Piper Jaffray Companies (NYSE: PJC) today announced net income
of $9.4 million, or $0.49 per diluted common share, for the fourth
quarter ended Dec. 31, 2010. These results were reduced by $0.48
per diluted common share, due to a $9.1 million after-tax charge
($9.5 million pre-tax), substantially all of which related to the
previously-announced restructuring of the firm’s European
operations. On a non-GAAP, core basis for the quarter, which
excludes the restructuring charge, results were $0.97 per diluted
common share. For the fourth quarter of 2009, Piper Jaffray
recorded net income of $12.3 million, or $0.63 per diluted common
share, and net income of $7.1 million, or $0.36 per diluted common
share, for the third quarter of 2010. Fourth quarter 2010 net
revenues were a record $176.4 million, compared to $132.9 million
in the year-ago period, and $116.5 million for the third quarter of
2010.
For the year ended Dec. 31, 2010, net income was $24.4 million,
or $1.23 per diluted common share, which included $10.2 million
(after-tax) of restructuring charges and $4.0 million
(after-tax)for the reversal of previously recognized expense
related to performance-based restricted stock awards. In 2009, net
income was $30.4 million, or $1.55 per diluted common share. Net
revenues were $530.1 million for the twelve months ended Dec. 31,
2010, up 13 percent compared to last year, the highest since Piper
Jaffray became a public company in 2003.
“We are very pleased with our strong fourth quarter results,
reflecting solid performance in all of our businesses,” said Andrew
S. Duff, chairman and chief executive officer. “In 2010, we took
actions to improve our profitability and return on equity for the
longer term. We materially diversified our business mix with the
addition of Advisory Research and the improved profitability of
FAMCO. For 2010, asset management comprised 13 percent of total net
revenues and 28 percent of operating income, up from 3 percent and
a loss in 2009, respectively. Also, we completed a significant
restructuring of our European operations. Europe will continue to
be an important market for us in distributing U.S. and Asia
securities and facilitating global M&A business, but we will no
longer originate or distribute European securities.”
Duff added: “In 2011, we remain committed to further improving
our productivity, profit margins and return on equity. We are
optimistic about how our firm is positioned against an improving
macroeconomic backdrop, yet are cautious about the potential for
volatile periods in the capital markets in the year ahead.”
Fourth QuarterConsolidated ExpensesFor the fourth
quarter, compensation and benefits expenses were $106.4 million
compared to $79.8 million in the fourth quarter of 2009, and $66.1
million in the third quarter of 2010. Compensation and benefits
expenses increased compared to both periods due to the improved
performance during the quarter. Also, the third quarter of 2010
included a $6.6 million reversal of previously recognized
compensation expense related to performance-based restricted stock
grant awards that are no longer expected to be earned.
For the fourth quarter, compensation and benefits expenses as a
percentage of net revenues were 60.3 percent, compared to 60.0
percent for the fourth quarter of 2009 and 56.7 for the third
quarter of 2010, which was reduced by 5.6 percentage points due to
the reversal of previously recognized compensation expense as
described above.
Non-compensation expenses were $46.9 million, an increase of 37
percent compared to the fourth quarter of 2009, mainly due to the
$9.5 million (pre-tax) restructuring charge and the addition of
Advisory Research, which increased intangible amortization expense.
Fourth quarter non-compensation expenses increased 27 percent
compared to the third quarter of 2010, mainly driven by the $9.5
million restructuring charge.
Fourth QuarterBusiness Segment Results
The 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 $16.0 million, which was reduced by $9.4
million (pre-tax) of restructuring charges, compared to $18.7
million in the fourth quarter of 2009, and $9.3 million in the
third quarter of 2010. Net revenues of $151.0 million rose 18
percent and 52 percent, compared to the year-ago period and the
third quarter of 2010, respectively.
- Equity financing revenues of $42.1
million rose 15 percent and 112 percent, compared to the fourth
quarter of 2009 and the third quarter of 2010, respectively, and
were the highest since the fourth quarter of 2007. The number of
completed transactions doubled compared to the sequential third
quarter, and strong financing activity in the U.S. and Asia drove
the improved performance.
- Fixed income financing revenues were
$19.9 million, down 24 percent from the very strong fourth quarter
of 2009, and up 21 percent compared to the third quarter of 2010,
mainly due to a higher number of completed public finance
transactions.
- Advisory services revenues of $34.6
million rose 215 percent and 68 percent, compared to the year-ago
period and the third quarter of 2010, respectively, and were the
highest since the fourth quarter of 2007. The improved performance
resulted from a higher aggregate value of completed transactions
and higher revenue per transaction.
- Equity institutional brokerage revenues
were $27.5 million, down 2 percent compared to the year-ago period,
and up 13 percent compared to the third quarter of 2010, mainly
driven by higher client activity in the U.S. and Asia.
- Fixed income institutional brokerage
revenues were $22.6 million, up 2 percent compared to the year-ago
period, and up 12 percent compared to the third quarter of 2010.
Municipal product revenues, which contribute a majority of fixed
income institutional brokerage revenues, made a strong contribution
to results, despite the challenging municipal market conditions
during the fourth quarter.
- In the fourth quarter, the firm
recorded an $8.6 million charge related to the restructuring of its
European operations. Going forward, Piper Jaffray will focus
resources on two areas: the distribution of U.S. and Asia
securities to European institutional investors, and merger and
acquisition advisory services, which are aligned with the firm’s
global sector focus areas. The firm exited the origination and
distribution of European securities.
- An additional $0.8 million (pre-tax)
restructuring charge was recorded in the fourth quarter for a small
number of headcount reductions.
- Operating expenses for the quarter were
$135.0 million, up 24 percent and 50 percent, compared to the
fourth quarter of 2009 and the third quarter of 2010, respectively.
The increased expenses were mainly due to higher compensation
expenses and the restructuring charges. Segment pre-tax operating
margin was 10.6 percent, which was reduced by 6.2 percentage points
due to the restructuring charges, and compared to 14.6 percent and
9.3 percent in the year-ago period and the sequential third
quarter, respectively.
The following is a recap of completed deal information for the
fourth quarter of 2010:
- 35 equity financings raising a total of
$4.0 billion in capital.
- 170 tax-exempt issues with a total par
value of $2.7 billion.
- 15 merger and acquisition transactions
with an aggregate enterprise value of $3.5 billion. (The number of
deals and the enterprise value include disclosed and undisclosed
transactions.)
Asset ManagementFor the quarter ended Dec. 31, 2010,
asset management generated pre-tax operating income of $7.1
million, compared to $0.3 million in the fourth quarter of 2009,
and $4.3 million in the third quarter of 2010. Net revenues of
$25.3 million rose from $4.9 million in the year-ago period,
primarily attributable to the acquisition of Advisory Research.
Revenues rose 49 percent, or $8.3 million, compared to the third
quarter of 2010, mainly driven by performance fees.
- Performance fees, the majority of which
are recorded in the fourth quarter if earned, were $7.6 million,
compared to $0.7 million in the fourth quarter of 2009 and $0.7
million in the third quarter of 2010. Asset management has five
strategies with performance-based fee arrangements; the largest
contributors were the energy fund and microcap value fund.
- Operating expenses for the quarter were
$18.2 million, including $2.2 million of intangible amortization
expense, compared to $4.6 million last year, mainly attributable to
the addition of Advisory Research. Operating expenses rose 43
percent compared to the third quarter of 2010, mainly due to higher
compensation expenses as a result of improved performance. Segment
pre-tax operating margin was 28.1 percent compared to 6.3 percent
in the year-ago period and 25.2 percent in the third quarter of
2010.
- Assets under management (AUM) were
$12.3 billion, compared to $6.9 billion a year ago and $12.8
billion in the third quarter of 2010. The increase compared to last
year was mainly attributable to the acquisition of Advisory
Research. The decrease compared to the third quarter of 2010 was
driven by FAMCO client outflows offset in part by positive client
inflows at Advisory Research, and market appreciation of client
assets.
Other MattersIn the fourth quarter of 2010, $2.4 million,
or 84,005 shares, of the firm’s common stock was repurchased
pursuant to a share repurchase authorization. The average price per
share repurchased was $28.62. The firm has $57.4 million remaining
on a share repurchase authorization which expires on Sep. 30,
2012.
Full Year 2010Consolidated ExpensesFor the year
ended Dec. 31, 2010, compensation and benefits expenses were $315.2
million, up 12 percent compared to $281.3 million in 2009. The
increase was attributable to higher revenues, including ten months
of Advisory Research revenues.
Non-compensation expenses were $157.2 million, up 20 percent
compared to 2009, mainly due to restructuring charges related to
the firm’s European operations and the addition of Advisory
Research, including intangible amortization expense.
Full Year 2010Business Segment Results
Capital MarketsFor the year ended Dec. 31, 2010, Capital
Markets generated pre-tax operating income of $41.6 million,
compared to $59.3 million in 2009. The lower results were primarily
due to higher restructuring charges and a lower contribution from
fixed income institutional brokerage. Net revenues were $462.9
million, up 2 percent compared to the year-ago period. Equity
financing and advisory services revenues substantially increased
compared to the prior year, and were largely offset by decreased
revenues in debt financings and institutional brokerage.
Operating expenses for the year were $421.3 million, up 7
percent compared to 2009, due to higher compensation expenses, and
higher non-compensation expenses, driven by restructuring charges.
For the year, segment pre-tax operating margin was 9.0 percent
compared to 13.1 percent in 2009.
The following is a recap of completed deal information for the
full year of 2010:
- 96 equity financings raising a total of
$11.9 billion in capital.
- 567 tax-exempt issues with a total par
value of $8.1 billion.
- 47 merger and acquisition transactions
with an aggregate enterprise value of $11.3 billion. (The number of
deals and the enterprise value include disclosed and undisclosed
transactions.)
Asset ManagementFor the year ended Dec. 31, 2010, Asset
Management generated pre-tax operating income of $16.1 million,
compared to a loss of $2.8 million in 2009. Net revenues were $67.2
million compared to $14.9 million last year. The significant
increase in revenues was driven by the acquisition of Advisory
Research and performance fees.
Operating expenses for the year were $51.1 million, including
$7.5 million of intangible amortization expense, compared to $17.7
million in 2009. Segment pre-tax operating margin was 24.0 percent
compared to (18.5) percent last year.
Other MattersFor the full year, $47.6 million, or
1,517,587 shares, of the firm’s common stock was repurchased
pursuant to a share repurchase authorization. The average price per
share repurchased was $31.37.
Additional Shareholder Information
As of Dec. 31, 2010 As
of Sep. 30, 2010 As of Dec. 31, 2009
Number of employees: 1,031
1,082 1,039
Asset Management
$12.3 billion $12.8
billion $6.9 billion AUM:
Shareholders’ equity:
$813.3 million
$804.7 million $778.6
million Annualized Qtrly. Return on Avg.
5.4%
4.0%
7.3%
Adjusted
Shareholders’ Equity1
Book value per share: $55.50
$54.73 $49.80 Tangible book
value $29.42 $28.97 $38.50
per share2:
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) Dec. 31, 2010 Sept. 30, 2010 Dec. 31, 2009
Shareholders' equity $ 809,154 $ 813,318 $ 780,592 Deduct:
goodwill attributable to PJC Inc. acquisition by USB 105,522
105,522 105,522 Adjusted shareholders' equity
$ 703,632 $ 707,796 $ 675,070
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) Dec. 31, 2010 Sept. 30, 2010 Dec. 31, 2009
Shareholders' equity $ 813,312 $ 804,682 $ 778,616
Deduct: goodwill and identifiable intangible assets 382,174
378,697 176,692 Tangible shareholders' equity
$ 431,138 $ 425,985 $ 601,924
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 Wed., Jan. 26, 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) 732-5617, or (212)
231-2921 internationally, and referencing reservation #21506751.
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 Jan. 26 at the same Web
address or by calling (800) 633-8284 and referencing reservation
#21506751.
About Piper JaffrayPiper Jaffray is a leading middle
market investment bank and asset management firm serving clients in
the U.S. and internationally. A proven advisory team combines deep
industry, product and sector expertise with ready access to global
capital. Founded in 1895, the firm is headquartered in Minneapolis
and has offices across the United States and in London and Hong
Kong. 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 (including the municipal market), anticipated financial
results (including expectations regarding operating margins,
earnings per share, return on equity, and productivity and revenue
and expense levels), the environment and prospects for capital
markets transactions, current deal pipelines, our five-year
strategic and other growth priorities (including significant
revenue growth for our corporate advisory and public finance
businesses, investments in our Asia-based business, growth in our
asset management business (and in the revenue yield thereof), and
expansion of middle market, fixed income sales), the earnings per
share and return on equity benefits from our European
restructuring, our 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 (including the municipal
market), and these conditions or developments, such as market
fluctuations or volatility, may adversely affect 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, which may impact our ability to achieve our growth
priorities and objectives, (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) the business operations
that we conduct outside of the United States, including in Asia,
subject us to unique risks, (6) hiring of additional senior talent
may not yield the benefits we anticipate or yield them within
expected timeframes, and (7) 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.
© 2011 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) Twelve Months Ended Dec. 31, Sept.
30, Dec. 31, 4Q '10 4Q '10 Dec. 31,
Dec. 31, Percent (Amounts in thousands, except per
share data)
2010 2010 2009 vs. 3Q '10
vs. 4Q '09 2010 2009 Inc/(Dec)
Revenues:
Investment banking $ 94,650 $ 56,243 $ 73,086 68.3 % 29.5 % $
266,386 $ 207,701 28.3 % Institutional brokerage 46,343 40,432
45,662 14.6 1.5 167,954 221,117 (24.0 ) Interest 12,592 11,497
11,627 9.5 8.3 51,851 40,651 27.6 Asset management 24,988 16,812
4,864 48.6 413.7 66,827 14,681 355.2
Other income/(loss)
5,989 (368 ) 3,940 N/M
52.0 12,043 2,731 341.0
Total revenues 184,562 124,616 139,179 48.1 32.6 565,061 486,881
16.1 Interest expense 8,190 8,153
6,230 0.5 31.5 34,987
18,091 93.4 Net revenues
176,372 116,463 132,949 51.4
32.7 530,074 468,790 13.1
Non-interest expenses: Compensation and
benefits 106,371 66,058 79,774 61.0 33.3 315,203 281,277 12.1
Occupancy and equipment 9,019 8,853 7,804 1.9 15.6 33,597 29,705
13.1 Communications 5,983 5,943 5,679 0.7 5.4 24,614 22,682 8.5
Floor brokerage and clearance 2,823 2,879 2,860 (1.9 ) (1.3 )
11,626 11,948 (2.7 ) Marketing and business development 6,435 5,863
5,607 9.8 14.8 23,715 18,969 25.0 Outside services 8,436 7,945
8,489 6.2 (0.6 ) 32,120 29,657 8.3 Restructuring-related expenses
9,530 1,333 - 614.9 N/M 10,863 3,572 204.1 Other operating expenses
4,628 4,011 3,728 15.4
24.1 20,620 14,428 42.9
Total non-interest expenses 153,225
102,885 113,941 48.9 34.5
472,358 412,238 14.6
Income
before income tax expense 23,147 13,578 19,008 70.5 21.8 57,716
56,552 2.1 Income tax expense 13,727
6,524 6,756 110.4 103.2
33,354 26,183 27.4
Net
income 9,420 7,054 12,252
33.5 (23.1 ) 24,362 30,369
(19.8 )
Net income allocated to restricted
participating shares (2,222 ) (1,639 )
(2,243 ) 35.6 (0.9 ) (5,433 ) (5,481 ) (0.9 )
Net income applicable to common shareholders $ 7,198
$ 5,415 $ 10,009 32.9 % (28.1 ) % $
18,929 $ 24,888 (23.9 ) %
Earnings per
common share Basic $ 0.49 $ 0.36 $ 0.63 36.6 % (22.3 ) % $ 1.23
$ 1.56 (21.0 ) % Diluted $ 0.49 $ 0.36 $ 0.63 36.6 % (21.9 ) % $
1.23 $ 1.55 (20.8 ) %
Weighted average number of common
shares outstanding Basic 14,635 15,035 15,803 (2.7 ) % (7.4 ) %
15,348 15,952 (3.8 ) % Diluted 14,639 15,038 15,908 (2.7 ) % (8.0 )
% 15,378 16,007 (3.9 ) % N/M - Not meaningful
Piper Jaffray
Companies Preliminary Unaudited Segment Data
Three Months Ended Percent Inc/(Dec) Twelve
Months Ended Dec. 31, Sept. 30, Dec. 31,
4Q '10 4Q '10 Dec. 31, Dec. 31,
Percent (Dollars in thousands)
2010 2010
2009 vs. 3Q '10 vs. 4Q '09 2010
2009 Inc/(Dec) Capital Markets
Investment banking Financing Equities $ 42,108 $ 19,839 $ 36,542
112.2 % 15.2 % $ 113,711 $ 81,668 39.2 % Debt 19,936 16,486 26,097
20.9 (23.6 ) 65,958 79,104 (16.6 ) Advisory services 34,629
20,595 10,991 68.1 215.1
90,396 49,518 82.6 Total
investment banking 96,673 56,920 73,630 69.8 31.3 270,065 210,290
28.4 Institutional sales and trading Equities 27,486 24,292
28,004 13.1 (1.8 ) 106,206 120,488 (11.9 ) Fixed income
22,565 20,159 22,104 11.9
2.1 79,833 117,176 (31.9 ) Total
institutional sales and trading 50,051 44,451 50,108 12.6 (0.1 )
186,039 237,664 (21.7 ) Other income/(loss) 4,311
(1,956 ) 4,278 N/M 0.8
6,763 5,922 14.2 Net
revenues 151,035 99,415 128,016 51.9 18.0 462,867 453,876 2.0
Operating expenses 134,999 90,136
109,319 49.8 23.5 421,275
394,566 6.8 Segment pre-tax
operating income $ 16,036 $ 9,279 $ 18,697
72.8 % (14.2 ) % $ 41,592 $ 59,310 (29.9 ) %
Segment pre-tax operating margin 10.6 % 9.3 % 14.6 % 9.0 %
13.1 %
Asset Management Management and
performance fees $ 24,988 $ 16,812 $ 4,864 48.6 % 413.7 % $ 66,827
$ 14,681 355.2 % Other income 349 236
69 47.9 405.8 380
233 63.1 Net revenues 25,337 17,048
4,933 48.6 413.6 67,207 14,914 350.6 Operating expenses
18,226 12,749 4,622 43.0
294.3 % 51,083 17,672
189.1 % Segment pre-tax operating income/(loss) $
7,111 $ 4,299 $ 311 65.4 % N/M $
16,124 $ (2,758 ) N/M Segment pre-tax
operating margin 28.1 % 25.2 % 6.3 % 24.0 % N/M
Total Net revenues $ 176,372 $ 116,463 $ 132,949 51.4
% 32.7 % $ 530,074 $ 468,790 13.1 % Operating expenses
153,225 102,885 113,941
48.9 34.5 472,358 412,238
14.6 Total segment pre-tax operating income $ 23,147
$ 13,578 $ 19,008 70.5 % 21.8 %
$ 57,716 $ 56,552 2.1 % Pre-tax
operating margin 13.1 % 11.7 % 14.3 % 10.9 % 12.1 % N/M -
Not meaningful
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