Good morning, and welcome to the Piper Sandler Companies conference call to discuss the financial results for the Fourth Quarter and Full Year of 2023. During the question-and-answer session, securities industry professionals may ask questions of management. The company will make forward-looking statements on this call that are not historical or current facts, including statements about beliefs and expectations, and involve inherent risks and uncertainties. Factors that could cause actual results 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 pipersandler.com and on the SEC website at 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 on 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.

Good morning, everyone, and thanks for joining us today to talk about our fourth quarter and full year results for 2023. I am here with Deb Schoneman, our President; and Kate Clune, our newly appointed CFO. I'd like to welcome Kate to her first of many earnings calls. She is an excellent addition to Piper Sandler and our leadership team. Kate has an impressive skill set, and we look forward to leveraging that to help drive the firm's next stage of growth. We also have Tim Carter with us today, our former CFO, who is serving as Senior Vice President of Finance through the transition before retiring in April. I'd like to thank Tim for his leadership. He has been an incredible partner to me and instrumental in helping guide us through our growth over the years, including several transformative acquisitions.

Thanks, Chad. I feel incredibly fortunate to have spent over 28 years at Piper Sandler, and I'm really proud of everything we've accomplished. The firm is well positioned, and I'm excited to have Kate in the CFO seat to guide us through the next stage of growth. It's been an absolute honor to work side-by-side with so many fantastic people at Piper Sandler, which is what I'll miss most.

Thanks, Tim. Now turning to our results. Our diversified platform performed well during 2023 despite challenging market conditions for much of the year. We finished the year strong with the fourth quarter representing our best quarter of 2023 as well as our third highest quarterly revenues on record. We generated adjusted net revenues of $457 million, a 21.7% operating margin and adjusted EPS of $4.03. On a full year basis, adjusted net revenues were $1.3 billion, generating a 16% operating margin and adjusted EPS of $9.28. There are a number of highlights worth noting from 2023. Advisory services revenues represented over half of our total net revenues for the third consecutive year. The business delivered its second strongest quarter on record and accounted for 60% of total net revenues for the fourth quarter. We grew market share in our advisory, equity capital markets and equities brokerage businesses. We generated record revenues in our restructuring practice and in our agent and debt business, demonstrating the strength of differentiated product offerings for clients. And we repaid $125 million of senior notes upon maturity, which completes the repayment of our long-term debt financing procured for the acquisition of Sandler O'Neill. Overall, 2023 marks another successful year as we continue to grow market share and maintain strong operating discipline, to generate $166 million of adjusted net income, demonstrating how durable our diverse platform is in a challenging market environment. Now, I'll provide an update on our corporate investment banking business. We generated revenues of $314 million for the fourth quarter of 2023. A significant increase on a sequential basis as well as an increase from the fourth quarter of last year, driven by the strong performance of our advisory business. For the year, corporate investment banking revenues of $840 million declined 7% from 2022…

Thanks, Chad, and congratulations to both Tim and Kate. I'll begin with an update on our public finance business. Market conditions were challenging for most of the year in this business due to higher nominal rates and weak investor demand. However, conditions improved during the fourth quarter. We generated $29 million of municipal financing revenues for the quarter, up 47% sequentially as the better market conditions allowed us to execute a few more high-yield offerings. For 2023, we generated $83 million of municipal financing revenues, down 23% from last year. We underwrote 413 municipal-negotiated transactions raising over $12 billion of par value for our clients. Based on the number of municipal-negotiated underwritings for the year, we maintained our number 2 ranking. The number of new issuances in the overall market for 2023 declined approximately 13% from the prior year. High-yield new issuances decreased approximately 21% and due to higher interest rates for issuers and depressed demand from buyers. This impacted our performance as a meaningful component of our public finance business is in high-yield specialty sectors. As we look ahead to 2024, market conditions continue to be challenging. However, declining rates and more investor demand have us cautiously optimistic that momentum will continue. Our diversified middle-market model is a key differentiator in the marketplace, and we're excited about our growth prospects for this business. Turning to our equity brokerage business. Equity markets rallied during the quarter to finish the year strong, and volumes increased 8% compared to the third quarter. We generated revenues of $55 million for the fourth quarter, up 9% sequentially and down modestly year-over-year. For the full year, equity brokerage revenues of $210 million were consistent with 2022. Performance was broad-based with our high-touch program and derivatives trading, all generating strong activity. Market share gains in 2023…

Thanks, Deb, Chad and Tim. Let me begin by saying how happy I am to be here at Piper Sandler. I'm honored to be named the new CFO. I'd like to thank Tim for his continuing invaluable support and mentorship during this transition. Before reviewing our non-GAAP financial results, let me discuss a couple of items impacting our GAAP results this quarter. For the fourth quarter of 2023, our GAAP results included $5.2 million of non-compensation expense related to potential regulatory settlements with the SEC and CFTC regarding recordkeeping requirements for business-related communications as well as the related legal costs. GAAP results also include a $3.8 million restructuring charge associated with headcount reductions as we continue to align headcount with our 2024 outlook. Turning now to our adjusted non-GAAP financial results, which should be considered in addition to and not a substitute for the corresponding GAAP financial measures. Net revenues of $457 million for the fourth quarter of 2023 increased 49% from the prior quarter, and 17% compared to the fourth quarter of last year. An excellent performance from our advisory business accounted for 62% of total net revenues, which drove the strong results. For the year, net revenues totaled $1.3 billion, down 7% compared to 2022. We generated solid operating results despite reduced market activity for much of the year, as well as a decline in market fee pools in most of our businesses. Turning to operating expenses and margin. Our compensation ratio for the fourth quarter of 2023 was 63.4%, lower compared to the sequential quarter, driven by increased revenues. For 2023, our compensation ratio was 63.6%, a 110-basis point increase compared to 2022. Our compensation philosophy remains unchanged. We continue to balance employee retention and opportunities to invest in new talent with delivering appropriate operating margins and…

[Operator Instructions].

Good morning, everyone. Thanks for taking the question here. I just want to start on the fixed income brokerage business. You clearly -- nice to see the improvement there and here the depositories are more active. In my sense, with that improvement kind of progressed through fourth quarter, so maybe the fourth quarter wasn't even fully reflecting that improvement. So I'm just curious - if the fourth quarter level, is a big jumping off point. As we look to 2024, could it actually improve off of that? If you see more acceleration from depositories, just want to get it maybe sensitize a bit around what you guys saw during the fourth quarter, and then what that means for how to think about jumping off into 2024? Thanks.

Yes. Hi, Devin. We did see that build in Q4, as you said, and I think a lot of that ended up being with banks at almost at the end of the year looking to get their balance sheets repositioned for the start of '24, taking the loss trades, locking in higher yields. As we look to 2024, it ultimately is probably one of our harder businesses to predict, because what we've seen already in the first quarter. And one of the factors that seems to impact the business, is not just only level of rates, but rate volatility. And so, as we've seen rates move around a lot here again in January, we have seen it start off just a little slower. But when I step back and look at the whole year in total, we do expect that it's going to be a better year. It's going to be a function of the rate environment, importantly rate volatility, shape of the yield curve. And then that bank and credit - union liquidity, which as you've noted here has improved. So, I guess a cautiously optimistic viewpoint on fixed income in '24.

Okay. Great. Thanks Deb. One on the M&A environment for Chad here, just on the breakdown, between sponsor activity and corporate activity. Obviously you guys have connectivity to kind of both subgroups, and sponsors are really absent from the market last year. But we have been hearing that, they're starting to come back. Technology is the largest sector and hearing some more positive commentary there, where I know you guys participate as well. So, we'll have to just get a little flavor, between your sponsors versus corporates. And then also just I hear the comments around kind of the cadence of 2024, and the acceleration through the year. But what are some of the key things you're looking for, when you talk to clients, to get the sense that things are improving. And then, the order of magnitude that it feels like, is it a coiled spring, or is this just a really kind of long, slow kind of going out, grind higher? Thanks.

Yes, I would say Devin, obviously we had really good Q4 advisory results. Frankly, the sponsor business had a lot to do with that. Obviously, I've heard the commentary from others. So, I think you just - you look at this year in Q4, and we certainly gained some share. We sort of highlighted our sponsor activity, depending on how you look at it was up somewhat, in a market where the fees were down. I would say the first few quarters when we were looking at, sort of what transactions were going to close. The close rates were just incredibly low leading into that. And so, we were obviously cautious going into Q4. I would say that flipped for us quite a bit in Q4. Just looking at, the potential deals we could close with private equity. We had a very high close rate and I do think, financing has picked up. It's certainly not perfect. I do think the bid between buyers and sellers, these sort of new valuation levels, have settled in for most. Pitch activity is good. So yes, we definitely expect 2024 to be spent a better sponsor year. I don't think it's going to be a coiled spring and then, I would just remind people that sponsor activity is always, more back half weighted than, other M&A activity. So, by its very nature it's a heavy pitch cycle February, March, April, May and heavy deal execution. And frankly, one of the highlights of our Q4 business, was we did a lot in our diversified industrial services business, and that's primarily 100% sponsored business, just as an example.

Okay. Great. If I could squeeze just one more quick one in here. Just on the equity capital markets, side of the business, you guys have such a big healthcare book and that's an area we're - just looking at some of the industry data. It was up roughly 2x from - in January '24 over January '23. So seeing some improvement obviously early days there, but just - I think the recovery in equity capital markets, is going to be sector-by-sector. And so, just love to get a sense of, kind of the order of magnitude you guys are expecting. And then, within some of the verticals, because you guys are active in some of the maybe the more active areas, kind of what that could mean for Piper maybe even relative to broader industry trends? Thanks.

Yes, so, for us in Q4, ECM actually was a bit of a disappointment after we started with a strong October deal activity, really slowed the last five, six weeks. I would say January has started pretty strong for us in ECM and it's exactly the data, you're seeing and it is driven by yes, by primarily healthcare. I think, we would expect sort of with the overall markets and volatility in client conversations that 2024, should be a measured, continued improvement for ECM. A lot of our, we actually outperformed ECM, if you look at all of 2023, but a lot of that was just market share gains in healthcare. We do expect that entire ECM fee pool, to get better in '24. So, we don't even need market share gains to drive some of that, as what will make it great would obviously be broadening, into some other sectors, very limited IPOs and obviously tech's a big part of that. But if we started to see the tech IPO cycle pick up, we started to see some of the capital markets and energy pick up, that's what would broaden out at least for us. And then, I do think there's a chance, I mean, we saw really low capital markets activity in financial services, just given all the turmoil. And you're starting to see you know, many institutions just sort of take the medicine on capital and other books. So, we do think you'll see more capital raising in that sector as well.

Thank you. We'll go next to James Yaro from Goldman Sachs.

Hi. Good morning and thanks for taking my question. So Chad, starting with advisor, I thought these were excellent results, but I do think the overarching question in investors' minds, is whether advisory transactions came forward into the fourth quarter and whether this sets up for a slightly more challenging first quarter. I think you sort of alluded to the seasonality for 2024. So, I think the question is, how you think about the starting point for '24. And then, when do you think you can get back to fourth quarter levels in '24 and start to build from there?

Yes, I would say look especially given our sponsor mix, first quarter is always the toughest seasonal quarter for us. Like I said with our close rate being high in Q4, it's hard to imagine we didn't have some pull forward there. All that being said, a lot of our sponsor business, like I said is driven from pitching in the first half that, closes in the back half, which is why we sort of said, we think we'll have the similar seasonality. So it's not like in 2023 our first quarter was fantastic from an M&A result either. So as the year progresses, it didn't really pick up for us until Q4. I do think as this year progresses we might see a little more of that in Q2 and Q3, and not just Q4, but we'll have to see how that plays out.

Okay. That makes sense. And then just maybe quickly on financials, DCM and M&A, which you touched on a little bit before, does the stress on the regional banks over the past few days as a result of commercial real estate in particular push out, the timeline for these businesses to re-accelerate? Just curious what you're hearing from your bankers and then just more generally - is that, are those two businesses expected to pick up in 2024? Is that a longer term trajectory?

Yes, I mean I've been obviously reading all the various bank earnings reports and obviously, we cover a lot of the smaller and midsize banks as well. And there's been - certainly some tougher reports. I do think that, does set up for eventual improvement. I would say relative to our corporate financing results last year the DCM, ECM financing part of financials was a really low number for us. Look back many, many years certainly one of the lowest. So, while we think it will be a slow recovery, we do think there will be more capital raising. And we certainly don't think there's a way it can go much lower. So, I think we would say it would be an improvement, but a slow improvement in financial's capital raising this year.

Okay. Great. Thank you so much.

Thank you. We'll go next to Steve Chubak from Wolfe Research.

Good morning. This is Brendan O'Brien filling in for Steven. I guess to start, I just want to touch on the advisory business. The improvements in the environment are encouraging. But just want to get a sense as to whether the election could have any dampening effect on activity levels. And would be specifically interested in the potential impact on activity in the financials and healthcare sectors, which can be in or out of the regulatory crosshairs, depending on the administration?

Yes. I mean I'm in my 33rd year of doing this, obviously, have seen some elections, have certainly been asked about elections a lot. I think people spend a lot of time on it. I would say the few times, both for advisory and ECM that, we've actually looked at the long-term data. It doesn't have that much impact on either of those businesses. But there's definitely some short-term noise that can be created. I mean, certainly for our healthcare business, every time you get a lot of talk about regulating different pricing. That impacts healthcare. I definitely think in our financials business, people will look at the administration and figure out, is it going to be as difficult to get depository transactions done. So, while I think there'll be a lot of noise. I think, if you just look at the trends long-term, it doesn't have that big of impact.

That's helpful. And I guess something a bit more tangible. The OCC gave new guidance that eliminated the expedited review process for bank mergers. I know it's still early days, but would you expect this to change the velocity of activity? Or would it simply prolong deal cycles and therefore, the eventual revenue tailwind, if and when bank consolidation were to really pick up?

Yes. I mean, I think what our team is certainly feeling now is the level of activity and conversation has picked up. I would also say if you just look at the empirical data, even from this year. We've already been on a small handful of depository transactions. So, I think we think it's going to pick up. I do think all the noise around regulatory activity - I mean, bank CEOs talk - to other bank CEOs and if it's a hassle, and it takes longer and it adds risk, that uncertainty always scares people. So, I certainly don't think any of that's going to help, but I think it's against the backdrop where - the environment is going to just warrant consolidation as a way to drive more earnings. And that's certainly what we're seeing in it. But it's going to be a real slow recovery there.

Okay. Thanks for the color, Chad. Thanks for taking my questions.

Thank you. We'll go next to Mike Grondahl from Northland Securities.

Hi. Thank you. So Chad, we're in a new year, 2024. What are your top two strategic priorities for '24? And then just secondly, how should we think about the growth of MD headcount the next year or two?

Yes, I would say, it's hard to just pin the priorities down to a couple, if I had to. I'll give you a couple. Certainly, we've talked for years about, our interest in wanting to increase our market share dramatically in technology and software. I think, when you look at our largest industry teams, and it played out last year, by far, the two largest are financials and healthcare, we had a big year. In energy, and I think certainly in our diversified and industrials business, as we've added enough pieces that, that's a big leg on the stool. But overall, we're going to be disappointed over the next five years, if we can't get the tech and software business, to a similar size with healthcare and financials. And we've obviously made a lot of those investments. Last year was a pretty tough year in the tech advisory fee pool to have that play out. So, we expect quite a bit of improvement there. And then I would say if I could just highlight, one other strategic priority for us in advisory is - or in advisory is just work with PE clients, the type of work we're doing with PE clients, whether it's some GP advisory, looking more at other services you can offer that PE client base. We really have a strategic advantage in the middle market that shows through in our results. It shows through in most of our industry teams with private equity, we had a really, really good year in debt capital raising in our debt advisory business and the vast majority of that is related to sponsors. So, I think we're just - we're going to look at how do you press that advantage and continue to gain share. And how can we offer more products and services for what, we think is going to continue to be a growing PE fee pool. Or your second question was MD headcount. I think...

Yes, how to think about - yes, head count, MDs in banking?

Yes. For us, nothing has really changed. We always kind of talk about, on average, trying to add five to seven net MD headcount. Obviously, we've grown faster than that if you look at the last five years. But that average is in the acquisitions we've done. So, we always put that on top. I would say we went a little slower on sort of external hiring, just given the environment. I would say just sort of given our momentum, and success in just the overall environment, we are seeing a lot more opportunity early this year. And obviously, we got to be careful with that. So, we - there might be some chances to accelerate that, but I think, we're sort of banking on the steady Eddie 5 to 7 adds that - consistent with the last several years.

Okay. Hi, thank you.

And at this time, I'll turn it back over to Mr. Abraham for any additional or closing remarks.

All right. Thank you, operator, and everyone that joined. We very much look forward to updating you on our first quarter results. Have a great day.

That does conclude today's conference. Thank you for your participation. You may now disconnect.