Piper Jaffray Companies Announces 2005 First Quarter Results
MINNEAPOLIS, April 20 /PRNewswire-FirstCall/ -- Piper Jaffray
Companies (NYSE:PJC) today announced net income of $7.3 million, or
$0.38 per diluted share, for the quarter ended March 31, 2005, down
from net income of $13.8 million, or $0.71 per diluted share, for
the quarter ended March 31, 2004. Net income totaled $11.8 million,
or $0.61 per diluted share, for the quarter ended Dec. 31, 2004.
Net revenues for the first quarter were $179.1 million, down 14.5
percent from the first quarter of 2004 and down 8.0 percent from
the fourth quarter of 2004. "We were very disappointed in our
results for the first quarter of 2005," said chairman and chief
executive officer Andrew S. Duff. "Reduced institutional sales and
trading revenues resulted in lower quarterly earnings for the
company. However, our investment banking businesses performed well
against the market, and our Private Client Services business
continues to make measured progress. We continue to evaluate our
businesses to ensure we are directing resources to areas where we
can add value to our clients, achieve appropriate profitability and
sustain competitive growth." Results of Operations Net Revenues
First quarter net revenues declined $30.3 million, or 14.5 percent,
from the first quarter of 2004, primarily due to lower principal
transactions and investment banking revenue. Compared to the fourth
quarter of 2004, net revenues declined 8.0 percent, mainly due to
lower principal transaction revenue. Non-Interest Expenses For the
quarter, non-interest expenses were $167.6 million, down 10.5
percent from the first quarter of 2004. Compensation expense was
$109.4 million, a decline of $20.3 million, or 15.7 percent, from
the prior year, primarily due to less variable compensation driven
by lower net revenues and profitability. Non-compensation expenses
were $58.2 million, or up 1.2 percent compared to the first quarter
of last year. Compared to the fourth quarter of 2004, non-interest
expenses decreased $8.8 million, or 5.0 percent. Lower variable
compensation expense was partially offset by higher benefit costs,
as payroll tax limits were reset for the year. Non-compensation
expense was lower across all cost categories, with the exception of
floor brokerage and clearance expense, which rose due to increased
activity from the new algorithmic and program trading business
(APT). For the quarter, pre-tax operating margin was 6.4 percent,
down from 10.6 percent in the comparable prior-year period and 9.3
percent in the preceding quarter. For the first quarter of 2005,
annualized return on average tangible shareholders' equity(1) was
7.1 percent compared to 14.9 percent for the first quarter of 2004.
During the quarter, Piper Jaffray repurchased 325,000 shares of the
company's outstanding common stock at an average price of $40.09.
The share repurchase program is being conducted under a 10b5-1
plan, which commenced in early 2005. The remaining authorization
under the program is for the repurchase of up to 975,000 shares for
a maximum aggregate purchase price of $52.0 million. Business
Segment Review In early 2005, the company concluded an extensive
study of costs included in Corporate Support and Other to determine
how these costs related to and were driven by business activities
conducted in the Capital Markets and Private Client Services
segments. As a result of this study, certain expenses such as human
resources, finance and other corporate administration have been
reclassified to the segments which use these services. Internally,
the company is now managing and allocating resources to its
business segments based on these reclassified results. Corporate
Support and Other now consists of the results of our private equity
business, long-term financing costs and public company-related
costs. In connection with this change, Piper Jaffray has restated
segment results for each of the four quarters of 2004 and the full
year of 2003. The restatement did not affect the company's
aggregate financial results for those periods. A supplemental
schedule showing the restated figures is included at the end of
this release. Capital Markets Capital Markets recorded $91.9
million in net revenues for the quarter, down $20.1 million, or
17.9 percent, from the first quarter of 2004. Segment pre-tax
operating income for the quarter was $11.5 million, down 39.0
percent compared to the prior year. The decline is largely
attributable to lower fixed income and equity institutional sales
and trading revenue. Institutional Sales and Trading Total
institutional sales and trading revenue was $42.6 million, down
24.0 percent from the first quarter of last year and 16.1 percent
compared to the fourth quarter of 2004. Compared to the first
quarter of 2004, rising interest rates and structural changes in
the market reduced fixed income sales and trading revenue. Equity
sales and trading revenue also declined compared to the same
quarter in the previous year as increased equity trading volume was
more than offset by lower net commissions per share. Piper
Jaffray's revenue in its institutional sales and trading businesses
is largely derived from providing clients with a traditional set of
products, such as cash equities and corporate bonds. These
businesses are experiencing the effects of structural changes
taking hold in the fixed income and equity sales and trading
markets. These changes include increased price transparency in the
corporate bond market and increased use of electronic trading,
which have created additional competitive downward pressure on
trading margins, in the case of bonds, and net commissions, in the
case of equities. The magnitude of the effect of the recent phase
of the Trade Reporting and Compliance Engine (TRACE) requirement,
implemented February 2005, on corporate bond trading margins was
greater than anticipated. In addition, the company experienced
continued downward pressure in 2005 on net commissions in the cash
equities business, which was greater than anticipated. Investment
Banking Total investment banking revenues were $48.5 million, down
$6.2 million, or 11.4 percent, compared to the first quarter of
2004. -- Fixed Income underwriting revenue was lower compared to
the first quarter of 2004 due to lower taxable underwriting and
fewer completed public finance transactions. -- Equity underwriting
revenue declined $6.6 million, or 24.4 percent, compared to a
strong first quarter in the prior-year period. The company
completed fewer equity offerings and convertible transactions than
in the first quarter of last year. -- Stronger mergers and
acquisitions revenue, driven by a greater aggregate enterprise
value of completed transactions, partially offset the decline in
underwriting revenue. Segment operating expenses for the quarter
were $80.4 million, a decrease of $12.7 million, or 13.7 percent,
from the same period a year ago. The decline in expenses was
primarily driven by lower variable compensation expense due to
lower net revenue and profitability. For the first quarter of 2005,
segment pre-tax operating margin was 12.5 percent, down from 16.9
percent in the same quarter of last year and 15.4 percent in the
fourth quarter of 2004. The decline as compared to both periods was
largely due to lower revenues as described above. Following is a
recap of completed deal information for the first quarter of 2005.
-- 19 equity offerings, raising a total of $2.1 billion in capital,
and placing the firm 13th nationally, based on the number of
completed transactions. Of the 19 transactions, Piper Jaffray
lead-managed 9 deals. (Source: Dealogic) -- 9 mergers and
acquisitions transactions with an aggregate enterprise value of
$1.4 billion. The number of deals and the enterprise value include
disclosed and undisclosed transactions. (Source: Piper Jaffray) --
109 tax-exempt issues with a total par value of $1.3 billion,
ranking the firm fifth nationally. In the Upper Midwest, the firm
completed 62 public finance issues for the quarter with a total par
value of $526.2 million, again ranking the firm the lead
underwriter of Upper Midwest tax-exempt issues. Rankings are based
on the number of completed transactions. (Source: Thomson
Financial) Private Client Services Private Client Services recorded
net revenue of $89.2 million for the quarter, down $7.2 million, or
7.5 percent, compared to the strong first quarter of 2004. The
first quarter of 2005 was impacted by lower private client trading
activity and fewer seasoned financial advisors as compared to one
year ago. As compared to the fourth quarter of 2004, net revenue
was essentially flat. Segment pre-tax operating income was $4.8
million, down 31.5 percent from the first quarter of 2004, and down
16.0 percent from the fourth quarter of 2004. Segment operating
expense was $84.4 million for the quarter, down $5.0 million, or
5.6 percent, from the first quarter of 2004. The decline was
primarily attributable to lower variable compensation expense due
to lower net revenue. Segment pre-tax operating margin was 5.4
percent, down from 7.3 percent in the same quarter of last year and
6.4 percent in the fourth quarter of 2004. The decline as compared
to the first quarter last year was due to lower net revenue and the
relatively fixed nature of non-compensation expense. Corporate
Support and Other Corporate Support and Other pre-tax operating
loss was $3.7 million for the first quarter, an increase of $1.0
million over the first quarter of 2004 due to lower gains on
investments and a higher interest rate on outstanding subordinated
debt. Additional Shareholder Information As of March 31, As of Dec.
31, As of March 31, 2005 2004 2004 Full time employees: 2,976 3,027
3,019 Financial advisors: 866 860 867 Client assets: $50 billion
$51 billion $51 billion Shareholders' equity: $736.6 million $725.4
million $685.0 million Book value per share: $38.01 $37.52 $35.43
Tangible book value per share: $21.43 $20.88 $19.62 (1) Tangible
shareholders' equity equals total shareholders' equity less
goodwill and identifiable intangible assets. Annualized return on
average tangible shareholders' equity is computed by dividing
annualized net earnings by average monthly tangible shareholders'
equity. Management believes that annualized return on tangible
shareholders' equity is a meaningful measure of performance because
it reflects the tangible equity deployed in our businesses. This
measure excludes the portion of our shareholders' equity
attributable to goodwill and identifiable intangible assets. The
majority of our goodwill is a result of the 1998 acquisition of our
predecessor company, Piper Jaffray Companies Inc., and its
subsidiaries by U.S. Bancorp. The following table sets forth a
reconciliation of shareholders' equity to tangible shareholders'
equity. Shareholders' equity is the most directly comparable GAAP
financial measure to tangible shareholders' equity. Average for the
Three Months Three Months Ended Ended As of March 31, March 31,
March 31, (Dollars in thousands) 2005 2004 2005 Shareholders'
equity $732,787 $676,908 $736,618 Deduct: Goodwill and identifiable
intangible assets 321,634 305,635 321,434 Tangible shareholders'
equity $411,153 $371,273 $415,184 Conference Call Andrew S. Duff,
chairman and chief executive officer, and Sandra G. Sponem, chief
financial officer, will host a conference call to discuss first
quarter 2005 financial results on Wednesday, April 20, 2005, at 11
a.m. ET (10 a.m. CT). The call can be accessed via live audio
webcast available through the firm's web site at
http://www.piperjaffray.com/ or by dialing (866) 244- 9933, or
(706) 758-0864 internationally, and referring to conference ID
5381322 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 on April 20, 2005 at the same web address or by calling (800)
642-1687, or (706) 645-9291 internationally. 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. 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 104 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 have agreed to certain restrictions to preserve the tax
treatment of our spin-off from U.S. Bancorp, which reduce our
strategic and operating flexibility, (2) 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, (3) developments in market and economic
conditions have in the past adversely affected, and may in the
future adversely affect, our business and profitability, (4) we may
not be able to compete successfully with other companies in the
financial services industry, (5) our underwriting and market-making
activities may place our capital at risk, (6) an inability to
readily divest or transfer trading positions may result in
financial losses to our business, (7) 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, (8) 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, (9) we may make strategic acquisitions of businesses,
engage in joint ventures or 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, (10) 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, (11) 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 to our company, (12) 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, (13) our exposure to legal
liability is significant, and could lead to substantial damages and
restrictions on our business going forward, (14) we may suffer
losses if our reputation is harmed, (15) 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, and (16) other
factors identified in the document entitled "Risk Factors" filed as
Exhibit 99.1 to our Annual Report on Form 10-K for the year ended
December 31, 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 For the Three
Months Ended Percent Inc/(Dec) (Amounts in thousands, March 31,
Dec. 31, March 31, 1Q05 vs. 1Q05 vs. except per share data) 2005
2004 2004 4Q04 1Q04 Revenues: Commissions and fees $70,160 $67,255
$69,512 4.3 % 0.9 % Principal transactions 34,871 46,394 52,076
(24.8) (33.0) Investment banking 56,315 59,686 64,862 (5.6) (13.2)
Interest 15,602 15,206 13,327 2.6 17.1 Other income 10,727 13,589
14,400 (21.1) (25.5) Total revenues 187,675 202,130 214,177 (7.2)
(12.4) Interest expense 8,607 7,560 4,777 13.8 80.2 Net revenues
179,068 194,570 209,400 (8.0) (14.5) Non-interest expenses:
Compensation and benefits 109,402 116,800 129,707 (6.3) (15.7)
Occupancy and equipment 14,027 14,683 13,732 (4.5) 2.1
Communications 10,405 10,470 10,458 (0.6) (0.5) Floor brokerage and
clearance 4,203 3,882 4,800 8.3 (12.4) Marketing and business
development 10,650 10,952 10,662 (2.8) (0.1) Outside services
10,639 11,182 9,158 (4.9) 16.2 Cash award program 1,136 1,158 1,071
(1.9) 6.1 Other operating expenses 7,127 7,259 7,640 (1.8) (6.7)
Total non-interest expenses 167,589 176,386 187,228 (5.0) (10.5)
Income before income tax expense 11,479 18,184 22,172 (36.9) (48.2)
Income tax expense 4,144 6,375 8,382 (35.0) (50.6) Net income
$7,335 $11,809 $13,790 (37.9)% (46.8) % Earnings Per Common Share
Basic $0.38 $0.61 $0.71 (37.7)% (46.5)% Diluted $0.38 $0.61 $0.71
(37.7)% (46.5)% Weighted average number of common shares Basic
19,378 19,333 19,333 0.2 % 0.2 % Diluted 19,523 19,445 19,366 0.4 %
0.8 % Piper Jaffray Companies Preliminary Unaudited Segment Data
For the Three Months Ended March 31, December 31, March 31,
(Dollars in thousands) 2005 2004 2004 Capital Markets Net revenues
$91,945 $104,294 $112,044 Operating expenses 80,418 88,192 93,142
Segment pre-tax operating income $11,527 $16,102 $18,902 Segment
pre-tax operating margin 12.5 % 15.4 % 16.9 % Private Client
Services Net revenues $89,199 $88,895 $96,395 Operating expenses
84,388 83,166 89,375 Segment pre-tax operating income $4,811 $5,729
$7,020 Segment pre-tax operating margin 5.4 % 6.4 % 7.3 % Corporate
Support and Other Net revenues $(2,076) $1,381 $961 Operating
expenses 1,647 3,870 3,640 Segment pre-tax operating loss $(3,723)
$(2,489) $(2,679) Segment pre-tax operating margin N/M N/M N/M
Reconciliation to total income before taxes: Total segment pre-tax
operating income $12,615 $19,342 $23,243 Cash award program 1,136
1,158 1,071 Total income before tax expense $11,479 $18,184 $22,172
Pre-tax operating margin 6.4 % 9.3 % 10.6 % N/M - Not Meaningful
Piper Jaffray Companies Preliminary Unaudited Segment Data Percent
Inc/(Dec) 1Q05 vs. 1Q05 vs. (Dollars in thousands) 4Q04 1Q04
Capital Markets Net revenues (11.8) % (17.9) % Operating expenses
(8.8) (13.7) Segment pre-tax operating income (28.4) % (39.0) %
Segment pre-tax operating margin Private Client Services Net
revenues 0.3 % (7.5) % Operating expenses 1.5 (5.6) Segment pre-tax
operating income (16.0) % (31.5) % Segment pre-tax operating margin
Corporate Support and Other Net revenues (250.3) % (316.0) %
Operating expenses (57.4) (54.8) Segment pre-tax operating loss
49.6 % 39.0 % Segment pre-tax operating margin Reconciliation to
total income before taxes: Total segment pre-tax operating income
(34.8) % (45.7) % Cash award program (1.9) 6.1 Total income before
tax expense (36.9) % (48.2) % Pre-tax operating margin N/M - Not
Meaningful Piper Jaffray Companies Preliminary Unaudited Segment
Data For the Three Months Ended March 31, Dec. 31, Sept.30, June
30, March 31, (Dollars in thousands) 2005 2004 2004 2004 2004
Capital Markets Net revenues $91,945 $104,294 $101,348 $113,616
$112,044 Operating expenses 80,418 88,192 85,539 96,376 93,142
Segment pre-tax operating income $11,527 $16,102 $15,809 $17,240
$18,902 Segment pre-tax operating margin 12.5 % 15.4 % 15.6 % 15.2
% 16.9 % Private Client Services Net revenues $89,199 $88,895
$84,872 $89,506 $96,395 Operating expenses 84,388 83,166 77,703
82,465 89,375 Segment pre-tax operating income $4,811 $5,729 $7,169
$7,041 $7,020 Segment pre-tax operating margin 5.4 % 6.4 % 8.4 %
7.9 % 7.3 % Corporate Support and Other Net revenues $(2,076)
$1,381 $5 $4,181 $961 Operating expenses 1,647 3,870 3,189 6,503
3,640 Segment pre-tax operating loss $(3,723) $(2,489) $(3,184)
$(2,322) $(2,679) Segment pre-tax operating margin N/M N/M N/M N/M
N/M Reconciliation to total income before taxes: Total segment
pre-tax operating income $12,615 $19,342 $19,794 $21,959 $23,243
Royalty fee - - - - - Cash award program 1,136 1,158 1,219 1,269
1,071 Total income before tax expense $11,479 $18,184 $18,575
$20,690 $22,172 Pre-tax operating margin 6.4 % 9.3 % 10.0 % 10.0 %
10.6 % N/M - Not Meaningful Piper Jaffray Companies Preliminary
Unaudited Segment Data For the Year Ended December 31, December 31,
(Dollars in thousands) 2004 2003 Capital Markets Net revenues
$431,302 $430,846 Operating expenses 363,249 361,781 Segment
pre-tax operating income $68,053 $69,065 Segment pre-tax operating
margin 15.8 % 16.0 % Private Client Services Net revenues $359,668
$355,563 Operating expenses 332,709 347,657 Segment pre-tax
operating income $26,959 $7,906 Segment pre-tax operating margin
7.5 % 2.2 % Corporate Support and Other Net revenues $6,528 $321
Operating expenses 17,202 8,498 Segment pre-tax operating loss
$(10,674) $(8,177) Segment pre-tax operating margin N/M N/M
Reconciliation to total income before taxes: Total segment pre-tax
operating income $84,338 $68,794 Royalty fee - 3,911 Cash award
program 4,717 24,000 Total income before tax expense $79,621
$40,883 Pre-tax operating margin 10.0 % 5.2 % N/M - Not Meaningful
Piper Jaffray Companies Preliminary Unaudited Supplemental
Information (Dollars in thousands) For the Three Months Ended
Percent Inc/(Dec) Capital Markets March 31, Dec.31, March 31, 1Q05
vs. 1Q05 vs. 2005 2004 2004 4Q04 1Q04 Institutional Sales Fixed
Income $16,318 $24,683 $21,603 (33.9)% (24.5)% Equities 26,320
26,157 34,511 0.6 (23.7) Total Institutional Sales 42,638 50,840
56,114 (16.1) (24.0) Investment Banking Underwriting Fixed Income
11,632 14,613 14,720 (20.4) (21.0) Equities 20,338 22,863 26,918
(11.0) (24.4) Mergers and Acquisitions 16,574 15,432 13,152 7.4
26.0 Total Investment Banking 48,544 52,908 54,790 (8.2) (11.4)
Other Income 763 546 1,140 39.7 (33.1) Capital Markets Net Revenues
$91,945 $104,294 $112,044 (11.8)% (17.9)% DATASOURCE: Piper Jaffray
Companies CONTACT: Jennifer A. Olson-Goude, Investor Relations,
+1-612-303-6277, Susan L. Beatty, Public Affairs and Media
Relations, +1-612-303-5680, both of Piper Jaffray Companies Web
site: http://www.piperjaffray.com/
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