Piper Jaffray Companies Announces 2004 Second Quarter Results
MINNEAPOLIS, July 21 /PRNewswire-FirstCall/ -- Piper Jaffray
Companies (NYSE:PJC) today announced net income of $13.0 million,
or $.67 per diluted share, for the quarter ended June 30, 2004, up
from $8.6 million, or $.45 per diluted share, for the year-ago
period. Net income totaled $13.8 million, or $0.71 per diluted
share in the first quarter of 2004. Net revenues for the second
quarter were $207.3 million, essentially unchanged from the second
quarter of 2003 and unchanged sequentially. For the first six
months, net income and earnings per diluted share approximately
doubled from the year-ago period at $26.8 million and $1.38,
respectively. Net revenues of $416.7 million year-to-date represent
an 11.3 percent increase over the year-ago period, primarily due to
significantly improved equity investment banking revenues. "We
faced a more challenging market environment in our fixed income
business and softer private client activity, which constrained
growth in revenues and earnings," said Chairman and CEO Andrew S.
Duff. "However, we experienced stronger activity in mergers and
acquisitions and continued healthy equity underwriting for the
quarter." Results of Operations Net Revenues Overall, second
quarter net revenues were relatively unchanged compared to the
year-ago period, but the revenue mix shifted significantly, to
equity- related products from fixed income products. A $10.5
million rise in investment banking revenues was offset by a $10.0
million decrease in principal transactions, primarily due to a
decline in fixed income institutional sales and trading. The fixed
income business achieved record revenues in the second quarter of
last year driven by high-yield corporate bonds where the firm has
proprietary research capabilities. Commissions and fees remained
essentially flat with the second quarter of last year, but declined
sequentially $3.7 million, or 5.4 percent, from the first quarter
of 2004 driven by softer individual investor activity. Non-Interest
Expenses For the quarter, non-interest expenses were $186.6
million, a 2.6 percent decrease from the second quarter of 2003.
Compensation expenses were $127.7 million, consistent with last
year. Non-compensation expenses were $58.9 million, down $5.6
million or 8.7 percent compared to the second quarter of last year.
The decrease was attributed to lower loan losses related to certain
forgivable employee loans, offset in part by new public company
costs and higher expenses associated with increased equity deal
activity. For the quarter, pre-tax operating margin was 10.0
percent, up from 6.5 percent for the year-ago period and down
slightly from 10.6 percent for the first quarter of 2004. Business
Segment Review Capital Markets Capital Markets recorded $113.6
million in net revenues for the quarter, relatively unchanged from
the year-ago period. Segment pre-tax operating income for the
quarter decreased $5.6 million, or 21.8 percent, to $20.0 million
compared to the second quarter of 2003. A $13.2 million rise in
fees from mergers and acquisitions and a $3.1 million increase in
equity underwriting were offset primarily by a $12.0 million
decline in fixed income institutional sales and trading and a $3.7
million decrease in fixed income underwriting. The increase in
M&A primarily stemmed from a significant transaction that
closed in the quarter. Lower fixed income institutional sales were
driven by a substantially reduced institutional client order flow
and reduced trading profits due to the uncertainty around rising
interest rates during the second quarter of 2004. Equity trading
volumes declined in the second quarter from the first quarter,
resulting in a $4.2 million sequential decrease in equity
institutional sales. Also compared to the preceding quarter, equity
underwriting decreased by $6.0 million due to the timing of some
deals. Segment operating expenses were $93.6 million for the
quarter, up 4.1 percent over the year-ago period. The increase was
driven by spending on technology, expansion of research coverage
and additional expenses associated with stronger equity deal
activity. Segment pre-tax operating margin was 17.6 percent, below
the prior year quarter but in line with annual historical margins.
The number and value of deals completed for both equity
underwriting and M&A transactions significantly improved over
the same quarter last year. Following is a recap of completed deals
and the industry rankings (based on the number of transactions
completed) during the second quarter of 2004. -- 25 equity
offerings, raising a total of $3.1 billion in capital, and placing
the firm 13th nationally. These results compare to completion of 10
equity offerings in the same quarter last year for a total of $1.6
billion in capital raised. (Source: Dealogic) -- 11 M&A
transactions with an enterprise value of $2.6 billion, ranking
ninth among all advisors. In the same period last year the firm
completed five transactions with an enterprise value of $0.7
billion. Among middle market advisors (excluding investment banks
with average deal size greater than $500 million), the firm ranked
third nationally. (Source: Mergerstat) -- 111 tax-exempt issues
with a total par value of $1.2 billion, ranking the firm fourth
nationally. In the second quarter of last year, the firm completed
160 tax-exempt issues nationally, with a total par value of $2.2
billion. In the Upper Midwest, the firm completed 73 public finance
issues during the quarter for a total par value of $.6 billion,
ranking the firm the lead underwriter of Upper Midwest tax-exempt
issues. (Source: Thomson Financial) Private Client Services Private
Client Services recorded $88.1 million in net revenues for the
quarter, representing a 0.8 percent decrease from the same quarter
last year. Net revenues declined 7.8 percent from a stronger first
quarter, primarily due to lower private client demand for equities
amid concern over inflation, rising interest rates and geopolitical
events. Segment pre-tax operating income was $11.8 million, up
significantly from $0.8 million in the year-ago period. Segment
operating expenses were $76.3 million, which was 13.3 percent below
the year-ago period, primarily due to lower loan losses related to
certain forgivable employee loans. The year-ago period included an
$8.8 million loan loss reserve for anticipated attrition related to
implementing a new compensation plan for financial advisors.
Segment pre-tax operating margin was 13.4 percent for the quarter,
up from 0.9 percent in the year-ago period and 12.8 percent in the
first quarter of 2004. Corporate Support and Other Corporate
Support and Other pre-tax operating loss was $9.9 million for the
second quarter compared to a loss of $12.0 million in the year-ago
period and a loss of $8.7 million in the preceding quarter. Second
quarter results included a net $1.0 million gain on a venture
investment in a company we recently took public. Additional
Shareholder Information As of As of As of June 30, 2004 March 31,
2004 June 30, 2003 Full Time Employees: 3,043 3,019 3,023 Financial
Advisors: 850 867 924 Client Assets: $49 billion $51 billion $48
billion Shareholders' equity: $700.7 million $685.0 million $619.7
million Book value per share: $36.24 $35.43 $32.24 Tangible book
value per share: $20.43 $19.62 $16.34 Conference Call Andrew S.
Duff, Chairman and CEO, and Sandra G. Sponem, Chief Financial
Officer, will host a conference call to discuss second quarter 2004
financial results on Wednesday, July 21, 2004, at 11 a.m. Eastern
Time (10 a.m. Central Time). To access the call, please dial (800)
374-0255, or (706) 643-7489 international, and refer to conference
ID 8526038 and the leader's name, Jennifer Olson-Goude. Callers
should dial in at least 15 minutes early to receive instructions. A
replay of the conference call will be available through midnight
Friday, Aug. 13, 2004 by calling (800) 642-1687 or (706) 645-9291
international. 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. Investment Research, an independent group reporting to
the CEO, supports clients of both segments. 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
for more than 108 years. Headquartered in Minneapolis, Piper
Jaffray has approximately 3,000 employees in 111 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 may experience increased costs resulting from decreased
purchasing power and size compared to that previously provided by
our association with U.S. Bancorp, (2) we compete with U.S. Bancorp
with respect to clients we both serviced prior to our spin-off from
U.S. Bancorp and may not be able to retain these clients, (3) the
continued ownership of U.S. Bancorp common stock and options by our
executive officers and some of our directors will create, or will
appear to create, conflicts of interest, (4) we have agreed to
certain restrictions to preserve the tax treatment of the spin-off,
which reduce our strategic and operating flexibility, (5) 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, (6) the separation and
distribution agreement entered into between U.S. Bancorp and us
contains cross-indemnification obligations of U.S. Bancorp and us
that either party may be unable to satisfy, (7) developments in
market and economic conditions have in the past adversely affected,
and may in the future adversely affect, our business and
profitability, (8) we may not be able to compete successfully with
other companies in the financial services industry, (9) our
underwriting and market-making activities may place our capital at
risk, (10) an inability to readily divest or transfer trading
positions may result in financial losses to our business, (11) 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, (12) 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, (13) 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, (14) 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, (15) 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, (16) our exposure to legal liability is
significant, and could lead to substantial damages and restrictions
on our business going forward, (17) we may suffer losses if our
reputation is harmed, (18) 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 (19) other factors identified in the
document entitled "Risk Factors" filed as Exhibit 99.1 to our
Quarterly Report on Form 10-Q for the quarter ended March 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 Percent Inc/(Dec) For the Three Months Ended
2Q04 2Q04 (Amounts in thousands, June 30, March 31, June 30, vs.
vs. except per share data) 2004 2004 2003 1Q04 2Q03 Revenues:
Commissions and fees $65,776 $69,512 $65,445 (5.4)% 0.5% Principal
transactions 50,243 52,076 60,267 (3.5) (16.6) Investment banking
68,180 64,862 57,652 5.1 18.3 Interest 11,088 12,463 11,811 (11.0)
(6.1) Other income 16,407 14,400 15,202 13.9 7.9 Total revenues
211,694 213,313 210,377 (0.8) 0.6 Interest expense 4,391 3,913
5,327 12.2 (17.6) Net revenues 207,303 209,400 205,050 (1.0) 1.1
Non-interest expenses: Compensation and benefits 127,690 129,707
127,070 (1.6) 0.5 Occupancy and equipment 13,683 13,732 12,596
(0.4) 8.6 Communications 10,712 10,458 9,538 2.4 12.3 Floor
brokerage and clearance 4,559 4,800 5,904 (5.0) (22.8) Marketing
and business development 11,131 10,662 9,362 4.4 18.9 Outside
services 9,922 9,158 8,358 8.3 18.7 Cash award program 1,269 1,071
- 18.5 N/M Royalty fee - - 1,033 N/M N/M Other operating expenses
7,647 7,640 17,761 0.1 (56.9) Total non-interest expenses 186,613
187,228 191,622 (0.3) (2.6) Income before income tax expense 20,690
22,172 13,428 (6.7) 54.1 Income tax expense 7,710 8,382 4,806 (8.0)
60.4 Net income $12,980 $13,790 $8,622 (5.9)% 50.5% Earnings per
common share Basic $0.67 $0.71 $0.45 (5.6)% 48.9% Diluted $0.67
$0.71 $0.45 (5.6)% 48.9% Weighted average number of common shares
Basic 19,333 19,333 19,223 0.0% 0.6% Diluted 19,395 19,366 19,223
0.1% 0.9% N/M - Not Meaningful Piper Jaffray Companies Preliminary
Unaudited Results of Operations For the Six Months Ended (Amounts
in thousands, except per June 30, June 30, Percent share data) 2004
2003 Inc/(Dec) Revenues: Commissions and fees $135,288 $125,342
7.9% Principal transactions 102,319 110,534 (7.4) Investment
banking 133,042 95,758 38.9 Interest 23,551 23,307 1.0 Other income
30,807 30,070 2.5 Total revenues 425,007 385,011 10.4 Interest
expense 8,304 10,754 (22.8) Net revenues 416,703 374,257 11.3
Non-interest expenses: Compensation and benefits 257,397 235,976
9.1 Occupancy and equipment 27,415 26,674 2.8 Communications 21,170
18,484 14.5 Floor brokerage and clearance 9,359 11,827 (20.9)
Marketing and business development 21,793 18,708 16.5 Outside
services 19,080 16,992 12.3 Cash award program 2,340 - N/M Royalty
fee - 1,979 N/M Other operating expenses 15,287 23,214 (34.1) Total
non-interest expenses 373,841 353,854 5.6 Income before income tax
expense 42,862 20,403 110.1 Income tax expense 16,092 7,088 127.0
Net income $26,770 $13,315 101.1% Earnings per common share Basic
$1.38 $0.69 100.0% Diluted $1.38 $0.69 100.0% Weighted average
number of common shares Basic 19,333 19,206 0.7% Diluted 19,380
19,206 0.9% N/M - Not Meaningful Piper Jaffray Companies
Preliminary Unaudited Segment Data Percent Inc/(Dec) For the Three
Months Ended 2Q04 2Q04 June 30, March 31, June 30, vs. vs. (Dollars
in thousands) 2004 2004 2003 1Q04 2Q03 Capital Markets Net revenues
$113,598 $111,880 $115,551 1.5% (1.7)% Operating expenses 93,565
92,241 89,921 1.4 4.1 Segment pre-tax operating income $20,033
$19,639 $25,630 2.0% (21.8)% Segment operating margin 17.6% 17.6%
22.2% Private Client Services Net revenues $88,071 $95,542 $88,738
(7.8)% (0.8)% Operating expenses 76,251 83,272 87,941 (8.4) (13.3)
Segment pre-tax operating income $11,820 $12,270 $797 (3.7)%
1,383.1% Segment operating margin 13.4% 12.8% 0.9% Corporate
Support and Other Net revenues $5,634 $1,978 $761 184.8% 640.3%
Operating expenses 15,528 10,644 12,727 45.9 22.0 Segment pre-tax
operating loss $(9,894) $(8,666) $(11,966) 14.2% (17.3)% Segment
operating margin N/M N/M N/M Reconciliation to total income before
taxes: Total segment pre-tax operating income $21,959 $23,243
$14,461 (5.5)% 51.8% Royalty fee - - 1,033 N/M N/M Cash award
program 1,269 1,071 - 18.5 N/M Total income before tax expense
$20,690 $22,172 $13,428 (6.7)% 54.1% Pre-tax operating margin 10.0%
10.6% 6.5% N/M - Not Meaningful Piper Jaffray Companies Preliminary
Unaudited Segment Data For the Six Months Ended June 30, June 30,
Percent (Dollars in thousands) 2004 2003 Inc/(Dec) Capital Markets
Net revenues $225,478 $199,293 13.1% Operating expenses 185,806
165,520 12.3 Segment pre-tax operating income $39,672 $33,773 17.5%
Segment operating margin 17.6% 16.9% Private Client Services Net
revenues $183,613 $173,604 5.8% Operating expenses 159,523 166,341
(4.1) Segment pre-tax operating income $24,090 $7,263 231.7%
Segment operating margin 13.1% 4.2% Corporate Support and Other Net
revenues $7,612 $1,360 459.7% Operating expenses 26,172 20,014 30.8
Segment pre-tax operating loss $(18,560) $(18,654) (0.5)% Segment
operating margin N/M N/M Reconciliation to total income before
taxes: Total segment pre-tax operating income $45,202 $22,382 102.0
Royalty fee - 1,979 N/M Cash award program 2,340 - N/M Total income
before tax expense $42,862 $20,403 110.1% Pre-tax operating margin
10.3% 5.5% N/M - Not Meaningful Piper Jaffray Companies Preliminary
Unaudited Supplemental Information (Dollars in thousands) For the
Three Months Ended Percent Inc/(Dec) Capital Markets June 30, March
31, June 30, 2Q04 vs. 2Q04 vs. 2004 2004 2003 1Q04 2Q03
Institutional Sales Fixed Income $18,876 $19,296 30,901 (2.2)%
(38.9)% Equities 30,268 34,487 31,909 (12.2) (5.1) Total
Institutional Sales 49,144 53,783 62,810 (8.6) (21.8) Investment
Banking Underwriting Fixed Income 14,540 14,721 18,276 (1.2) (20.4)
Equities 20,888 26,918 17,800 (22.4) 17.3 Mergers and Acquisitions
26,399 13,152 13,167 100.7 100.5 Total Investment Banking 61,827
54,791 49,243 12.8 25.6 Net Interest 3,151 2,306 2,571 36.6 22.6
Other Income (524) 1,000 927 (152.4) (156.5) Capital Markets Net
Revenues $113,598 $111,880 $115,551 1.5% (1.7)% Piper Jaffray
Companies Preliminary Unaudited Supplemental Information (Dollars
in thousands) For the Six Months Ended Capital Markets June 30,
June 30, Percent 2004 2003 Inc/(Dec) Institutional Sales Fixed
Income $38,172 53,742 (29.0)% Equities 64,755 59,093 9.6 Total
Institutional Sales 102,927 112,835 (8.8) Investment Banking
Underwriting Fixed Income 29,261 31,135 (6.0) Equities 47,806
22,334 114.1 Mergers and Acquisitions 39,551 26,416 49.7 Total
Investment Banking 116,618 79,885 46.0 Net Interest 5,457 4,542
20.1 Other Income 476 2,031 (76.6) Capital Markets Net Revenues
$225,478 $199,293 13.1% DATASOURCE: Piper Jaffray Companies
CONTACT: Jennifer A. Olson-Goude, Investor Relations,
+1-612-303-6277, or Dana H. Wade, Public Affairs and Media
Relations, +1-415-277-1556, both of Piper Jaffray Companies Web
site: http://www.piperjaffray.com/
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