Piper Sandler(PIPR) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2022, the company generated adjusted net revenues of $391 million, with an operating margin of 19.3% and adjusted EPS of$ 3.33, marking a strong finish to the year [3][16] - For the full year 2022, adjusted net revenues totaled $1.4 billion, an 18.8% operating margin, and adjusted EPS of$ 11.26, representing the second strongest year on record [3][16] - Net revenues for Q4 2022 decreased 38% from the record fourth quarter of 2021, while full year revenues declined 28% from the exceptional prior year [16] Business Line Data and Key Metrics Changes - Corporate investment banking revenues for Q4 2022 were $258 million, up 20% sequentially, but full year revenues of$ 902 million declined 35% from 2021 [4][16] - Advisory services generated $221 million in Q4, up 26% sequentially, with full year advisory revenues of$ 776 million, the second strongest year in history [6][16] - Equity brokerage revenues reached $56 million in Q4, up 7% sequentially, and full year revenues totaled$ 210 million, exceeding the $200 million target set at the beginning of the year [13][16] - Fixed income revenues for Q4 were$ 50 million, up 34% sequentially, while full year revenues were $195 million, down 17% from the previous year [14][16] Market Data and Key Metrics Changes - The equity market fee pool for 2022 was the lowest in over 20 years, declining more than 60% from the average of the last 10 years [7] - Municipal financing revenues for Q4 were$ 19 million, down 30% sequentially, with full year revenues of $108 million, a 34% decline from the previous year [12][16] - The overall market issuance for 2022 declined approximately 20% from the prior year, with high yield new issuance decreasing about 40% [12] Company Strategy and Development Direction - The company aims to grow annual corporate investment banking revenues to over$ 2 billion in the coming years by scaling industry groups and increasing transaction sizes [10] - The acquisition of DBO Partners has doubled the technology banking platform, positioning the company for growth in this sector [3] - The company is focused on filling white spaces within investment banking and has added talent to strengthen its industry coverage [8] Management's Comments on Operating Environment and Future Outlook - Management expects a slow start to 2023 for the advisory business due to current economic conditions, but anticipates a potential pickup in the second half of the year [6][30] - The company remains cautious about hiring, focusing on senior hires that drive revenue while being selective with junior hiring [34] - The outlook for fixed income is positive, with expectations for increased client activity as higher nominal rates present attractive investment opportunities [14][40] Other Important Information - The company repurchased approximately 1.4 million shares for $187 million in 2022, returning a total of$ 295 million to shareholders through share buybacks and dividends [19] - A special cash dividend of $1.25 per share was approved, alongside a quarterly cash dividend of$ 0.60 per share [19] Q&A Session Summary Question: Advisory outlook and pipeline progression - Management noted a strong backlog but expects a slower start to the year, with many mandates ready but slow to launch due to market conditions [30] Question: Municipal finance normalization - Management indicated that normalization depends on market conditions, particularly the amount of refunding and inflows into high yield funds [31][32] Question: Appetite for acquisitions in 2023 - The company expressed a good appetite for continued tuck-in acquisitions, although it will be cautious in evaluating opportunities in the current market [56] Question: Corporate financing and healthcare ECM outlook - Management reported a slight improvement in ECM activity, particularly in healthcare, but noted that it is not yet at normalized levels [38] Question: Fixed income business outlook - Management expects fixed income activity to remain strong, driven by banks repositioning their balance sheets, but clarity on interest rates is needed for sustained demand [40] Question: Non-compensation expense trajectory - Management indicated that non-compensation expenses are expected to remain consistent with Q4 levels going forward [44]