Piper Jaffray Companies (NYSE: PJC) today announced net income
of $7.1 million, or $0.36 per diluted common share, for the third
quarter ended September 30, 2010, compared to net income of $9.3
million, or $0.47 per diluted common share, for the third quarter
of 2009 and net income of $7.4 million, or $0.36 per diluted common
share, for the second quarter of 2010. Third quarter 2010 net
revenues were $116.5 million, compared to $119.7 million in the
year-ago period, and $127.7 million for the second quarter of
2010.
There were two non-core items that impacted third quarter 2010
financial results:
- A decrease in compensation expense of
$4.0 million after-tax, or $0.20 per diluted share, ($6.6 million
pre-tax) related to the reversal of previously recognized expense
for performance-based restricted stock awards that are no longer
expected to be earned.
- A $1.1 million after-tax, or $0.06 per
diluted share, ($1.3 million pre-tax) charge, related to the firm’s
plans to restructure its European operations, and for headcount
reductions in the Capital Markets segment. The firm expects to
incur an estimated additional restructuring charge of between
$7.5-$9.0 million in the fourth quarter of 2010 related to the
restructuring plan for its European operations as more fully
described below in the Capital Markets business segment
results.
For the nine months ending September 30, 2010, net income was
$14.9 million, or $0.75 per diluted common share, compared to $18.1
million, or $0.93 per diluted common share, in 2009. Net revenues
were $353.7 million for the nine months, up 5 percent compared to
the prior year.
“Our third quarter financial results reflected the lower
activity industry-wide in growth company IPOs and reduced equity
trading volumes. However, fixed income institutional brokerage
revenues rebounded from the difficult sequential second quarter,
advisory services revenues continued the solid trend, and municipal
financing revenues were at the highest level year-to-date,” said
Andrew S. Duff, chairman and chief executive officer.
Duff added: “We expect the economic recovery will proceed at a
slower pace than originally anticipated earlier in the year, which
will keep capital markets activity below historical levels for the
next 12-18 months. Therefore, we expect the improvement in our
business will also be slower than anticipated, but we are committed
to improving our profitability and achieving a competitive return
on equity. Our financial performance in Asia has been improving and
the business is profitable. Our business in Europe continues to be
challenged given the economic and market headwinds. During the
quarter, we re-evaluated our European strategy and plan to
restructure our operations to focus resources on two areas of
strength: the distribution of U.S. and Asia securities to European
institutional investors, and M&A advisory services aligned with
our core global industry teams.”
Consolidated ExpensesFor the third quarter, compensation
and benefits expenses were $66.1 million, which included a $6.6
million reversal of a previously recognized compensation expense
related to a performance-based restricted stock grant awarded to
the firm’s senior leadership team in May 2008. This performance
grant requires the firm to meet a return on adjusted common equity
target of 11 percent over a twelve-month period by May 2013. If the
target is met, the award vests in its entirety. Given current
financial results and the economic environment, management has now
determined it is not probable that the return on equity target will
be achieved. Therefore, the previously recognized expense was
reversed in the current period.
For the third quarter, compensation as a percentage of net
revenues was 56.7 percent. The reversal of the prior compensation
expense reduced the ratio by 5.6 percentage points. Compensation as
a percentage of net revenues was 60.0 percent for the third quarter
of 2009 and 60.9 for the second quarter of 2010.
Non-compensation expenses were $36.8 million, an increase of 14
percent compared to the third quarter of 2009, mainly driven by
expenses related to Advisory Research, including intangible
amortization, and the restructuring charge. Non-compensation costs
decreased 3 percent compared to the second quarter of 2010.
Business Segment ResultsThe firm has two reportable
business segments: Capital Markets and Asset Management.
Consolidated net revenues and expenses are fully allocated to these
two segments.
Capital MarketsCapital Markets generated pre-tax
operating income of $9.3 million, compared to $15.0 million in the
third quarter of 2009, and $8.9 million in the second quarter of
2010. Net revenues were $99.4 million, down 14 percent and 11
percent compared to the year-ago period and the second quarter of
2010, respectively.
- Equity financing revenues were $19.8
million, an increase of 12 percent compared to the third quarter of
2009, mainly driven by increased revenues from Asia financings.
Revenues decreased 43 percent compared to the second quarter of
2010, due to fewer completed transactions, particularly IPOs.
- Fixed income financing revenues were
$16.5 million, down 20 percent compared to the robust revenues
during the same period last year, and up 15 percent compared to the
second quarter of 2010, due to a higher number of transactions
completed.
- Advisory services revenues were $20.6
million, up 103 percent compared to the year-ago period, resulting
from a higher aggregate value of completed transactions and higher
revenue per transaction. Advisory services revenues were down 11
percent compared to the second quarter of 2010, mainly due to fewer
completed transactions.
- Equity institutional brokerage revenues
were $24.3 million, down 23 percent and 12 percent, compared to the
third quarter of 2009 and the second quarter of 2010, respectively.
The decreases were mainly attributable to lower client volumes in
U.S. equity securities.
- Fixed income institutional brokerage
revenues were $20.2 million, down 37 percent compared to the very
robust year-ago period, and up 107 percent compared to the
difficult second quarter of 2010. The increased revenues were
mainly driven by improved performance in municipal products.
- The firm plans to restructure its
European operations to focus resources on two areas: the
distribution of U.S. and Asia securities to European institutional
investors, and merger and acquisition advisory services. As a
result of the restructuring, the firm will exit the origination and
distribution of European securities, and expects to incur an
estimated restructuring charge of between $8.3-$9.8 million, the
majority of which will be recorded in the fourth quarter of 2010. A
total of $0.8 million was recorded in the third quarter of 2010
related to this restructuring. The firm will now be entering into a
period of consultation with employees and expects to complete the
transition by December 31, 2010.
- An additional $0.3 million (after-tax)
restructuring charge was recorded in the third quarter for a small
number of headcount reductions across Capital Markets.
- Operating expenses for the quarter were
$90.1 million, down 11 percent and 13 percent, compared to the
third quarter in 2009 and the second quarter of 2010, respectively.
The decreased expenses were mainly due to lower compensation
expenses as a result of the reversal of previously recognized
expense related to the performance-based restricted stock
award.
The following is a recap of completed deal information for the
third quarter of 2010:
- 17 equity financings raising a total of
$2.6 billion in capital.
- 161 tax-exempt issues with a total par
value of $2.1 billion.
- 9 merger and acquisition transactions
with an aggregate enterprise value of $1.5 billion. (The number of
deals and the enterprise value include disclosed and undisclosed
transactions.)
Asset ManagementFor the quarter ended September 30, 2010,
asset management generated pre-tax operating income of $4.3
million, compared to $0.5 million in the third quarter of 2009, and
$3.0 million in the second quarter of 2010. Net revenues were $17.0
million, compared to $3.8 million in the year-ago period, primarily
attributable to the acquisition of Advisory Research. Asset
management revenues increased 9 percent compared to the second
quarter of 2010.
- Operating expenses for the quarter were
$12.7 million, compared to $3.2 million in the prior-year period,
mainly attributable to the addition of Advisory Research expenses.
Operating expenses were essentially the same as in the second
quarter of 2010.
- Assets under management (AUM) were
$12.8 billion, compared to $6.7 billion a year ago. The increase
was attributable to the acquisition of Advisory Research. AUM
increased by $1.0 billion compared to the second quarter of 2010,
which was mainly driven by the increase in equity prices during the
quarter, offset in part by net asset outflows of $200 million.
Other MattersIn the third quarter of 2010, $15.2 million,
or 540,532 shares, of the firm’s common stock were repurchased
pursuant to a share repurchase authorization. The average price per
share repurchased was $28.16. The firm has $59.8 million remaining
on a share repurchase authorization which expires on September 30,
2012.
Additional Shareholder Information
As of Sep. 30, 2010 As of June 30,
2010 As of Sep. 30, 2009 Number of
employees: 1,082 1,083
1,024
Asset ManagementAUM:
$12.8 billion $11.8 billion
$6.7 billion Shareholders’ equity: $804.7
million $817.0 million $781.8
million
Annualized Qtrly.Return on
Avg.AdjustedShareholders’ Equity1
4.0%
4.0%
5.5%
Book value per share: $54.73
$53.71 $48.94
Tangible book valueper
share2:
$28.97 $28.67 $38.10
1Adjusted shareholders’ equity equals total shareholders’
equity, including goodwill associated with acquisitions, less
goodwill resulting from the 1998 acquisition of our predecessor
company, Piper Jaffray Companies Inc., by U.S. Bancorp. Annualized
return on average adjusted shareholders’ equity is computed by
dividing annualized net income by average monthly adjusted
shareholders’ equity. Management believes that annualized return on
adjusted shareholders’ equity is a meaningful measure of
performance because it reflects equity deployed in our businesses
after our spin off from U.S. Bancorp on December 31, 2003. The
following table sets forth a reconciliation of shareholders’ equity
to adjusted shareholders’ equity. Shareholders’ equity is the most
directly comparable GAAP financial measure to adjusted
shareholders’ equity.
Average for the Three Months Ended Three Months Ended
Three Months Ended (Dollars in thousands) Sept. 30, 2010
June 30, 2010 Sept. 30, 2009 Shareholders' equity $ 813,318
$ 836,210 $ 779,810 Deduct: goodwill attributable to PJC
Inc. acquisition by USB 105,522 105,522
105,522 Adjusted shareholders' equity $ 707,796 $ 730,688 $
674,288
2Tangible shareholders’ equity equals total shareholders’ equity
less all goodwill and identifiable intangible assets. Tangible book
value per share is computed by dividing tangible shareholders’
equity by common shares outstanding. Management believes that
tangible book value per share is a more meaningful measure of our
book value per share. Shareholders’ equity is the most directly
comparable GAAP financial measure to tangible shareholders’ equity.
The following is a reconciliation of shareholders’ equity to
tangible shareholders’ equity:
As of As of As of (Dollars in thousands) Sept.
30, 2010 June 30, 2010 Sept. 30, 2009 Shareholders' equity $
804,682 $ 817,025 $ 781,750 Deduct: goodwill and
identifiable intangible assets 378,697 380,880
173,117 Tangible shareholders' equity $ 425,985 $ 436,145 $
608,633
Conference CallAndrew S. Duff, chairman and chief
executive officer, and Debbra L. Schoneman, chief financial
officer, will host a conference call to discuss second quarter
results on Wednesday, October 20, at 9 a.m. ET (8 a.m. CT). The
call can be accessed via live audio webcast available through the
firm's Web site at www.piperjaffray.com or by dialing (800)
768-8804, or (212) 231-2903 internationally, and referencing
reservation #21483850. Callers should dial in at least 15 minutes
early to receive instructions. A replay of the conference call will
be available beginning at approximately 11 a.m. ET on October 20 at
the same Web address or by calling (800) 633-8284 and referencing
reservation #21483850.
About Piper JaffrayPiper Jaffray Companies (NYSE: PJC) is
a leading, international investment bank and institutional
securities firm, serving the needs of corporations, private equity
groups, public entities, nonprofit clients and institutional
investors. Founded in 1895, Piper Jaffray provides a broad set of
products and services, including equity and debt capital markets
products; public finance services; financial advisory services;
equity and fixed-income institutional brokerage; equity research
and fixed income analytics; and asset management services. Piper
Jaffray headquarters are located in Minneapolis, Minnesota, with
offices across the U.S. and in London and Hong Kong. Piper Jaffray
& Co. is the firm's principal operating subsidiary.
(www.piperjaffray.com)
Cautionary Note Regarding Forward-Looking StatementsThis
press release and the conference call to discuss the contents of
this press release contain forward-looking statements. Statements
that are not historical or current facts, including statements
about beliefs and expectations, are forward-looking statements and
are subject to significant risks and uncertainties that are
difficult to predict. These forward-looking statements cover, among
other things, statements made about general economic and market
conditions, anticipated financial results (including expectations
regarding revenue and expense levels, operating margins, the
compensation ratio, earnings per share, and return on equity), the
environment and prospects for capital markets transactions and
institutional brokerage activity, current deal pipelines, return on
equity performance and its impact on a long-term, performance-based
equity award, the estimated restructuring charge related to, and
future profitability of, our European operations, hiring activity
and business prospects in Asia, tax rates, or other similar
matters. These statements involve inherent risks and uncertainties,
both known and unknown, and important factors could cause actual
results to differ materially from those anticipated or discussed in
the forward-looking statements, including (1) market and economic
conditions or developments may be unfavorable, including in
specific sectors in which we operate, and these conditions or
developments (including market fluctuations or volatility) may
adversely affect the environment for capital markets transactions
and activity and our business, revenue levels and profitability,
(2) the volume of anticipated investment banking transactions
as reflected in our deal pipelines (and the net revenues we earn
from such transactions) may differ from expected results if any
transactions are delayed or not completed at all or if the terms of
any transactions are modified, (3) we may not be able to compete
successfully with other companies in the financial services
industry, (4) our ability to manage expenses may be limited by the
fixed nature of certain expenses as well as the impact from
unanticipated expenses, (5) anticipated restructuring charges and
tax rates involve significant judgment by management and could vary
from estimates, (6) the business operations that we conduct outside
of the United States, including in Asia, subject us to unique
risks, (7) hiring of additional senior talent may not yield the
benefits we anticipate or yield them within expected timeframes,
and (8) the other factors described under “Risk Factors” in
Part I, Item 1A of our Annual Report on Form 10-K for the
year ended December 31, 2009 and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in
Part II, Item 7 of our Annual Report on Form 10-K for the
year ended December 31, 2009, and updated in our subsequent
reports filed with the SEC (available at our Web site at
www.piperjaffray.com and at the SEC Web site at www.sec.gov).
Forward-looking statements speak only as of the date they are made,
and readers are cautioned not to place undue reliance on them. We
undertake no obligation to update them in light of new information
or future events.
© 2010 Piper Jaffray & Co., 800 Nicollet Mall, Suite 800,
Minneapolis, Minnesota 55402-7020
Piper Jaffray Companies
Preliminary Unaudited Results of
Operations Three Months Ended Percent
Inc/(Dec) Nine Months Ended Sept. 30, Jun.
30, Sept. 30, 3Q '10 3Q '10 Sept.
30, Sept. 30, Percent (Amounts in thousands,
except per share data)
2010 2010 2009 vs.
2Q '10 vs. 3Q '09 2010 2009
Inc/(Dec) Revenues: Investment banking $ 56,243 $
71,745 $ 48,115 (21.6 ) % 16.9 % $ 171,736 $ 134,615 27.6 %
Institutional brokerage 40,432 32,084 59,576 26.0 (32.1 ) 121,611
175,455 (30.7 ) Interest 11,497 14,313 11,854 (19.7 ) (3.0 ) 39,259
29,024 35.3 Asset management 16,812 15,873 3,568 5.9 371.2 41,839
9,817 326.2 Other income/(loss) (368 ) 3,495
3,340 N/M N/M 6,054
(1,209 ) N/M Total revenues 124,616 137,510 126,453
(9.4 ) (1.5 ) 380,499 347,702 9.4 Interest expense
8,153 9,857 6,784 (17.3 ) 20.2
26,797 11,861 125.9
Net revenues 116,463 127,653
119,669 (8.8 ) (2.7 ) 353,702
335,841 5.3
Non-interest expenses:
Compensation and benefits 66,058 77,678 71,802 (15.0 ) (8.0 )
208,832 201,503 3.6 Occupancy and equipment 8,853 8,056 7,703 9.9
14.9 24,578 21,901 12.2 Communications 5,943 6,199 5,474 (4.1 ) 8.6
18,631 17,003 9.6 Floor brokerage and clearance 2,879 3,307 2,974
(12.9 ) (3.2 ) 8,803 9,088 (3.1 ) Marketing and business
development 5,863 6,095 5,498 (3.8 ) 6.6 17,280 13,362 29.3 Outside
services 7,945 7,735 6,234 2.7 27.4 23,684 21,168 11.9
Restructuring-related expenses 1,333 - - N/M N/M 1,333 3,572 (62.7
) Other operating expenses 4,011 6,747
4,402 (40.6 ) (8.9 ) 15,992
10,700 49.5 Total non-interest expenses
102,885 115,817 104,087 (11.2 )
(1.2 ) 319,133 298,297 7.0
Income before income tax expense 13,578 11,836 15,582
14.7 (12.9 ) 34,569 37,544 (7.9 ) Income tax expense
6,524 4,458 6,316 46.3
3.3 19,627 19,427 1.0
Net income 7,054 7,378
9,266 (4.4 ) (23.9 ) 14,942
18,117 (17.5 )
Net income allocated to restricted
participating shares (1,639 ) (1,666 )
(1,690 ) (1.6 ) (3.0 ) (3,271 ) (3,254 ) 0.5
Net income applicable to common shareholders $ 5,415
$ 5,712 $ 7,576 (5.2 ) % (28.5 ) % $ 11,671
$ 14,863 (21.5 ) %
Earnings per common
share Basic $ 0.36 $ 0.36 $ 0.47 0.0 % (23.8 ) % $ 0.75 $ 0.93
(19.4 ) % Diluted $ 0.36 $ 0.36 $ 0.47 0.0 % (23.3 ) % $ 0.75 $
0.93 (19.4 ) %
Weighted average number of common shares
outstanding Basic 15,035 15,901 16,031 (5.4 ) % (6.2 ) % 15,588
16,001 (2.6 ) % Diluted 15,038 15,925 16,131 (5.6 ) % (6.8 ) %
15,626 16,039 (2.6 ) % N/M - Not meaningful
Piper
Jaffray Companies
Preliminary Unaudited Segment Data
Three Months Ended Percent Inc/(Dec) Nine
Months Ended Sept. 30, Jun. 30, Sept. 30,
3Q '10 3Q '10 Sept. 30, Sept. 30,
Percent (Dollars in thousands)
2010 2010
2009 vs. 2Q '10 vs. 3Q '09 2010
2009 Inc/(Dec) Capital Markets
Investment banking Financing Equities $ 19,839 $ 34,776 $ 17,769
(43.0 ) % 11.6 % $ 71,603 $ 45,126 58.7 % Debt 16,486 14,355 20,493
14.8 (19.6 ) 46,022 53,007 (13.2 ) Advisory services 20,595
23,197 10,138 (11.2 ) 103.1
55,767 38,527 44.7 Total
investment banking 56,920 72,328 48,400 (21.3 ) 17.6 173,392
136,660 26.9 Institutional sales and trading Equities 24,292
27,501 31,438 (11.7 ) (22.7 ) 78,720 92,484 (14.9 ) Fixed income
20,159 9,733 32,101 107.1
(37.2 ) 57,268 95,072 (39.8 )
Total institutional sales and trading 44,451 37,234 63,539 19.4
(30.0 ) 135,988 187,556 (27.5 ) Other income/(loss)
(1,956 ) 2,423 3,954 N/M N/M
2,452 1,644 49.1
Net revenues 99,415 111,985 115,893 (11.2 ) (14.2 ) 311,832 325,860
(4.3 ) Operating expenses 90,136
103,114 100,852 (12.6 ) (10.6 ) 286,276
286,305 - Segment pre-tax
operating income $ 9,279 $ 8,871 $ 15,041 4.6
% (38.3 ) % $ 25,556 $ 39,555 (35.4 ) %
Segment pre-tax operating margin 9.3 % 7.9 % 13.0 % 8.2 % 12.1 %
Asset Management Management and
performance fees $ 16,812 $ 15,873 $ 3,568 5.9 % 371.2 % $ 41,839 $
9,817 326.2 % Other income/(loss) 236
(205 ) 208 N/M 13.5 31
164 (81.1 ) Net revenues 17,048 15,668 3,776
8.8 351.5 41,870 9,981 319.5 Operating expenses
12,749 12,703 3,235 0.4
294.1 32,857 11,992 174.0
% Segment pre-tax operating income/(loss) $ 4,299 $
2,965 $ 541 45.0 % 694.6 % $ 9,013
$ (2,011 ) N/M Segment pre-tax operating
margin 25.2 % 18.9 % 14.3 % 21.5 % (20.1 )%
Total Net revenues $ 116,463 $ 127,653 $ 119,669 (8.8
) % (2.7 ) % $ 353,702 $ 335,841 5.3 % Operating expenses
102,885 115,817 104,087
(11.2 ) (1.2 ) 319,133 298,297 7.0
Total segment pre-tax operating income $ 13,578
$ 11,836 $ 15,582 14.7 % (12.9 ) % $
34,569 $ 37,544 (7.9 ) % Pre-tax operating
margin 11.7 % 9.3 % 13.0 % 9.8 % 11.2 % N/M - Not meaningful
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