Good morning, and welcome to the Piper Sandler Companies conference call to discuss the Financial Results for the fourth quarter and full year of 2022. During the question-and-answer session, securities industry professionals may ask questions of management. The company has asked that I remind you that statements on this call that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements that involve inherent risks and uncertainties. Factors that could cause actual results to differ materially from those anticipated are identified in the company's earnings release and reports on file with the SEC, which are available on the company's website at www.pipersandler.com, and on the SEC website at www.sec.gov. This call will also include statements regarding certain non-GAAP financial measures. The non-GAAP measures should be considered in addition to, and not a substitute for, measures of financial performance prepared in accordance with GAAP. Please refer to the company's earnings release issued today for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure. The earnings release is available on the Investor Relations page of the company's website and at the SEC website. As a reminder, this call is being recorded. And now, I'd like to turn the call over to Mr. Chad Abraham. Mr. Abraham, you may begin your call.

Good morning and thank you for joining us. I am here with Deb Schoneman, our President, and Tim Carter, our CFO. We will go through our prepared remarks, and then open up the call for questions. Our diversified platform continues to perform well despite the challenging market backdrop. We finished 2022 with the fourth quarter representing our strongest quarter of the year. We generated adjusted net revenues of $391 million, a 19.3% operating margin, and adjusted EPS of $3.33. On a full year basis, adjusted net revenues were $1.4 billion, generating an 18.8% operating margin, and adjusted EPS of $11.26. 2022 was our second strongest year on record behind 2021. There are a number of highlights worth noting from 2022. We acquired DBO Partners, which doubled our technology banking platform, and positions us well for further growth in this important sector. The acquisition of Cornerstone Macro added a high quality macro, thematic, and quantitative research product, that has proven to be synergistic with our equities business. We acquired Stamford Partners, a specialist M&A boutique focused on European food and beverage companies, which represents a natural expansion of one of our existing industry power allies. We generated advisory revenues of over $770 million, representing 54% of our total net revenues, and our second best advisory year ever. We grew market share in our equities brokerage business, generating record revenues in that business line, and we grew investment banking managing director headcount on a net basis, finishing the year with 159 MDs, the most in our history. Overall, 2022 marks a successful year as we continue to make significant strides in expanding our market presence, and in increasing the earnings capacity and resiliency of our platform. Now, I'll provide an update on our corporate investment banking business. We generated total corporate investment…

Thanks, Chad. I'll begin with an update on our public finance business. In the fourth quarter, we generated $19 million of municipal financing revenues, down 30% from the sequential quarter. This business is experiencing unfavorable market conditions, as higher nominal rates, interest rate volatility, and lack of investor demand, have significantly reduced municipal issuances. For the full year of 2022, we generated $108 million of municipal financing revenues, down 34% from last year. We underwrote 571 municipal negotiated transactions, raising $15 billion of par value for our clients. Based on number of municipal underwritings through the year, we maintained our number two ranking. Overall market issuance for 2022 declined approximately 20% from the prior year. However, high yield new issuance decreased approximately 40% due to significant fund outflows. This impacted our performance, as a meaningful component of our public finance business is in high yield specialty sectors. Our pipeline is strong, but it remains uncertain when conditions will become more conducive to closing transactions. As we look ahead to 2023, we expect market conditions to remain challenging. Higher rates have sharply curtailed refinancing activity, depressing new issuance volumes. However, we expect that our market leadership and diversification in the business, will provide some resiliency to market headwinds. Turning to equity brokerage. Equity markets continue to experience elevated volatility and volumes, driving record equity brokerage revenues of $56 million for the fourth quarter, up 7% sequentially. For the full year, equity brokerage generated revenues of $210 million, to succeed at the goal we set for ourselves at the beginning of the year to build an equity brokerage business with revenues of $200 million. Performance on the platform was broad-based, with our high-touch program, derivatives and algo trading, all generating strong activity. Heightened volatility through most of the year provided tailwinds. During…

Thanks, Deb. As a reminder, my comments will be focused on our adjusted non-gap financial results. We generated net revenues of $391 million for the fourth quarter of 2022, up 17% from the third quarter, driven by solid performances across our advisory and brokerage businesses. Net revenues decreased 38% from the record fourth quarter of 2021 due to lower corporate investment banking and municipal financing revenues. Net revenues for 2022 totaled $1.4 billion, down 28% from the exceptional prior year, which benefited from record corporate investment banking, municipal financing, and fixed income brokerage activity. Market volatility had an adverse impact on most of our businesses during 2022. However, despite tough conditions, our absolute performance was good, and represents our second strongest year in firm history for revenues and earnings. Turning to operating expenses and margin, our compensation ratio for the fourth quarter of 2022 was 62.3%. And on a full year basis, our compensation ratio was 62.5%, in line with our guided ratio. Looking ahead, we continued to maintain our philosophy of managing compensation levels to be a balance of employee retention, investment opportunities, and operating margins. In 2023, based on our current outlook, we estimate our compensation ratio will be fairly consistent with 2022 levels. Non-compensation expenses, excluding reimbursed deal expenses for the fourth quarter of 2022, was $62 million, up 3% compared to the third quarter of this year, and consistent with our expectations. Non-compensation costs for 2022, excluding reimburse deal expenses, totaled $237 million, an increase of 19% compared to 2021, driven by increased travel costs, as well as the addition of Cornerstone Macro, Stamford, and DBO to our platform. We remain disciplined in managing costs, and with the challenging outlook, we are focused on actionable expenses. Looking to 2023, we expect our non-compensation costs to continue…

[Operator Instructions] And our first question will come from Devin Ryan with JMP Securities.

Good morning, everyone. How are you guys doing?

Good, Devin.

Good. Chad, maybe I'll start with you on the advisory outlook and commentary. So, obviously heard the comment that the backlog is strong, but expect a slower start to the year, which makes sense. We’re hearing from a number of your peers, one middle market centric peer was talking about of the pipeline of mandates is kind of at a record level, but just deals aren't progressing. And it sounds like you're saying something similar just in terms of the progression of deals. So, just love to maybe frame a little bit more around the pipeline, how you guys look at it, and then whether you're seeing any kind of incremental move in here, one direction or another. We're also hearing a little bit of green shoots just with the better start to the year and sentiment is a little bit better. So, curious kind of how that's affecting things. Is it - and is it really financing that's broken, or is it the just confidence in the macro view and just that needs to improve to see some of this stuff move forward?

Yes, certainly. Obviously, on advisory on a relative basis, we thought we had a pretty good Q4. You can never me measure advisory just on a quarter. We got a lot of stuff closed probably relative to what we thought at the start of the quarter. So, some - so that certainly impacts the beginning of the year. I think relative to pipeline, I mean, we do have - it's not like a lot of mandates are dying. What I would say is, people are kind of getting ready. They've got the books ready. They're updating the packages, but it's just really slow on launching new transactions. So, I think based on pattern recognition, everybody thinks the back half is going to be better, but that's not incredibly scientific. And what I would say relative to just strategic and private equity, while I think you're seeing a little bit better financing conditions, it’s still pretty tough. And obviously, that drives a lot of private equity. We did relatively, we think, pretty well on the strategic M&A side in this quarter and in Q4 and last year. And that's probably going a little bit better to start the year. But yes, I think in general, we expect advisory to start slow. And if this cycle is like others, we expect it to pick up by the second half, but we're certainly cautious from the start here.

Okay, great. Thanks for that. One for Deb, I guess on your muni finance and some of the commentaries. So, it sounds like some of the headwinds there could persist, but those will be partially offset by just market share improvement within Piper. I guess just bigger picture, trying to think about what normalization in this business looks like. I mean, you had a just tremendous 2021. We've come off of that level quite a bit here. And so, I guess the question, is normal in your mind something in between maybe where we are right now, fourth quarter kind of jumping off point, and what the company did in 2021? I think it was $165 million in revenue. Just trying to kind of think about where that could settle in when the markets settle down and maybe we’re in a little bit more constructive environment.

Yes, Devin, I'd say, and the key part of that is when the markets settle down and become more constructive, and that's the part that is a little difficult to predict. But I would say, one of the things you saw significantly in 2022 is the amount of refunding coming down. I mean, that was the biggest driver by far of the decline in issuance. And so, some of that ultimately is where due rates settle out and where does that ultimately - how much of that comes back into the marketplace. The other thing for us is, given the diversification of our business and the specialty groups that we have, which are more reliant on the high yield market, that's another piece that we're going to need to see. Our inflows coming back into those funds, which the year started out with some inflows coming back in after a year of outflows consistently month after month, but it's one month. And so, that's just another piece of it for us. You think about our business is really pretty balanced over time between those specialty and governmental sides of the business. So, definitely see, to your point, it landing somewhere between those two, but just how quickly it gets there is a bit of a question.

Yep, completely understood, but no, thank you. Just last one here on just the balance between kind of focus on costs as I think Tim talked about, the flip side, there's a lot of opportunity to still grow the firm and you guys had a great 2022 in terms of both external recruiting and also some nice tuck-in M&A. And so, just curious as you look ahead, kind of the appetite to maybe do as much as you did in 2022, in 2023, just given that dynamic of kind of balancing the opportunity versus that upfront cost that is going to create a little bit of a drag in the near term.

Yes, and I think when we look at that, we're really breaking it into two buckets. We're still focused on driving growth. So, where we see an opportunity on a senior hire that's directly driving revenue and production really across banking, fixed income, public finance, we’re going to continue to do that. I would say headcount in general, we're being quite cautious, focused on when we have attrition less - not replacing every spot, being very careful on just new junior hiring in banking and other areas. But we’ve got to try to find that balance so we've got the capacity when some of that picks up. But in general, you're right, probably a little more careful on that hiring front.

Got it. All right, I'll leave it there. Thanks so much.

And our next question comes from James Yaro with Goldman Sachs.

Good morning. Congrats on the great quarter. I just wanted to turn to corporate financing, and start with you Chad. Obviously, industry ECM remains quite soft. Maybe if you could just provide some color on what you hear from clients in terms of when they might consider transiting in 2023. And then specifically on the healthcare ECM side of the business, should we expect this to remain a tailwind for the corporate financing business in 2023? And sort of how close is this sector to being back to a normalized cadence of activity?

Yes, what I would say about ECM, I mean, for us with the start in January, we've done a handful of healthcare deals. And so, I would say our pace for ECM, at least for this quarter, feels fairly close to Q4 of last year and Q3 of last year, which is quite a bit better than obviously Q1, Q2. I mean, last January, February, March, I mean, we did almost no ECM. So, I would say, we're slowly doing transactions. I would say the urgency from clients that need to do a financing this year, I think price expectations are more normalized. So, we certainly think this will be a better year for ECM. I'm not sure I would call it normalized. I mean, it’s still probably nowhere near the overall ‘20 and ‘21 fee pool size, but the flip side of that is, ‘22 was just incredibly low. So, probably somewhere in between, and that's certainly how the year has started for us.

Got it. That makes a lot of sense. Just thinking about the fixed income business, they were obviously quite strong this quarter and better than most peers, and obviously there was a strong recovery relative to the third quarter. When you think about the Fed continuing its quantitative tightening, Deb, and that does drain bank liquidity. And I would imagine that would sort of dampen securities demand. Is there any risk that fixed income ticks back down to more - to closer to that 3Q level? Or should we think about this quarter's result as a more normalized run rate for ‘23?

Yes, James, I think I would actually go right in the middle of what you just said. We did see in Q4, activity picked up related to banks repositioning balance sheets going into year-end. And so, that's what contributed to some of the strength that we had in the fourth quarter. At the same time, I would say, at the end of the day, let me put it this way, there's so much that clients are just trying to figure out relative to where these interest rates are going. And as that becomes more and more clear, those clients tend to step back into the market, which is why I don't think it goes back to the levels of Q3 that you're talking about. Longer term, higher rates are good for the fixed income business. We just need to see more clarity in the outlook of where those rates are going. So, in the interim, our goal is to continue to build a more diversified platform away from just the banks, which has been more of a strength of ours, especially with the combination with Sandler. So, trying to have that, what you alluded to, what's going on with the banks’ balance sheets being a little less of an impact to our overall fixed income business.

Okay. That's really helpful. Thank you so much.

And our next question will come from Steven Chubak with Wolfe Research.

Hi, good morning. So, I wanted to wanted to start off with a question you must have been asked in terms of like some of the topline trends, was probably to unpack some of the commentary around non-com, since the seasonality in your business tends to be pretty pronounced. Is the right way for us to be thinking about the non-com trajectory for ‘23, that somewhere around a $72 million per quarter run rate is reasonable, while just adjusting for seasonality? So, somewhere like the $290 million zone. Just want to make sure I'm thinking about that appropriately, because 4Q is typically the high watermark on the year.

Yes, Steve, I can take that. I think the 72, and that includes - that would include reimbursed deal expenses, we tend to talk about it excluding that. And I think sort of at the 62 level, excluding in the fourth quarter, is what we think that looks like from a go-forward perspective. The reimburse deal is a little bit more variable based on levels of activity, particularly capital markets. But at a high level, Chad just talked about if capital markets sort of stays at the levels we saw in Q3, Q4, I think that all in, 72 going forward is sort of the right level.

Got it. Very helpful. And we touch on trends covering like all the different categories of your investment banking business and the trading or the brokerage business. As you guys went through the budgeting process for this year, I think based on the trends that we've seen so far, ECM better, the brokerage commentary overall positive, advisory outlook still challenged. Is your expectation that you could actually grow revenues in ‘23 relative to ‘22? Just providing a more holistic picture would be really helpful.

Yes. I mean, obviously, we don't give annual guidance, but what I would say generally is, I think your trends are correct there. We certainly think if the first half of this year is better for ECM, and we have more quarters like Q3 and Q4, which we don't think by any means is robust ECM, that financing certainly could be better. I think the brokerage businesses are going to depend on the market. And obviously, the wild card is advisory. I think in our commentary, we certainly think the first half can still be slow and challenged here. And so, to grow revenues for the entire year is going to be based on what sort of outlook you have for advisory in the second half. And that's going to depend on the market conditions.

Right. And it might be helpful since like the strategic piece is a big contributor to strength, this past year, I know historically you guys have benefited from having really strong sponsor relationships. Just what you're hearing from your sponsor clients, what they need to see in terms of clarity around the macro to make them more willing or inclined to transact here.

Yes. I mean, I think we're really fighting two things. First, it takes a while. I always try to get - people try to pin you down on how many quarters does it take for buy or seller sort of price expectations to come in line. I would say, the conversations I'm part of, that's much more realistic now. We're very - we're closer there. So, I think that will help transactions. And then it's just financings. Can people get financings done? And certainly, the larger ones, that's still difficult. Obviously, where it's middle market credit funds, those deals are getting done. It might be a little less leverage, which impacts price. But all of that, we expect will slowly change. How that changes throughout the year, will impact how much the back half picks up in advisory.

That's great color, Chad. Thanks so much for taking my questions.

[Operator instructions]. We'll now go to Mike Grondahl with Northland Securities.

Hey, thanks, guys. Hey, I noticed on the first page in the press release, you mentioned scaled and diversified roughly three times. And I think historically, we know about healthcare, financial services, and energy more recently, but dating to the Simmons acquisition, what other verticals do you really want to highlight with that statement, Chad? Consumer, industrials, you talked about seven verticals now. Can you just kind of emphasize what you really want us to emphasize, or acknowledge what’s sort of scaled and diversified?

Yes, I would say relative to our investment banking industry teams, financials was by far and away the biggest, had a really good year. Healthcare was the second biggest, and usually is there, but in general, it was a pretty difficult year for healthcare, which is always one of our strengths. A lot of that - we did well in advisory, but a lot of that was just the drop in ECM really impacts healthcare. And then frankly, like you said, energy was really strong for us, a record. I think we acquired Simmons seven or eight years ago, and just obviously the energy market and after a couple of really tough years, energy was strong. But then our other two real scale businesses there are consumer and industrials. And even though they were off the ‘21 paces, they're still much larger than they were four or five years ago, and help that diversification. And then I would say, the other business that we would like to become significantly bigger and contribute in the same way those other industry teams do is technology. And having done our DBO acquisition towards the end of the year, we expect over time and over cycles, our tech wear and software practice to be much, much bigger. We acknowledge that the - one of the toughest markets in M&A right now is technology. So, obviously, we'll need a recovery there, but we believe over time that business should rival our top three businesses in terms of size.

Got it. And then did DBO have much of a contribution in the fourth quarter? And then maybe, what's your appetite and what does the pipeline look for continued tuck-in acquisitions?

Yes. So, we closed DBO in October, and no, there wasn't a lot of contribution from new transactions in Q4. And then, what was the second question, Mike?

Oh, just your appetite and what the pipeline looks like for your continued tuck-in acquisitions.

Yes, I would say, if you just look at the track record the last five or six years, it’s really helped us drive scale. And obviously, it gets harder and harder the larger we get, to find sort of white space and good fits. But frankly, some of the best deals we've done have been over time in more challenged markets. So, I would say, we have a good appetite. We are seeing things, obviously in this market, we've got to be careful. You’ve got to look at pipelines. If pipelines are back half-weighted, you’ve really kind of got to understand where we're headed there. But yes, we're going to continue to be active as that's a major source of capital use for us.

Got it. And then maybe lastly, just for Deb. Deb, fixed income trading seemed to have a really strong 4Q. And I think you called out some of the trading from depository institutions. What do you think is like a quarterly run rate? How should we think of that for the business?

Yes. As I was mentioning before, it is so challenging right now. We always say it's hard to look into the crystal ball. And crystal ball here is really foggy just given when do rates settle out a little more. And we talked about looking at the second half of 2022 and believing that we're going to see some improvement from that. But the extent to which we see improvement over that is going to be a little dependent on just volatility of interest rates and more certainty around where they're going to land.

Got it. That's fair.

I don’t know if that's helpful or not. It’s a tough one.

Sure. Hey, thanks a lot.

And there are no further questions at this time, so I'll turn things back over to Mr. Abraham for any additional or closing remarks.

Thank you, operator, and thanks everyone. We look forward to updating you on the first quarter results. Have a great day.

And that does conclude today's conference. Once again, thanks, everyone, for joining us. You may now disconnect.