactions, months deals QX on, They some bit Relative of timing. year-end, have the PE we So is we’ve in affecting a and of half. financials some after out drives coming quite our those lot think, sort the the notable overall we they because I – feeling of after things closed current for we QX, conditions, deal July. – have changes than pipeline in versus more a spring, in of three of of what macro agree, pace to more start were, us, we’re I major don’t deals, the back the lot of and closer or close already any we

year. good pretty half visibility got into back of we’ve the So

Devin Ryan

just about the Jaffray? need at as do asset you business Chad I’m last a are What to now around way you’re But curious management then just that. what to one status it least And for you. another? Thank this time had time, okay. strategy well of the about had more little quo? kind you on today what considerations as of more think or the Piper Great, you about, is thinking considerations that direction kind And some to something Do of is here today? one and kind you’ve within of think those I’m are sure, here, business

Chad Abraham

it. and Deb Got can take then I can follow-up. that

consistent deal asset synergistically. versus love the I into earnings management because mean, that’s continuous sort the still think us. of opportunities We been deal. the we of by for potential of we of say got we profile. loved margin I would I the love nature still sort the business some

like not sort to you said it’s just the think, run it pretty though billion be I I’ve to of clear past, we’re in $X that size. and going at

think So, in, – be while that we I we’ve some started inflows around the want the seeing stabilized we and products sort not you’re we’re were. encouraged we the of by to to like fact we see outflows and

focused. I think still very we’re

what have, Okay, we now know grow from how it. can we here, we

a a the are few add opportunistically there rest at to that good years, very think strategy But way, we’ve much are And in we’re will to we’re of to if we we’re focused if bigger. got what conscious areas. it’s going very really continue that that. in around with few look right business could we the I firm areas this and think that I be a aligned the in

Devin Ryan

very Okay, great. Thanks much.

Operator

[Operator Instructions].

of Ann Our comes next question Dai from KBW.

Ann Dai

Hi, good question. my for morning. Thanks taking

I to with… So, wanted start

Chad Abraham

Ann. morning, Good

Ann Dai

public wanted Good I to morning. finance. with start

it has does bit it, the industry better guess, the what year that a call – quarter-over-quarter, I like in volumes. you’ve I’ll seen feel we’ve So you’ve than recovery little rebound, been had – or

in just you certain to on a your rebounding faster? are that was market picking up getting of perspective that. the Or certain areas curious bit biased places? you more I market So Are are share towards

Deb Schoneman

in it. volumes the Yes. line happening look are at that’s more with at least, marketplace I actually, our holistically, would in what’s we say how

especially those higher as just our with you sectors does products. throughout that pipelines, I the the we be that to we versus and some spread And have quarter tend mean, strong year, build. to first. continue specialty of in Our some second pipeline the saw continuing see

line more we in of the market guess, ourselves in with the be I see year here. first half So

Chad Abraham

Yeah. Ann, I And add just would that. to

we I market. it most probably were of the think than down in QX of part is, more

obviously, QX the to improvement Deb it’s very looks consistent finance be months. three even in with we’ve really what mentioned. expect but the We or four driven it’s some So – specialty our for QX of good, last saying our areas on been would say I public and certainly better

Ann Dai

Yeah, equities. institutional on great. Okay, maybe, next

single feel second little where at kind spoke year first what headwinds. digits, so ins you You be? the of what move the decent is now run do a for that? of ongoing you the of rest down than and rate about looking kind year-to-date, a know better high are might Obviously, bit quarter like of and outs that’s trending might And

Deb Schoneman

Yes.

is I think netted at with had about we high-quality to which there’s to expected a year. a performing and we lot to very the that out business business. the the of conversations and it’s and clients talked of it when is start moving of this very there similar had pieces important how research Obviously, us lot clear

of quarter revenues stated year-over-year One that now, overall basis right last XX%. down was down we’d in the to about Again, we things that these be X.X%. expect about

would for continue general to the expect year. So trend I we do that say

Ann Dai

Deb. Thanks, Okay.

restructuring. the on Next

decent So I like know of well? that’s if And let me it’s heavily the the more so that? some mostly side whether that? if of it equity characterization does sounds was things. as like there’s there fixed was misinterpreting not I’m really it kind But a just and please side impact. biased of non-comp then headcount-based sound contribution curious from towards Or the I’m guess, right income

Tim Carter

I’ll take It’s both that. really across Ann. businesses. of our Yes, brokerage

across would say evenly I businesses. more split So it’s those

it’s nature. right, in primarily headcount related You’re

perspective. of a a change not lot non-comp So from

comp guidance appropriate related and don’t change the the and terms of about maintain think the really I sort it think to as given trying we and non-comp margins, we’ve in this. ratios of returns so – to

Ann Dai

on was range question comp of does maybe was that basis, the kind Thanks, Tim. that that in restructuring end we’re up that that’s and year now of the we’ll end lower given lower you it next kind on gave on of a end? Actually, full some my of some reasonable, of trending is feel like the comp there businesses, on this the

Tim Carter

Yes.

reinvest what still sort business to is right of on dependent dependent it’s XX% the do think But of of range. possible. and can that’s to I mix trying XX% that business. grow think the be of sort And to the on the sort some in also we’re business. of the overall mean, I I that

as impact that it So can well.

Ann Dai

Great. Thanks. it That’s from me.

Deb Schoneman

Thanks, Ann.

Operator

Bill of Dezellem Capital Your next Tieton question comes Management. from

Bill Dezellem

questions. of referenced release, That’s you the range your debt solutions. loan Presumably, Capital couple of In the leverage A Is business. Tieton Management. that’s correct? press expanded that

Chad Abraham

Jaffray Piper about talking Finance. we’re what That’s Yeah.

Bill Dezellem

requirements Great, other thank And secondarily, business capital that what the then your businesses. you. versus are of

Chad Abraham

Yes.

a on to backstop we We quite bit not but it, capital capital, it’s smaller we So, from commit with our than financing most partners. provide much, usage about much Piper. going to when of providers high market a the the partnered talked launched large and of we middle it’s that, a capital but percentage transactions are many

the should it so a be it And take capital opportunity, some while it to – will relative return. high

Bill Dezellem

Thank you.

Operator

[Operator have we queue. no Instructions]. questions And in other

Chad Abraham

Okay. the forward We call. talking day. hope good Thanks and a everybody to has everybody, after to look joining for QX, you

Operator

call. conference today’s concludes This

You may now disconnect.

Piper Sandler Companies (PIPR) 27 Jul 182018 Q2 Earnings call transcript