Good morning, and welcome to the Piper Sandler Companies conference call to discuss the Financial Results for the Third Quarter 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 and on the SEC website. 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. While the global economy continues to face headwinds, Piper Sandler delivered solid results during the third quarter. As I've stated before, our diversified business model continues to perform well and I'm particularly pleased with the results we've achieved in our equities business. While we remain focused on adding scale and increasing market share in our financing and brokerage businesses, our number one priority remains growing our advisory business through sector and product expansion. Thus far in 2022, we have completed three acquisitions and made multiple senior hires, which has moved us forward on both objectives. To that point, in October, we closed on our acquisition of DBO Partners, a technology investment banking firm. DBO roughly doubles the number of senior producers and provides additional scale to our technology practice. DBO's franchise also enhances our credibility with both large cap corporate and large cap sponsor clients within the technology landscape, given their established track record of working with market leading clients on high profile transactions. In addition, DBO adds a general partner advisory practice that is highly complementary and increasingly important to our private equity clients. We're excited to welcome the DBO team to the Piper Sandler family. Turning to our financial results. During the third quarter of 2022, we generated adjusted net revenues of $335 million, a 17.3% operating margin and adjusted diluted EPS of $2.32. During the first nine months of 2022, we recorded adjusted net revenues of $1 billion, an 18.6% operating margin and adjusted diluted EPS of $7.93. Our results, although lower compared to the exceptional prior year period, reflect the increased earnings capacity of our platform, driven by the investments we have made over the last several years. Next, let me review our corporate investment banking business beginning with advisory services. Advisory revenues of $175 million during the third quarter of 2022 increased 3% sequentially and declined 18% from the strong third quarter of last year. Our revenues improved compared to the second quarter as we advised on more transactions with larger fees. However, market volatility continues to impact transaction timelines. Performance during the quarter was diversified across our business sectors. Our Energy and Power team had a particularly strong quarter benefiting from renewed interest and increased activity in this space. In addition, our revenues continue to reflect meaningful contributions from our healthcare and financial services teams. More broadly, Piper Sandler was the number two adviser for US M&A deals under $1 billion based on a number of announced transactions during the first nine months of this year. Our advisory pipelines across verticals remain strong, and we expect the fourth quarter of 2022 to be stronger than the prior two quarters. However, conversion of these pipelines is being increasingly impacted by the more challenging market environment. Turning to corporate financing. We generated $40 million of financing revenues during the third quarter of 2022, an increase of 37% compared to the prior quarter and down 49% from the third quarter of last year. Although the equity capital markets remain largely shut, we improved on a sequential basis, driven by a brief window in August when the market was more accommodating. Overall, we underwrote 20 equity deals during the quarter, serving as bookrunner on 18. We also completed several preferred and debt capital raises for financial services companies. Despite the improved performance during the quarter, market conditions continue to remain challenging. However, in the coming quarters, we expect increased capital markets activity as clients that require access to capital will take advantage of market window opportunities or more stable conditions. Turning to Investment Banking Managing Director headcount, inclusive of the DBO acquisition, we now have 159 managing directors, the most in our history. Our success and momentum continue to resonate in the marketplace, both our recruiting efforts and the development of our own talent continue to be priorities. In closing, there is no question that market conditions remain challenged and have had an impact on asset prices and market activity. That said, we remain focused on factors that we can control and executing on our growth initiatives. We've transformed our business model significantly during the past five years, which has put the company in a position of relative strength that should drive growth in the coming years. Client engagement remains strong, and we're enthusiastic about the opportunities in front of us. I am confident in our ability to navigate the market environment and deliver long term value to our shareholders. With that, I will turn the call over to Deb to discuss our public finance and brokerage businesses.

Thanks, Chad. I'll begin with an update on our public finance business. We generated $27 million of municipal financing revenues during the third quarter, down 25% from the second quarter of 2022. Higher nominal interest rates and increased rate volatility negatively impacted activity for us and the market. In particular, refinancing activity has essentially come to a halt. Overall market issuance during the quarter declined to approximately $94 billion, with the number of issues down 33% from the second quarter of 2022. We've seen investor demand weaken as the market experienced significant municipal fund outflows. During the third quarter of this year, we underwrote 93 municipal negotiated issues with an aggregate par value of $3.4 billion and ranked as the number two underwriter based on a number of issues in this market. Activity for us was led by our governmental business. Looking ahead, we expect the fourth quarter of 2022 to be similar to the third quarter based upon current market conditions and investor sentiment. Our backlog of specialty sector financings is significant, and we could experience upside if market conditions allow for execution of this pipeline. Turning to equity brokerage. Equity markets continue to experience elevated volatility and volumes during the third quarter. Our equity brokerage business generated record quarterly revenues of $53 million, benefiting from the elevated volumes and the addition of Cornerstone Macro to our platform. Performance during the quarter was broad with our high touch, derivatives, program and algorithmic trading, all generating increased activity highlighting our robust trading platform. We are experiencing strong momentum across our platform and client votes and market share metrics have been increasing. We maintained the fourth largest US active client base and rank as one of the largest research platforms in the mid-cap category based on companies under coverage. In addition, our market leading macro research franchise, combined with our full suite of trading capabilities, make us an attractive destination for clients. We continue to pursue opportunities to deepen client relationships and cross sell products across the platform. From an outlook perspective, we expect to finish 2022 strong, driven by continued volatility, market share gains and clients positioning their portfolios for 2023. Lastly, turning to our fixed income business. Market conditions became extremely challenging during the quarter, driven by increased rate volatility as well as aggressive Federal Reserve monetary tightening and expectations for further tightening. Inflation has remained elevated and the market has begun pricing in a recession, resulting in an inverted yield curve. For the third quarter of 2022, we generated fixed income revenues of $37 million, down 31% from a strong second quarter this year as market dynamics have significantly muted client activity. Our depository client activity was particularly soft, driven by lower deposit levels combined with an increase in bank lending. Activity among our municipal-centric clients has been reasonably solid given the relative value in municipal securities. While the near term outlook for fixed income is challenging and difficult to predict, over the long term, our business will benefit from interest rate stabilization at higher rates.

Thanks, Deb. As a reminder, my comments will be focused on our adjusted non-GAAP financial results. We generated net revenues of $335 million for the third quarter of 2022, driven by solid performances across corporate investment banking and equity brokerage. Compared to the second quarter, net revenues decreased 3% as lower fixed income and municipal financing revenues offset the increase in corporate investment banking revenues. Net revenues for the third quarter of 2022 decreased 24% from the prior year quarter due to lower corporate investment banking revenues as well as lower fixed income and municipal financing activity, offset in part by higher equity brokerage revenues. Net revenues for the first nine months of 2022 totaled $1 billion, down from the year-ago period which benefited from record corporate investment banking activity. Turning to operating expenses and margin. Our compensation ratio was 62.5% for the third quarter of 2022, in line with the compensation ratio for the second quarter of this year as well as the first nine months of 2022. Based on our current outlook, we expect our full year compensation ratio to be near the current year-to-date level. Non-compensation expenses, excluding reimbursed deal expenses, for the third quarter of 2022 were $60 million, flat compared to the second quarter of this year and consistent with our expectations. During the third quarter, we generated operating income of $58 million and an operating margin of 17.3%. For the first nine months of 2022, operating income totaled $194 million with an operating margin of 18.6%. Our adjusted tax rate was 27.4% for the third quarter of 2022 and 25.1% for the first nine months of the year, which included a $5 million tax benefit related to restricted stock vesting at prices higher than the grant date price. Excluding this tax benefit, the adjusted tax rate for the year-to-date period was 27.9%. We continue to expect our full year adjusted tax rate will be within our targeted range of 26% to 28%, excluding the impact from stock vestings. During the third quarter of 2022, we generated net income of $41 million and diluted EPS of $2.32. On a year-to-date basis, net income totaled $141 million and diluted EPS was $7.93. Let me finish with an update on capital. We continue to generate significant levels of cash to deploy through corporate development, share buybacks and dividends to drive shareholder returns while maintaining our capital-light business model. We have deployed capital during the year to build out our platform capabilities and drive long-term growth through the acquisitions of Cornerstone Macro, Stamford Partners and DBO Partners. During the third quarter of 2022, we repurchased approximately 199,000 shares of our common stock or $22 million. On a year-to-date basis, we have repurchased approximately 1.4 million shares of our common stock or $186 million, which more than offset the share count dilution from this year’s annual stock grants and acquisitions. Combined with our dividends paid, we have returned an aggregate of $285 million to shareholders during the first nine months of this year. In addition, today, the Board approved a quarterly cash dividend of $0.60 per share to be paid on December 9th to shareholders of record as of the close of business on November 23rd. With that, I'm going to stop there and open up the call for questions.

We will take our first question from Steven Chubak with Wolfe Research.

This is Brendan filling in for Steven. So just to start, one of your peers noted that they've seen some improvement in M&A conditions this quarter. Based on your commentary, it sounds like you have a little bit more of a measured take on the overall environment. But at the same time, the sequential pickup in your advisory business would suggest that you are seeing at least some improvement in the overall financing conditions and buyer-seller expectations narrowing. So just wanted to get a sense as to how you see the environment today relative to last quarter.

I would say, to be honest, not much has changed. We had a small sequential pickup, which could be attributed to a couple of larger fees at close. We continue to see that it’s a pretty difficult market. Deals are getting done, but they are taking longer to be announced and to close. The financing market is still tough. Perhaps over time, buyer and seller expectations will start to align. But we see it as more of the same, and that's the trend we've observed as we move into Q4.

And then on your equity trading business, momentum there is quite impressive. While year-on-year comps are obviously skewed by the Cornerstone acquisition, I believe they're one of the only names to actually see revenues growth quarter-on-quarter. So just want to get a sense as to whether you're seeing greater synergies from the Cornerstone acquisition than you previously anticipated, or what has driven these share gains and whether that impacts your view on the overall run rate for the business going forward?

At the end of the day, we are clearly seeing the benefits of Cornerstone, which you just announced, but it's really the combination of that with the overall platform we've built. The trading platform we've developed over time and having those come together is significant. We are observing from our clients our ability to add more value, largely due to the collaboration occurring among these teams: single stock, macro views, liquidity and trading, and our efforts to improve corporate access and insight for our clients. I would agree that the integration of Cornerstone has had a positive impact. Additionally, the current volatility in the marketplace is providing us with some momentum. Overall, we feel positive about the business and its direction moving forward.

We will take our next question from Devin Ryan with JMP Securities.

This is actually Michael Falco standing in for Devin. I wanted to start with fixed income brokerage. Revenue is obviously down quite a bit sequentially and you noted muted activity among depository clients. How should we be thinking about that business going forward? Is this quarter a good jumping off point in the current environment or could there be another leg down here as depositories have less excess liquidity?

I would say as we look into what visibility we’ve had so far into this quarter, which is one month, we see more of the same from what we had been seeing in the third quarter. The bottom line is, though, there's been significant volatility in rates starting to move upward. No sign that, that's necessarily stopping near term and a lot of actually uncertainty in the market, which is probably the biggest thing that's been driving the softness in that business. So yes, a significant part of our business is depositories, which as you know, have much less liquidity for banks and credit unions now as well as they had seen some increase in loan demand. I would say on the other client verticals that we have, we had seen some strength in those, maybe in the second quarter offsetting depositories, that has not been the case as you saw in Q3. So again, see that somewhat continuing here as they're dealing with this inverted yield curve and uncertainty in rates. And I guess the other thing I would just add, at the end of the day, I mean, if we just step back and think about the business, we are doing work to continue to build out products and the client verticals so that when we get to a more conducive and receptive market, we feel confident in the platform to take advantage of that.

And then maybe shifting gears a little bit. Obviously, growing the advisory business remains a priority. You closed DBO earlier this month. Can you talk about the capacity for additional M&A from here? We're hearing there are still some middle market advisory firms in the market potentially for sale. And assuming that it's a better time for consolidation than a year ago, what are you seeing and what's the level of appetite? And then maybe remind us as well what your top priorities are right now for sector and geographic expansion as well.

I mean we've had a lot of success, obviously, with Simmons and Sandler and Valence and really adding those verticals. We're really excited about DBO. I think that's been the priority internally from our internal partners from leadership. It's just a big sector. Obviously, it's a tougher time in the software and tech M&A market. But frankly, that's when we like to build the platform. So I would concur some of the best things we've done is when things are a little more difficult. What I would say about the market is pretty much every boutique, every investment bank had a record in 2021. I think reality is setting in a little more in 2022. That takes time just like some of our clients on the buyer-seller expectations. You need to see that in the boutiques. But we expect next year to be a good time to be in the market and looking at transactions. I would say our priorities are the same. We're still very interested in building our tech business to be as big as our financials and healthcare business. I would say, geographically, even given the challenges in Europe, we think there's still just low hanging fruit for us relative to other middle market banks; we're underpenetrated in Europe. Again, we're not going to stretch too far, but in the areas, healthcare, financials, some of the things we're really good at, consumer, obviously, we added Stamford Partners. So we're going to continue to look to grow in Europe. And then there still are white spaces for us. We've looked more and more at just with all of the things we do in public finance and real estate, all the things we do in financial services and real estate, is there more we can do collaboratively across the organization in the real estate vertical, can we build a bigger business there just as an example.

We will take our next question from James Yaro with Goldman Sachs.

Maybe I'll start with you, Chad. We've seen a much faster pace of rate hikes than I think people expected earlier in the year. How is this factored into your client dialogues? And then is there sort of an absolute level of rates that you think would more significantly impact M&A activity going forward?

It clearly depends on the different business lines in relation to rates. One of our main business lines is in the sponsor sector, and financing some of these deals has become much more expensive. Over a longer period, financing still looks manageable, but adjusting expectations takes time. In Financial Services, we've been heavily involved in subordinate debt deals in banking and other financial areas, and those rates have shifted significantly, impacting that sector. A key question for financial services is whether this will encourage more equity capital raising, which is a possibility. We've seen challenging results in public finance, and it has taken time for those clients to adapt. The main concern now is where rates are headed and how quickly they change, as understanding this is crucial. If rates continue to rise substantially, some areas of the business may be affected long-term, while others could benefit. For instance, as Deb mentioned, once we reach higher rates and they stabilize, I believe fixed income will experience a strong performance. So, your guesses are as good as mine.

Deb, could you provide some insights on muni financing? How should we think about the key performance indicators or key drivers for that business in the long term? Should we focus on the absolute level of rates or market volatility? Is that what has led to lower activity recently? Additionally, how can we anticipate recovery in the long term?

I would break it into two parts. On the governmental side, it's primarily the investment-grade business, which has benefited over the years from refinancing opportunities. We've observed that this year, new issues have helped to offset the situation, with new money being flat compared to last year, showing no decline. It's been mainly the refinancing that has come to a standstill. In that sector, interest rates are crucial. Often, as long as rates don’t rise too significantly, deals can still go through for new projects. On the specialty side, such as special districts, healthcare, and education, there’s currently significant impact due to the high-yield market being affected by cash flows. In particular, high-yield flows have made it more challenging to close deals due to limited liquidity in the market. Additionally, I want to emphasize the importance of rate stability. We've encountered situations where we've collaborated with clients on deals, believing we were in a certain market climate, only for rates to rise suddenly, altering the market environment, sending us back to reevaluate. Stability in rates will greatly help, but for now, the situation remains uncertain.

We will take our next question from Mike Grondahl with Northland Securities.

Chad, in the press release, it talks about the advisory pipeline being strong, but conversion is tough. Can you just help us understand what strong means with the advisory pipeline sort of relative to what period of time, like last year's peak or kind of before that area? And then secondly, any comments on October, should we think of October just kind of a continuation of the third quarter?

Regarding the advisory business, while our results are down compared to last year, we have maintained good revenue levels over the past five to six years as we've increased our managing director count to 159. We're still actively seeking business and moving deals into the pipeline, with clients considering whether to proceed with launches in Q1. However, these launches are taking longer, and clients are being more cautious. Instead of receiving numerous bidders for a private equity deal, we are seeing fewer bidders, making it more challenging to finalize deals. Compared to the past five to ten years, including periods of M&A slowdowns like the early days of COVID, the current situation is not as severe, but each deal is more difficult and prolonged. The financing landscape for sponsors has impacted pricing, and as this situation continues, sellers will need to adjust their pricing expectations. In October, we anticipate that our advisory business could perform slightly better than in Q2 and Q3, though still below what would be typical in a normal year. Typically, Q4 is strong, and while it may be one of our better quarters for advisory this year, the improvement will not be as significant as usual due to delays in closing deals. Nonetheless, we expect it to be a solid quarter for advisory.

Thank you. There are no further questions at this time. Mr. Abraham, I will turn the conference back to you for any additional or closing remarks.

All right. Thank you, operator, and thanks, everyone. We look forward to updating you on our fourth quarter and full year results. Have a great day.

This concludes today's call. Thank you for your participation, and you may now disconnect.