Piper Jaffray Companies (NYSE:PJC)
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Piper Jaffray Companies (NYSE: PJC) today announced a net loss from
continuing operations of $3.4 million, or a loss of $0.22 per share, for
the quarter ended March 31, 2008. In the year-ago period net income from
continuing operations was $14.7 million, or $0.82 per diluted share, and
$15.1 million, or $0.91 per diluted share, in the fourth quarter of 2007.
For the first quarter of 2008, continuing operations generated net
revenues of $95.7 million, down 30 percent from $137.0 million for the
first quarter of 2007 and down 35 percent from the fourth quarter of
2007.
“We are disappointed to report a loss for the
first quarter. This performance was driven by the lowest equity
underwriting activity in the industry in the past five years, and a net
loss in high yield and structured products sales and trading. In
addition, our first quarter results included a severance charge related
to reducing headcount in certain areas of the firm,”
said Chairman and Chief Executive Officer Andrew S. Duff. “We
believe the weakness in the equity environment will carry through the
second quarter of 2008. That said, we remain focused on our long-term
strategy and growth objectives. We also intend to seize opportunities
presented by the market downturn—including
selectively hiring talent to enhance our franchise—that
can place us in an even stronger competitive position when conditions
turn more favorable. We remain confident about the strength of our
franchise and market position in the industry.”
The company also announced today that its board of directors has
authorized the repurchase of up to $100 million of the company’s
outstanding common stock. The principal purpose of the share repurchase
program is to manage the company’s equity
capital relative to the growth of its business and to offset the
dilutive effect of employee equity-based compensation. The authorization
expires June 30, 2010. As of March 10, 2008, Piper Jaffray Companies had
18.8 million common shares outstanding.
Results of Continuing Operations
First Quarter
Net Revenues
Investment Banking
For the first quarter of 2008, total investment banking revenues were
$61.2 million, down 29 percent and down 37 percent, compared to robust
activity in the first and fourth quarters of 2007, respectively.
Equity financing revenues were $16.5 million, down 59 percent and 62
percent compared to the year-ago period and the fourth quarter of
2007, respectively. The reduced performance was driven by
significantly lower financing activity. Industry-wide, the number of
completed transactions was down nearly 50 percent versus the
comparative periods. (Source: Dealogic)
Advisory services revenues were $25.3 million, essentially the same as
the year-ago period, and down 31 percent compared to a robust fourth
quarter of 2007.
Debt financing revenues were $19.4 million, down 3 percent compared to
the first quarter of 2007, and up 16 percent compared to the fourth
quarter of 2007. While taxable financing revenues declined
year-over-year, public finance-related revenues rose compared to the
year-ago period and the sequential quarter. Higher revenues related to
short-term municipal products and higher interest rate product
revenues associated with public finance underwritings led to the
increase.
The following is a recap of completed deal information for the first
quarter of 2008:
15 equity financings raising capital of $2.3 billion, excluding the
$19.7 billion of capital raised from the VISA IPO, on which the
company was a co-lead manager. The company was bookrunner on 2 of the
15 equity financings. Of the completed transactions, 10 were U.S.
public offerings, placing the company 15th nationally,
based on the number of completed transactions. (Source: Dealogic)
16 merger and acquisition transactions with an aggregate enterprise
value of $1.2 billion. The number of deals and the enterprise value
include disclosed and undisclosed transactions. (Source: Piper Jaffray)
69 tax-exempt issues with a total par value of $1.6 billion, ranking
the company eighth nationally, based on the number of completed
transactions. (Source: Thomson Financial)
Institutional Sales and Trading
For the quarter ended March 31, 2008, institutional sales and trading
generated revenues of $33.5 million, down 33 percent and 27 percent
compared to the same quarter last year and the fourth quarter of 2007,
respectively. The reduced performance was mainly driven by a loss
recorded in high yield and structured products sales and trading.
Equities sales and trading revenues were $31.2 million, essentially
the same as the year-ago period and down 10 percent compared to the
fourth quarter of 2007. Increases in U.S. equities were offset by
lower results in Europe and convertibles trading.
Fixed income sales and trading revenues were $2.3 million, down 88
percent and 79 percent compared to the year-ago period and the fourth
quarter of 2007, respectively. The declines were mainly attributable
to a $4.6 million net loss in high yield and structured products sales
and trading driven by lower commission revenues and trading losses.
Public finance sales and trading results were a positive contributor
to the quarter, although down from the comparative periods, mainly due
to losses incurred in the company’s tender
option bond program.
Asset Management
For the quarter ended March 31, 2008, asset management revenues were
$4.0 million. In the prior-year period, the company had nominal asset
management revenues. Revenues were down 26 percent compared to the
sequential fourth quarter, mainly due to a loss related to the Goldbond
asset management business, which the company is now exiting.
Non-Interest Expenses
For the first quarter of 2008, compensation and benefits expense was
$65.3 million, down 19 percent compared to the prior-year period and
down 24 percent compared to the fourth quarter of 2007. Compensation
expense included a $2.5 million severance charge for a headcount
reduction. The compensation ratio for the first quarter was 68.2
percent, up from 58.5 percent in the year-ago period and the fourth
quarter of 2007. The increase was attributable to the severance charge
and fixed compensation costs.
Non-compensation expenses were $34.9 million for the current quarter,
down 2 percent compared to the year-ago period, and down 16 percent
compared to the fourth quarter of 2007.
For the first quarter of 2008, pre-tax operating margin from continuing
operations was a negative 4.6 percent, compared to a positive 16.5
percent in the year-ago period, and a positive 13.1 percent for the
fourth quarter of 2007.
Additional Shareholder Information
As of Mar. 31, 2008
As of Dec. 31, 2007
As of Mar. 31, 2007
Full time employees:
1,224(a)
1,238
1,091
FAMCO AUM
$8.3 billion
$9.0 billion
$9.0 billion
Shareholders’ equity:
$916 million
$913 million
$931 million
Annualized Return on Average Tangible Shareholders’
Equity1
(2.3%)
10.2%
7.7%
Book value per share:
$57.11
$58.26
$54.56
Tangible book value per share:
$38.33
$38.99
$40.92
(a)Only a portion of the employees included in the headcount reduction
had left the company as of quarter end.
1Tangible shareholders’
equity equals total shareholders’ equity less
goodwill and identifiable intangible assets. Annualized return on
average tangible shareholders’ equity is
computed by dividing annualized net earnings by average monthly tangible
shareholders’ equity. Management believes
that annualized return on tangible shareholders’
equity is a meaningful measure of performance because it reflects the
tangible equity deployed in our businesses. This measure excludes the
portion of our shareholders’ equity
attributable to goodwill and identifiable intangible assets. The
majority of our goodwill is a result of the 1998 acquisition of our
predecessor company, Piper Jaffray Companies Inc., and its subsidiaries
by U.S. Bancorp. The following table sets forth a reconciliation of
shareholders’ equity to tangible shareholders’
equity. Shareholders’ equity is the most
directly comparable GAAP financial measure to tangible shareholders’
equity.
Average for the
Three Months Ended
Three Months Ended
As of
(Dollars in thousands)
Mar. 31, 2008
Mar. 31, 2007
Mar. 31, 2008
Shareholders' equity
$
911,903
$
929,232
$
915,974
Deduct: Goodwill and identifiable intangible assets
301,620
232,834
301,293
Tangible shareholders' equity
$
610,283
696,398
$
614,681
Conference Call
Andrew S. Duff, chairman and chief executive officer, and Thomas P.
Schnettler, vice chairman and chief financial officer, will host a
conference call to discuss first quarter results on Wednesday, April 16
at 9 a.m. ET (8 a.m. CT). The call can be accessed via live audio
webcast available through the company’s web
site at www.piperjaffray.com
or by dialing (866) 244-9933, or (706) 758-0864 internationally, and
referring to conference ID 41879262 and the leader's name, Andrew Duff.
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 on April 18, 2007 at the same web
address or by calling (800) 642-1687, or (706) 645-9291 internationally.
About Piper Jaffray
Piper Jaffray Companies is a leading, international middle-market
investment bank and institutional securities firm, serving the needs of
middle market corporations, private equity groups, public entities,
nonprofit clients and institutional investors. Founded in 1895, Piper
Jaffray provides a comprehensive set of products and services, including
equity and debt capital markets products; public finance services;
mergers and acquisitions advisory services; high-yield and structured
products; institutional equity and fixed-income sales and trading; and
equity and high-yield research. With headquarters in Minneapolis, Piper
Jaffray has 25 offices across the United States and international
locations in London and Shanghai. Piper Jaffray & Co. is the firm's
principal operating subsidiary. (NYSE: PJC) (http://www.piperjaffray.com)
Cautionary Note Regarding Forward-Looking Statements
This 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, our current deal
pipelines, the environment and prospects for capital markets
transactions and activity, management expectations, anticipated
financial results, the expected benefits of acquisitions, expectations
regarding the size of inventory positions for certain municipal
products, 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 (including market fluctuations or volatility) may adversely
affect the environment for capital markets transactions and activity and
our business 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) acquisitions may not
yield the benefits we anticipate or yield them within expected
timeframes, (4) we may not be able to compete successfully with other
companies in the financial services industry, (5) an inability to
readily divest or transfer inventory positions of certain municipal
products may result in future inventory levels that differ from
management’s expectations and
potential financial losses from a decline in value of illiquid
positions, and (6) 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, 2007 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, 2007, 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.
© 2008 Piper Jaffray & Co., 800 Nicollet
Mall, Suite 800, Minneapolis, Minnesota 55402-7020
Piper Jaffray Companies
Preliminary Unaudited Results of Operations
Three Months Ended
Percent Inc/(Dec)
Mar. 31
Dec. 31
Mar. 31
1Q '08
1Q '08
(Amounts in thousands, except per share data)
2008
2007
2007
vs. 4Q '07
vs. 1Q '07
Revenues:
Investment banking
$
55,265
$
93,547
$
83,733
(40.9
)
%
(34.0
)
%
Institutional brokerage
29,812
39,549
41,694
(24.6
)
(28.5
)
Interest
15,159
14,644
17,410
3.5
(12.9
)
Asset management
3,973
5,344
127
(25.7
)
N/M
Other income/(loss)
(1,600
)
341
688
N/M
N/M
Total revenues
102,609
153,425
143,652
(33.1
)
(28.6
)
Interest expense
6,878
6,923
6,702
(0.7
)
2.6
Net revenues
95,731
146,502
136,950
(34.7
)
(30.1
)
Non-interest expenses:
Compensation and benefits
65,251
85,704
80,116
(23.9
)
(18.6
)
Occupancy and equipment
8,110
8,710
7,722
(6.9
)
5.0
Communications
6,739
6,476
6,259
4.1
7.7
Floor brokerage and clearance
2,654
3,446
3,515
(23.0
)
(24.5
)
Marketing and business development
6,096
8,494
5,681
(28.2
)
7.3
Outside services
8,817
10,021
7,317
(12.0
)
20.5
Cash award program
-
481
356
(100.0
)
(100.0
)
Other operating expenses
2,474
4,025
3,400
(38.5
)
(27.2
)
Total non-interest expenses
100,141
127,357
114,366
(21.4
)
%
(12.4
)
%
Income/(loss) from continuing operations before
income tax expense/(benefit)
(4,410
)
19,145
22,584
N/M
N/M
Income tax expense/(benefit)
(973
)
4,029
7,862
N/M
N/M
Net income/(loss) from continuing operations
(3,437
)
15,116
14,722
N/M
N/M
Loss from discontinued operations, net of tax
-
-
(1,304
)
N/M
N/M
Net income/(loss)
$
(3,437
)
$
15,116
$
13,418
N/M
N/M
Earnings per basic common share
Income/(loss) from continuing operations
$
(0.22
)
$
0.97
$
0.86
N/M
N/M
Loss from discontinued operations
-
-
(0.08
)
N/M
N/M
Earnings per basic common share
$
(0.22
)
$
0.97
$
0.79
N/M
N/M
Earnings per diluted common share
Income/(loss) from continuing operations
N/A
(1
)
$
0.91
$
0.82
N/M
N/M
Loss from discontinued operations
-
-
(0.07
)
N/M
N/M
Earnings per diluted common share
N/A
(1
)
$
0.91
$
0.74
N/M
N/M
Weighted average number of common shares outstanding
Basic
15,829
15,663
17,071
1.1
%
(7.3
)
%
Diluted
16,634
16,587
18,018
0.3
%
(7.7
)
%
N/M - Not meaningful
N/A - Not applicable
(1) In accordance with SFAS 128, earnings per diluted common share
is not calculated in periods where a loss is incurred.
Piper Jaffray Companies
Preliminary Unaudited Revenues From Continuing Operations (Detail)
Three Months Ended
Percent Inc/(Dec)
Mar. 31
Dec. 31
Mar. 31
1Q '08
1Q '08
(Dollars in thousands)
2008
2007
2007
vs. 4Q '07
vs. 1Q '07
Investment banking
Financing
Equities
$
16,518
$
42,985
$
40,710
(61.6
)
%
(59.4
)
%
Debt
19,370
16,713
19,969
15.9
(3.0
)
Advisory services
25,325
36,747
24,876
(31.1
)
1.8
Total investment banking
61,213
96,445
85,555
(36.5
)
(28.5
)
Institutional sales and trading
Equities
31,180
34,639
31,122
(10.0
)
0.2
Fixed income
2,339
11,185
19,169
(79.1
)
(87.8
)
Total institutional sales and trading
33,519
45,824
50,291
(26.9
)
(33.3
)
Asset management
3,973
5,344
127
(25.7
)
N/M
Other income/(loss)
(2,974
)
(1,111
)
977
167.7
N/M
Net revenues
$
95,731
$
146,502
$
136,950
(34.7
)
%
(30.1
)
%
N/M - Not meaningful
Piper Jaffray Companies
Selected Municipal Securities Information
Market Value
Dec. 31
Feb. 15
Mar. 31
2007
2008
2008
Selected Trading Securities Information:
Variable Rate Demand Notes
$
32.5
$
179.7
(1
)
$
135.5
Auction Rate Municipal Securities
$
202.5
$
359.9
(1
)
$
249.7
Par Value
Dec. 31
Feb. 15
Mar. 31
2007
2008
2008
Special Purpose Entities:
Off Balance Sheet Tender Option Bond
$
276.5
Not Disclosed
$
256.1
On Balance Sheet Tender Option Bond
$
49.1
Not Disclosed
$
43.3
Total Tender Option Bond Program
$
325.6
$
299.4
(1) As disclosed in the Company's 12/31/07 Form 10-K.