Piper Jaffray Companies (NYSE: PJC) today announced a net loss
of $3.6 million, or $0.23 per diluted common share, for the quarter
ended Sept. 30, 2011. For the third quarter of 2010, Piper Jaffray
recorded net income of $7.1 million, or $0.36 per diluted common
share. For the second quarter of 2011, net income was $10.7
million, or $0.55 per diluted common share. Net revenues for the
third quarter of 2011 were $98.2 million, compared to $116.5
million in the year-ago period, and $135.9 million for the second
quarter of 2011.
For the nine months ended Sept. 30, 2011, net income was $14.3
million, or $0.74 per diluted common share, compared to $14.9
million, or $0.75 per diluted common share, in 2010. Net revenues
were $358.9 million for the nine months, up 2 percent compared to
the prior period.
“Increased volatility and uncertainty surrounding macro issues
weighed heavily on the capital markets during the third quarter,
resulting in significantly lower performance for our firm,” said
Andrew S. Duff, chairman and chief executive officer. “Financial
advisory revenues made a solid contribution to the quarter but were
more than offset by lower revenues from capital raising, fixed
income brokerage and asset management. In response to the current
environment, we are maintaining our cost discipline and have
implemented additional expense-saving measures.”
Third QuarterConsolidated ExpensesFor the third
quarter of 2011, compensation and benefits expenses were $65.3
million, compared to $66.1 million in the third quarter of 2010,
which was reduced by a $6.6 million expense reversal related to
performance-based restricted stock grants that were no longer
expected to be earned. Compensation and benefits expenses were
$83.4 million in the second quarter of 2011. The decrease compared
to both of the comparable periods was due to lower performance. For
the third quarter of 2011, compensation and benefits expenses as a
percentage of net revenues were 66.5 percent, compared to 56.7
percent for the third quarter of 2010 (the reversal of the
performance-related award compensation expense reduced the ratio by
5.6 percentage points) and 61.3 percent for the second quarter of
2011. The higher compensation ratio was driven by the impact of
fixed compensation costs on a reduced revenue base, a change in
business mix, and personnel investments in public finance and fixed
income sales.
Non-compensation expenses were $32.6 million, a decrease of 12
percent and 8 percent, compared to the third quarter of 2010 and
the second quarter of 2011, respectively. Given the current
environment, the company closely managed expenses and took
additional steps to reduce costs.
For the third quarter of 2011, income tax expense was $3.7
million, which included a number of components: 1) expense on
operating profits in U.S. entities; 2) $2.3 million of expense for
a 100 percent valuation allowance against deferred tax assets (DTA)
for the company’s Asia business given the current level of
cumulative losses and the deterioration in the Hong Kong operating
environment; and 3) $1.1 million of an expense reversal
representing a portion of the DTA valuation allowance recorded in
2008 for the company’s U.K. operations, based on the current and
projected profitability in the U.K.
Third 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 MarketsCapital Markets generated a pre-tax
operating loss of $0.4 million, compared to pre-tax operating
income of $9.0 million in the year-ago period and $12.2 million in
the second quarter of 2011. Revenues were $84.5 million, down 15
percent and 27 percent, respectively. Advisory services revenues
significantly improved but were more than offset by the capital
markets being essentially shut down for IPOs in the U.S. and in
Hong Kong.
- Equity financing revenues of $6.9
million decreased 65 percent and 78 percent compared to the third
quarter of 2010 and the second quarter of 2011, respectively.
Industry-wide equity market volatility and uncertainty curtailed
capital raising, particularly IPOs, in the U.S. and in Hong
Kong.
- Fixed income financing revenues were
$11.1 million, down 33 percent and 40 percent, compared to the
third quarter of 2010 and the second quarter of 2011, respectively.
The decrease was primarily driven by fewer completed public finance
underwritings and lower average revenue per transaction.
- Advisory services revenues of $27.3
million rose 33 percent compared to the year-ago period and rose 51
percent compared to the second quarter of 2011. The improved
performance compared to both periods was due to a higher number of
completed transactions and higher revenue per transaction.
- Equity institutional brokerage revenues
were $23.5 million, down 3 percent compared to the third quarter of
2010, and up 10 percent compared to the second quarter of
2011.
- Fixed income institutional brokerage
revenues were $14.5 million, down 28 percent and 35 percent
compared to the third quarter of 2010 and the second quarter of
2011, respectively. While performance improved in the middle-market
sales business driven by investors seeking safer and more
short-term investments, the increase was more than offset by lower
performance in taxable securities and strategic trading resulting
from the volatile trading environment.
- Operating expenses for the quarter were
$84.8 million, down 6 percent and 18 percent compared to the third
quarter of 2010 and the second quarter of 2011, respectively.
Overall expenses declined due to lower compensation and
non-compensation expenses. Segment pre-tax operating margin was a
negative 0.4 percent compared to 9.0 percent in the year-ago
quarter and 10.5 percent in the second quarter of 2011.
The following is a recap of completed deal information for the
third quarter of 2011:
- 9 equity financings raising a total of
$895 million of capital.
- 133 tax-exempt issues with a total par
value of $1.8 billion.
- 13 merger and acquisition transactions
with an aggregate enterprise value of $2.1 billion. (The number of
deals and the enterprise value include disclosed and undisclosed
transactions.)
Asset ManagementFor the quarter ended Sept. 30, 2011,
asset management generated pre-tax operating income of $0.7
million, compared to $4.3 million in the third quarter of 2010, and
$4.9 million in the second quarter of 2011. Net revenues of $13.7
million decreased 20 percent and 33 percent compared to the
year-ago period and the second quarter of 2011, respectively. The
decreases were primarily due to reduced management fees resulting
from lower equity prices and lower performance fees.
- Operating expenses for the quarter were
$13.0 million, including $2.1 million of intangible amortization
expense, up 2 percent compared to the third quarter of 2010.
Operating expenses decreased 16 percent compared to the second
quarter of 2011, primarily driven by lower compensation expenses.
Segment pre-tax operating margin was 4.9 percent, compared to 25.2
percent in the year-ago period and 24.2 percent in the second
quarter of 2011.
- Assets under management (AUM) were
$11.2 billion compared to $12.8 billion in the year-ago period and
$12.4 billion in the sequential second quarter. The decline was due
entirely to the drop in equity prices during the quarter. For the
third quarter and on a year-to-date basis, all of the key ARI
investment strategies and the FAMCO MLP product outperformed their
respective benchmarks—most of them by a meaningful margin.
Additional Shareholder Information
As of Sept. 30, 2011
As of June 30, 2011 As of Sept. 30,
2010 Number of employees: 1,035
1,047 1,082 Asset Management AUM:
$11.2 billion $12.4 billion
$12.8 billion Common Shareholders’ equity:
$839.1 million $842.1 million $804.7
million Annualized Qtrly. Return on Avg. Adjusted Common
Shareholders’ Equity1
(1.9)%
5.8%
4.0%
Book value per share: $52.73
$53.07 $54.73 Tangible book value per
share2: $29.10 $29.25
$28.97
1Adjusted 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 Three Months Ended Three
Months Ended Three Months Ended (Dollars in thousands) Sept. 30,
2011 June 30, 2011 Sept. 30, 2010 Common shareholders'
equity $ 842,515 $ 837,794 $ 813,318 Deduct: goodwill
attributable to PJC Inc. acquisition by USB 105,522
105,522 105,522 Adjusted common shareholders' equity
$ 736,993 $ 732,272 $ 707,796
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) Sept.
30, 2011 June 30, 2011 Sept. 30, 2010 Common shareholders'
equity $ 839,139 $ 842,123 $ 804,682 Deduct: goodwill and
identifiable intangible assets 376,022 378,092
378,697 Tangible common shareholders' equity $ 463,117 $
464,031 $ 425,985
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 at 9 a.m. ET (8 a.m. CT). To view a copy of the earnings
release on or after Oct. 19, please visit www.piperjaffray.com. The
call can be accessed via live audio webcast available through the
firm's Web site at www.piperjaffray.com or by dialing (888)810-0209
(domestic) or (706)902-1361 (international). The reservation number
is #96209183. 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 Oct. 19 at the same
Web address or by calling (855) 859-2056 and referencing
reservation #96209183.
About Piper JaffrayPiper Jaffray is a leading
middle-market 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, 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, earnings per share, and return
on equity), the environment and prospects for capital markets
transactions (including for our Asia-based business), our five-year
strategic priorities (including growth in corporate advisory,
public finance, Asia-based capital markets, asset management and
fixed income sales), expansion of our principal investing
strategies (including through merchant banking), 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) expanding our principal
investing activities may increase our concentration of risk and
impact our liquidity if the ability to transfer these positions is
limited, (8) hiring of additional senior talent may not yield the
benefits we anticipate or yield them within expected timeframes,
and (9) 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, 2010 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, 2010, 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 Companies, 800 Nicollet Mall, Suite 800,
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
'11 3Q '11 Sept. 30, Sept. 30,
Percent (Amounts in thousands, except per share data)
2011 2011 2010 vs. 2Q '11 vs. 3Q
'10 2011 2010 Inc/(Dec) Revenues:
Investment banking $ 44,729 $ 67,062 $ 56,243 (33.3 ) % (20.5 ) % $
158,832 $ 171,736 (7.5 ) % Institutional brokerage 31,533 37,170
40,432 (15.2 ) (22.0 ) 116,934 121,611 (3.8 ) Asset management
15,205 19,640 16,812 (22.6 ) (9.6 ) 52,774 41,839 26.1 Interest
15,162 13,144 11,497 15.4 31.9 42,535 39,259 8.3 Other
income/(loss) 441 6,626 (368 ) (93.3 )
N/M 12,578 6,054 107.8 Total
revenues 107,070 143,642 124,616 (25.5 ) (14.1 ) 383,653 380,499
0.8 Interest expense 8,894 7,693
8,153 15.6 9.1 24,748 26,797
(7.6 ) Net revenues 98,176
135,949 116,463 (27.8 ) (15.7 ) 358,905
353,702 1.5
Non-interest expenses:
Compensation and benefits 65,307 83,376 66,058 (21.7 ) (1.1 )
224,228 208,832 7.4 Occupancy and equipment 7,477 8,992 8,853 (16.8
) (15.5 ) 24,917 24,578 1.4 Communications 5,978 6,203 5,943 (3.6 )
0.6 18,792 18,631 0.9 Floor brokerage and clearance 2,233 2,219
2,879 0.6 (22.4 ) 6,918 8,803 (21.4 ) Marketing and business
development 5,708 6,725 5,863 (15.1 ) (2.6 ) 18,643 17,280 7.9
Outside services 6,664 6,819 7,945 (2.3 ) (16.1 ) 21,589 23,684
(8.8 ) Restructuring-related expense - - 1,333 N/M (100.0 ) - 1,333
(100.0 ) Intangible asset amortization expense 2,069 2,069 2,183 -
(5.2 ) 6,207 5,363 15.7 Other operating expenses 2,440
2,412 2,116 1.2 15.3
8,643 11,076 (22.0 ) Total non-interest
expenses 97,876 118,815 103,173
(17.6 ) (5.1 ) 329,937 319,580 3.2
Income before income tax expense 300 17,134 13,290
(98.2 ) (97.7 ) 28,968 34,122 (15.1 ) Income tax expense
3,676 5,987 6,524 (38.6 ) (43.7
) % 13,778 19,627 (29.8 )
Net
income/(loss) (3,376 ) 11,147 6,766 N/M N/M 15,190 14,495 4.8
Net income/(loss) applicable to noncontrolling interests
207 453 (288 ) (54.3 ) % N/M
846 (447 ) N/M
Net income/(loss)
applicable to Piper Jaffray Companies (1) (3,583 )
10,694 7,054 N/M N/M
14,344 14,942 (4.0 )
Net income/(loss)
applicable to Piper Jaffray Companies' common shareholders (1)
$ (3,583 ) $ 8,760 $ 5,415 N/M N/M $ 11,648 $
11,671 (0.2 ) %
Earnings per common share
Basic $ (0.23 ) $ 0.55 $ 0.36 N/M N/M $ 0.74 $ 0.75 (0.5 ) %
Diluted $ (0.23 ) (2 ) $ 0.55 $ 0.36 N/M N/M $ 0.74 $ 0.75 (0.4 ) %
Weighted average number of common shares outstanding
Basic 15,889 15,840 15,035 0.3 % 5.7 % 15,638 15,588 0.3 % Diluted
15,889 (2 ) 15,845 15,038 0.3 % 5.7 % 15,655 15,626 0.2 %
(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) Nine Months Ended Sept. 30,
Jun. 30, Sept. 30, 3Q '11 3Q '11
Sept. 30, Sept. 30, Percent (Dollars in
thousands)
2011 2011 2010 vs. 2Q
'11 vs. 3Q '10 2011 2010 Inc/(Dec)
Capital Markets Investment banking Financing Equities
$ 6,923 $ 30,985 $ 19,839 (77.7 ) % (65.1 ) % $ 62,590 $ 71,603
(12.6 ) % Debt 11,106 18,583 16,486 (40.2 ) (32.6 ) 39,355 46,022
(14.5 ) Advisory services 27,294 18,134
20,595 50.5 32.5 58,852
55,767 5.5 Total investment banking 45,323
67,702 56,920 (33.1 ) (20.4 ) 160,797 173,392 (7.3 )
Institutional sales and trading Equities 23,482 21,341 24,292 10.0
(3.3 ) 70,562 78,720 (10.4 ) Fixed income 14,496
22,394 20,159 (35.3 ) (28.1 )
66,079 57,268 15.4 Total institutional
sales and trading 37,978 43,735 44,451 (13.2 ) (14.6 ) 136,641
135,988 0.5 Other income/(loss) 1,157
4,088 (1,956 ) (71.7 ) N/M 9,125
2,452 272.1 Net revenues 84,458 115,525
99,415 (26.9 ) (15.0 ) 306,563 311,832 (1.7 ) Operating
expenses 84,828 103,339 90,424
(17.9 ) % (6.2 ) % 287,487 286,723
0.3 Segment pre-tax operating income/(loss) $
(370 ) $ 12,186 $ 8,991 N/M N/M $
19,076 $ 25,109 (24.0 ) % Segment pre-tax
operating margin (0.4 )% 10.5 % 9.0 % 6.2 % 8.1 %
Asset Management Management and performance fees
Management fees $ 15,205 $ 18,011 $ 16,117 (15.6 ) % (5.7 ) % $
51,028 $ 40,662 25.5 % Performance fees -
1,629 695 (100.0 ) (100.0 ) 1,746
1,177 48.3 Total management and
performance fees 15,205 19,640 16,812 (22.6 ) (9.6 ) 52,774 41,839
26.1 Other income/(loss) (1,487 ) 784
236 N/M N/M (432 ) 31
N/M Net revenues 13,718 20,424 17,048 (32.8 )
(19.5 ) 52,342 41,870 25.0 Operating expenses 13,048
15,476 12,749 (15.7 ) 2.3
42,450 32,857 29.2
Segment pre-tax operating income $ 670 $ 4,948 $
4,299 (86.5 ) % (84.4 ) % $ 9,892 $ 9,013 9.8
% Segment pre-tax operating margin 4.9 % 24.2 % 25.2
% 18.9 % 21.5 %
Total Net revenues $
98,176 $ 135,949 $ 116,463 (27.8 ) % (15.7 ) % $ 358,905 $ 353,702
1.5 % Operating expenses 97,876 118,815
103,173 (17.6 ) (5.1 ) 329,937
319,580 3.2 Total segment pre-tax
operating income $ 300 $ 17,134 $ 13,290 (98.2
) % (97.7 ) % $ 28,968 $ 34,122 (15.1 ) %
Pre-tax operating margin 0.3 % 12.6 % 11.4 % 8.1 % 9.6 % N/M
- Not meaningful
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