Piper Jaffray Companies (PJC)

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Piper Jaffray Companies (PJC)

Q4 2008 Earnings Call

February 2, 2009 9:00 am ET


Andrew S. Duff – Chairman of the Board & Chief Executive Officer

Debbra L. Schoneman – Chief Financial Officer & Chief Accounting Officer


Devin Ryan – Sandler O’Neill & Partners, LLP

Steve Stelmach – Friedman, Billings, Ramsey & Co.

David Trone – Fox-Pitt Kelton

Horst Hueniken – Thomas Weisel Partners

Lauren Smith – Keefe, Bruyette & Woods

Brian Hagler – Kennedy Capital



Welcome to the Piper Jaffray Companies’ conference call to discuss the financial results for the fourth quarter and full year of 2008. 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 that are not historical or current facts including statements about beliefs and expectations are forward-looking statements that involve inherent risk and uncertainties.

Factors that could cause actual results to differ materially from those anticipated are identified in the company’s reports on file with the SEC which are also available on the company’s website at www.PiperJaffray.com and on the SEC website at www.SEC.gov. Now, I’d like to turn the call over to Mr. Andrew Duff.

Andrew S. Duff

I believe we all recognize that during 2008 the capital markets industry faced a historically challenging operating environment. During the fourth quarter economic and financial market conditions deteriorated affecting nearly all of our businesses. We took actions to reduce our operating cost structure and to manage and mitigate risk exposures. Our actions were not able to overcome the severe market conditions and our operating results suffered.

We have two top priorities for our firm as we look ahead, first to appropriately adjust our cost structure to enable us to operate through the near term difficult period and secondly, to make sure that we are well positioned when the markets eventually turn positive. In terms of the first priority, we took actions throughout the year to respond to the market conditions. We took additional measures in the fourth quarter as operating conditions further deteriorated.

Let me review these actions with you. We reduced net headcount year-over-year by 13%, including significant senior hires during the year. In the fourth quarter we reduced headcount by an additional 8% from September 30th level but we have preserved senior client facing talent. We ended 2008 with 1,045 employees. As a result of the difficult fourth quarter, we reduced incentive compensation which was down significantly year-over-year. Accordingly, at my recommendation, our senior leadership team including me will not receive bonuses for 2008.

For 2009 the vast majority of our incentive compensation will be variable. Most of our guarantees matured at the end of 2008 and are behind us. Going forward, our compensation will continue to be performance based but with firm results given first priority. In addition, 2009 expense will be reduced as a result of the revised accounting treatment for stock-base compensation which Deb will review with you in a moment.

The lower expense will be reflected in a reduced compensation ratio by approximately four percentage points for a goal of approximately 60% for 2009 which depends on the level and mix of revenues. We also paired our non-comp expenses and our position for a $35 million average run rate in 2009. All of the actions we have taken this year will enable us to generate profits at considerable lower revenue levels.

In 2008 our breakeven revenue level was in the mid $400 million range, in 2009 our breakeven revenue level will be in the mid $300 million range. Finally, we have a solid balance sheet with ample liquidity and sufficient capital to conduct or businesses. We are confident that we will manage through the near term difficult period. If conditions dictate, we will take additional actions to adjust our cost structure just as we did in the fourth quarter.

Our goal is to achieve profitability in 2009 despite another difficult operating environment. Now, let me turn to our second priority which is to make sure that we are well positioned to advance when the markets turn positive. Despite an extraordinary difficult operating backdrop, we are very mindful that our firm has a unique opportunity to capitalize on the turmoil in the competitive landscape.

During 2008, we enhanced out talent based with 47 senior client facing professionals. We are already seeing some of the early results, let me give you a few examples. The California public finance team we recruited in June, immediately contributed to making us the top education underwriter in that state up from the number four position we held from 2003 to 2007. In corporate finance we extended our technology expertise to include media and telecommunications by recruiting a team of 10 senior bankers and research analyst with expertise in those areas.

We added new senior leadership in our low touch equity business. We are seeing positive momentum in revenues which were up 16% year-over-year. In the UK we maintained our long term leadership position in healthcare underwriting while building clean technology. We added senior talent to this sector in the past year and completed our first clean tech underwriting deal in the region. These investments together with others we’ve made to enhance our franchise across geographies, sectors and product positions us well to gain market share and capitalize on more positive market cycles.

We believe that a market share opportunity exists across our businesses. We also believe that we are well positioned versus our peers to capture this share. We have deep expertise and leadership in our equities sectors and in public finance across new issue and advisory trading and investing. We will continue to focus on these core businesses because it is what we do best. The significant hiring we did this year only strengthens our position. As a result, with all Piper Jaffray partners working in concert, we will be the most capable partner in the market for our clients.

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