Piper Sandler Companies 2026 Q3 Earnings Call

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Good morning, and thank you for joining the Piper Sandler Companies Third Quarter 2026 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 Third Quarter 2026 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 us. Our business produced strong results against market conditions that were increasingly selective during the third quarter. M&A faced headwinds as overall activity and sponsor activity declined year-over-year. Equity issuance remained open for attractive opportunities, but investors were more selective, and the fee pool declined sequentially. The sharp rise in yields created a challenging execution environment in public finance, but led to increased trading activity in fixed income. Across our businesses, the quarter reinforced the importance of sector expertise, strong client relationships, and disciplined execution in a market where activity varied meaningfully by transaction and issuer. We generated third quarter adjusted net revenues of $456 million, a 19.8% operating margin, and adjusted EPS of $0.87. Corporate investment banking accounted for 67% of adjusted net revenues, or $307 million, our strongest third quarter on record.

Advisory revenues were $250 million, up 18% over last year. We completed 81 advisory transactions, and average fees increased. Performance was led by our Financial Strategies Group and our energy, power, and infrastructure team, with a solid contribution from our healthcare franchise. Within financial services, depositories led our performance as we continued to advise on some of the most significant transactions in this sector. We advised on six of the 10 largest bank M&A deals announced during the third quarter and remained at the top of the year-to-date league tables for both deal count and deal value, underscoring the ongoing strength of this franchise. Increased demand for energy to power the growth in AI data centers helped drive record quarterly revenues for our diversified energy group. The team completed 19 transactions, more than double the year-ago quarter, with energy and power services and equipment leading.

We ranked as the top advisor in that sector based on the number of completed M&A deals. As investments in power generation and grid infrastructure continue to accelerate, we are well-positioned to advise clients and capture share within this space. Our third quarter advisory revenues from private equity clients grew 17% year-over-year, outperforming the broader U.S. private equity market, where both deal value and deal counts declined. This resilience underscores the breadth of our coverage model and our ability to deliver a full suite of solutions to our sponsor clients. More specifically, we continue to experience positive momentum within our private capital advisory group, which recorded its best quarter on our platform. The group has already exceeded its full year 2025 revenues through the first nine months of this year.

Drawing on our sector experience, the team has collaborated with our industry groups to advise clients on raising capital through fund formation, as well as returning capital through continuation vehicles. Looking to the fourth quarter, our advisory pipeline is healthy, positioning us for what we expect will be our strongest quarter of the year, although below last year's record fourth quarter. Turning to corporate financing, third quarter revenues were $57 million, up 50% from the second quarter, but down from the strong third quarter of 2025. We completed 25 financings, raising $11 billion for corporate clients, primarily in healthcare and financial services. Client engagement remains active. However, we expect corporate financing activity to slow in the fourth quarter as investors become increasingly selective. Shifting to talent. We remain focused on increasing productivity by selectively adding top producers to strengthen our product and sector teams, and ended the quarter with 191 investment banking managing directors.

We added an MD in London, focused on advising infrastructure companies on debt financing and capital-raising transactions. We further strengthened our private capital advisory group with the addition of an MD focused on secondary capital advisory. Overall, our quarterly and year-to-date results reflect continued progress against our strategic priorities, despite uneven market conditions. While our pipelines remain active across our industry groups, inflation and market volatility continue to create uncertainty around the timing of deal closings as we approach year-end. That said, we continue to be excited about our platform, including growth within our private capital advisory and debt capital markets product groups, as well as continued productivity gains across investment banking.

With that, I will turn the call over to Deb to discuss our public finance and brokerage businesses.

Thanks, Chad. I will begin with an update on our public finance business. Third quarter municipal financing revenues were $25 million, down 50% from a strong second quarter and 36% from the year-ago period. Market conditions were challenging as a rapid rise in interest rates resulted in deals being delayed or downsized. In this environment, we underwrote 104 municipal negotiated transactions, raising $3.6 billion of par value for our clients. Looking ahead, we expect fourth quarter revenues to improve modestly from the third quarter. Municipal issuers are adjusting to higher rates while their funding needs persist, but it will take time for market participants to adapt to the new rate environment. Our equity brokerage business generated third quarter revenues of $54 million, down 13% sequentially, but up slightly year-over-year. Following record second quarter volumes, our results tracked with lower market volumes and volatility in the third quarter.

Year to date, our revenues are up 7% compared to 2025. Our broad product capabilities, combined with the scale we have built over the last few years, provide resiliency and upside to our performance. In September, we launched equities trading in Europe through Piper Sandler Europe, beginning to monetize investments made in recent years. This launch expands our reach and brings our leading U.S. equities franchise to European clients. Looking ahead, we expect that fourth quarter equity brokerage revenues will improve compared to the third quarter. Lastly, turning to fixed income. We recorded third quarter revenues of $60 million, up 23% sequentially and 5% year-over-year. Client activity strengthened as rising interest rates prompted investors to adjust their holdings. We saw increased activity across taxable and municipal products as investors took advantage of higher rates, increased hedging activity, or engaged in tax-loss selling.

Looking ahead, we expect fourth quarter fixed income revenues to be consistent with the third quarter. Now, I will turn the call over to Kate to review our financial results and provide an update on capital use.

Thanks, Deb. 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. During the third quarter of 2026, we generated net revenues of $456 million, operating income of $90 million, and an operating margin of 19.8%. Net income totaled $62 million, and diluted EPS was $0.87. For the first nine months of 2026, net revenues totaled $1.4 billion, operating income was $291 million, and our operating margin was 20.6%. We generated $208 million of net income and $2.91 of diluted EPS. Third quarter net revenues were up modestly year-over-year, as growth in advisory and fixed income offset lower financing revenues. Net revenues through the first nine months reached a record, growing 14% over the prior year period.