Good morning, and welcome to the Piper Sandler Companies First Quarter 2025 Earnings Conference Call. Today's call is being recorded and will include remarks by Piper Sandler management, followed by a question-and-answer session. I'll begin by turning the call over to Kate Winslow. Please go ahead.

Thank you, Operator. Good morning, and thank you for joining the Piper Sandler Companies first quarter 2025 earnings conference call. Hosting the call today are Chairman and CEO, Chad Abraham; our President, Deb Schoneman; and CFO, Kate Clune. Earlier this morning, we issued a press release announcing Piper Sandler's first quarter 2025 financial results, which is available on our website at pipersandler.com/earnings. Today's discussion of the results is complementary to the press release. A replay of this call will also be available at that same website later today. Before we begin, let me remind you that remarks made on today's call may contain forward-looking statements 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 reports on file with the SEC, which are available on our website at pipersandler.com and on the SEC website at sec.gov. Today's discussion also includes statements regarding certain non-GAAP financial measures that management believes are meaningful when evaluating the company's performance. The non-GAAP measures should be considered in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in our earnings release issued today. I will now turn the call over to Chad.

Thank you, Kate. Good morning, everyone. Thank you for joining our first quarter 2025 earnings call. Over the past month, we have witnessed heightened volatility in both equity and debt markets, with the only constant in this challenging environment being continued uncertainty. In response to these challenges, we are increasing client engagement, drawing on our deep sector expertise and leveraging our comprehensive suite of products to assist clients navigate this uncertainty with the support and insights they need to succeed. Turning to our results. We are pleased with our start to 2025. We finished the first quarter strong with adjusted net revenues of $383 million, a 17.9% operating margin and adjusted EPS of $4.09, all up compared to the same period last year. Turning to corporate investment banking. Revenues for the quarter totaled $253 million, reflecting a 20% increase year-over-year. This improvement was driven by advisory services, which ended the quarter with revenues of $217 million, a 38% increase from last year, showcasing strong absolute and relative performance. An increased average fee drove the growth in our advisory revenues as we completed 55 advisory transactions during this period consistent with the first quarter of last year. Our performance across industry groups was broad-based and five of the seven groups delivered year-over-year growth. We also saw balanced contributions from both strategic and financial sponsor clients. The outlook is difficult to predict in this environment. With heightened volatility, we expect active M&A deal cycles to slow and new announcements to be delayed. However, our ability to provide a range of solutions to clients should serve us well. Over the last several years, we have expanded both our industry and product capabilities. This expansion has significantly bolstered our ability to provide advice and solutions across more sectors of the economy throughout the entire market cycle. In addition, due to our diversified sector coverage and because much of our business is U.S. mid-cap and sponsor centric, we believe that we are well-positioned on a relative basis in this challenging environment. In particular, as the economic backdrop for M&A becomes more challenging, financial sponsors are able to draw on our diversified product teams including agented debt, continuation vehicles, and restructuring to address capital and liquidity needs. And while we anticipate that the conversion of our pipelines will be impacted and that second quarter advisory revenues will decline from the first quarter levels, it is worth noting that certain areas of the M&A market remain active. Service-based business models and those that are less impacted by trade barriers continue to transact and do so at strong valuations. When the market does find its footing once again, we anticipate a strong and fairly broad rebound in activity, particularly with financial sponsors as they continue to face pressure to transact given the aging of both uninvested capital and their portfolio investments. That backdrop, together with the roughly 340 companies we have sold to financial sponsors that still reside in their portfolios, position us well as the incumbent bank to capitalize on round trip sale, continuation vehicle, and financing opportunities from our private equity client base. Turning to corporate financing. Activity was challenged this quarter as the market environment for equity underwriting weakened. Declining equity valuations and increased uncertainty led investors to adopt a more risk-off stance ahead of the trade policy announcements. As a result, the economic fee pool declined meaningfully year-over-year while the healthcare fee pool decreased over 60%. For the quarter, we generated $36 million of corporate financing revenues, down 32% from the year ago period. We completed 27 financings raising $10 billion for corporate clients. Highlights of these efforts include serving as a book runner on four IPOs, including two for med-tech companies. Equity capital raising has been very slow in April and we expect that trend to continue until volatility subsides and valuations stabilize. Shifting to talent, we finished the quarter with 182 managing directors, a 6% increase from a year ago. During the quarter, we hired two MDs to our energy, power and infrastructure group. These new hires, along with additional junior bankers, highlight a further expansion into the infrastructure sector, which naturally complements our well established energy sector franchise. We also added a Managing Director to our healthcare investment banking team to serve and support clients within the pharma services sector. Let me close with a few final points. While the near-term remains uncertain, we have strategically built an investment banking platform that is well-positioned to gain market share. We continuously rank as a top three investment bank in middle market deal activity, an area of the market that typically demonstrates greater resilience. We have significantly grown market share with private equity clients, providing a solid foundation for future growth. Our diversified platform on a product and sector level enables our bankers to better assist the evolving needs of their clients. And lastly, we remain a destination of choice for talent. This environment often presents opportunities to attract talented professionals who are drawn to our collaborative culture, proven track record of growth and the positive impact they can have on their clients and the overall firm. 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. Favorable market conditions to start the year, combined with growing infrastructure needs led many issuers to access the market. For the first quarter of 2025, we generated $26 million of municipal financing revenues, an increase of 27% year-over-year, outpacing the market issuance growth in par value of 15%. Activity was robust across both our governmental and specialty sectors. Our strong performance was attributed to the breadth of our platform, both from a client and geographic perspective, which continues to benefit us. Looking ahead, April has started off slowly as significant rate volatility has made it challenging to price transactions and we have seen several transactions postponed. We have a robust pipeline of issuers looking to access the market, but our near-term outlook is dependent on stabilization of the market. Now turning to our brokerage businesses. The equity markets experienced increased volatility and higher volumes during the first quarter with indices peaking in early February before selling off to close the quarter down. Equity brokerage generated $54 million of revenues for the first quarter of 2025, up 10% year-over-year. We traded 2.9 billion shares on behalf of over 1,200 unique clients as they sought our market leading research and trading capabilities. In periods of heightened volatility, clients trust our trading expertise to execute quickly and efficiently. The second quarter has started strong and as long as volatility persists, activities should remain elevated as clients actively position their portfolios in this rapidly evolving landscape. Lastly, turning to fixed income. We generated $45 million of revenues for the first quarter of 2025, up 7% from the year ago quarter driven by solid activity across most client verticals. Our depository clients repositioned their balance sheets in response to the changing interest rate environment, while public entity clients put money to work in the short end of the curve and our municipal centric clients took advantage of higher absolute yields. The fixed income outlook remains cautious in the near-term. Persistent rate volatility continues to hamper investor conviction, keeping some clients on the sidelines. However, the combination of potential Fed rate cuts, a steepening yield curve and reduced day-to-day volatility should increase investor confidence in committing capital into fixed income markets. Now, I will turn the call over to Kate to review our financial results and provide an update on capital use.

Thanks, Deb. As a reminder, my comments will address 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 $383 million for the first quarter of 2025 and operating income of $69 million, resulting in an operating margin of 17.9%. We delivered $73 million of net income and $4.09 of diluted EPS. Net revenues declined 23% from the seasonally strong fourth quarter of last year, however, increased 15% compared to the first quarter of 2024. This growth was primarily driven by a strong performance in advisory services, which accounted for 57% of total net revenues and increased 38% year-over-year. Additionally, our institutional brokerage activity was solid with revenues increasing 9% compared to the first quarter of last year. As we continue to grow our business, our focus remains on driving operating leverage. Notably, our operating income grew by 23% year-over-year, outpacing our revenue growth of 15% as we remain committed to enhancing operational efficiency and profitability. Turning to expenses. We reported a compensation ratio of 62.5% for the quarter, a 60 basis point improvement compared to the same period of last year driven by increased net revenues. Our compensation ratio remains largely aligned with revenue levels. Given our current outlook, we could see some near-term pressure on the ratio. We remain committed to exercising operating discipline and our approach to compensation will continue to balance employee retention and strategic investment opportunities. As we mentioned last quarter, non-compensation expenses would increase in 2025 driven by relocating our Minneapolis office headquarters, the addition of new employees to our platform, inflationary pressures and the expectation of increased business activity. In the first quarter of 2025, non-compensation expenses, excluding reimbursed fuel costs were $70 million, an increase of 15% year-over-year and above our guided range as our employees were particularly active serving our clients during the period leading to more travel. Moving to income tax expense, in the quarter, our income tax expense was reduced by $25 million related to tax benefits from the vesting of restricted stock awards. Approximately half of this benefit was attributed to the vesting of the final tranche of the grants awarded at the beginning of 2020 in connection with the Sandler acquisition. Excluding the $25 million of benefits, our effective tax rate for the quarter was 29.8%. Now finishing with capital, we remain committed to deploying capital to drive shareholder returns. During the quarter, we repurchased approximately 266,000 shares of our common stock for $81 million related to employee tax withholding on the vesting of restricted stock awards. These repurchases effectively offset the dilution from the 2025 annual stock grants, and notably, we've maintained a flat share count since 2021 as we've offset all of the dilution from hiring acquisitions and our annual grants. Additionally, we paid an aggregate of $70 million, or $3.65 per share to our shareholders through our quarterly and special cash dividends. Lastly, I am pleased to announce that today the Board approved a quarterly cash dividend of $0.65 per share to be paid on June 13 to shareholders of record as of the close of business on May 30. With that, we can open up the call for questions.

Thank you. We'll go first to Devin Ryan with Citizens.

So let's just start with a question on M&A conditions, obviously an uncertain moment. So appreciate that's affecting kind of the visibility here. But I'm curious with sponsor clients, is it a sell-side issue right now where just sellers feel like they can't start a process because there's just not enough market stability, or is it something else where businesses in the middle markets are actually being impacted and so sellers feel like it's not a good time for the business to sell or even buyers maybe don't want to buy that business because there's maybe economic uncertainty or something else that could affect it. I'm curious what the bigger factors are maybe just slowing things down here a little bit outside of just the broader market volatility.

Yes, I think it's a situation of some having opportunities while others do not. We've definitely experienced a few processes that have stalled, though not many have been canceled long-term. It really varies by sector. One of our most problematic sectors is parts of consumer products, such as beauty and personal care, much of which is sourced in China. This makes it difficult to gauge the profit and loss situation, and without that clarity, buyers are hesitant to make purchases. On the other hand, in some of our traditional services businesses that are more domestically focused, and other sectors like that, we are seeing increased interest. Some of those projects are even gaining strength. The positive aspect of the sponsor business is that if it's a business that remains largely unaffected, securing financing for those businesses is very robust. So, the situation really depends on the sector.

It appears that people are becoming more optimistic about potential mergers and acquisitions compared to the last couple of years. I'm curious about the outlook for that sector and whether it could contribute to revenue in 2025 or if it's more likely to be a story for 2026 and beyond. Thank you.

Yes, I believe you were asking about depositories, correct?

Yes. Just kind of the outlook for depositories, correct.

Yes, yes. I would say, yes, we are feeling more positive about that. We've been on a couple of nice transactions just in the last week and I think I said on the last call how this year's impact, it has a lot to do kind of with what we get announced in April, May, June. But I do think at least this is what I'm hearing from our bankers. I do feel like some of the stuff we got announced in April has a chance to close this year, which if we would have been in April of 2024, we wouldn't have said that. So I think on the margin, it will be positive for depositories. And yes, some of those conversations are picking up.

Okay. Great. If I can squeeze one more in for Deb just on the muni side. So I heard pipelines sound like they're pretty good, but just near-term visibility is making it a bit tough. Can you just characterize kind of what any framing of the pipeline? Because I know that there's been some impacts from inflation and other things that maybe are kind of becoming better stories for issuance than these side. So just how the pipeline looks today, appreciating it may take time to kind of get through, but what it looks like today relative to some other periods of time.

Yes. Thanks, Devin. I wouldn't say we're seeing any big shifts in the pipeline relative to cost of projects or something really changing what that pipeline looks like. So I feel like it's really a continued build off of what we saw in 2024. So no big changes there. And at the end of the day, from an outlook perspective to execute on that pipeline, it's really rate volatility in particular the MMD the muni side of that, it is absolute level of rates and then muni fund flows. So just giving some parameters for you to think about in terms of what needs to stabilize in the market for that, that pipeline to be realized. And it can change fairly quickly. We did see some stabilization in the last couple days and got some nice deals done. So the question is will that stabilization continue going forward?

Okay. Great. I will leave it there, but really appreciate it.

Thank you.

Thanks, Devin.

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

Good morning, and thanks for taking the questions. I just wanted to touch a little bit on the counter cyclicality that you talked about, Chad. It's now part of your advisory business. Any ability for you to contextualize for us the contribution either this quarter or more recently over a longer period of time from the three businesses perhaps in total that you noted that offer more of that durability in a weaker M&A backdrop. And I specifically think that the business were secondary continuation funds, capital markets advisory and restructuring.

Yes, yes. So for us, I mean obviously that those three segments we've been focused on, our debt capital markets advisory business has been very much a long year, kind of 10-year organic build. And I would say in debt capital markets, like I said, there's just an abundance of capital. So we feel really good about that business. Obviously with restructuring we acquired the small team several years ago, we continued to build that. We had a really nice recent transaction with that was just a great partnership between sort of a combination of the debt capital markets team and the restructuring team. So I think sort of finding new capital with all those solutions is important. And then obviously we're in the early innings with the Aviditi team, but have some good business. So I would say we've obviously seen some other competitors talk about that being half the business. It's nothing like that for us. But all of those other businesses are probably growing faster right now than our M&A business. So it is providing sort of some ballast there. So hopefully that helps.

Yes. Really helpful. Thanks, Chad. Just as a follow-up, it appears obviously as you alluded to, we're now in a bit of an elongated M&A recovery or perhaps worse. Could you help us think through what this means for your ability for an appetite to conduct acquisitions? And are there specific products or geographies that you're particularly focused on right now?

Yes, we've been reasonably active in that area. One of the challenges after 2020 and 2021 was that many businesses experienced spike in revenues and assumed that level would be sustained. Now, with a few years of data behind us, we have a clearer understanding of our revenue levels and targets. This puts us in a good position to identify value opportunities. I believe this is a good time for us, given our diversified business and the many products we offer. The boutiques are showing interest in the debt products we have presently, considering the current market conditions. While it’s challenging to find larger acquisitions, there are many good smaller opportunities available. Our priorities remain largely unchanged, focusing first on technology-related ventures, whether in software or services, and some targeted initiatives in Europe where we're beginning to see more success. Across all our industry groups, there are sectors with potential for us to expand. For instance, in healthcare, we are currently more invested in biotech and med-tech while being less focused on services, which aligns well with private equity strategies. Overall, there are opportunities for us to grow in various areas.

We'll take our next question from Brendan O'Brien with Wolfe Research.

Good morning, and thanks for taking my questions. To start, I wanted to follow-up on your response to one of Devin's questions. It seems pretty clear that we're in a bit of a bifurcated market at the moment. You call it the haves and the haves-not. But was just hoping you could drill down a bit on how activity is tracking in your key industry verticals outside of consumer and services. And if possible, how much of your advisory revenues come from some of these sectors that are less exposed to tariff risk.

Yes. So I think we kind of got to take it team by team. I think last year, we talked about it. One of our largest teams is healthcare and it was one of our only teams that was down. I do think we expect a bit of a better healthcare market and obviously a lot of our healthcare businesses are pretty domestic. It's not all of them. Obviously our med-tech business is pretty global. But I think because of that, especially healthcare services in some of the sectors, you can actually see more interest. So I think that's one example. Energy, I would say, obviously, we had an incredible another record year last year. Obviously with oil prices where they are, it's a little tougher this year. So that's a business that could potentially be down a bit. And then I would say probably the toughest sector relative to just the markets is consumer, anything kind of soft goods. We talked about some of the products businesses; those are heavily sort of sourced internationally. But even within consumer, we got some really good food transactions done in Q1. And then we've got some sectors like our fitness business, which is sort of unaffected and is doing quite well. So I think there are puts and takes there.

That's great color. And then, for my follow-up, I just wanted to touch on the near-term advisory outlook. You spoke to a decline quarter-on-quarter in advisory revenues, which is obviously understandable given the backdrop. And while things could snap back quickly if we get clarity on tariffs before the end of the quarter, I just wanted to get a sense as to how revenues advisory have been tracking relative to 1Q or if you could help frame the potential magnitude of decline that we could see near-term.

Yes. I mean, I think obviously that's difficult. We try to give a little bit of outlook when we can. We actually had some good transactions close in April that were teed up before that. But I think the question is; are we going to get the same level of closings in May and June? And it only takes a handful of meaningful ones that don't kind of make it to make those comments. I don't think we're talking about a major decline, because we do have offsets as we talked about from those different industry groups. And then relative to how long it takes, we really haven't seen that many companies say I'm not going to go or I'm not going to try it. I think there's a lot of companies sort of teed up. We're working on the materials, we're working on sort of prepping the sponsor community and it's just a matter of a launch. And so if we get some clarity in the next couple months, we'll be fine to launch lots of transactions that impact sort of Q3 and Q4. If we start bumping up against, oh, we're not going to launch something in August and it starts to be to September, then that'll have some impact. But I think as of now, we're just kind of viewing it as a bit of a short-term bump with a handful of transactions that we notice and we'll have to watch the next month or two.

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

Hey guys, thanks. Sort of two questions here. The first one, in discussions with your customers, is it all about tariff uncertainty? Or maybe if you could just talk about the top three things you're hearing from your customers and what they need clarity on. And then secondly, I know, it's only been short-term, like a couple days and Deb even pointed that out. But are you seeing, I don't know, any sentiment change just this week with the S&P is kind of rebounded nicely. So just curious there on those two.

Yes. I would say with clients I always have to remind people relative to M&A, one of the biggest things to transacting is just CEO confidence. And so I think it's just around uncertainty where people sort of have good pipelines, good visibility, the buyers are there, strategists still want to transact, sponsors if they can get their arms around the P&L. There's so much dry powder and credit's really good, they want to transact. So I do think, first and foremost it's just a matter of where sort of does global trade really impact a P&L? Now I would say there's some conversations with people trying to predict, if this lasts a long time, when will it sort of really start to impact spending both at sort of the corporate and consumer level. And I guess, your guess is as good as mine. I would say this week is a reminder that things can bounce back relatively fast. I think, as Deb said, a little bit of change in the muni market. We got some good transactions done. We have a couple of IPOs on the road in financial services, which we haven't had for a while. We had another nice depository deal announced. So it can change pretty quick with sentiment.

Got it. Okay. Hey, good luck this summer.

Thank you.

We'll go next to James Yaro with Goldman Sachs.

Thanks for taking the follow-ups. Just firstly, could you just touch a little bit on the IPO pipeline? I think you just alluded to two deals on the road, but just more generally on the IPO backlogs and how those have evolved and what you're hearing from companies around their need to transact there. And then, specifically, could you just comment a little bit around the healthcare business, specifically on the equity capital market side?

Yes. I would say, I mean, obviously coming into this year, it's the first time in a long. We've had some rough years in the IPO market. I would say it's the first time we had some pretty good traction. We some of the sectors that matter to us, MedTech, where we get sort of significant share, we did a couple great transactions in Q1; we did a nice energy transaction, which we haven't seen much of. I would say across sectors, there's some good backlog. I think some of the biggest, best companies there, we're not going to need to see much stabilization and we'll start to see them transact. What I would say relative to healthcare, obviously our biggest chunk of fee share is in biotech and relative to market performance, some of the small cap biotech stocks have been decimated and it's going to take a while there. You're going to need to see some of those come back and frankly investors are going to come back to those beat up names before they come back to sort of the IPOs and biotech. So I think that's going to be a little slower on the healthcare side, especially small cap.

Great. That's really helpful. Just one last one for Deb. We obviously saw a substantial rate fall this quarter and again in April. And I would have thought that that would have catalyzed some fixed income trading activity by banks. Could you just walk us through what you're seeing and hearing from bank clients and their appetite to transact in the spectrum?

Yes. James, I would say holistically, volatility is creating too much uncertainty right now for many really across our client set to step in with any conviction. Now, specifically the depositories where we are seeing activity is related to M&A where there are balance sheet restructurings being done because of that. Outside of that depositories, there's just too much uncertainty still for bank decision makers to jump in and being willing to maybe absorb current losses in their portfolio to be able to reposition. So where we're seeing more activity is just on our derivatives hedging side to try to be helpful to those depositories to manage through this environment.

Thank you. That will conclude our question-and-answer session. At this time, I'd like to turn the call back over to Mr. Abraham for any additional or closing remarks.

All right. Thanks, everyone for joining us this morning. We look forward to updating you on our second quarter results this summer. Have a great day.

That will conclude today's call. We appreciate your participation.