Piper Jaffray Companies (NYSE:PJC)
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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/