Piper Jaffray Companies (NYSE: PJC) today announced net income
of $2.9 million, or $0.15 per diluted common share, for the quarter
ended Mar. 31, 2012. Results included $3.4 million, or $0.18 per
diluted common share, of additional income tax expense for writing
off equity-related deferred tax assets. For the first quarter of
2011, net income was $7.2 million, or $0.38 per diluted common
share. For the fourth quarter of 2011, the firm recorded non-GAAP
net income of $2.1 million(1), or $0.11(1) per diluted common
share. On a GAAP basis, the net loss for the fourth quarter was
$116.4 million, or $7.38 per diluted common share. The non-GAAP
results excluded the $118.4 million after-tax goodwill impairment
charge that the firm recorded in the fourth quarter.
For the first quarter of 2012, net revenues were $117.7 million,
compared to $124.8 million in the year-ago period and $99.2 million
in the sequential fourth quarter.
“Against a more positive operating environment, we were pleased
with our improved first quarter results. Compared to the fourth
quarter of 2011, net revenues increased 19% and pre-tax profit on a
non-GAAP basis increased seven-fold,” said Andrew S. Duff, chairman
and chief executive officer. “Stronger fixed income sales and
trading and equity financing revenues, and solid asset management
and public finance results drove the improved performance.”
First QuarterConsolidated ExpensesFor the first
quarter of 2012, compensation and benefits expenses were $73.5
million, down 3% compared to $75.5 million in the first quarter of
2011. Compensation and benefits expenses increased 15% compared to
the fourth quarter of 2011 due to improved financial results.
For the first quarter of 2012, compensation and benefits
expenses were 62.4% of net revenues, compared to 60.5% and 64.4%
for the first and fourth quarters of 2011, respectively. The
compensation ratio declined 50 basis points from the full-year 2011
compensation ratio of 62.9%, which the firm believes is a more
accurate comparison.
Non-compensation expenses were $31.8 million, down 16% from
$37.7 million in the year-ago period, mainly driven by cost-saving
initiatives executed during 2011. Non-compensation expenses
decreased 6% from non-GAAP non-compensation expenses of $33.7
million(2) in the fourth quarter of 2011. On a GAAP basis,
including the $120.3 million pre-tax goodwill impairment charge,
non-compensation expenses were $154.0 million in the fourth quarter
of 2011.
Other MattersIn the first quarter of 2012, the firm
incurred $3.4 million of additional income tax expense for writing
off deferred tax assets related to equity grants that either vested
at share prices lower than the grant date share price, or that were
forfeited.
In the first quarter of 2012, the firm repurchased $7.0 million,
or 287,788 shares, of its common stock at an average price of
$24.46 per share. The firm has $44.3 million remaining on its share
repurchase authorization, which expires on Sept. 30, 2012. In
addition, the firm acquired $8.4 million, or 352,838 shares,
related to employee tax obligations on the vesting of equity
awards.
First QuarterBusiness 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 MarketsFor the first quarter, Capital Markets
generated pre-tax operating income of $7.9 million, compared to
$7.3 million in the year-ago period and a non-GAAP, pre-tax
operating loss of $2.5 million(3) in the fourth quarter of 2011. On
a GAAP basis, including the $120.3 million pre-tax goodwill
impairment charge, Capital Markets generated a pre-tax operating
loss of $122.8 million in the fourth quarter of 2011.
Net revenues were $99.7 million, down 7% compared to the
year-ago period. Revenues rose 22% compared to the sequential
fourth quarter, primarily driven by significantly improved fixed
income institutional brokerage revenues.
- Equity financing revenues of $23.4
million decreased 5% compared to the first quarter of 2011.
Revenues increased 38% compared to the fourth quarter of 2011, as
equity financing activity began to increase.
- Fixed income financing revenues were
$14.8 million, up 53% compared to the first quarter of 2011, when
public finance financing activity industry-wide was particularly
low. Revenues decreased 3% compared to the fourth quarter of
2011.
- Advisory services revenues were $11.3
million, down 16% compared to the first quarter of 2011, and down
43% compared to the fourth quarter of 2011. The uncertain
macroeconomic environment during the last half of 2011 resulted in
fewer completed transactions in the first quarter of 2012.
- Equity institutional brokerage revenues
were $22.3 million, down 14% compared to the first quarter of 2011,
due to a decline in client volumes consistent with industry trends.
Revenues increased 2% compared to the fourth quarter of 2011.
- Fixed income institutional brokerage
revenues were $28.5 million, down 2% compared to the first quarter
of 2011. Compared to the fourth quarter of 2011, revenues increased
156%, mainly driven by tightened credit spreads, which benefitted
the firm’s strategic trading business and the new Municipal
Opportunities Fund. Also, an improved municipal trading environment
and new hires in the middle market sales group contributed to the
increased revenues.
- Operating expenses for the quarter were
$91.8 million, down 8% compared to the first quarter of 2011,
resulting from lower compensation and non-compensation expenses.
Compared to the fourth quarter of 2011, operating expenses
increased 9% over non-GAAP expenses of $84.4 million(4) due to
higher compensation expenses, offset in part by lower
non-compensation expenses. On a GAAP basis, with the goodwill
impairment charge, operating expenses were $204.7 million in the
fourth quarter of 2011.
- For the first quarter of 2012, the
segment pre-tax operating margin was 7.9%, compared to 6.8% in the
year-ago quarter and a negative 3.1%(3) on a non-GAAP basis in the
fourth quarter of 2011.
Asset ManagementFor the quarter ended Mar. 31, 2012,
asset management generated pre-tax operating income of $4.5
million, up 6% compared to the first quarter of 2011 and up 8%
compared to the fourth quarter of 2011. Net revenues were $18.0
million, down 1% and up 4%, compared to first and fourth quarters
of 2011, respectively.
- Operating expenses for the quarter were
$13.5 million, down 3% and up 3% compared to the first and fourth
quarters of 2011, respectively. Segment pre-tax operating margin
was 25.1%, compared to 23.5% in the year-ago period and 24.1% in
the fourth quarter of 2011. The increase compared to both periods
was mainly driven by lower non-compensation expenses.
- Assets under management (AUM) were
$13.3 billion compared to $12.8 billion in the year-ago period and
$12.2 billion in the fourth quarter of 2012. The improvement in AUM
compared to the sequential fourth quarter was driven equally by
positive net cash inflows and market appreciation.
Additional Shareholder Information
As of Mar. 31, 2012 As of Dec. 31, 2011
As of Mar 31., 2011 Number of employees
1,006 1,011 1,046 Equity
financings # of transactions
22 12 19 Capital raised $3.4
billion $2.8 billion $2.5 billion
Tax-exempt issuance # of transactions 139
144 88 Par value $2.3 billion
$2.2 billion $1.0 billion Mergers
& acquisitions # of transactions 6
13 8 Aggregate deal value $0.7
billion $1.4 billion $1.0 billion
Asset Management AUM
$13.3 billion
$12.2 billion
$12.8 billion
Common shareholders’ equity:
$721.8 million
$718.4 million
$833.6 million
Annualized qtrly. return on avg.
1.6%(5)
1.1%(6)
4.0%(5)
common shareholders’ equity
Book value per share: $44.15
$45.61 $52.73 Tangible book value
per share((7)): $28.75 $29.51
$28.68
Conference CallAndrew S. Duff, chairman and chief
executive officer, and Debbra L. Schoneman, chief financial
officer, will hold a conference call to review the financial
results Wed., Apr. 18 at 9 a.m. ET (8 a.m. CT). The earnings
release will be available on or after Apr. 18 at the firm’s Web
site at www.piperjaffray.com. The call can be accessed via webcast
or by dialing (888)810- 0209 and referencing reservation #96211037.
Callers should dial in at least 15 minutes prior to the call time.
A replay of the conference call will be available beginning at
approximately 11 a.m. ET Apr. 18 at the same Web address or by
calling (855)859-2056 and referencing reservation #96211037.
About Piper JaffrayPiper Jaffray is an investment bank
and asset management firm serving clients in the U.S. and
internationally. Proven advisory teams combine 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, Hong Kong and
Zurich. 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, our strategic priorities (including growth in public
finance, asset management, and corporate advisory), the amount and
timing of cost reduction measures and our quarterly run-rate for
non-compensation expenses, anticipated financial results generally
(including expectations regarding revenue levels, operating
margins, our compensation ratio, earnings per share, and return on
equity), the environment and prospects for capital markets
transactions (including for our Asia-based business), current deal
pipelines (or backlogs) 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, 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) our stock price may
fluctuate as a result of several factors, including but not limited
to, changes in our revenues and operating results, (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,
2011 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, 2011, 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.
© 2012 Piper Jaffray Companies, 800 Nicollet Mall, Suite 800,
Minneapolis, Minnesota 55402-7020
Piper Jaffray Companies
Preliminary Unaudited Results of Operations
Three Months Ended Percent Inc/(Dec) Mar.
31, Dec. 31, Mar. 31, 1Q '12 1Q '12
(Amounts in thousands, except per share data)
2012
2011 2011 vs. 4Q '11 vs. 1Q '11
Revenues: Investment banking $ 48,868 $ 51,422 $ 47,041 (5.0
) % 3.9 % Institutional brokerage 45,331 26,039 48,231 74.1 (6.0 )
Asset management 17,905 17,115 17,929 4.6 (0.1 ) Interest 11,173
13,060 14,229 (14.4 ) (21.5 ) Other income/(loss) 834
(1,587 ) 5,511 N/M (84.9 ) Total revenues 124,111
106,049 132,941 17.0 (6.6 ) Interest expense 6,440
6,829 8,161 (5.7 ) (21.1 ) Net revenues
117,671 99,220 124,780 18.6 (5.7
)
Non-interest expenses: Compensation and benefits
73,484 63,901 75,545 15.0 (2.7 ) Occupancy and equipment 7,880
7,533 8,448 4.6 (6.7 ) Communications 6,353 5,680 6,611 11.8 (3.9 )
Floor brokerage and clearance 2,220 2,322 2,466 (4.4 ) (10.0 )
Marketing and business development 5,121 6,388 6,210 (19.8 ) (17.5
) Outside services 6,140 7,917 8,106 (22.4 ) (24.3 ) Goodwill
impairment - 120,298 - N/M N/M Intangible asset amortization
expense 1,917 2,069 2,069 (7.3 ) (7.3 ) Other operating expenses
2,185 1,761 3,791 24.1 (42.4 )
Total non-interest expenses 105,300 217,869
113,246 (51.7 ) (7.0 )
Income/(loss) before income
tax expense/(benefit) 12,371 (118,649 ) 11,534 N/M 7.3
Income tax expense/(benefit) 8,005 (2,902 )
4,115 N/M 94.5
Net income/(loss) 4,366
(115,747 ) 7,419 N/M (41.2 ) Net income applicable to
noncontrolling interests 1,437 617 186
132.9 % 672.6
Net income/(loss) applicable
to Piper Jaffray Companies (1) 2,929 (116,364 )
7,233 N/M (59.5 )
Net income/(loss)
applicable to Piper Jaffray Companies' common shareholders
(1) $ 2,480 $ (116,364 ) $ 5,711 N/M (56.6 ) %
Earnings/(loss) per common share Basic $ 0.15 $ (7.38 ) $
0.38 N/M (59.0 ) % Diluted $ 0.15 $ (7.38 ) (2 ) $ 0.38 N/M (58.9 )
%
Weighted average number of common shares
outstanding Basic 16,072 15,773 15,177 1.9 % 5.9 % Diluted
16,072 15,773 (2 ) 15,224 1.9 % 5.6 %
(1) Net income applicable to Piper Jaffray Companies is the
total net income earned by the Company. Piper Jaffray Companies
calculates earnings per common share using the two-class method,
which requires the allocation of consolidated net income between
common shareholders and participating security holders, which in
the case of Piper Jaffray Companies, represents unvested restricted
stock with dividend rights.
(2) Earnings per diluted common share is calculated using the
basic weighted average number of common shares outstanding for
periods in which a loss is incurred.
N/M - Not meaningful
Piper Jaffray Companies
Preliminary Unaudited Segment Data
Three Months Ended Percent Inc/(Dec) Mar.
31, Dec. 31, Mar. 31, 1Q '12 1Q '12
(Dollars in thousands)
2012 2011 2011 vs.
4Q '11 vs. 1Q '11 Capital Markets
Investment banking Financing Equities $ 23,443 $ 17,010 $ 24,682
37.8 % (5.0 ) % Debt 14,769 15,211 9,666 (2.9 ) 52.8 Advisory
services 11,290 19,832 13,424
(43.1 ) (15.9 ) Total investment banking 49,502 52,053
47,772 (4.9 ) 3.6 Institutional sales and trading Equities
22,256 21,850 25,739 1.9 (13.5 ) Fixed income 28,507
11,142 29,189 155.9 (2.3 ) Total
institutional sales and trading 50,763 32,992 54,928 53.9 (7.6 )
Other income/(loss) (609 ) (3,137 )
3,880 (80.6 ) N/M Net revenues 99,656 81,908
106,580 21.7 (6.5 ) Non-interest expenses Goodwill
impairment - 120,298 - N/M N/M Operating expenses 91,800
84,434 99,320 8.7 (7.6 )
Total non-interest expenses 91,800 204,732
99,320 (55.2 ) % (7.6 ) Segment pre-tax
operating income/(loss) $ 7,856 $ (122,824 ) $ 7,260
N/M 8.2 % Segment pre-tax operating margin 7.9
% (150.0 )% 6.8 %
Asset Management
Management and performance fees Management fees $ 17,221 $ 16,510 $
17,812 4.3 % (3.3 ) % Performance fees 424 499
117 (15.0 ) 262.4 Total management and
performance fees 17,645 17,009 17,929 3.7 (1.6 ) Other
income 370 303 271 22.1
36.5 Net revenues 18,015 17,312 18,200 4.1
(1.0 ) Operating expenses 13,500 13,137
13,926 2.8 (3.1 ) Segment
pre-tax operating income $ 4,515 $ 4,175 $ 4,274
8.1 % 5.6 % Segment pre-tax operating
margin 25.1 % 24.1 % 23.5 %
Total Net
revenues $ 117,671 $ 99,220 $ 124,780 18.6 % (5.7 ) %
Non-interest expenses Goodwill impairment - 120,298 - N/M N/M
Operating expenses 105,300 97,571
113,246 7.9 (7.0 ) Total non-interest expenses
105,300 217,869 113,246
(51.7 ) % (7.0 ) Total segment pre-tax operating
income/(loss) $ 12,371 $ (118,649 ) $ 11,534 N/M
7.3 % Pre-tax operating margin 10.5 % (119.6
)% 9.2 % N/M - Not meaningful
FOOTNOTES
The press release includes the use of non-GAAP
financial measures that are not prepared in accordance with U.S.
generally accepted accounting principles and that exclude the
effects of a goodwill impairment charge recognized in the fourth
quarter of 2011. These non-GAAP financial measures should not be
considered a substitute for measures of financial performance
prepared in accordance with GAAP. These non-GAAP financial measures
have been used in this press release because management believes
they are useful to investors by providing greater transparency to
Piper Jaffray’s operating performance. (1)
Net income/(loss) applicable to Piper Jaffray Companies and
earnings per share Three Months Ended (Amounts in thousands,
except per share data) December 31, 2011 Net loss applicable to
Piper Jaffray Companies $ (116,364 ) Adjustment to exclude the
goodwill impairment charge, net of income tax 118,448
Net income applicable to Piper Jaffray Companies, excluding
the goodwill impairment charge $ 2,084
Net income applicable to Piper Jaffray
Companies common shareholders, excluding the goodwill impairment
charge
$ 1,729 Diluted earnings per common share,
excluding the goodwill impairment charge $ 0.11 Weighted
average number of common share outstanding - diluted 15,773
(2)
Consolidated non-compensation expenses Three
Months Ended (Amounts in thousands) December 31, 2011
Non-compensation expenses $ 153,968 Adjustment to exclude the
goodwill impairment charge (120,298 )
Non-compensation expenses, excluding the goodwill impairment charge
$ 33,670 (3)
Capital Markets pre-tax
operating income and pre-tax margin Three Months Ended (Amounts
in thousands) December 31, 2011 Capital Markets pre-tax operating
loss $ (122,824 ) Adjustment to exclude the goodwill impairment
charge 120,298 Capital Markets pre-tax
operating loss, excluding the goodwill impairment charge $ (2,526 )
Capital Markets pre-tax operating margin (150.0 ) % Capital
Markets pre-tax operating margin, excluding the goodwill impairment
charge (3.1 ) % (4)
Capital Markets operating
expenses Three Months Ended (Amounts in thousands) December 31,
2011 Capital Markets operating expenses $ 204,732 Adjustment to
exclude the goodwill impairment charge (120,298 )
Capital Markets operating expenses, excluding the goodwill
impairment charge $ 84,434 (5)
Adjusted
common shareholders' equity Adjusted common shareholders’
equity equals total common 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 common
shareholders’ equity is computed by dividing annualized net income
by average monthly adjusted common shareholders’ equity. Management
believes that annualized return on adjusted common 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 common shareholders’ equity to adjusted common
shareholders’ equity. Common shareholders’ equity is the most
directly comparable GAAP financial measure to adjusted common
shareholders’ equity. Average for the Average for the Three
Months Ended Three Months Ended (Amounts in thousands) Mar. 31,
2012 Mar. 31, 2011 Common shareholders' equity $ 721,087 $
823,141 Deduct: goodwill attributable to PJC Inc. acquisition by
USB - 105,522 Adjusted common
shareholders' equity $ 721,087 $ 717,619 Annualized
net income applicable to Piper Jaffray Companies $ 11,714 $ 28,933
Annualized quarterly return on average adjusted common
shareholders' equity 1.6 % 4.0 % (6)
Annualized quarterly
return on average adjusted common shareholders' equity
Management believes that the annualized quarterly return on average
adjusted common shareholders' equity excluding the impact of the
goodwill impairment charge is a meaningful measure and aids
comparison to the other quarters presented. Average for the
Average for the Three Months Ended Three Months Ended Dec. 31,
2011, Including the Dec. 31, 2011, Excluding the (Amounts in
thousands) Goodwill Impairment Charge Goodwill
Impairment Charge Common shareholders' equity $ 808,079 $ 837,691
Deduct: goodwill attributable to PJC Inc. acquisition by USB
79,141 105,522 Adjusted common shareholders'
equity $ 728,938 $ 732,169 Annualized net income applicable
to Piper Jaffray Companies N/M $ 8,337 Annualized quarterly
return on average adjusted common shareholders' equity N/M 1.1 %
(7)
Tangible common shareholders' equity Tangible
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 (Amounts in
thousands) Mar. 31, 2012 Dec. 31, 2011 Mar. 31, 2011 Common
shareholders' equity $ 721,779 $ 718,391 $ 833,578 Deduct: goodwill
and identifiable intangible assets 251,739 253,656
380,161 Tangible common shareholders' equity $
470,040 $ 464,735 $ 453,417 N/M - Not meaningful
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