News Release Content

 

 

MINNEAPOLIS--(BUSINESS WIRE)--Oct. 17, 2012-- Piper Jaffray Companies (NYSE: PJC) today announced that for the quarter ended Sept. 30, 2012, net income from continuing operations was $13.5 million, or $0.72 per diluted common share. These results compared to $3.8 million, or $0.22 per diluted common share, in the year-ago period and $11.3 million, or $0.58 per diluted common share, in the second quarter of 2012. For the third quarter of 2012, net revenues from continuing operations were $133.0 million, compared to $95.9 million in the third quarter of 2011 and $104.5 million in the second quarter of 2012.

The firm announced on July 25th that it would exit the Hong Kong capital markets business and further disclosed on Aug. 24th that the exit would be effected through a shutdown of the business. The results from this business are reported as discontinued operations for all periods presented.

“In the third quarter, our continuing operations performed well and we are pleased with our results,” said Andrew S. Duff, chairman and chief executive officer. “Our performance reflects robust fixed income institutional brokerage revenues—particularly strategic trading, our decision to exit the Hong Kong capital markets business, additional cost reductions taking effect, and solid market share in public finance and public equity offerings.”

For the quarter ended Sept. 30, 2012, net income, including continuing and discontinued operations, was $19.7 million, or $1.11 per diluted common share, an improvement from a net loss of $3.6 million, or $0.23 per diluted common share, for the quarter ended Sept. 30, 2011, and up from $6.9 million, or $0.37 per diluted common share, in the second quarter of 2012.

For the first nine months of 2012, net income, including continuing and discontinued operations, was $29.4 million, or $1.60 per diluted common share, up from $14.3 million, or $0.74 per diluted common share, in the first nine months of last year.

Third Quarter Results from Continuing Operations
Consolidated Expenses

For the third quarter of 2012, compensation and benefits expenses were $78.7 million, up 30% and 24% compared to the third quarter of 2011 and the second quarter of 2012, respectively, due to improved financial results.

For the third quarter of 2012, compensation and benefits expenses were 59.2% of net revenues, down from 63.1% and 60.6% for the third quarter of 2011 and second quarter of 2012, respectively. The improvement was mainly driven by the significant financial contribution from fixed income strategic trading in the current quarter.

Non-compensation expenses were $31.5 million, in line with the firm’s current quarterly goal, and compared to $30.2 million in the year-ago period and $35.7 million (including a $3.6 million restructuring charge) in the second 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. The firm’s Hong Kong capital markets business is presented as discontinued operations for all periods presented.

Capital Markets
For the quarter, Capital Markets generated pre-tax operating income of $20.6 million, a significant increase compared to $3.7 million in the year-ago period and $1.8 million in the second quarter of 2012.

Net revenues were $115.2 million, up 42% and 32% compared to the year-ago period and the second quarter of 2012, respectively.

Asset Management
For the quarter ended Sept. 30, 2012, asset management generated pre-tax operating income of $2.1 million, up 50% compared to the third quarter of 2011 and down 43% compared to the second quarter of 2012. Net revenues were $17.7 million, up 23% and 5% compared to the third quarter of 2011 and the second quarter of 2012, respectively. Increased revenues were primarily driven by higher management fees and gains on firm investments.

Third Quarter Results from Discontinued Operations
Discontinued operations include the operating results of the Hong Kong capital markets business, which the firm has shut down.

For the quarter ended Sept. 30, 2012, net income from discontinued operations was $6.8 million, or $0.38 per diluted common share, compared to a net loss of $7.1 million in the third quarter of 2011, or $0.45 per diluted share, and a net loss of $3.9 million, or $0.21 per diluted share, in the second quarter of 2012.

The firm will realize net cash proceeds of approximately $19 million, net of restructuring charges, which is above the top end of the firm’s range disclosed in the second quarter. Substantially all items related to the shut down of the Hong Kong business have been recorded in the third quarter.

Additional Shareholder Information*

       
      For the Quarter Ended:
      Sept. 30, 2012     June 30, 2012     Sept. 30, 2011
Number of employees     911     902     939
Equity financings            
# of transactions 14 15 8
Capital raised     $2.6 billion     $1.6 billion**     $0.9 billion
Tax-exempt issuance
# of transactions 113 164 133
Par value     $2.3 billion     $2.6 billion     $1.8 billion

Mergers & acquisitions

# of transactions

6 7 12

Aggregate deal value

    $0.7 billion     $2.1 billion     $1.9 billion

Asset Management AUM

    $13.8 billion     $12.7 billion     $11.2 billion

Common shareholders’ equity

    $724.6 million     $703.4 million     $839.1 million

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

   

11.0%

   

3.8%

   

(1.9)%

Book value per share:     $47.58     $46.27     $52.73

Tangible book value per share(2):

    $31.30     $29.84     $29.10

*Number of employees and transaction data reflect continuing operations; other numbers reflect continuing and discontinued results.
**Due to size, Facebook IPO capital raised has been excluded

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., Oct. 17 at 9 a.m. ET (8 a.m. CT). The earnings release will be available on or after Oct. 17 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 #96211043. 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 Oct. 17 at the same Web address or by calling (855)859-2056 and referencing reservation #96211043.

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 capital. Founded in 1895, the firm is headquartered in Minneapolis and has offices across the United States and in London 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, the environment and prospects for capital markets transactions (including corporate advisory transactions), anticipated financial results from strategic trading activities within fixed income institutional brokerage (including results from non-agency mortgaged-backed securities), the closure of our Hong Kong capital markets business, anticipated financial results generally (including expectations regarding our compensation ratio, revenue levels, operating margins, 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) revenue from strategic trading activities comprise a meaningful portion of our fixed income institutional brokerage revenue, and results from these activities may be volatile and vary significantly on a quarterly and annual basis, (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 closure of our Hong Kong capital markets business could cause us to incur unforeseen expenses and have disruptive effects on our business, (6) 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, (7) our stock price may fluctuate as a result of several factors, including but not limited to, changes in our revenues and operating results, 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, 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 '12 3Q '12 Sept. 30, Sept. 30, Percent

(Amounts in thousands, except per share data)

2012 2012 2011 vs. 2Q '12 vs. 3Q '11 2012 2011 Inc/(Dec)
Revenues:
Investment banking $ 51,083 $ 49,368 $ 44,031 3.5 % 16.0 % $ 148,536 $ 151,834 (2.2 ) %
Institutional brokerage 58,719 31,207 28,689 88.2 104.7 134,006 111,732 19.9
Asset management 17,588 17,434 15,205 0.9 15.7 52,927 52,774 0.3
Interest 12,457 12,139 15,116 2.6 (17.6 ) 35,742 42,407 (15.7 )
Other income   235     979     1,710   (76.0 ) (86.3 )   1,242     10,018   (87.6 )
Total revenues 140,082 111,127 104,751 26.1 33.7 372,453 368,765 1.0
 
Interest expense   7,125     6,625     8,894   7.5   (19.9 )   20,184     24,748   (18.4 )
 
Net revenues   132,957     104,502     95,857   27.2   38.7     352,269     344,017   2.4  
 
Non-interest expenses:
Compensation and benefits 78,738 63,297 60,505 24.4 30.1 211,564 207,591 1.9
Occupancy and equipment 6,232 6,865 6,638 (9.2 ) (6.1 ) 20,171 22,427 (10.1 )
Communications 5,374 5,053 5,595 6.4 (3.9 ) 16,421 17,611 (6.8 )
Floor brokerage and clearance 1,827 2,004 2,143 (8.8 ) (14.7 ) 5,939 6,684 (11.1 )
Marketing and business development 4,285 5,895 5,059 (27.3 ) (15.3 ) 15,097 16,868 (10.5 )
Outside services 7,557 7,577 6,263 (0.3 ) 20.7 21,027 20,632 1.9
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 ) 5,751 6,207 (7.3 )
Other operating expenses   4,313     2,728     2,457   58.1   75.5     9,164     8,468   8.2  
Total non-interest expenses   110,243     98,978     90,729   11.4   21.5     308,776     306,488   0.7  
 

Income from continuing operations before income tax expense/(benefit)

22,714 5,524 5,128 311.2 342.9 43,493 37,529 15.9
 
Income tax expense/(benefit)   9,188     (5,791 )   1,361   N/M   575.1     11,365     11,892   (4.4 )
 
Income from continuing operations   13,526     11,315     3,767   19.5   259.1     32,128     25,637   25.3  
 
Discontinued operations:
Income/(loss) from discontinued operations, net of tax   6,803     (3,895 )   (7,143 ) N/M   N/M     (13 )   (10,447 ) (99.9 )
 
Net income/(loss) 20,329 7,420 (3,376 ) 174.0 N/M 32,115 15,190 111.4
 
Net income applicable to noncontrolling interests   665     569     207   16.9   221.3   %   2,671     846   215.7  
 
Net income/(loss) applicable to Piper Jaffray Companies (1) $ 19,664 $ 6,851   $ (3,583 ) 187.0   % N/M   $ 29,444   $ 14,344   105.3   %
 

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

$ 16,840 $ 5,890   $ (3,583 ) 185.9   % (570.0 ) % $ 25,151   $ 11,648   115.9   %
 
Amounts applicable to Piper Jaffray Companies
Income from continuing operations $ 12,861 $ 10,746 $ 3,560 19.7 % 261.3 % $ 29,457 $ 24,791 18.8 %
Income/(loss) from discontinued operations, net of tax   6,803     (3,895 )   (7,143 ) N/M   N/M     (13 )   (10,447 ) (99.9 )
Net income/(loss) applicable to Piper Jaffray Companies $ 19,664 $ 6,851 $ (3,583 ) 187.0 % N/M $ 29,444 $ 14,344 105.3 %
 
Earnings/(loss) per basic common share
Income from continuing operations $ 0.72 $ 0.58 $ 0.22 24.1 % 227.3 % $ 1.60 $ 1.29 24.0 %
Income/(loss) from discontinued operations   0.38     (0.21 )   (0.45 ) N/M   N/M     -     (0.54 ) N/M  
Earnings/(loss) per basic common share $ 1.11 $ 0.37 $ (0.23 ) 200.0 % N/M $ 1.60 $ 0.74 116.2 %
 
Earnings/(loss) per diluted common share
Income from continuing operations $ 0.72 $ 0.58 $ 0.22 24.1 % 227.3 % $ 1.60 $ 1.29 24.0 %
Income/(loss) from discontinued operations   0.38     (0.21 )   (0.45 ) N/M   N/M     -     (0.54 ) N/M  
Earnings/(loss) per diluted common share $ 1.11 $ 0.37 $ (0.23 ) (2 ) 200.0 % N/M $ 1.60 $ 0.74 116.2 %
 
Weighted average number of common shares outstanding
Basic 15,210 15,932 15,889 (4.5 ) % (4.3 ) % 15,736 15,638 0.6 %
Diluted 15,210 15,932 15,889 (2 ) (4.5 ) % (4.3 ) % 15,736 15,655 0.5 %
 
 
(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 from Continuing Operations
               
 
Three Months Ended Percent Inc/(Dec) Nine Months Ended
Sept. 30, Jun. 30, Sept. 30, 3Q '12 3Q '12 Sept. 30, Sept. 30, Percent
(Dollars in thousands) 2012 2012 2011 vs. 2Q '12 vs. 3Q '11 2012 2011 Inc/(Dec)
Capital Markets
 
Investment banking
Financing
Equities $ 18,781 $ 13,132 $ 6,569 43.0 % 185.9 % $ 55,141 $ 58,682 (6.0 ) %
Debt 16,573 22,256 11,105 (25.5 ) 49.2 53,598 39,354 36.2
Advisory services   16,317     14,631     26,951   11.5   (39.5 )   41,670     55,763   (25.3 )
Total investment banking 51,671 50,019 44,625 3.3 15.8 150,409 153,799 (2.2 )
 
Institutional sales and trading
Equities 17,927 16,682 22,020 7.5 (18.6 ) 55,589 66,028 (15.8 )
Fixed income   46,690     20,620     13,681   126.4   241.3     95,773     65,920   45.3  
Total institutional sales and trading 64,617 37,302 35,701 73.2 81.0 151,362 131,948 14.7
 
Other income/(loss)   (1,039 )   265     1,072   N/M   N/M     (2,141 )   5,953   N/M  
 
Net revenues 115,249 87,586 81,398 31.6 41.6 299,630 291,700 2.7
 
Operating expenses   94,671     85,803     77,694   10.3   % 21.9     266,529     264,599   0.7  
 
Segment pre-tax operating income $ 20,578   $ 1,783   $ 3,704   N/M   455.6   % $ 33,101   $ 27,101   22.1   %
 
Segment pre-tax operating margin 17.9 % 2.0 % 4.6 % 11.0 % 9.3 %
 
 
Asset Management
 
Management and performance fees
Management fees $ 17,252 $ 16,968 $ 15,149 1.7 % 13.9 % $ 51,441 $ 50,946 1.0 %
Performance fees   22     218     -   (89.9 ) N/M     664     1,746   (62.0 )
Total management and performance fees 17,274 17,186 15,149 0.5 14.0 52,105 52,692 (1.1 )
 
Other income/(loss)   434     (270 )   (690 ) N/M   N/M     534     (375 ) N/M  
 
Net revenues 17,708 16,916 14,459 4.7 22.5 52,639 52,317 0.6
 
Operating expenses   15,572     13,175     13,035   18.2   19.5     42,247     41,889   0.9  
 
Segment pre-tax operating income $ 2,136   $ 3,741   $ 1,424   (42.9 ) % 50.0   % $ 10,392   $ 10,428   (0.3 ) %
 
Segment pre-tax operating margin 12.1 % 22.1 % 9.8 % 19.7 % 19.9 %
 
 
Total
 
Net revenues $ 132,957 $ 104,502 $ 95,857 27.2 % 38.7 % $ 352,269 $ 344,017 2.4 %
 
Operating expenses   110,243     98,978     90,729   11.4   21.5     308,776     306,488   0.7  
 
Total segment pre-tax operating income $ 22,714   $ 5,524   $ 5,128   311.2   % 342.9   % $ 43,493   $ 37,529   15.9   %
 
Pre-tax operating margin 17.1 % 5.3 % 5.3 % 12.3 % 10.9 %
 
N/M - Not meaningful
 
Segment pre-tax operating income and segment pre-tax operating margin exclude the results of discontinued operations.
 
 
Piper Jaffray Companies
Preliminary Data from Discontinued Operations
               
 
Three Months Ended Percent Inc/(Dec) Nine Months Ended
Sept. 30, Jun. 30, Sept. 30, 3Q '12 3Q '12 Sept. 30, Sept. 30, Percent
(Dollars in thousands) 2012 2012 2011 vs. 2Q '12 vs. 3Q '11 2012 2011 Inc/(Dec)
Discontinued Operations
 
Net revenues $ 2,674 $ 1,896 $ 2,124 41.0 % 25.9 % $ 6,625 $ 11,517 (42.5 ) %
 
Restructuring expenses 11,057 - - N/M N/M 11,057 - N/M
Operating expenses   5,843     5,767     6,952   1.3   (16.0 )   16,550     20,078   (17.6 )
Total non-interest expenses   16,900     5,767     6,952   193.0   % 143.1     27,607     20,078   37.5  
 

Loss before income tax expense/(benefit)

(14,226 ) (3,871 ) (4,828 ) N/M 194.7 % (20,982 ) (8,561 ) 145.1 %
 
Income tax expense/(benefit)   (21,029 )   24     2,315   N/M   N/M     (20,969 )   1,886   N/M  
 
Net income/(loss) $ 6,803   $ (3,895 ) $ (7,143 ) N/M   N/M   $ (13 ) $ (10,447 ) N/M  
 
 
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) Sept. 30, 2012 Jun. 30, 2012 Sept. 30, 2011
Common shareholders' equity $ 711,856 $ 716,851 $ 842,515
Deduct: goodwill attributable to PJC Inc. acquisition by USB   -   -   105,522  
 
Adjusted common shareholders' equity $ 711,856 $ 716,851 $ 736,993  
 
Annualized net income/(loss) applicable to Piper Jaffray Companies $ 78,657 $ 27,406 $ (14,333 )
 
Annualized quarterly return on average adjusted common shareholders' equity 11.0 % 3.8 % (1.9 ) %
 
 
(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) Sept. 30, 2012 Jun. 30, 2012 Sept. 30, 2011
Common shareholders' equity $ 724,616 $ 703,385 $ 839,139
Deduct: goodwill and identifiable intangible assets   247,905   249,822   376,022  
 
Tangible common shareholders' equity $ 476,711 $ 453,563 $ 463,117  
 

Source: Piper Jaffray Companies

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