Piper Jaffray Companies Announces 2004 Third Quarter Results
MINNEAPOLIS, Oct. 20 /PRNewswire-FirstCall/ -- Piper Jaffray
Companies (NYSE:PJC) today announced net income of $11.8 million,
or $0.61 per diluted share, for the quarter ended Sept. 30, 2004,
down from $16.0 million, or $0.83 per diluted share, for the
year-ago period. Net income totaled $13.0 million, or $0.67 per
diluted share in the second quarter of 2004. Net revenues for the
third quarter were $186.2 million, down 11.6 percent and 10.2
percent from the third quarter of 2003 and the second quarter of
2004, respectively. For the first nine months, net income improved
31.3 percent to $38.5 million, and earnings per diluted share rose
30.1 percent to $1.99 compared to the year-ago period. Net revenues
increased to $602.9 million year-to-date, up 3.1 percent over the
first nine months of 2003. "Our third quarter results reflect the
continued challenging market conditions," said chairman and chief
executive officer Andrew S. Duff. "Despite the short-term market
challenges, we remain focused on positioning our firm for
long-term, profitable growth. In that regard, during the quarter we
were very pleased to announce the definitive agreement to acquire
Vie Securities, LLC, which we believe will enable us to fulfill the
increasing client demand for automated, cost-effective equity
execution services." Results of Operations Net Revenues Due to
challenging market conditions, third quarter net revenues declined
$24.5 million, or 11.6 percent, from the year-ago period, in which
the firm recorded its strongest quarterly revenues for 2003.
Revenues from principal transactions decreased by $11.8 million, or
22.8 percent, primarily driven by lower fixed-income institutional
sales and trading activity. The fixed-income business had achieved
near-record revenues in the third quarter of 2003, driven by
high-yield corporate bonds where the firm has proprietary research
capabilities. Third quarter investment banking revenues declined by
$9.8 million, or 13.1 percent, due to fewer equity underwriting
transactions, which were relatively strong in the year-ago period
due to a rebound from soft markets in the first half of 2003.
Commissions and fees declined by $2.6 million compared to the third
quarter of 2003 as a result of reduced private client activity and
fewer financial advisors. Compared to the second quarter of 2004,
net revenues declined $21.1 million. Contributing to the decline
were lower revenues in Private Client Services, institutional sales
and trading, and equity investment banking. Non-Interest Expenses
For the quarter, non-interest expenses were $167.7 million, down
9.3 percent from the third quarter of 2003 due mainly to lower
variable compensation costs. Non-compensation expenses were $53.5
million, an improvement of 3.5 percent compared to the third
quarter of 2003. Lower litigation-related expenses were offset by
increases from investments in technology and additional expenses to
support expanded fixed-income sales and trading capabilities and
new public company costs. Compared to the second quarter of 2004,
non-interest expenses improved 10.2 percent, primarily due to lower
variable compensation costs. For the quarter, pre-tax operating
margin was 10.0 percent, down from the 12.3 percent recorded for
the year-ago period but consistent with the pre-tax margin for the
prior quarter. Business Segment Review Capital Markets Capital
Markets recorded $101.3 million in net revenues for the quarter,
down $19.0 million, or 15.8 percent, from the year-ago period.
Segment pre- tax operating income for the quarter decreased 31.0
percent to $17.3 million compared to the third quarter of 2003, in
which Capital Markets recorded its strongest quarterly revenues for
2003. Fixed-income institutional sales and trading revenues
declined by $8.6 million, as the third quarter of last year had
very strong results in high-yield corporate bonds where the firm
has proprietary research capabilities. Equity underwriting declined
$8.2 million from the third quarter of 2003; equity underwriting
revenues had rebounded in the year-ago period relative to soft
markets in the first half of 2003. Public finance underwriting and
mergers and acquisitions revenues were consistent with the year-ago
period. Compared to the second quarter of 2004, Capital Markets
revenues declined $12.3 million, or 10.8 percent. The primary
contributor of the decline was institutional sales and trading
revenues, which softened by $9.7 million due to lower trading
volumes during the summer months. Segment operating expenses for
the quarter were $84.0 million, a decrease of $11.3 million, or
11.8 percent, from the same period a year ago, primarily driven by
lower variable compensation expenses. Segment pre-tax operating
margin was 17.1 percent, a decline from the 20.8 percent recorded
in the year-ago period. The decline was primarily due to lower
revenues. Despite the challenging markets, the firm maintained or
improved its industry rankings for completed deals. Public finance
underwriting was the most active in terms of both the number of
transactions and par amount since the second quarter of 2003.
Following is a recap of completed deals and industry rankings
(based on the number of transactions completed) during the third
quarter of 2004. -- 19 equity offerings, raising a total of $3.2
billion in capital, and placing the firm 10th nationally. These
results compare to completion of 24 equity offerings in the same
quarter last year for a total of $3.5 billion in capital raised.
(Source: Dealogic) -- 13 M&A transactions with an enterprise
value of $2.0 billion, ranking ninth among all advisors. In the
same period last year the firm completed 13 transactions with an
enterprise value of $1.9 billion. Among middle market advisors
(which excludes investment banks with average deal size greater
than $500 million), the firm ranked second nationally. (Source:
Mergerstat) -- 140 tax-exempt issues with a total par value of $1.5
billion, ranking the firm fourth nationally. In the third quarter
of last year, the firm completed 115 tax-exempt issues nationally,
with a total par value of $1.2 billion. In the Upper Midwest, the
firm completed 80 public finance issues during the quarter with a
total par value of $0.6 billion, ranking the firm the lead
underwriter of Upper Midwest tax-exempt issues. (Source: Thomson
Financial) Private Client Services Private Client Services recorded
net revenues of $83.7 million, down $6.0 million, or 6.6 percent,
compared to the third quarter of 2003 due to lower private client
activity and fewer financial advisors. Net revenues slowed 4.9
percent compared to second quarter of 2004 as private client
activity decreased due to uncertainties in the financial markets
and the slower summer trading months. Segment pre-tax operating
income was $12.1 million, down 3.6 percent from the third quarter
of 2003 and up 2.4 percent compared to the second quarter of 2004.
Segment operating expenses were $71.6 million for the quarter, a
7.1 percent improvement from the year-ago period, primarily due to
reduced variable compensation costs. Segment pre-tax operating
margin was 14.5 percent, up from both the 14.0 percent margin in
the third quarter of 2003 and the 13.4 percent margin for the
second quarter of 2004. Corporate Support and Other Corporate
Support and Other pre-tax operating loss was $9.6 million for the
third quarter, an improvement of $1.0 million over the third
quarter of 2003 and essentially unchanged from the second quarter
of 2004. Additional Shareholder Information As of Sept. 30, As of
June 30, As of Sept. 30, 2004 2004 2003 Full Time Employees: 3,029
3,043 2,994 Financial Advisors: 853 850 883 Client Assets: $49
billion $49 billion $48 billion Shareholders' equity: $715.0
million $700.7 million $634.4 million Book value per share: $36.98
$36.24 $32.94 Tangible book value per share: $21.17 $20.43 $17.07
Conference Call Andrew S. Duff, chairman and chief executive
officer, and Sandra G. Sponem, chief financial officer, will host a
conference call to discuss third quarter 2004 financial results on
Wednesday, Oct. 20, 2004, at 11 a.m. ET (10 a.m. CT). The call can
be accessed via live audio webcast available through the firm's web
page, http://www.piperjaffray.com/ , or by dialing (800) 374-0255,
or (706) 643-7489 international, and refer to conference ID 1077232
and the leader's name, Andrew Duff. Callers should dial in at least
15 minutes early to receive instructions. A replay of the
conference call will be available beginning at approximately 1 p.m.
ET Oct. 20 at the same web address or by calling (800) 642-1687 or
(706) 645-9291 international. About Piper Jaffray Companies Piper
Jaffray Companies (NYSE:PJC) is a focused securities firm dedicated
to delivering superior financial advice, investment products and
transaction execution within selected sectors of the financial
services marketplace. The company operates through two primary
revenue-generating segments: Capital Markets and Private Client
Services. Investment Research, an independent group reporting to
the CEO, supports clients of both segments. Through its chief
operating subsidiary, Piper Jaffray & Co., the firm has served
corporations, government and non-profit entities, institutional
investors and the financial advisory needs of private individuals
since 1895. Headquartered in Minneapolis, Piper Jaffray has
approximately 3,000 employees in 111 offices in 23 states across
the country and in London. For more information about Piper
Jaffray, visit us online at http://www.piperjaffray.com/ . Since
1895. Member SIPC and NYSE. Cautionary Note Regarding
Forward-Looking Statements This press release contains
forward-looking statements. Statements that are not historical or
current facts, including statements about beliefs and expectations,
are forward-looking statements. These forward-looking statements
cover, among other things, the future prospects of Piper Jaffray
Companies. Forward-looking statements involve inherent risks and
uncertainties, and important factors could cause actual results to
differ materially from those anticipated, including the following:
(1) we may experience increased costs resulting from decreased
purchasing power and size compared to that previously provided by
our association with U.S. Bancorp, (2) we compete with U.S. Bancorp
with respect to clients we both serviced prior to our spin-off from
U.S. Bancorp and may not be able to retain these clients, (3) the
continued ownership of U.S. Bancorp common stock and options by our
executive officers and some of our directors will create, or will
appear to create, conflicts of interest, (4) we have agreed to
certain restrictions to preserve the tax treatment of the spin-off,
which reduce our strategic and operating flexibility, (5) we have
agreed to indemnify U.S. Bancorp for taxes and related losses
resulting from any actions we take that cause the spin-off to fail
to qualify as a tax-free transaction, (6) the separation and
distribution agreement entered into between U.S. Bancorp and us
contains cross-indemnification obligations of U.S. Bancorp and us
that either party may be unable to satisfy, (7) developments in
market and economic conditions have in the past adversely affected,
and may in the future adversely affect, our business and
profitability, (8) we may not be able to compete successfully with
other companies in the financial services industry, (9) our
underwriting and market-making activities may place our capital at
risk, (10) an inability to readily divest or transfer trading
positions may result in financial losses to our business, (11) use
of derivative instruments as part of our risk management techniques
may place our capital at risk, while our risk management techniques
themselves may not fully mitigate our market risk exposure, (12) an
inability to access capital readily or on terms favorable to us
could impair our ability to fund operations and could jeopardize
our financial condition, (13) we may make strategic acquisitions of
businesses or may divest or exit existing businesses, which could
cause us to incur unforeseen expense and have disruptive effects on
our business but may not yield the benefits we expect, (14) our
technology systems are critical components of our operations and
the failure of those systems may disrupt our business, cause
financial loss and constrain our growth, (15) our business is
subject to extensive regulation that limits our business
activities, and a significant regulatory action against our company
may have a material adverse financial effect or cause significant
reputational harm, (16) regulatory capital requirements may
adversely affect our ability to expand or maintain present levels
of our business or impair our ability to meet our financial
obligations, (17) our exposure to legal liability is significant,
and could lead to substantial damages and restrictions on our
business going forward, (18) we may suffer losses if our reputation
is harmed, (19) provisions in our certificate of incorporation and
bylaws and of Delaware law may prevent or delay an acquisition of
our company, which could decrease the market value of our common
stock, (20) other factors identified in the document entitled "Risk
Factors" filed as Exhibit 99.1 to our Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004, and in our subsequent reports
filed with the SEC. These reports are available at our Web site at
http://www.piperjaffray.com/ and at the SEC's Web site at
http://www.sec.gov/ . Forward-looking statements speak only as of
the date they are made, and we undertake no obligation to update
them in light of new information or future events. Piper Jaffray
Companies Preliminary Unaudited Results of Operations Percent
Inc/(Dec) For the Three Months Ended 3Q04 3Q04 (Amounts in
September 30, June 30, September 30, vs. vs. thousands, except 2004
2004 2003 2Q04 3Q03 per share data) Revenues: Commissions and fees
$61,187 $65,776 $63,797 (7.0)% (4.1)% Principal transactions 39,813
50,243 51,592 (20.8) (22.8) Investment banking 65,204 68,180 74,992
(4.4) (13.1) Interest 10,667 11,088 10,358 (3.8) 3.0 Other income
13,571 16,407 14,161 (17.3) (4.2) Total revenues 190,442 211,694
214,900 (10.0) (11.4) Interest expense 4,217 4,391 4,225 (4.0)
(0.2) Net revenues 186,225 207,303 210,675 (10.2) (11.6)
Non-interest expenses: Compensation and benefits 114,197 127,690
129,455 (10.6) (11.8) Occupancy and equipment 14,968 13,683 13,623
9.4 9.9 Communications 10,558 10,712 9,100 (1.4) 16.0 Floor
brokerage and clearance 4,068 4,559 5,700 (10.8) (28.6) Marketing
and business development 9,723 11,131 8,576 (12.6) 13.4 Outside
services 11,215 9,922 9,763 13.0 14.9 Cash award program 1,219
1,269 - (3.9) N/M Royalty fee - - 1,128 N/M N/M Other operating
expenses 1,702 7,647 7,476 (77.7) (77.2) Total non-interest
expenses 167,650 186,613 184,821 (10.2) (9.3) Income before income
tax expense 18,575 20,690 25,854 (10.2) (28.2) Income tax expense
6,806 7,710 9,824 (11.7) (30.7) Net income $11,769 $12,980 $16,030
(9.3)% (26.6)% Earnings per common share Basic $0.61 $0.67 $0.83
(9.0)% (26.5)% Diluted $0.61 $0.67 $0.83 (9.0)% (26.5)% Weighted
average number of common shares Basic 19,333 19,333 19,260 0.0 %
0.4 % Diluted 19,387 19,395 19,260 (0.0)% 0.7 % N/M - Not
Meaningful Piper Jaffray Companies Preliminary Unaudited Results of
Operations For the Nine Months Ended September 30, September 30,
Percent (Amounts in thousands, except per 2004 2003 Inc/(Dec) share
data) Revenues: Commissions and fees $196,475 $189,139 3.9 %
Principal transactions 142,132 162,126 (12.3) Investment banking
198,246 170,750 16.1 Interest 34,218 33,665 1.6 Other income 44,378
44,231 0.3 Total revenues 615,449 599,911 2.6 Interest expense
12,521 14,979 (16.4) Net revenues 602,928 584,932 3.1 Non-interest
expenses: Compensation and benefits 371,594 365,431 1.7 Occupancy
and equipment 42,383 40,297 5.2 Communications 31,728 27,584 15.0
Floor brokerage and clearance 13,427 17,527 (23.4) Marketing and
business development 31,516 27,284 15.5 Outside services 30,295
27,355 10.7 Cash award program 3,559 - N/M Royalty fee - 3,107 N/M
Other operating expenses 16,989 30,090 (43.5) Total non-interest
expenses 541,491 538,675 0.5 Income before income tax expense
61,437 46,257 32.8 Income tax expense 22,898 16,912 35.4 Net income
$38,539 $29,345 31.3 % Earnings per common share Basic $1.99 $1.53
30.1 % Diluted $1.99 $1.53 30.1 % Weighted average number of common
shares Basic 19,333 19,224 0.6 % Diluted 19,383 19,224 0.8 % N/M -
Not Meaningful Piper Jaffray Companies Preliminary Unaudited
Segment Data Percent Inc/(Dec) For the Three Months Ended 3Q04 3Q04
September 30, June 30, September 30, vs. vs. (Dollars in thousands)
2004 2004 2003 2Q04 3Q03 Capital Markets Net revenues $101,282
$113,598 $120,323 (10.8)% (15.8)% Operating expenses 83,984 93,565
95,248 (10.2) (11.8) Segment pre-tax operating income $17,298
$20,033 $25,075 (13.7)% (31.0)% Segment operating margin 17.1%
17.6% 20.8% Private Client Services Net revenues $83,727 $88,071
$89,688 (4.9)% (6.6)% Operating expenses 71,623 76,251 77,137 (6.1)
(7.1) Segment pre-tax operating income $12,104 $11,820 $12,551 2.4
% (3.6)% Segment operating margin 14.5% 13.4% 14.0% Corporate
Support and Other Net revenues $1,216 $5,634 $664 (78.4)% 83.1 %
Operating expenses 10,824 15,528 11,308 (30.3) (4.3) Segment
pre-tax operating loss $(9,608) $(9,894) $(10,644) (2.9)% (9.7)%
Segment operating margin N/M N/M N/M Reconciliation to total income
before taxes: Total segment pre-tax operating income $19,794
$21,959 $26,982 (9.9)% (26.6)% Royalty fee - - 1,128 N/M N/M Cash
award program 1,219 1,269 - (3.9) N/M Total income before tax
expense $18,575 $20,690 $25,854 (10.2)% (28.2)% Pre-tax operating
margin 10.0% 10.0% 12.3% N/M - Not Meaningful Piper Jaffray
Companies Preliminary Unaudited Segment Data For the Nine Months
Ended September 30, September 30, Percent (Dollars in thousands)
2004 2003 Inc/(Dec) Capital Markets Net revenues $326,760 $319,616
2.2 % Operating expenses 269,790 260,768 3.5 Segment pre-tax
operating income $56,970 $58,848 (3.2)% Segment operating margin
17.4% 18.4% Private Client Services Net revenues $267,340 $263,292
1.5 % Operating expenses 231,146 243,478 (5.1) Segment pre-tax
operating income $36,194 $19,814 82.7 % Segment operating margin
13.5% 7.5% Corporate Support and Other Net revenues $8,828 $2,024
336.2 % Operating expenses 36,996 31,322 18.1 Segment pre-tax
operating loss $(28,168) $(29,298) (3.9)% Segment operating margin
N/M N/M Reconciliation to total income before taxes: Total segment
pre-tax operating income $64,996 $49,364 31.7 % Royalty fee - 3,107
N/M Cash award program 3,559 - N/M Total income before tax expense
$61,437 $46,257 32.8 % Pre-tax operating margin 10.2% 7.9% N/M -
Not Meaningful Piper Jaffray Companies Preliminary Unaudited
Supplemental Information Percent Inc/(Dec) For the Three Months
Ended 3Q04 3Q04 September 30, June 30, September 30, vs. vs.
(Dollars in thousands) 2004 2004 2003 2Q04 3Q03 Capital Markets
Institutional Sales Fixed Income $13,154 $18,876 $21,717 (30.3)%
(39.4)% Equities 26,318 30,268 29,789 (13.1) (11.7) Total
Institutional Sales 39,472 49,144 51,506 (19.7) (23.4) Investment
Banking Underwriting Fixed Income 18,223 14,540 18,727 25.3 (2.7)
Equities 16,836 20,888 25,066 (19.4) (32.8) Mergers and
Acquisitions 23,083 26,399 22,454 (12.6) 2.8 Total Investment
Banking 58,142 61,827 66,247 (6.0) (12.2) Net Interest 3,196 3,151
2,362 1.4 35.3 Other Income 472 (524) 208 190.1 126.9 Capital
Markets Net Revenues $101,282 $113,598 $120,323 (10.8)% (15.8)%
Piper Jaffray Companies Preliminary Unaudited Supplemental
Information For the Nine Months Ended September 30, September 30,
Percent (Dollars in thousands) 2004 2003 Inc/(Dec) Capital Markets
Institutional Sales Fixed Income $51,326 $75,459 (32.0)% Equities
91,073 88,882 2.5 Total Institutional Sales 142,399 164,341 (13.4)
Investment Banking Underwriting Fixed Income 47,484 49,862 (4.8)
Equities 64,642 47,400 36.4 Mergers and Acquisitions 62,634 48,870
28.2 Total Investment Banking 174,760 146,132 19.6 Net Interest
8,653 6,904 25.3 Other Income 948 2,239 (57.7) Capital Markets Net
Revenues $326,760 $319,616 2.2 % DATASOURCE: Piper Jaffray
Companies CONTACT: Jennifer A. Olson-Goude, Investor Relations,
+1-612-303-6277, or Dana H. Wade, Public Affairs and Media
Relations, +1-415-277-1556, both of Piper Jaffray Companies Web
site: http://www.piperjaffray.com/
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