Piper Jaffray Companies — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. The filing identifies the registrant as Piper Jaffray Companies; the request metadata says Piper Sandler Companies.
Business context
The company provides investment banking, institutional brokerage and asset management services through its Capital Markets and Asset Management segments. Unless noted otherwise, financial amounts below are in U.S. dollars.
Key financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenues | $154.7 million | $165.9 million | $493.3 million | $515.8 million |
| Net revenues | $149.6 million | $159.4 million | $475.6 million | $497.6 million |
| Income before tax | $6.8 million | $25.7 million | $63.9 million | $88.8 million |
| Net income attributable to Piper Jaffray Companies | $4.8 million | $14.7 million | $38.8 million | $50.6 million |
| Diluted EPS | $0.32 | $0.90 | $2.46 | $3.11 |
| Pre-tax operating margin | 4.5% | 16.1% | 13.4% | 17.9% |
Revenue drivers: Q3 investment banking revenue was $91.6 million, institutional brokerage $34.2 million, asset management $19.0 million, interest revenue $9.1 million and investment income $0.8 million. For the first nine months, investment banking was $284.8 million, institutional brokerage $106.9 million and asset management $58.7 million.
Cash flow: For the first nine months, operating activities provided $290.3 million, investing activities used $11.5 million and financing activities used $250.3 million. Cash and cash equivalents ended the period at $44.0 million, up from $15.9 million at year-end 2014. Operating cash flow benefited from changes in operating assets and liabilities; it should not be read as recurring earnings.
Balance sheet and funding: At September 30, total assets were $2.30 billion, total liabilities $1.47 billion and total shareholders’ equity $832.6 million. Short-term financing was $415.7 million, and variable-rate senior notes were $125.0 million. The company reported a 2.8x leverage ratio and a 3.4x adjusted leverage ratio. U.S. broker-dealer net capital was $156.5 million, $155.5 million above the SEC minimum.
Material changes versus comparable periods
- Q3 net revenues fell 6.2%; attributable net income fell 67.1% and diluted EPS fell from $0.90 to $0.32. The nine-month declines were 4.4% in net revenues and 23.4% in attributable net income.
- Q3 advisory services revenue declined 29.2% to $47.0 million, while equity financing revenue rose 71.3% to $24.4 million and debt financing revenue rose 41.8% to $20.5 million. Fixed-income brokerage weakened amid challenging markets and reduced customer flows.
- Q3 asset management fees decreased 13.6% to $17.1 million, and the segment recorded a $5.1 million investment loss. Total assets under management fell to $9.4 billion from $12.2 billion a year earlier, mainly reflecting market depreciation and value-equity outflows.
- Non-interest expenses rose 6.8% in Q3 to $142.8 million, primarily due to a $9.8 million municipal-derivatives litigation charge. Compensation expense was lower in dollars, but higher as a share of net revenues: 64.3% versus 61.0%.
- The company repurchased 1.80 million shares for $92.1 million under its existing authorization during the first nine months, and authorized an additional $150 million share-repurchase program. It paid no cash dividend.
Outlook, unusual items and risks
- Management gave qualitative, not numerical, full-year earnings guidance. It expected $6.0–$7.0 million of additional restructuring and integration costs in Q4 2015 and anticipated additional intangible-asset amortization from acquisitions.
- Management described economic and market conditions as uncertain, with potential volatility in equity and debt markets. It expected advisory services to continue performing well, while noting that sustained market volatility could disrupt capital raising. Municipal underwriting volumes could be affected by interest-rate uncertainty.
- Management said energy exposure, including MLP strategies and energy holdings, hurt Q3 assets under management; it believed MLP valuations might be oversold and could recover in Q4. This was an expectation, not a guarantee.
- River Branch, an equity investment banking boutique, was acquired on September 30. BMO GKST, a municipal bond business, was acquired on October 9, after quarter-end; its results were to be included prospectively. Purchase-price allocations were not final, and transaction terms were not disclosed.
- On October 8, the company issued $125 million of fixed-rate Class C Notes bearing 5.06% and maturing in 2018. This followed the quarter-end balance sheet, which showed $125 million of variable-rate notes; the filing describes the new agreement as a replacement financing.
- A term sheet proposed a $9.8 million settlement of the municipal-derivatives antitrust class action, subject to a final agreement and court approval. Separate California and New York litigation remained ongoing.
- Uncollateralized derivative credit exposure was $25.9 million, including $17.5 million with one counterparty. The company also had $37.4 million of investment commitments. Market, liquidity, counterparty, legal, regulatory and operational risks could affect results.
- The company said it was in compliance with debt covenants at September 30. Its $250 million committed revolving facility was due December 18, 2015, and management anticipated renewal. Some other funding lines were uncommitted or dependent on collateral and lender discretion.
Important facts for investors to verify
- Confirm the registrant and issuer identity: this filing is for Piper Jaffray Companies, notwithstanding the request metadata’s Piper Sandler name.
- Track court approval and final terms of the proposed $9.8 million settlement, and the status and potential exposure of the related separate lawsuits.
- Review Q4 restructuring and integration costs, acquisition-related amortization, and the final accounting for River Branch and BMO GKST.
- Monitor renewal or replacement of the committed credit facility, the October note refinancing, short-term funding access and regulatory net-capital headroom.
- Assess whether AUM, energy/MLP valuations, value-equity flows and fee yields stabilize or continue to pressure asset management revenue.
- Consider the non-GAAP adjusted results separately from GAAP results; adjustments exclude specified items, including restructuring, acquisition-related amortization and noncontrolling interests.