Good morning, and welcome to the Piper Sandler Companies conference call to discuss the financial results for the third quarter 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 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. 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, everyone. Thanks for joining us today to talk about our third quarter results. I'm here with Deb Schoneman, our President, and Tim Carter, our CFO. Market conditions continued to be challenging during the third quarter. Our broad product capabilities and industry diversification have provided some resiliency to our results. And our relative performance was strong in several of our businesses. Against this backdrop, we are pleased with our momentum and we recorded our best quarter of the year in terms of adjusted net revenues and operating margin. We generated adjusted net revenues of $306 million, an operating margin of 15.3%, and adjusted EPS of $1.76. Although activity incrementally improved during the third quarter, current geopolitical concerns as well as the continued macroeconomic uncertainties could impact this progress in the fourth quarter and into 2024. Turning to corporate investment banking. We generated $192 million of corporate investment banking revenues, our best quarter of the year thus far. Highlighting the benefits of our diversified product set, revenues from M&A and debt capital raises increased sequentially. Restructuring activity continues to be robust, and equity financing reflects a gradually improving market. As we've stated previously, scaling our industry groups and adding new product capabilities have enhanced our ability to deliver strong results against mixed economic conditions. Specific to advisory services, revenues of $155 million for the quarter reflect a moderate improvement to M&A and debt markets. We completed 51 advisory transactions during the quarter and benefited from a higher average fee and aggregate transaction value. Performance was led by our financial services and healthcare teams with solid contributions from our consumer, energy and power, and restructuring groups. Advisory services accounted for 50% of adjusted net revenues during the third quarter. Healthcare remains a very large and continually evolving component of the economy and a more substantial share of the overall banking fee pool. With one of the largest and most experienced teams in the marketplace, we continue to gain market share as we leverage our deep sector expertise to advise clients. Financial services is another large and critical component of the economy where we have leading market share. For the nine-month period of 2023, we maintained our number one rank based on both the number and deal value of announced US bank M&A transactions and advised on seven of the 10 largest completed deals. In addition, we have grown our non-bank verticals within the financial services group over the last few years. And the third quarter represents another quarter with significant contributions from asset management, insurance and specialty finance. Overall, our performance on a relative basis remains solid. Completed US M&A market activity is down approximately 30% to 40% compared to the first nine months of last year, while our advisory revenues are down 23%. On a year-to-date basis, we maintained our ranking as the number two advisor on announced US M&A transactions under $1 billion. In terms of outlook, we are encouraged by the direction of advisory activity, and the fourth quarter has historically been our strongest quarter. We have a number of large announced deals expected to close by year-end. And absent events that could cause a delay in the closing of these and other transactions in our pipeline, we expect that advisory revenues for the fourth quarter will continue to show sequential improvement. Turning to corporate financing. The market for equity financing has improved relative to last year. However, activity continues to remain below historic levels. We generated $37 million of corporate financing revenues during the third quarter of 2023, consistent with the improved results we generated for the second quarter. We completed 21 equity and debt financings, raising $5 billion in capital for corporate clients. Activity was driven by our market-leading healthcare franchise. The team ran the books on all 12 deals they completed during the quarter. Highlighting our strong relative performance on a year-to-date basis, our economic fees from sub $5 billion market cap companies increased approximately 88% over last year compared to a 26% increase in the fee pool for this market. In addition, we ranked as a top five investment bank based on the number of book-run deals for healthcare companies with less than $5 billion of market cap. As we start the fourth quarter, corporate financing activity during October has been similar to our third quarter run rate. Turning to investment banking managing director headcount. We finished the quarter with 168 managing directors. Over the last few years, we have significantly grown our MD headcount. We are up net nine managing directors on a year-to-date basis. With this significant growth, we're focused on strategically managing headcount and driving productivity while continuing to look at opportunities to strengthen our sector coverage and product capabilities. As we look ahead, we expect sequential improvement during the fourth quarter. It's difficult to predict when market activity will return to the more normalized levels, but we currently expect improvement in 2024. The macro backdrop remains uncertain, but our priorities have not changed. We remain focused on executing our strategy of scaling industry groups, expanding reach and share, increasing transaction fee size, and adding new MDs and verticals to our platform. Before handing it off to Deb, I'd like to highlight a senior executive transition we announced on September 12. After a long successful 28-year career at Piper Sandler, Tim Carter will be retiring in the first quarter of next year. At the same time, we announced that Kate Clune has been selected to succeed Tim as Chief Financial Officer. Kate will join the firm in November and is expected to take over as CFO on January 1. With that, I will turn the call over to Deb to discuss our public finance and brokerage businesses.

Thanks, Chad, and congratulations to Tim. During the third quarter of 2023, our public finance business generated $20 million of municipal financing revenues, up modestly compared to the second quarter. Market conditions remain challenging with higher nominal rates, interest rate volatility, and weak investor demand. For the quarter, we underwrote 108 municipal negotiated transactions, raising $4 billion of par value for our clients. We completed several significant deals during the quarter, including two landmark deals in Texas, as well as a large senior living offering and an affordable housing deal. Though activity was episodic, these transactions highlight the strength and breadth of our platform and our ability to get deals done in a tough market. As we look ahead, we expect market issuance will be lower than historical levels until rates stabilize, issuers adjust to higher nominal rates, and more investors return to the municipal investment space. Moving to our equity brokerage business, we generated $50 million of revenues for the third quarter, flat compared to the second quarter. Equity markets experienced lower average volatility, which moderated volumes down 3% sequentially. Despite softer conditions, we performed well, driven by quality research and the broad capabilities of our platform. During the quarter, we traded 2.5 billion shares on behalf of our clients. Client research votes continue to increase. Our most recent vote ranking is the highest in our history, which should drive further market share gains in this business over time. Historically, the fourth quarter has been our best quarter of the year for equity brokerage revenues, and we expect to finish 2023 strong as clients position their portfolios for 2024. Moving to fixed income. Market conditions continue to be challenging. Long-term yields moved higher during the quarter, with the 10-year treasury increasing 73 basis points to end the quarter at 4.6%. For the third quarter of 2023, we generated revenues of $40 million, up modestly compared to the second quarter. Clients are beginning to take advantage of higher-yielding securities, and we are increasingly being engaged to assist clients with balance sheet yield optimization. While we expect the near-term outlook to remain challenging, we are starting down the path to a more constructive fixed income market. The stability, scale, and vision of our fixed income platform make us a natural destination of choice for talented fixed income professionals. Interest in our firm continues to be robust, and as a result, we see opportunities to selectively expand our market reach across all of our client verticals. Now, I will turn the call over to Tim to review our financial results and provide an update on capital use.

Thanks, Deb. Before reviewing our non-GAAP financial results, let me discuss an item impacting our GAAP results this quarter. For the third quarter of 2023, our GAAP results include $16.4 million of non-compensation expense related to a potential regulatory settlement with the SEC regarding record-keeping requirements for business-related communications, as well as the related legal costs. At this time, we do not believe the final penalty amount will vary materially from the expense recorded in the third quarter. Now, let me turn to our adjusted non-GAAP financial results, which should be considered in addition to and not a substitute for the corresponding GAAP financial measures. We generated net revenues of $306 million for the third quarter of 2023, up 10% from the prior quarter and down 9% compared to the third quarter of last year. Market conditions continue to remain challenging for most of our businesses. However, strong relative performance combined with the diversification of our platform within and across our businesses led to the strongest net revenue quarter of the year. For the first nine months of 2023, net revenues totaled $873 million, down 16% year-over-year. We continue to generate solid operating results despite the tough markets but don't believe these results reflect the full earnings power of our platform. We remain focused on managing the business to reflect current market conditions while balancing our long-term strategic growth objectives. Turning to operating expenses and margin. Our compensation ratio for the third quarter of 2023 was 63.9%, slightly higher compared to the sequential quarter, driven by revenue mix. For the first nine months of 2023, our compensation ratio was 63.7%. We maintain our philosophy of managing compensation levels to balance employee retention and opportunities to invest in new talent while delivering appropriate operating margins and shareholder returns. Based on our current outlook and mix, we expect our compensation ratio for the fourth quarter to be around 64%. Non-compensation expenses for the third quarter of 2023, excluding reimbursed deal expenses, were $57 million, below our guided range due to reduced travel and lower professional fees. On a year-to-date basis, excluding reimbursed deal costs, non-compensation expenses totaled $183 million, up 5% compared to the prior year. There is some variation in non-compensation expenses from quarter to quarter depending on the timing of certain items. We anticipate our fourth quarter non-compensation costs, excluding reimbursed deal expenses, to be closer to our guided range of $62 million per quarter. During the third quarter of 2023, we generated operating income of $47 million and an operating margin of 15.3%. For the first nine months of 2023, operating income totaled $114 million with an operating margin of 13%. Our income tax rate was 30.2% for the third quarter of 2023 and 13.7% for the nine-month period. Income tax expense for the year-to-date period was reduced by $16 million of tax benefits related to restricted stock vestings. Excluding these benefits, our year-to-date tax rate was 28.2%. We expect our tax rate for the fourth quarter of 2023 to be within a range of 27% to 29%, excluding the impact from stock vestings. During the third quarter of 2023, we generated net income of $31 million and diluted EPS of $1.76. For the first nine months of this year, net income totaled $94 million and diluted EPS was $5.24. Let me finish with an update on capital allocation. We remain committed to returning capital to shareholders through market cycles. During the third quarter of 2023, we returned an aggregate of $14 million to shareholders, primarily through our quarterly cash dividend. For the first nine months of 2023, we returned an aggregate of $142 million to shareholders. This includes the repurchase of approximately 474,000 shares of our common stock for $68 million, which more than offset the share count dilution from this year's annual stock grants. It also includes an aggregate of $74 million or $3.05 per share paid to our shareholders through our quarterly and special cash dividends. In addition, today, the Board approved a quarterly cash dividend of $0.60 per share to be paid on December 8 to shareholders of record as of the close of business on November 21. Finally, given our continued strong cash generation and capital-light business model, on October 13, we repaid the $125 million of our Class B notes upon maturity. With this repayment, we've extinguished the full $175 million of long-term financing procured in late 2019 for the acquisition of Sandler O'Neill. Before we move to Q&A, I'd like to end with a few points. We continue to execute on our strategy to deliver strong revenue, margin, and returns to our shareholders. Second, we are focused on investing in our people and broadening our platform. To that end, I'm excited to welcome Kate Clune to our executive team, and we look forward to working with her in the coming months. With that, we'll open up the call for questions.

We'll take our first question from Steven Chubak from Wolfe Research. Your line is open. Go ahead.

Good morning. This is Brendan O'Brien filling in for Steven. To start with the advisory outlook, we've seen several significant strategic transactions announced in recent months, and the positive developments in antitrust matters, like the approval of Activision and Microsoft, indicate that the environment is generally conducive to larger strategic transactions. However, feedback from the public suggests that activity among sponsors is likely to remain low in the near to intermediate term. I wanted to understand how interactions between sponsors and strategics are currently. I am unsure if there are any changes on the sponsor side, given your focus on smaller transactions in the sub-billion dollar range. Any insights you could share would be appreciated.

Yes. Maybe I'll start with the sponsor side and private equity. We've definitely seen more transactions as sell-side processes start. There's definitely interest. We can definitely get bids. You get to the end of a process, and instead of having multiple parties, you're down to a couple of parties still closing the sort of the ask-bid gap. But financing is definitely there and better. So, I would say on the sponsor side, it's improved, but slowly. It's not like it's snapping back, but certainly just narrowing that bid-ask spread and getting financing has helped a lot of the deals of quality. On the strategic side, we definitely have good activity. Obviously, there's been some big news on some larger strategics relative to antitrust. But I would just also say across the board, we have more situations that are challenged with antitrust and second reviews and things than we usually do. I would say it's extending some timelines. It hasn't killed that many transactions. Obviously, it's also challenged in financial services. But it's not like it's markedly better on the strategic side from antitrust.

That's helpful. And then I guess on fixed income brokerage, the commentary, I think, is trading in the right direction, is encouraging. And it sounds like you see potential for market share gains. I know in the past that you pointed to $200 million as being around the right level for normalized revenues on an annual basis for the business post Sandler. But given the benefit from higher rates and the share gain opportunities you highlighted, I want to get a sense as to whether that's still the appropriate way to think about normalized revenues in the business or if it could potentially be even higher?

Yeah. Well, here's what I'd say. Currently, as you can see in the numbers, our revenues have been more depressed. As you pointed out, we're seeing some pickup in that. If you look at our overall business, the non-depository clients, our business with those clients is relatively flat. So this is about banks and credit unions and their lack of liquidity and what's happening in their own bond portfolios. So to your question about whether $200 million is the right number, I think as we look at the business today, that's in the right range of where we think it's going. However, we're doing a lot to also invest in the business, and we'll continue to look at that to build that business over time. But right now, focused on doing what we can to help these clients in this tough interest rate environment. And need to see more certainty in interest rates and to see the top hit here on the interest rate increases.

Thanks for taking my questions. And, Tim, congrats on the retirement. It's been a pleasure. And yeah, wishing you all the best.

Thank you.

Thank you. And we'll next go to Devin Ryan with JMP Securities. Your line is open. Go ahead.

Good morning, Chad, Deb, and Tim. I agree with Tim's comments and wish him all the best for the future. I want to start with municipal underwriting. I've heard that we need rates to stabilize for that business to improve. If rates do stabilize, but at higher levels, do issuers still have the same need to fund their projects, meaning the volumes shouldn't be significantly affected? Or are these issuers still sensitive to rates, leading them to limit their activities due to higher costs? I'm trying to understand what recovery might look like. Would it be a recovery that remains muted at a more normalized level, or what would a typical year look like if we settle at slightly higher rates than we have historically seen?

Yeah, it is very dependent, Devin, on which part of our business that you're looking at. But if you think holistically about higher rates, obviously, the refinancing side of the business has largely gone awry. There's some of that still happening as projects mature and they can refinance. But for the most part, you are looking at new money. So the question about whether or not higher rates limit that, to some degree, it will. And that's partly because the size of things might be smaller, right? So they still have a need, but projects might come in smaller ones. The other thing these issuers are dealing with is higher construction costs. So whether it's building a new school or other development, that is also impacting. So that's just something else to watch, I think, in terms of these issuers' ability to actually get these new projects done. So I guess a little more muted from what it would have been on higher rates until we get maybe some of this inflationary pressure out of the marketplace.

Yeah. And I would just add, Devin, to what Deb said, there’s no question the muni financing business of all of our business segments is the most challenged, and it's mostly on the specialty side. And it makes sense, based on what Deb said when you think a lot of that is project-based. Some of it is project financing. And if rates are much higher, it costs more to do the project. There's a question of, does the return work for the developer? Do they need more financing? But also in that world, you need fund flows into high-yield muni funds. And those flows have been, there's a lot of other places where people are getting good fixed income returns. So, a lot of that money hasn't come back. The spreads will adjust, but that's a big part of why that's been very difficult for us this year.

Yeah. Great point.

Okay. Terrific. And just want to come back to the advisory business for a moment and just talk a little bit about kind of how you think about the capacity of that business today relative to maybe where you were a couple of years ago heading into the record 2021? So obviously, you guys have been very aggressive on recruiting, not just this year, but even going back a couple of years, you've done some acquisitions, so you kind of rounded out your sector coverage. So just like how you feel like you're competing in the market today and how that's evolved even over the past couple of years? And then where it still feels like there's room, and obviously, there's always going to be some areas of white space, but where there are maybe bigger holes where you could kind of really turn to lever and still do quite a bit more?

Yeah, thank you. And we agree. I mean, lots of people have been doing quite a bit of hiring this year. We've actually been going quite a bit slower this year, but some of that's just been we've been on a pretty steady pace for five years. And if you just look back a few years ago, we had 130 MDs and now we're closer to 170 MDs. So yeah, we absolutely feel like as the M&A market, even if it slowly returns here in '24, that we've got the capacity to do quite a bit more pretty much on every industry team because we've added white space. When I think about big, big opportunities still for us, we still think about tech and software in that relative to our market-leading franchises in financials and healthcare. That business can be as big. We've added a lot of MDs. We have the sectors that DBO brought us into, and it maybe has been the most challenged of the markets in M&A. So, I think there's still a lot of upside there and there's a lot of room for us to add many more MDs in the tech world as well.

Okay. Terrific. I’d like to ask one more question about expenses. The compensation ratio is slightly higher this year, but it's more controlled compared to what we see in other parts of the industry. This reflects the diversification of our business. Looking ahead, considering the factors affecting expenses, we've managed well in this inflationary environment. In addition, we expect business-related expenses to rebound when investment banking activity increases. I'm curious about your perspective on how persistent you believe expense inflation will be. Also, do you have any insights on the potential impact on normalized margins once the market becomes more favorable than it has been in recent years? How are you envisioning normalized margins in light of these factors and the inflation we are facing?

Sure. Devin, I can address that. We've previously discussed the various components regarding the compensation rate. As we transition back to more normalized levels in terms of revenue, we should be able to reduce the compensation rate by a few points. Over the long term, we anticipate compensation rates will be in the range of 60 to 65. Currently, revenues are lower, and we could be closer to 64 or 65 when revenues return to more typical levels or possibly even better, while around 60 seems more likely otherwise. Thus, as conditions normalize, we believe we can improve the compensation rate by a few points from a margin standpoint. Additionally, we expect to gain some leverage on non-compensation expenses. While the absolute level may increase due to heightened business activity, we will still benefit from some leverage in that area. Reflecting back on the Sandler deal, we mentioned that, with that and the associated scale, we should aim for margins in the high teens. Now, as we continue to grow and scale the business, our focus is shifting towards achieving a 20% margin, with low 20s being the area we believe margins should ideally reach.

Okay. Very clear. Thanks very much. I’ll leave it there.

Thanks, Devin.

Thank you. And next, we'll go to James Yaro with Goldman Sachs. Please go ahead.

Good morning and thank you for taking my questions. First, Tim, congratulations. It has been a pleasure working with you and best wishes. Regarding mergers and acquisitions, Chad, could you discuss how long it typically takes to return to normalized levels? Clearly, the results this quarter have not been very strong compared to peers, and it appears there are some challenges ahead. Could you elaborate on the factors influencing the timeline and whether this situation might resemble historical cycles rather than the 2020-2021 cycle?

I think we're all feeling like a bit of a broken record. At the end of 2022, we expected the pace for 2023 to be a bit faster. In the second half, we've seen more transaction starts, so there's a significant number of transactions and backlog, but they're taking longer. There are also more deals falling through at the end when we can't quite finalize them. My sense is that we'll continue to experience very slow improvement. We have visibility on what's coming in Q4, with some of it potentially pushing into early next year. I believe this will lead to a gradual M&A recovery. Our performance varies; we still have some positive developments on the energy side, and we're a leader in healthcare with some interesting transactions there. Long term, after a challenging period in depositories, we expect that area to improve. However, part of the reason for the slow recovery in M&A is that once deals are announced, it takes time to close them. In the depository sector, it seems our market share is increasing slightly, though it's from a very small base. Overall, we anticipate a continuation of this slow recovery, but hopefully, it will steadily improve over time.

Okay. That makes a lot of sense. It's not super uplifting. Maybe just on the MDs and the hiring there. The MD count did come down very slightly in the quarter. I assume that's just sort of normal attrition. But maybe you could just talk about how you're thinking about the hiring trajectory from here?

I would say it's been several quarters since we experienced even a slight decrease. The change is minimal, with only a couple of retirements. During challenging times like this, we are being selective about production and cautious with hiring. We use these market conditions to assess where we can make upgrades, identify areas we don't need to be in, or recognize underperforming MDs. Regarding hiring, we anticipate maintaining our current pace. We mentioned a net increase of five to seven positions, and we have a few new hires in strategic sectors that have yet to be announced. We haven't altered our hiring cadence significantly; if anything, it may have slowed slightly. However, over the past five years, we've notably increased our MD headcount compared to others. We're taking a long-term approach, concentrating on productivity and performance, and we have enough MDs to support substantial revenue growth moving forward.

Makes sense. Thanks a lot.

We'll next go to Mike Grondahl from Northland Securities. Please go ahead.

Hey, guys, thanks and congrats to Tim. A bunch of my questions have been asked and answered. But, Chad, can you give us just a little bit of color on the restructuring business, kind of how that's grown roughly in absolute dollars or as a percent of the advisory business?

Yeah. So, we don't break out sort of specific restructuring revenue. But just as a reminder, we had a very, very small business. We did the TRS transaction a few years ago. Since then, we've roughly doubled the head count there and frankly, growing revenues each year to the point where in certain of our quarters, it's starting to matter to the total. So, we feel really good. Obviously, we were starting from a low base, and every year, it's growing. We're seeing more and more impact across all of our industry teams. I think it will, given the low starting base we had, it will still be a couple of years before we probably break out that mix. But while the timing didn't seem good right when we did it in '20 before '21, now it's really paying dividends, and we're really excited about the team we have and the prospects of continuing to grow that into a significant business.

Got it. Then just lastly, October, any comments there? It sounds like it was kind of continuing the, I'll call it, slow recovery that you've kind of described. Anything else to call out about October?

Yeah. What I would say for us in October, we actually had a pretty good ECM month. People can see that from our dialogic. I mean we haven't talked about ECM yet. But first nine months, we've definitely gained a lot of share, frankly, a lot of share in healthcare. I think that trend continued in October. I would say relative to our brokerage businesses, nothing materially changed in October. And then relative to our advisory business, we gave some guidance about, assuming we can get the big planes landed on some of the larger fees, we see good sequential uptick in Q4. We had some of those deals in October and more in November, December. So, I guess that's what I'd say about October.

Got it. Thanks a lot.

Thank you. And at this time, we have no further questions. I'd like to turn the call back over to Mr. Abraham. Please go ahead.

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

Thank you. Ladies and gentlemen, that does conclude today's conference. We appreciate your participation. Have a wonderful day.