News Release Content

 

 

MINNEAPOLIS--(BUSINESS WIRE)--Jul. 25, 2012-- Piper Jaffray Companies (NYSE: PJC) today announced that for the quarter ended June 30, 2012, net income was $6.9 million, or $0.37 per diluted common share. These results compared to $10.7 million, or $0.55 per diluted common share, in the year-ago period and $2.9 million, or $0.15 per diluted common share, in the first quarter of 2012. For the second quarter of 2012, net revenues were $106.4 million, compared to $132.9 million in the second quarter of 2011 and $116.9 million in the first quarter of 2012.

Also, the firm is announcing that it is exiting the Hong Kong market by Sept. 30, 2012. The exit would occur through a shut down or sale of the operation. In either scenario, the firm expects to realize net cash proceeds of $13 to $18 million, primarily related to a U.S. tax benefit. For the second quarter of 2012, business results for this operation are reported as continuing operations. They will be reported as discontinued operations in the third quarter of 2012.

Three significant items impacted the second quarter 2012 financial results:

“Results in Asia continued to weigh on our financial performance. However, our main operations performed reasonably well in the second quarter given the more difficult operating conditions. Total investment banking revenues increased compared to the sequential first quarter led by strong public finance activity and improved M&A revenues,” said Andrew S. Duff, chairman and chief executive officer. “Asset management fees held relatively steady but equity financings and institutional brokerage revenues were weaker due to the more difficult environment.”

Duff continued, “We took additional steps this quarter to improve our financial performance. First, we acquired $27 million of our common stock, bringing the total for the year to $42 million. Second, we pared headcount and identified additional non-compensation cost savings. Third, we will exit the Hong Kong market by Sept. 30. We believe that the Asia market provides a long-term growth opportunity; however, the current loss run-rate is not acceptable nor can we fund the required investment to build out our platform. For a number of months we have devoted considerable resources to evaluating and pursuing alternatives for the Asia business. We are evaluating these alternatives based on the best interests of our shareholders, clients and employees and will exit the market by the end of Sept.”

For the first six months of 2012, net income was $9.8 million, or $0.52 per diluted common share, down from $17.9 million, or $0.93 per diluted common share, in the first six months of last year.

Second Quarter Results
Consolidated Expenses
For the second quarter of 2012, compensation and benefits expenses were $66.5 million, down 17% and 9% compared to the second quarter of 2011 and the first quarter of 2012, respectively, due to lower financial results.

For the second quarter of 2012, compensation and benefits expenses were 62.5% of net revenues, compared to 60.4% and 62.2% for the second quarter of 2011 and first quarter of 2012, respectively. Compensation related to the Hong Kong capital markets business increased the compensation ratio by 1.9 percentage points for the second quarter of 2012, 0.3 percentage points for the second quarter of 2011, and 1.6 percentage points for the first quarter of 2012.

Non-compensation expenses were $38.3 million, or $34.7 million excluding the $3.6 million restructuring charge, compared to $35.4 million in the year-ago period and $31.8 million in the first quarter of 2012. Non-compensation expenses related to the Hong Kong capital markets business were $2.6 million for the second quarter of 2012, $2.3 million for the second quarter of 2011, and $1.8 million for the first quarter of 2012.

Business 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 Markets
For the second quarter, Capital Markets generated a pre-tax operating loss of $2.1 million, or operating income of $1.4 million excluding the $3.5 million restructuring charge allocated to this segment, compared to $12.4 million in the year-ago period and $7.9 million in the first quarter of 2012. For the second quarter of 2012, the Hong Kong capital markets business generated a pre-tax operating loss of $3.9 million, compared to pre-tax operating income of $0.1 million in the second quarter of 2011, and a pre-tax operating loss of $2.9 million in the first quarter of 2012.

Net revenues were $89.5 million, down 21% and 10%, compared to the year-ago period and the first quarter of 2012, respectively.

Asset Management
For the quarter ended June 30, 2012, asset management generated pre-tax operating income of $3.7 million, down 21% and 17% compared to the second quarter of 2011 and the first quarter of 2012, respectively. Net revenues were $16.9 million, down 14% compared to the second quarter of 2011, due to lower performance and management fees. Net revenues decreased 6% compared to the first quarter of 2012.

Other Matters
In the second quarter of 2012, the firm repurchased $26.4 million, or 1.2 million shares, of its common stock at an average price of $22.00 per share. The firm has $17.9 million remaining on its share repurchase authorization, which expires on Sept. 30, 2012.

Additional Shareholder Information

      As of June 30, 2012     As of Mar. 31, 2012     As of June 30, 2011
Number of employees     980     1,006     1,047
Equity financings            
# of transactions 15 22 24
Capital raised     $1.6 billion*     $3.4 billion     $6.8 billion
Tax-exempt issuance
# of transactions 164 139 151
Par value     $2.6 billion     $2.3 billion     $1.9 billion
Mergers & acquisitions
# of transactions 7 6 9
Aggregate deal value     $2.1 billion     $0.7 billion     $1.1 billion
Asset Management AUM    

$12.7 billion

   

$13.2 billion

   

$12.4 billion

Common shareholders’ equity    

$703.4 million

   

$721.8 million

   

$842.1 million

Annualized qtrly. return on avg. common shareholders’ equity(1)    

3.8%

   

1.6%

   

5.8%

Book value per share:     $46.27     $44.15     $53.07
Tangible book value per share(2):    

$29.84

   

$28.75

   

$29.25

*Excludes Facebook IPO capital

Conference Call
Andrew 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., July 25 at 9 a.m. ET (8 a.m. CT). The earnings release will be available on or after July 25 at the firm’s Web site at www.piperjaffray.com. The call can be accessed via webcast or by dialing (888)810- 0209 or (706)902-1361 (international) and referencing reservation #96211040. 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 July 25 at the same Web address or by calling (855)859-2056 and referencing reservation #96211040.

About Piper Jaffray
Piper 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 Statements
This 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 for the second half of the year, the environment and prospects for capital markets transactions (including corporate advisory transactions for the second half of the year), cost reduction measures and the effect of the recent restructuring charge on non-compensation expenses in future periods, the exiting of the Hong Kong market and discontinuing our Hong Kong capital markets business (including the cash proceeds from the disposition, the restructuring charge, and anticipated timing), anticipated financial results generally (including expectations regarding revenue levels, operating margins, our compensation ratio, earnings per share, and return on equity), current deal pipelines (or backlogs), our strategic priorities (including growth in public finance, asset management, and corporate advisory), 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) our ability to manage expenses may be limited by the fixed nature of certain expenses as well as the impact from unanticipated expenses, (4) exiting the Hong Kong market and divesting our Asia capital markets business could cause us to incur unforeseen expenses and have disruptive effects on our business, (5) 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, (6) our stock price may fluctuate as a result of several factors, including but not limited to, changes in our revenues and operating results, (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) Six Months Ended
Jun. 30 Mar. 31, Jun. 30 2Q '12 2Q '12 Jun. 30 Jun. 30 Percent
(Amounts in thousands, except per share data) 2012 2012 2011 vs. 1Q '12 vs. 2Q '11 2012 2011 Inc/(Dec)
Revenues:
Investment banking $ 50,324 $ 48,868 $ 67,062 3.0 % (25.0 ) % $ 99,192 $ 114,103 (13.1 ) %
Institutional brokerage 32,145 45,331 37,800 (29.1 ) (15.0 ) 77,476 86,031 (9.9 )
Asset management 17,434 17,905 19,640 (2.6 ) (11.2 ) 35,339 37,569 (5.9 )
Interest 12,166 11,173 13,144 8.9 (7.4 ) 23,339 27,373 (14.7 )
Other income   979     29   2,911 N/M   (66.4 )   1,008   8,331 (87.9 )
Total revenues 113,048 123,306 140,557 (8.3 ) (19.6 ) 236,354 273,407 (13.6 )
 
Interest expense   6,650     6,440   7,693 3.3   (13.6 )   13,090   15,854 (17.4 )
 
Net revenues   106,398     116,866   132,864 (9.0 ) (19.9 )   223,264   257,553 (13.3 )
 
Non-interest expenses:
Compensation and benefits 66,487 72,679 80,291 (8.5 ) (17.2 ) 139,166 155,745 (10.6 )
Occupancy and equipment 7,653 7,880 8,992 (2.9 ) (14.9 ) 15,533 17,440 (10.9 )
Communications 5,310 6,353 6,203 (16.4 ) (14.4 ) 11,663 12,814 (9.0 )
Floor brokerage and clearance 2,088 2,220 2,219 (5.9 ) (5.9 ) 4,308 4,685 (8.0 )
Marketing and business development 6,262 5,121 6,725 22.3 (6.9 ) 11,383 12,935 (12.0 )
Outside services 7,873 6,140 6,819 28.2 15.5 14,013 14,925 (6.1 )
Restructuring-related expense 3,642 - - N/M N/M 3,642 - N/M
Intangible asset amortization expense 1,917 1,917 2,069 - (7.3 ) 3,834 4,138 (7.3 )
Other operating expenses   3,513     2,185   2,412 60.8   45.6     5,698   6,203 (8.1 )
Total non-interest expenses   104,745     104,495   115,730 0.2   (9.5 )   209,240   228,885 (8.6 )
 
Income before income tax expense/(benefit) 1,653 12,371 17,134 (86.6 ) (90.4 ) 14,024 28,668 (51.1 )
 
Income tax expense/(benefit)   (5,767 )   8,005   5,987 N/M   N/M     2,238   10,102 (77.8 )
 
Net income 7,420 4,366 11,147 69.9 (33.4 ) 11,786 18,566 (36.5 )
 
Net income applicable to noncontrolling interests   569     1,437   453 (60.4 ) 25.6     2,006   639 213.9  
 
Net income applicable to Piper Jaffray Companies (1) $ 6,851   $ 2,929 $ 10,694 133.9   % (35.9 ) % $ 9,780 $ 17,927 (45.4 ) %
 

Net income applicable to Piper Jaffray Companies' common shareholders (1)

$ 5,890   $ 2,480 $ 8,760 137.5   % (32.8 ) % $ 8,344 $ 14,422 (42.1 ) %
 
Earnings per common share
Basic $ 0.37 $ 0.15 $ 0.55 139.6 % (33.2 ) % $ 0.52 $ 0.93 (43.9 ) %
Diluted $ 0.37 $ 0.15 $ 0.55 139.6 % (33.1 ) % $ 0.52 $ 0.93 (43.8 ) %
 
Weighted average number of common shares outstanding
Basic 15,932 16,072 15,840 (0.9 ) % 0.6 % 16,002 15,510 3.2 %
Diluted 15,932 16,072 15,845 (0.9 ) % 0.5 % 16,002 15,536 3.0 %
 
 
(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.
 
N/M - Not meaningful
 
 
Piper Jaffray Companies
Preliminary Unaudited Segment Data
               
 
Three Months Ended Percent Inc/(Dec) Six Months Ended
Jun. 30, Mar. 31, Jun. 30, 2Q '12 2Q '12 Jun. 30, Jun. 30, Percent
(Dollars in thousands) 2012 2012 2011 vs. 1Q '12 vs. 2Q '11 2012 2011 Inc/(Dec)
Capital Markets
 
Investment banking
Financing
Equities $ 13,148 $ 23,443 $ 30,985 (43.9 ) % (57.6 ) % $ 36,591 $ 55,667 (34.3 ) %
Debt 22,256 14,769 18,583 50.7 19.8 37,025 28,249 31.1
Advisory services   15,557     11,290     18,134   37.8   (14.2 )   26,847     31,558   (14.9 )
Total investment banking 50,961 49,502 67,702 2.9 (24.7 ) 100,463 115,474 (13.0 )
 
Institutional sales and trading
Equities 17,648 22,256 21,341 (20.7 ) (17.3 ) 39,904 47,080 (15.2 )
Fixed income   20,664     28,507     23,134   (27.5 ) (10.7 )   49,171     52,323   (6.0 )
Total institutional sales and trading 38,312 50,763 44,475 (24.5 ) (13.9 ) 89,075 99,403 (10.4 )
 
Other income/(loss)   209     (1,414 )   1,029   N/M   (79.7 )   (1,205 )   4,818   N/M  
 
Net revenues 89,482 98,851 113,206 (9.5 ) (21.0 ) 188,333 219,695 (14.3 )
 
Operating expenses   91,570     90,995     100,802   0.6   % (9.2 ) %   182,565     200,031   (8.7 )
 
Segment pre-tax operating income/(loss) $ (2,088 ) $ 7,856   $ 12,404   N/M   N/M   $ 5,768   $ 19,664   (70.7 ) %
 
Segment pre-tax operating margin (2.3 )% 7.9 % 11.0 % 3.1 % 9.0 %
 
 
Asset Management
 
Management and performance fees
Management fees $ 16,968 $ 17,221 $ 17,985 (1.5 ) % (5.7 ) % $ 34,189 $ 35,797 (4.5 ) %
Performance fees   218     424     1,629   (48.6 ) (86.6 )   642     1,746   (63.2 )
Total management and performance fees 17,186 17,645 19,614 (2.6 ) (12.4 ) 34,831 37,543 (7.2 )
 
Other income/(loss)   (270 )   370     44   N/M   N/M     100     315   (68.3 )
 
Net revenues 16,916 18,015 19,658 (6.1 ) (13.9 ) 34,931 37,858 (7.7 )
 
Operating expenses   13,175     13,500     14,928   (2.4 ) (11.7 )   26,675     28,854   (7.6 )
 
Segment pre-tax operating income $ 3,741   $ 4,515   $ 4,730   (17.1 ) % (20.9 ) % $ 8,256   $ 9,004   (8.3 ) %
 
Segment pre-tax operating margin 22.1 % 25.1 % 24.1 % 23.6 % 23.8 %
 
 
Total
 
Net revenues $ 106,398 $ 116,866 $ 132,864 (9.0 ) % (19.9 ) % $ 223,264 $ 257,553 (13.3 ) %
 
Operating expenses   104,745     104,495     115,730   0.2   (9.5 )   209,240     228,885   (8.6 )
 
Total segment pre-tax operating income $ 1,653   $ 12,371   $ 17,134   (86.6 ) % (90.4 ) % $ 14,024   $ 28,668   (51.1 ) %
 
Pre-tax operating margin 1.6 % 10.6 % 12.9 % 6.3 % 11.1 %
 
N/M - Not meaningful
 
 
FOOTNOTES
   
(1) Annualized quarterly return on average 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 Average for the
Three Months Ended Three Months Ended Three Months Ended
(Amounts in thousands) Jun. 30, 2012 Mar. 31, 2012 Jun. 30, 2011
Common shareholders' equity $ 716,851 $ 721,087 $ 837,794
Deduct: goodwill attributable to PJC Inc. acquisition by USB   -     -     105,522  
 
Adjusted common shareholders' equity $ 716,851   $ 721,087   $ 732,272  
 
Annualized net income applicable to Piper Jaffray Companies $ 27,406 $ 11,714 $ 42,775
 
Annualized quarterly return on average adjusted common shareholders' equity 3.8

 

%

1.6

 

%

5.8

 

%

 
 
(2) 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) Jun. 30, 2012 Mar. 31, 2012 Jun. 30, 2011
Common shareholders' equity $ 703,385 $ 721,779 $ 842,123
Deduct: goodwill and identifiable intangible assets   249,822     251,739     378,092  
 
Tangible common shareholders' equity $ 453,563   $ 470,040   $ 464,031  
 
 
Piper Jaffray Asia
Supplementary Information
     
 
 
Three Months Ended Six Months Ended Year Ended
(Amounts in thousands) Jun. 30, 2012 Jun. 30, 2012 Dec. 31, 2011
Revenues:
Investment banking $ 956 $ 1,739 $ 9,754
Institutional brokerage 938 2,188 6,039
Asset management - - -
Interest 28 54 154
Other income   -     1     53  
Total revenues 1,922 3,982 16,000
 
Interest expense   25     31     4  
 
Net revenues   1,897     3,951     15,996  
 
Non-interest expenses:
Compensation and benefits 3,190 6,340 15,716
Occupancy and equipment 788 1,594 3,281
Communications 256 615 1,522
Floor brokerage and clearance 85 197 306
Marketing and business development 367 571 2,203
Outside services 296 543 1,695
Restructuring-related expense - - -
Goodwill impairment - - -
Intangible asset amortization expense - - -
Other operating expenses   786     848     261  
Total non-interest expenses   5,768     10,708     24,984  
 
Loss before income tax expense (3,871 ) (6,757 ) (8,988 )
 
Income tax expense   24     60     1,926  
 
Net loss (3,895 ) (6,817 ) (10,914 )
 
Net income applicable to noncontrolling interests   -     -     -  
 
Net loss applicable to Piper Jaffray Companies $ (3,895 ) $ (6,817 ) $ (10,914 )
 

Source: Piper Jaffray Companies

Piper Jaffray Companies
Jennifer A. Olson-Goude, 612-303-6277
Investor Relations and Corporate Communications