Piper Jaffray Companies (PJC)

PJC 
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Piper Jaffray Companies (PJC)

Q1 2014 Results Earnings Conference Call

April 24, 2014, 09:00 AM ET

Executives

Andrew S. Duff - Chairman and Chief Executive Officer

Debbra L. Schoneman - Chief Financial Officer

Analysts

Michael Needham - KBW

Douglas Sipkin - Susquehanna Financial Group

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Piper Jaffray Companies Conference Call to discuss the Financial Results for the First Quarter of 2014. During the question-and-answer session security industry professionals may ask questions of management.

The company has asked but I remind you the statements on this call are not historical or current facts, including statements of their 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 measure. Please refer to the company’s earnings release issued today for reconciliation of these non-GAAP financial measures to the most comparable GAAP measure. The earning release in available on the Investor Relations page of the company’s website or at the SEC website. As a reminder this call is being recorded. And now I would like to turn the call over to Mr. Andrew Duff. Mr. Duff you may begin you call.

Andrew S. Duff

Good morning and thank you for joining us to review our first quarter results. I will spend a few minutes discussing the market environment and the performance of our business and then hand the call over to Deb to review our financial results. With markets conditions that were mostly accommodative, we got off to a strong start in 2014 as we sustained the momentum in our business in the second half of 2013, at record levels at the end of 2013 and attracted both issuers and investors into the market. As a result, equity capital raising remained strong and trading volumes were up for the quarter. These market conditions also were beneficial for asset managers.

As for fixed income markets, we saw interest rates decline slightly during the quarter. These declines contributed to our favorable results and fixed income trading and investing. The interest rate declines were not sufficient however to reignite refinancing activity in corporate finance that dropped off sharply due to last year’s spike in interest rates. Underwriting activity for Q1 was off about 35% however, we noted some signs of improvement towards the end of the quarter.

Moving onto our performance for the quarter, the primary objective of our strategy over the past couple of years were to achieve profitability in more challenging markets, produce strong results in healthier markets and make disciplined investments in our high margin businesses. We continue to execute on this strategy, as reflected by our strong performance to the start of year.

Historically in our financial results, we reported annualized return on equity for the quarter. We feel that reporting ROE on a rolling 12 month basis provides a more accurate representation on the performance of the Firm.

Our ROE for the last 12 month ending in March improved to 7.2% compared to an ROE of 6.7% for the comparable period of 2013.

Our return on tangible equity for the last 12 months also improved to 10.9%. For the quarter, on balance we produced good results in our operating businesses. The sequential decline in revenue from the record levels last quarter primarily was attributable to lower gains in our investments in the absence of significant performance fees in asset management which are generally reported in Q4.

Nevertheless, our results for the quarter represented a very substantial improvement over last year’s first quarter. Performance in our capital market businesses continue to demonstrate the strength we saw in the latter part of 2013. Equity capital raising was up slightly sequentially and more than double a year ago. Capital raising for growth companies was robust, especially in healthcare, our strongest industry sector.

We were particularly pleased with the performance of our M&A business where we often see a low end activity to the start of the year our results were up sequentially. Revenue increased in our M&A business for the third consecutive quarter. These results reflect our strategic focus in recent years to strengthen our M&A capabilities.

Our equity brokerage business experienced an increase in activity that was in line with the market. The sequential decline in revenue was attributable to lower gains from our equity strategic trading results. We remain very pleased with the progress we are making in the equity brokerage business as demonstrated by a substantial increase in revenues versus last year.

As I noted in my comments regarding market conditions and public finance, we were not immune to the significant decline in new issuance activity as our results indicate. With the sharp increase in interest rates in the middle of last year, we have seen a substantial decline in refinancing activity. One bright spot for the quarter was a $1.5 billion capital raise for the Texas Department of Transportation where we were the lead manager. We expect a gradual improvement in underwriting activity as the year progresses.

Fixed income brokerage performed in line with our expectations for the quarter as our trading and investing activities experienced a rate environment that was generally constructive. We continue to manage our business on the premise of gradually rising rate environment for the year.

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