PIPER SANDLER COMPANIES quarterly report, Q2 FY2018

完整文档

Piper Jaffray Companies — Q2 2018 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2018; comparisons are with the corresponding 2017 periods. The filing identifies the registrant as Piper Jaffray Companies, not Piper Sandler Companies.

Business and results

The company operates Capital Markets, providing investment banking and institutional brokerage services, and Asset Management, providing traditional and alternative investment management. Amounts below are in U.S. dollars.

  • Q2 revenue and earnings: Net revenues were $173.5 million, down 12.3%. Net income applicable to Piper Jaffray was $6.2 million, down 54.1%; diluted EPS was $0.43, compared with $0.89.
  • First-half revenue and earnings: Net revenues were $342.5 million, down 14.0%. Net income applicable to the company was $16.8 million, down 50.3%; diluted EPS was $0.91, compared with $2.21.
  • Revenue drivers: Q2 investment banking revenue fell 10.6% to $123.9 million, institutional brokerage fell 10.9% to $33.0 million, and asset management revenue fell 16.1% to $12.7 million. First-half declines were 9.6%, 20.4%, and 18.8%, respectively. Higher equity financing revenue partly offset declines in advisory, debt financing, brokerage, and asset management; investment income was also substantially lower.
  • Expenses and margins: Q2 non-interest expenses declined 5.4% to $168.2 million, but rose to 97.0% of net revenue from 90.0%; pretax margin fell to 3.0% from 10.0%. First-half non-interest expenses declined 7.4% to $329.2 million, while pretax margin declined to 3.9% from 10.7%. Compensation expense fell, but reported non-compensation expense included deal-related costs and restructuring charges.
  • Cash flow: First-half operating cash flow was $292.7 million, versus $161.2 million a year earlier. Cash decreased $7.8 million to $26.0 million. Operating cash flow benefited materially from a $541.5 million reduction in net financial instruments and inventory positions; financing cash outflow was $293.8 million, including a $238.2 million reduction in short-term financing and $36.0 million of dividends.

Balance sheet, debt and liquidity

  • At June 30, total assets were $1.515 billion, down from $2.025 billion at year-end 2017, largely reflecting lower securities inventory. Shareholders’ equity was $737.2 million.
  • Short-term financing was $51.7 million on the statement of financial condition, versus $289.9 million at December 31; senior notes remained $125 million. The notes bear 5.06% interest and mature October 9, 2018.
  • The company reported $167.3 million of broker-dealer net capital, $166.3 million above the SEC minimum. Certain financing and clearing arrangements impose higher net-capital covenants, including a $120 million requirement.
  • Available facilities included a $200 million committed secured revolving line and an $85 million uncommitted secured line; neither had borrowings at quarter-end. Other funding depends on counterparties, collateral and market conditions. The filing also reports $164.7 million outstanding under a separate prime-broker arrangement related to convertible securities inventories.
  • Adjusted leverage declined to 2.3x from 3.2x at year-end, which management attributed to lower inventory balances.

Changes, unusual items and outlook

  • New revenue-recognition rules, adopted January 1, 2018, require client-reimbursed deal expenses to be presented gross as revenue and expense. This increased Q2 revenue and expenses by $6.2 million and first-half amounts by $11.2 million, with no earnings impact. Adoption reduced retained earnings by $3.6 million, net of tax. The rules also defer certain alternative-fund performance fees until reversal is no longer probable; the first-half effect was not material.
  • The company recorded $3.8 million of restructuring costs, principally severance, related to headcount reductions in Capital Markets and Asset Management. Management said it did not anticipate additional restructuring costs in 2018.
  • Q2 adjusted diluted EPS, a non-GAAP measure, was $0.92 versus $1.40; first-half adjusted diluted EPS was $2.29 versus $3.18. Management’s adjustments exclude specified noncontrolling-interest, acquisition-related, tax and dividend effects; these measures are not substitutes for GAAP results.
  • Management expected moderate U.S. economic growth and constructive equity-market conditions to support advisory and equity financing activity, and anticipated meaningful improvement in advisory revenue in the second half based on its deal pipeline. It expected municipal issuance to be down for 2018 overall versus 2017 but to strengthen in the second half.
  • Management expected ongoing pressure on equity brokerage from MiFID II-related separation of execution and research payments, and continued challenges for fixed-income brokerage from low rates and a flatter yield curve. Asset management remained exposed to market valuations, investment performance and client flows. These are expectations, not guarantees; the filing provides no specific full-year earnings or revenue guidance.
  • Other exposures include $15.1 million of uncollateralized derivative credit exposure, including $12.0 million to one counterparty; $76.9 million of investment commitments; and $75.3 million of operating lease commitments. The company described pending legal and regulatory matters, but said reasonably possible losses above accruals were not material and did not expect pending matters to have a material adverse effect based on information then available.

Key facts for investors to verify

  • Confirm the registrant’s identity: this filing is for Piper Jaffray Companies, despite the request metadata naming Piper Sandler Companies.
  • Review the October 9, 2018 senior-note maturity and the company’s refinancing or repayment plans.
  • Assess whether the expected second-half advisory recovery and municipal-market improvement materialized, alongside continued brokerage and asset-management pressures.
  • Reconcile the sharp reduction in reported short-term financing with funding disclosed through clearing and prime-broker arrangements, including the separate convertible-inventory financing.
  • Distinguish GAAP earnings from adjusted non-GAAP results and account for the new deal-expense presentation and special dividend when comparing periods.