MINNEAPOLIS, July 20 /PRNewswire-FirstCall/ -- Piper Jaffray Companies
(NYSE: PJC) today announced net income of $1.2 million, or $0.06 per diluted
share, for the quarter ended June 30, 2005. The second quarter included a
pre-tax restructuring charge of $8.6 million, or $0.29 per diluted share after
tax, related to implementing certain expense reduction measures previously
announced by the firm. For the quarter ended June 30, 2004, net income was
$13.0 million, or $0.67 per diluted share, and for the quarter ended Mar. 31,
2005, net income was $7.3 million, or $0.38 per diluted share. Net revenues
for the second quarter of 2005 were $179.7 million, down 13.3 percent from the
second quarter of 2004 and essentially unchanged from the first quarter of
2005.
For the first six months of 2005, net income was $8.6 million, down
68.0 percent from the year-ago period. Earnings per diluted share were
$0.44, down from $1.38 from the first six months of 2004. Net revenues of
$358.7 million year-to-date represent a 13.9 percent decrease over the
year-ago period, primarily due to lower principal transactions and lower
investment banking revenue.
"We reported mixed business results versus the first quarter with stronger
performance in institutional sales and trading and public finance offset by
weaker private client revenues and lower mergers and acquisitions revenues,
and financial results were well below one year ago," said Chairman and Chief
Executive Officer Andrew S. Duff. "We are well underway with a process to
strategically position our businesses for improved growth and profitability.
During the quarter we reorganized our fixed income resources within our
Capital Markets segment, and we recently announced the European expansion of
our healthcare franchise. During the quarter we also implemented expense
reduction measures to better align our cost infrastructure with our revenues."
Results of Operations
Net Revenues
In the second quarter of 2005, net revenues declined $27.7 million, or
13.3 percent, from the second quarter of 2004, primarily due to lower
principal transactions in both Capital Markets and Private Client Services and
lower investment banking revenues. Compared to the first quarter of 2005, net
revenues were essentially flat as higher Capital Markets revenues offset lower
private client activity.
Non-Interest Expenses
For the three months ended June 30, 2005, non-interest expenses were
$178.1 million, down 4.6 percent from the second quarter of 2004.
Compensation expense was $110.4 million, a decline of $17.3 million, or
13.6 percent, from the prior-year period, primarily due to less variable
compensation driven by lower net revenues and profitability. For the second
quarter of 2005, non-compensation expenses were $67.7 million, up $8.7 million
compared to the second quarter of 2004, mainly attributable to the pre-tax
restructuring charge of $8.6 million, which was comprised of approximately
$4.9 million in severance benefits and approximately $3.7 million related to
the reduction of leased office space. The firm expects these expense
reduction measures to generate annual pre-tax cost savings of approximately
$10.0 million. Compared to the second quarter of 2004, the following
describes changes in other non-compensation expenses:
-- Marketing and business development expense decreased $1.1 million, or
10.0 percent, mainly driven by efforts to reduce costs.
-- Outside services expenses increased $2.4 million, or 24.3 percent,
mainly driven by increased outsourcing of certain technology and
operations functions, which were previously performed in-house with
the associated expense mainly reflected in compensation and benefits.
In addition, deal-related expenses increased.
-- Other operating expenses declined $1.5 million, or 19.0 percent,
driven by lower minority interest expense on private equity
investments and lower charitable contributions due to lower
profitability. These decreases were partially offset by increased
litigation-related expenses.
For the quarter, pre-tax operating margin was 0.9 percent, down from
10.0 percent in the year-ago period and 6.4 percent in the first quarter of
2005. The pre-tax restructuring charge negatively impacted pre-tax margin for
the quarter by approximately 480 basis points. For the first six months of
2005, annualized return on average tangible shareholders' equity(1) was
4.2 percent compared to 14.1 percent for the first six months of 2004.
During the second quarter of 2005, Piper Jaffray repurchased
623,750 shares of the company's outstanding common stock at an average price
of $29.45 under its previously announced repurchase program. The remaining
authorization under the program is for the repurchase of up to 351,250 shares.
Business Segment Review
Capital Markets
In the second quarter of 2005, Capital Markets recorded $97.6 million in
net revenues, down $16.0 million, or 14.1 percent, from the second quarter of
2004 and up $5.7 million, or 6.1 percent, from the first quarter of 2005.
Segment pre-tax operating income for the quarter was $12.9 million, down
25.3 percent compared to the prior-year period and up 11.7 percent compared to
the first quarter of 2005.
Institutional Sales and Trading
Total institutional sales and trading revenues were $48.8 million, down
6.8 percent from the second quarter of 2004, primarily attributable to lower
institutional cash equities sales and trading revenues and lower revenues from
interest rate products, partially offset by the addition of APT (algorithmic
and program trading) revenues. Compared to the first quarter of 2005, net
revenues improved by $6.1 million, or 14.4 percent, mainly driven by stronger
revenues from interest rate products, improved convertible sales and trading
results and increased net commissions from equity institutional sales and
trading.
Investment Banking
For the second quarter of 2005, total investment banking revenues were
$48.0 million, down $13.9 million, or 22.4 percent, compared to the second
quarter of 2004. Compared to the first quarter of 2005, total investment
banking revenues were relatively unchanged.
-- Fixed income underwriting revenues increased $5.2 million, or
35.9 percent, compared to the year-ago period and increased
$8.1 million, or 69.9 percent, compared to the first quarter of 2005.
The increases compared to both periods were mainly driven by increased
municipal underwritings.
-- Equity underwriting revenues declined $3.9 million, or 18.8 percent,
compared to the second quarter of 2004 and declined $3.4 million, or
16.6 percent, compared to the first quarter of 2005. The declines
compared to both periods were primarily due to lower convertible
underwriting activity.
-- Mergers and acquisitions revenue declined $15.2 million, or
57.4 percent, compared to the year-ago period, and declined
$5.3 million, or 32.2 percent, compared to the first quarter of 2005.
The declines compared to both periods were mainly attributable to the
timing of some deals moving into the third quarter of 2005.
For the three months ended June 30, 2005, segment operating expenses were
$84.7 million, a decrease of $11.7 million, or 12.1 percent, from the same
period a year ago. The decline in expenses was primarily driven by lower
variable compensation expense due to lower net revenues and profitability.
For the second quarter of 2005, segment pre-tax operating margin was
13.2 percent, compared to 15.2 percent in the same quarter of last year and
12.5 percent in the first quarter of 2005. The decline as compared to the
year-ago period was largely due to lower revenues as previously described.
During the second quarter of 2005 Piper Jaffray announced the strategic
repositioning of its fixed income business, which is included within its
Capital Markets segment. The firm will focus its fixed income resources in
the areas where it has the greatest strengths, namely public finance and
proprietary high-yield research. All public finance investment banking and
municipal sales and trading activities were combined within a single group
named Public Finance Services. Sales, trading and research for corporate
high-yield and structured products were integrated with equities and
investment banking in a new group named Corporate and Institutional Services.
In addition, the firm recently announced the strengthening of its global
healthcare franchise through the expansion of its UK subsidiary Piper Jaffray
Ltd. As part of this expansion, Piper Jaffray Ltd. recently hired
14 healthcare specialists, further committing to a strong presence in the
United Kingdom and advancing its healthcare platform.
Following is a recap of completed deal information for the second quarter
of 2005:
-- 14 equity offerings, raising a total of $2.5 billion in capital, and
placing the firm 15th nationally, based on the number of completed
transactions. Of the 14 transactions, Piper Jaffray lead-managed
5 deals. (Source: Dealogic)
-- 6 mergers and acquisitions transactions with an aggregate enterprise
value of $616.0 million. The number of deals and the enterprise value
include disclosed and undisclosed transactions. (Source: Piper
Jaffray)
-- 126 tax-exempt issues with a total par value of $1.5 billion, ranking
the firm fifth nationally. In the Midwest, the firm completed
82 public finance issues for the quarter with a total par value of
$586.7 million, again ranking the firm the lead underwriter of Midwest
tax-exempt issues. Rankings are based on the number of completed
transactions. (Source: Thomson Financial)
Private Client Services
Private Client Services recorded net revenues of $84.1 million for the
second quarter of 2005, down $5.4 million, or 6.1 percent, compared to the
second quarter of 2004 and down $5.1 million, or 5.7 percent, compared to the
first quarter of 2005. The decline in net revenues compared to both periods
was primarily attributable to decreased transaction revenues driven by lower
private client volumes, partially offset by increased revenues from fee-based
accounts. For the three months ended June 30, 2005, segment pre-tax operating
income was $2.1 million, down 70.2 percent from the second quarter of 2004,
and down 56.4 percent from the first quarter of 2005.
In the second quarter of 2005, segment operating expenses were
$82.0 million, essentially unchanged from the second quarter of 2004 and down
$2.4 million, or 2.8 percent, compared to the first quarter of 2005. Compared
to the year-ago period, lower variable compensation expense due to lower net
revenues was partially offset by higher litigation-related expenses. Segment
pre-tax operating margin was 2.5 percent, compared to 7.9 percent in the same
quarter of last year and 5.4 percent in the first quarter of 2005. The
decline as compared to both periods was due to lower net revenues and the
relatively fixed nature of non-compensation expenses.
Corporate Support and Other
Corporate Support and Other pre-tax operating loss was $3.7 million for
the second quarter of 2005, an increase of $1.4 million over the second
quarter of 2004 and unchanged from the first quarter of 2005. The change
compared to the second quarter of 2004 was mainly due to a net $1.0 million
gain on a private equity investment recorded in the year-ago period.
Additional Shareholder Information
As of June 30, As of March 31, As of June 30,
2005 2005 2004
Full time employees: 2,907 2,976 3,043
Financial advisors: 863 866 850
Client assets: $51 billion $50 billion $49 billion
Shareholders' equity: $725.0 million $736.6 million $700.7 million
Book value per share: $38.74 $38.09 $36.24
Tangible book value
per share: $21.58 $21.47 $20.43
(1) Tangible shareholders' equity equals total shareholders' equity
less goodwill and identifiable intangible assets. Annualized
return on average tangible shareholders' equity is computed by
dividing annualized net earnings by average monthly tangible
shareholders' equity. Management believes that annualized return
on tangible shareholders' equity is a meaningful measure of
performance because it reflects the tangible equity deployed in
our businesses. This measure excludes the portion of our
shareholders' equity attributable to goodwill and identifiable
intangible assets. The majority of our goodwill is a result of
the 1998 acquisition of our predecessor company, Piper Jaffray
Companies Inc., and its subsidiaries by U.S. Bancorp. The
following table sets forth a reconciliation of shareholders'
equity to tangible shareholders' equity. Shareholders' equity is
the most directly comparable GAAP financial measure to tangible
shareholders' equity.
Average for the
Six Months Six Months
Ended Ended As of
(Dollars in thousands) June 30, June 30, June 30,
2005 2004 2005
Shareholders' equity $731,388 $684,631 $724,979
Deduct: Goodwill and
identifiable
intangible
assets 321,434 305,635 321,034
Tangible shareholders'
equity $409,954 $378,996 $403,945
Conference Call
Andrew S. Duff, chairman and chief executive officer, and Sandra G.
Sponem, chief financial officer, will host a conference call to discuss second
quarter 2005 financial results on Wednesday, July 20, 2005, at 11 a.m. ET
(10 a.m. CT). The call can be accessed via live audio webcast available
through the firm's web site at http://www.piperjaffray.com or by dialing
(866) 244-9933, or (706) 758-0864 internationally, and referring to conference
ID 7195370 and the leader's name, Andrew Duff. Callers should dial in at
least 15 minutes early to receive instructions. A replay of the conference
call will be available beginning at approximately 1 p.m. ET on July 20, 2005
at the same web address or by calling (800) 642-1687, or (706) 645-9291
internationally.
About Piper Jaffray Companies
Piper Jaffray Companies (NYSE: PJC) is a focused securities firm dedicated
to delivering superior financial advice, investment products and transaction
execution within selected sectors of the financial services marketplace. The
company operates through two primary revenue-generating segments: Capital
Markets and Private Client Services. Through its chief operating subsidiary,
Piper Jaffray & Co., the firm has served corporations, government and
non-profit entities, institutional investors and the financial advisory needs
of private individuals since 1895. Headquartered in Minneapolis, Piper
Jaffray has approximately 3,000 employees in 104 offices in 23 states across
the country and in London. For more information about Piper Jaffray, visit us
online at http://www.piperjaffray.com .
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements. Statements that
are not historical or current facts, including statements about beliefs and
expectations, are forward-looking statements. These forward-looking
statements cover, among other things, the future prospects of Piper Jaffray
Companies. Forward-looking statements involve inherent risks and
uncertainties, and important factors could cause actual results to differ
materially from those anticipated, including the following: (1) we have agreed
to certain restrictions to preserve the tax treatment of our spin-off from
U.S. Bancorp, which reduce our strategic and operating flexibility, (2) we
have agreed to indemnify U.S. Bancorp for taxes and related losses resulting
from any actions we take that cause the spin-off to fail to qualify as a
tax-free transaction, (3) developments in market and economic conditions have
in the past adversely affected, and may in the future adversely affect, our
business and profitability, (4) we may not be able to compete successfully
with other companies in the financial services industry, (5) our underwriting
and market-making activities may place our capital at risk, (6) an inability
to readily divest or transfer trading positions may result in financial losses
to our business, (7) use of derivative instruments as part of our risk
management techniques may place our capital at risk, while our risk management
techniques themselves may not fully mitigate our risk exposure, (8) an
inability to access capital readily or on terms favorable to us could impair
our ability to fund operations and could jeopardize our financial condition,
(9) we may make strategic acquisitions of businesses, engage in joint ventures
or divest or exit existing businesses, which could cause us to incur
unforeseen expense and have disruptive effects on our business but may not
yield the benefits we expect, (10) our technology systems are critical
components of our operations, and the failure of those systems may disrupt our
business, cause financial loss and constrain our growth, (11) our business is
subject to extensive regulation that limits our business activities, and a
significant regulatory action against our company may have a material adverse
financial effect or cause significant reputational harm to our company, (12)
regulatory capital requirements may adversely affect our ability to expand or
maintain present levels of our business or impair our ability to meet our
financial obligations, (13) our exposure to legal liability is significant,
and could lead to substantial damages and restrictions on our business going
forward, (14) we may suffer losses if our reputation is harmed, (15)
provisions in our certificate of incorporation and bylaws and of Delaware law
may prevent or delay an acquisition of our company, which could decrease the
market value of our common stock, and (16) other factors identified in the
document entitled "Risk Factors" filed as Exhibit 99.1 to our Quarterly Report
on Form 10-Q for the quarter ended March 31, 2005, and in our subsequent
reports filed with the SEC. These reports are available at our Web site at
http://www.piperjaffray.com and at the SEC Web site at http://www.sec.gov .
Forward-looking statements speak only as of the date they are made, and we
undertake no obligation to update them in light of new information or future
events.
Since 1895. Member SIPC and NYSE.
Piper Jaffray Companies
Preliminary Unaudited Results of Operations
Percent
Inc/(Dec)
For the Three Months Ended 2Q05 2Q05
(Amounts in thousands, June 30, March 31, June 30, vs. vs.
except per share data) 2005 2005 2004 1Q05 2Q04
Revenues:
Commissions and fees $67,879 $70,160 $65,776 (3.3)% 3.2%
Principal transactions 38,158 34,864 50,243 9.4 (24.1)
Investment banking 55,024 56,322 68,180 (2.3) (19.3)
Interest 17,052 15,602 14,044 9.3 21.4
Other income 11,267 10,727 16,407 5.0 (31.3)
Total revenues 189,380 187,675 214,650 0.9 (11.8)
Interest expense 9,715 8,607 7,318 12.9 32.8
Net revenues 179,665 179,068 207,332 0.3 (13.3)
Non-interest expenses:
Compensation and benefits 110,383 109,402 127,690 0.9 (13.6)
Occupancy and equipment 14,419 14,027 13,683 2.8 5.4
Communications 10,299 10,405 10,712 (1.0) (3.9)
Floor brokerage and
clearance 4,732 4,203 4,559 12.6 3.8
Marketing and business
development 10,014 10,650 11,131 (6.0) (10.0)
Outside services 12,374 10,639 9,951 16.3 24.3
Cash award program 1,061 1,136 1,269 (6.6) (16.4)
Restructuring-related
expense 8,595 - - N/M N/M
Other operating expenses 6,196 7,127 7,647 (13.1) (19.0)
Total non-interest
expenses 178,073 167,589 186,642 6.3 (4.6)
Income before income tax
expense 1,592 11,479 20,690 (86.1) (92.3)
Income tax expense 355 4,144 7,710 (91.4) (95.4)
Net income $1,237 $7,335 $12,980 (83.1)% (90.5)%
Earnings Per Common Share
Basic $0.07 $0.38 $0.67 (81.6)% (89.6)%
Diluted $0.06 $0.38 $0.67 (84.2)% (91.0)%
Weighted average number of
common shares
Basic 19,028 19,378 19,333 (1.8)% (1.6)%
Diluted 19,195 19,523 19,395 (1.7)% (1.0)%
N/M - Not Meaningful
Piper Jaffray Companies
Preliminary Unaudited Results of Operations
For the Six Months Ended
(Amounts in thousands, June 30, June 30, Percent
except per share data) 2005 2004 Inc/(Dec)
Revenues:
Commissions and fees $138,039 $135,288 2.0%
Principal transactions 73,022 102,319 (28.6)
Investment banking 111,346 133,042 (16.3)
Interest 32,654 27,371 19.3
Other income 21,994 30,807 (28.6)
Total revenues 377,055 428,827 (12.1)
Interest expense 18,322 12,095 51.5
Net revenues 358,733 416,732 (13.9)
Non-interest expenses:
Compensation and benefits 219,785 257,397 (14.6)
Occupancy and equipment 28,446 27,415 3.8
Communications 20,704 21,170 (2.2)
Floor brokerage and clearance 8,935 9,359 (4.5)
Marketing and business development 20,664 21,793 (5.2)
Outside services 23,013 19,109 20.4
Cash award program 2,197 2,340 (6.1)
Restructuring-related expense 8,595 - N/M
Other operating expenses 13,323 15,287 (12.8)
Total non-interest expenses 345,662 373,870 (7.5)
Income before income tax expense 13,071 42,862 (69.5)
Income tax expense 4,499 16,092 (72.0)
Net income $8,572 $26,770 (68.0)%
Earnings Per Common Share
Basic $0.45 $1.38 (67.4)%
Diluted $0.44 $1.38 (68.1)%
Weighted average number of common
shares
Basic 19,141 19,333 (1.0)%
Diluted 19,297 19,380 (0.4)%
N/M - Not Meaningful
Piper Jaffray Companies
Preliminary Unaudited Segment Data
For the Three Months Ended Percent Inc/(Dec)
June 30, March 31, June 30, 2Q05 vs. 2Q05 vs.
(Dollars in thousands) 2005 2005 2004 1Q05 2Q04
Capital Markets
Net revenues $97,598 $91,945 $113,645 6.1% (14.1)%
Operating expenses 84,726 80,418 96,405 5.4 (12.1)
Segment pre-tax
operating income $12,872 $11,527 $17,240 11.7% (25.3)%
Segment pre-tax
operating margin 13.2% 12.5% 15.2%
Private Client
Services
Net revenues $84,081 $89,199 $89,506 (5.7)% (6.1)%
Operating expenses 81,983 84,388 82,465 (2.8) (0.6)
Segment pre-tax
operating income $2,098 $4,811 $7,041 (56.4)% (70.2)%
Segment pre-tax
operating margin 2.5% 5.4% 7.9%
Corporate Support and
Other
Net revenues $(2,014) $(2,076) $4,181 (3.0)% N/M
Operating expenses 1,708 1,647 6,503 3.7 (73.7)%
Segment pre-tax
operating loss $(3,722) $(3,723) $(2,322) (0.0)% 60.3%
Segment pre-tax
operating margin N/M N/M N/M
Reconciliation to
total income
before taxes:
Total segment
pre-tax operating
income $11,248 $12,615 $21,959 (10.8)% (48.8)%
Cash award program 1,061 1,136 1,269 (6.6) (16.4)
Restructuring-related
expense 8,595 - - N/M N/M
Total income before
income tax expense $1,592 $11,479 $20,690 (86.1)% (92.3)%
Pre-tax operating
margin 0.9% 6.4% 10.0%
N/M - Not Meaningful
Piper Jaffray Companies
Preliminary Unaudited Segment Data
For the Six Months Ended
June 30, June 30, Percent
(Dollars in thousands) 2005 2004 Inc/(Dec)
Capital Markets
Net revenues $189,543 $225,689 (16.0)%
Operating expenses 165,144 189,547 (12.9)
Segment pre-tax operating income $24,399 $36,142 (32.5)%
Segment pre-tax operating margin 12.9% 16.0%
Private Client Services
Net revenues $173,280 $185,901 (6.8)%
Operating expenses 166,371 171,840 (3.2)
Segment pre-tax operating income $6,909 $14,061 (50.9)%
Segment pre-tax operating margin 4.0% 7.6%
Corporate Support and Other
Net revenues $(4,090) $5,142 N/M
Operating expenses 3,355 10,143 (66.9)%
Segment pre-tax operating loss $(7,445) $(5,001) 48.9%
Segment pre-tax operating margin N/M N/M
Reconciliation to total income
before taxes:
Total segment pre-tax operating
income $23,863 $45,202 (47.2)%
Cash award program 2,197 2,340 (6.1)
Restructuring-related expense 8,595 - N/M
Total income before income tax
expense $13,071 $42,862 (69.5)%
Pre-tax operating margin 3.6% 10.3%
N/M - Not Meaningful
Piper Jaffray Companies
Preliminary Unaudited Supplemental Information
Percent
(Dollars in thousands) For the Three Months Ended Inc/(Dec)
Capital Markets June 30, March 31, June 30, 2Q05 vs. 2Q05 vs.
2005 2005 2004 1Q05 2Q04
Institutional Sales and
Trading
Fixed Income $19,354 $16,318 $22,080 18.6% (12.3)%
Equities 29,418 26,320 30,241 11.8 (2.7)
Total Institutional Sales
and Trading 48,772 42,638 52,321 14.4 (6.8)
Investment Banking
Underwriting
Fixed Income 19,758 11,632 14,540 69.9 35.9
Equities 16,960 20,338 20,888 (16.6) (18.8)
Mergers and Acquisitions 11,240 16,574 26,399 (32.2) (57.4)
Total Investment Banking 47,958 48,544 61,827 (1.2) (22.4)
Other Income 868 763 (503) 13.8 N/M
Capital Markets Net
Revenues $97,598 $91,945 $113,645 6.1% (14.1)%
N/M - Not Meaningful
Piper Jaffray Companies
Preliminary Unaudited Supplemental Information
(Dollars in thousands) For the Six Months Ended
Capital Markets June 30, June 30, Percent
2005 2004 Inc/(Dec)
Institutional Sales and Trading
Fixed Income $35,672 $43,683 (18.3)%
Equities 55,738 64,752 (13.9)
Total Institutional Sales and Trading 91,410 108,435 (15.7)
Investment Banking
Underwriting
Fixed Income 31,390 29,260 7.3
Equities 37,298 47,806 (22.0)
Mergers and Acquisitions 27,814 39,551 (29.7)
Total Investment Banking 96,502 116,617 (17.2)
Other Income 1,631 637 156.0
Capital Markets Net Revenues $189,543 $225,689 (16.0)%
SOURCE Piper Jaffray Companies
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Related links:
http://www.piperjaffray.com
CONTACT:
Jennifer A. Olson-Goude, Investor Relations,
+1-612-303-6277, or Susan L. Beatty, Media Relations,
+1-612-303-5680, both of Piper Jaffray Companies
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