Q3 2023 Piper Sandler Co Earnings Call
Please standby.
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.
Actors 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 at Ww Dot Piper Sandler Dot com and on the Sec's website at Ww SEC Dot Gov.
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 am here with Deb, Schoneman, our president and Jim Carter our CFO.
Market conditions continued to be challenging during the third quarter.
Our broad product capabilities and industry diversification has 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 and 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 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 the 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 an aggregate transaction value.
Performance was led by our financial services and health care 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 months period of 2023, we maintained our number one rank based on both the number and deal value of announced U S Bank M&A transactions and advised on seven of the 10 largest completed deals.
In addition, we have grown our nonbank 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.
U S. M&A market activity is down approximately 30% to 40% compared to the first nine months of last year.
Our advisory revenues are down 23%.
On a year to date basis, we maintained our ranking as the number two advisor on announced U S M&A transactions under $1 billion.
In terms of outlook, we are encouraged by the direction of advisory activity in 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.
<unk> was driven by our market, leading health care 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 piece 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 health care 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 head count.
We finished the quarter with 168 managing directors over the last few years, we have significantly grown our MD head count.
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 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 our senior executive transition, we announced on September 12th.
After a long successful 28 year career at Piper Sandler Jim Carter will be retiring in the first quarter of next year at the same time, we announced that <unk> has been selected to succeed him as Chief Financial Officer Kate.
Kate will joined the firm in November and is expected to take over as CFO on January one.
With that I will turn the call over to Deb to discuss our public finance and brokerage businesses.
Thanks, Chad and congratulations to Jim.
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 rate 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.
So activity was episodic these transactions highlight the strength and breadth of our platform and 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 rate and more investors returned to the municipal investments today.
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.
During the quarter, we traded $2 5 billion shares on behalf of our clients.
Hyatt Research does 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 continued to be challenging.
Long term yields mid tier during the quarter with the 10 year Treasury, increasing 73 basis points to end the quarter at four 6%.
For the third quarter of 2023, we generated revenues of $40 million up modestly compared to the second quarter.
<unk> are beginning to take advantage of higher yielding securities and we are increasingly being engaged to assist clients with balanced CEO of optimization.
We expect the near term outlet to remain challenging we're starting down the path to mark constructive fixed income market.
The stability scale ambition of our fixed income platform makes 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 vertical.
Now I will turn the call over to Jim 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 through related legal costs at.
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 with 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 for.
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 reimburse deal expenses were $57 million below our guided range due to reduced travel and lower professional fees.
On a year to date basis, excluding reimburse 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 reimburse 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 the 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 32% for the third quarter of 2023, and 13, 7% for the nine month period.
Tax expense for the year to date period was reduced by $16 million of tax benefits related to restricted stock vesting.
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 vesting.
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.
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 474000 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 <unk> per share paid to our shareholders through our quarterly and special cash dividends.
In addition today the board approved a quarterly cash dividend of <unk> 60 per share to be paid on December eight 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 13th we repaid the $125 million of our class B notes upon maturity.
With this repayment we have 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.
We are focused on investing in our people and broadening our platform.
To that end I'm excited to welcome <unk> 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.
Thank you and as a reminder, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment and again that is star one while we build that <unk>. We will take our first question from Stephen <unk> from Wolfe Research Your line is.
Please go ahead.
Good morning, This is Brendan O'brien filling in for Steven.
Yes, just to start on the advisory outlook, we've seen a number of large strategic announce transactions announced over the past couple of months, which along with the positive news on antitrust on it on the antitrust front such as the approval of Activision Microsoft suggest that the environment is relatively favorable for larger strategic transactions.
At the same time commentary from the public all suggest that activity at sponsors is likely to remain subdued in the near to intermediate term.
So I wanted to get a sense as to how dialogues are.
Between sponsors on strategics at the moment.
If there is any difference on the sponsor side given your focus on smaller sub.
Sub billion dollars space, but any color you can provide would be great.
Yes, maybe I'll start with the <unk>.
Sponsor side in private equity.
We've definitely seen.
More transactions sell side processes start.
There is definitely interest we can definitely get bids.
You get to the end of a process instead of.
Please stand by.
Multiple parties Youre down to a couple of parties.
Unknown Executive: Good morning and welcome to the Piper Sandler Company's 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.
<unk>.
Closing the.
Sorry to ask the bid ask gap.
But financing is definitely there and better so I would say on the sponsor side, it's improved but slowly.
Unknown Executive: The company will make four 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 at www.piper Sandler.com and on the SEC website at www.sec.gov. This call will also include statements regarding certain non-gap financial measures.
It's not like it's.
Snapping back but.
Certainly just narrowing that bid ask spread and getting financing has helped for a lot of the deals of quality.
On the strategic side, we definitely have.
Good activity, obviously theres been some big news on some larger strategics relative to anti trust, but I would just also say across the board we have.
Unknown Executive: The non-gap measures should be considered in addition to and not a substitute for measures of financial performance prepared in accordance with GAP. Please refer to the company's earnings release issue today for a reconciliation of these non-gap financial measures to the most directly comparable GAP measure. The earnings release is available on the investor relations page of the company's website and at the SEC website.
More situations that are challenged with antitrust and second reviews and things.
Then.
Then we usually do I will.
Say, it's extending some timelines it hasnt killed.
That many transactions and obviously, it's also challenged in financial services.
Chad Abraham: 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.
But it's not like it's markedly better on the strategic side from antitrust.
Okay. That's helpful and then I guess.
Guess on fixed income brokerage the commentary 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've pointed to 200 million as being around the right level for a normalized revenues on an annual basis of the business post Sandler but.
Chad Abraham: I am here with Dev Showing them in our president and Tim Carter, our CFO. Market conditions continue to be challenging during the third quarter. Our broad product capabilities and industry diversification has provided some resiliency to our results and our relative performance was strong in several of our businesses.
Given the benefit from higher rates and the share gain opportunities you highlighted wanted 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.
Chad Abraham: 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 in operating margin of 15.3% and adjusted EPS of $1.76.
Yeah, Here's what I would say currently.
You can see in the numbers that our revenues have been depressed as you pointed out we're seeing some pickup in that if you look at our overall business.
Non depository clients Theyre actually our business with those clients relatively flat. So this is about.
Chad Abraham: 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.
Banks and credit unions and their lack of liquidity in what's happening in their own portfolios.
So to your question about whether 200, the right number I think as we look at the business.
I guess I would say 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 <unk>.
Doing what we can to help these clients in this tough interest rate environment.
Need that.
Chad Abraham: 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 and benefited from a higher average fee and aggregate transaction balance. Performance was led by our financial services and health care teams with solid contributions from our consumer, energy and power and restructuring groups.
Any more certainty than interest rates and to see the the top hit here on the interest rate increases.
Okay. Thanks.
Thanks for taking my questions and Tim Congrats on the retirement, it's been a pleasure and wishing you all the best.
Thank you.
Thank you and we will next go to Devin Ryan with JMP Securities. Your line is open go ahead.
Hey, good morning, Chad Devin Tim.
Echo those comments Kevin.
Best wishes in the future.
I guess just wanted to start on media underwriting and.
I've heard comments, just obviously need rates to stabilize to see that business pick up I guess, if we do stabilize but we're stabilizing.
Chad Abraham: Advisory services accounted for 50% of adjusted net revenues during the third quarter. Health care 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.
At higher levels due issuers still have the same needs to fund their projects and so therefore, the volumes really shouldn't be affected March or do these issuers.
It's still kind of have some rate sensitivity to what they wanted to use a bulk restrict.
And that can be just given more expensive rates. So I'm just trying to think about ultimately kind of what it was probably looks like is it recovery.
Kind of leveling off at a more muted level or just really what a more normal year could look like assuming we level out at a little bit higher rates than we've seen historically.
Chad Abraham: 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-banked 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.
Yes, it is very dependent Devin.
Alex type.
Which part of our business that Youre looking at but if you think holistically about.
Higher rates, obviously, the refinancing side of the business, which has largely gone away right theres 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.
Chad Abraham: 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-day basis, we maintained our ranking as the number two advisor on announced US M&A transactions under $1 billion.
Limits that to some degree it well and that's partly because the size of things might be smaller right. So.
Still have a need but projects might come in smaller one of the other things that are these issuers are dealing with is just higher construction costs there whether it.
Building, a new school or are other development that is also impacting so thats just something else to watch I think in terms of.
Chad Abraham: 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.
These issuers ability to actually get these new projects so.
It gets a little more muted from what it would have been at higher rates until we get maybe some of this inflationary pressure out of the marketplace.
I'd just add Devin.
To what Deb said I mean, there's no question the muni financing business of all of our business segments.
Chad Abraham: 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 finance, 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.
The most challenged and it's mostly on the specialty side and it makes sense to what Deb said when you think a lot of that is project based.
Some of it is.
Project financing.
If rates are much higher.
Costs more to do the project. There is a question of does the return work for the developer or do they need more.
Financing, but also in that.
In that World you need fund flows into high yield Muni funds and those flows have been.
There is a lot of other places where people are getting good fixed income returns so.
Chad Abraham: Highlighting our strong relative performance on a year-to-day 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 the top five investment bank based on the number of book run deals for healthcare companies with less than $5 billion of market cap.
A lot of that money hasnt come back that will the spreads will adjust but that's a big part of why that's been.
Very difficult for us this year.
Okay.
Okay terrific.
And just wanted to come back to the advisory business for a moment.
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 in this year, but you can go back a couple of years you've done some acquisitions. So you kind of round it out.
Chad Abraham: As we start the fourth quarter, corporate financing activity during October has been similar to our third quarter run rate.
Chad Abraham: Turning to investment banking, managing director headcount. We finished the quarter with 168 managing director headcount. Over the last few years, we have significantly grown our MD headcount. We are up net nine managing directors on a year-to-day basis.
Chad Abraham: 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.
Your sector coverage. So just like how you feel like Youre competing in the market today and how that's evolved over the past couple of years and then.
Are you still feels like Theres room, obviously, there is always going be some areas of white space, but where there is maybe bigger holes, where you can kind of really turn the lager and still be quite a bit more.
Yes.
Thank you and we agree.
Chad Abraham: It's difficult to predict when market activity will return to no more normalized levels, but we currently expect improvement in 2024. The macro backdrop remains uncertain, but our priorities have not changed.
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.
Chad Abraham: 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.
Some of Thats just been we've been on a pretty steady pace for.
Five years and you just look back a few years ago, we had a 130 Mds and now we're closer to 170 <unk>. So yes, we were.
We absolutely feel like.
Chad Abraham: 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, Kim Carter will be retiring in the first quarter of next year.
As the M&A market, even if it's slowly returns here.
24 that we've got the capacity to do.
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.
Chad Abraham: At the same time, we announced that Kate Clune has been selected to succeed Tim as Chief Financial Officer.
Sure.
We still think about tech and software in that relative to our market, leading franchises in financials and healthcare that.
Chad Abraham: Kate will join the firm in November and is expected to take over as CFO on January 1.
Debbra Schoneman: 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 we can invest your demand. For the quarter, we underwrote 108 municipal negotiated transactions raising 4 billion of power values for our clients.
That business can be as big we've added a lot of Mds, we have the sectors the DBO broadest into and.
Maybe has been the most challenged.
The markets.
And M&A. So I think there's still a lot of upside there and theres a lot of room for us to add.
Many more Mds in the tech world as well.
Okay terrific.
Maybe I'll just squeeze one more in here on expenses, so comp ratio is running a little bit higher this year, but.
Debbra Schoneman: 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. The activity was episodic, these transactions highlight the strengths and breadth of our platform and ability to get deals done in a tough market.
Much more contained and we're seeing it some others in the industry and I think that speaks to.
The diversification of the business.
And just overall you kind of look out.
Thinking about some of the puts and takes on expenses, we're kind of in this inflationary environment you guys have navigated that well.
Debbra Schoneman: 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 municipal investment space.
At the same time, you'll see hopefully business related expenses come back in when the investment banking picks back up so just want to think about kind of how much expense inflation in your mind is kind of sticky and if theres any.
Debbra Schoneman: 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 software 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.
View of impact I would kind of normalized margins when we get back to maybe a market that's a little bit more conducive than we've been in like margins revert back to where they were pre the last couple of years or how are you guys thinking about kind of normalized margins just given the puts and takes and some of the inflation that we're all dealing with.
Yeah, Devin maybe I'll take that.
I think we've talked about the different components.
The past in terms of.
Comp rate to start with.
Yes, certainly as we get back to more normalized levels.
Debbra Schoneman: 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 positioned their portfolios for 2024.
From a topline perspective, we.
We should.
We have the ability to lever down the comp rate.
A couple of points.
Debbra Schoneman: Moving to six income, market conditions continue to be challenged. Converting, Long-term yields moved higher during the quarter with the 10-year Treasury increasing 73 basis points to end the quarter at 4.6%. To 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.
I think we've also talked it look longer term.
C cap rate somewhere between 60, and 65 right revenues are depressed for closer up to that 64.
65, when revenues are at more normalized levels or even a little bit better or closer to 60% I think theres certainly.
Couple of points in the comp rate that as we get more normalized.
We would get that back from a margin perspective, and then there's some level of.
Leverage that we are going to get on non comps in yes, you might see the absolute level rise with increased business activity, but we're still going to get some some leverage there. So yeah, I guess, we get back to.
Debbra Schoneman: We expect the near-term outlook to remain challenging. We are starting down the path to more constructive fixed income market. The stability, scale, and vision of our fixed income platform makes 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.
All the way back to the Sandler deal and we said look we.
With that in sort of that scale, we should be in the high teens I think now as we've continued to grow and scale the business.
Timothy Carter: 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 related legal costs. At this time, we did not believe the final penalty amount will vary materially from the expense recorded in the third quarter.
Back to that 20% margin.
Maybe low twenty's is really.
More of the focus in the area that we think.
The margin should run.
Okay very clear thanks, very much I'll leave it there.
Thanks, Kevin.
Thank you and next we'll go to James <unk> with Goldman Sachs. Please go ahead.
Hi, good morning, and thanks for taking my questions Firstly, Tim.
Congratulations it's been great working with you and best wishes.
Turning to the two M&A, Chad, maybe we could just touch on.
Yes.
Timothy Carter: 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.
The question of how long it takes to get back to normalized level, obviously results have not been.
That strong I think for peers so far.
This quarter and it does sound like there were some headwinds there. So just maybe you could just talk about some of the puts and takes around the timeline and whether this is going to look more like historic cycles versus the 2000 22021 cycle.
Yeah, Yeah, I think obviously.
You just.
Obviously, we're all sounded like a bit of a broken record I think in.
At the end of 'twenty two.
We all certainly thought the pace of 23 would be.
Timothy Carter: 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 in margin, our compensation ratio for the third quarter of 2023 was 63.9%, slightly higher compared to the sequential quarter driven by revenue mix.
A little quicker, we've definitely seen in the back half.
More transaction starts so there's plenty of transactions to do plenty of backlog, but they're all taking longer there is definitely more deals dying sort of at the end when we can't.
Can't quite get there so my.
My feeling is we're just going to continue to see very slow improvement.
We certainly can see what we have on the runway in.
Q4, and some of that stuff slipping into early next year. So we certainly have visibility and I. Just think this is going to be.
Timothy Carter: 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 reimburseee expenses, were 57 million, below our guided range due to reduced travel and lower professionalism.
A slow M&A recovery and for US, it's sort of it sort of depends we've got some things still.
Well on the energy side.
Obviously, we're a market leader in health care and we've had some <unk>.
Interesting transactions there.
We haven't talked about this but you know long term after a really really tough period in depository, we definitely expect that.
To pick up but part of why the recovery is going to be slow for us in M&A is once we get those deals it out it just takes.
It takes a while to close soon the depositary space. It feels like our share has actually gone up.
Timothy Carter: On a year-to-day 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 that operating margin of 15.3%.
A little but it's off a very very.
Small base. So in general I think we just expect to see more of the same a very slow.
Recovery in.
But hopefully it just keeps marching.
Slowly better here.
Okay.
That makes a lot of sense.
Not super uplifting.
Maybe just on the Mds and the hiring there.
The 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 youre thinking about the the hiring trajectory from here.
Timothy Carter: 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-day period was reduced by $16 million of tax benefits related to restricted stock bestings. Excluding these benefits, our year-to-day tax rate was 28.2%. We expect our tax rate for the fourth quarter of 2023 to be within a range of 27.29% excluding the impact from stock bestings. 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.
Yes, I would say, obviously I think it's been it's been quite a few quarters since we were even down.
One or two so it's a very small number couple of retirements I would say if anything when the times are difficult like this we're being.
We're being pretty discerning on production and who can get it done and pretty careful on hiring. So we do use these market environments to figure out sort of where there is an upgrade or where there is a space.
We don't need to be in or where we've just got an MD that's not getting it done.
<unk>.
I would say relative to hiring though are our paces is.
We expect it to be the same we sort of talk about that.
Net.
Five to seven.
Timothy Carter: 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 solution from this year's annual stock grants.
We've got a couple of.
New hires we've made that haven't been announced in <unk>.
Strategic sector. So we really just haven't changed.
That cadence if anything we've probably slowed it a little bit, but I always got to remind people in over five years, we've definitely growing MD head count.
More than others. So we've just taken the long term approach.
And also just focused on productivity and performance, we've got plenty of M D as to drive significant revenue growth from here.
Timothy Carter: It also includes an aggregate of 74 million or $3.5 per share paid to our shareholders through our quarterly and special cash dividends. In addition, today the board approved the quarterly cash dividend of 60 cents per share to be paid on December 8th to shareholders of record as of the close of business on November 21st. Finally, given our continued strong cash generation and capital-wide business model, on October 13th, 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 San Maroneal.
Makes sense, thanks, a lot.
Perfect and ladies and gentlemen, as a reminder, if you would like to ask a question that is star one on your telephone keypad well 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.
Yes, so we don't we don't break out sort of specific restructuring revenue, but just just as a reminder, we had a very very small business we did.
Timothy Carter: 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 Poon to our executive team and we look forward to working with her in the coming months.
The Trs.
Transaction, a few years ago.
<unk>.
Since then we've roughly doubled.
The number of head count.
There and frankly grow and revenues each year to the point, where in certain of our quarters, it's starting to matter to the total so.
Unknown Executive: With that, we'll open up the call for questions. Thank you and as a reminder ladies and gentlemen, if you would like to ask a question, please signal by pressing star 1 on your telephone keypads. If you're using a speaker volume, please make sure your mute function is turned off to allow your signal to reach our equipment. And again, that is star 1.
We feel really good obviously, we were starting from a low base every year, it's growing we're seeing more and more impact across.
Brennan O'Brien: While we build that queue, we'll take our first question from Steven Chewback from Wolf Research. Your line is a link.
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.
Brennan O'Brien: Good morning. This is Brennan O'Brien filling in for Steven. I guess to start on the advisory outlook, we've seen a number of large strategic announcements, transactions announced over the past couple months, which along with the positive news on antitrust on the antitrust front, such as the approval of Activision Microsoft, suggests that the environment is relatively favorable for larger strategic transactions. At the same time, commentary from the public all suggests that activity at sponsors is likely to remain subdued in the near to intermediate term.
While the timing didn't seem good right when we did it in 'twenty before 'twenty one.
Now, it's really paying dividends and were really excited about the team we have in and the prospects of continuing to grow that into a significant business.
Got it and just lastly October any comments there it sounds like it was kind of continuing.
Brennan O'Brien: So I wanted to get a sense as to like how dialogues are between sponsors and strategies at the moment. I don't know if there's any difference on the sponsors side, giving your focus on smaller the sub billion dollar space, but it would probably be great. Yeah, maybe I'll start with the sponsor side and private equity. We've definitely seen more transactions, self-ide processes start. There's definitely interest. We can definitely get bids. You get to the end of a process instead of multiple parties.
I'll call it slow recovery that you've kind of described anything else to call out about October.
Yes, what I would say for us in October.
We actually had a pretty good ECM month people can see that from our Dealogic 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 health care I think that trend.
<unk>.
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.
Brennan O'Brien: You're down to a couple of parties, still closing the bit ask 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 bit ask spread and getting financing has helped for 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 strategic 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.
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 in more in November December.
So I guess, that's what I'd say about October.
Got it hey, 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.
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Chad Abraham: That's helpful. I guess on a 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've pointed to 200 million as being around the right level for a normalized revenues on an annual basis, the business, post-standard, but given the benefit from higher rates and the share gain opportunities you highlighted, want to get a census whether that's still the appropriate way to think about normalized revenues in the business or if it could potentially be even higher.
Yes.
Yes.
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Yes.
[music].
Chad Abraham: 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, they're actually our business with those clients relatively flat. This is about banks and credit unions and their lack of liquidity and what's happening in their own bond portfolios. To your question about whether 200's the right number, as we look at the business, I guess I pay that 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.
Chad Abraham: Right now focused on doing what we can to help these clients in this tough interest rate environment and need to see more certainty and interest rates and to see the top hit here on the interest rating.
Unknown Executive: Joseph. Thanks for taking my questions, and Tim can grasp on the retirement. It's been a pleasure and yeah, wishing you all the best.
Unknown Executive: Thank you.
Devin Ryan: Thank you, and we'll next go to Devin Ryan with JMP Securities. Your line is open. Go ahead. A good morning, Chad Devin Tim. Back guest just wanted to start on union writing and Deb heard comments, you know, just obviously need rates to stabilize, to see that business pick up. I guess if we do stabilize, but we're stabilizing at higher levels, do issuers still have the same needs to fund their projects, and so therefore the volumes really shouldn't be affected much, or do these issuers you know, still kind of have some rate sensitivity to what they want to do, so they'll restrict that can be just given more expensive rates.
Devin Ryan: So you're trying to think about ultimately kind of what a recovery looks like, you know, is it recovery, but it's you're kind of loving off at a more muted level, or just really what a more normal year could look like, this evening, we level out at a little bit higher rates, and we've seen this historically. Yeah, it is very dependent, Devin, on which type, 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, which has largely gone away.
Devin Ryan: There's some of that still happening as project 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 limits 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. One of the other things that these issuers are dealing with is just higher construction costs, so whether it's, you know, building a new school or other development, that is also impacting.
Devin Ryan: 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 Dev said, I mean, there's no question the muni-financing business of all of our business segments is the most challenge, and it's mostly on the specialty side, and it makes sense to what Dev said.
Devin Ryan: We think a lot of that is project-based. You know, some of it is, you know, project financing, and if rates are much higher, you know, cost more to do the project, you know, there's a question of, you know, 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, you know, there's a lot of other places where people are getting good fixed income returns.
Devin Ryan: So, you know, a lot of that money hasn't come back. That will, the spreads will adjust, but, you know, that's a big part of why that's been, you know, very difficult for us this year. Great point. Okay, terrific.
Chad Abraham: 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 were very aggressive on recruiting not just this year, but you can go back a couple of years. You've done some acquisitions. So you kind of rounded out your sector coverage.
Chad Abraham: So just like how you feel like you're competing in the market today, and how that evolved even over the past couple of years. And then you know where you still feels like there's room, obviously there's always can be some areas of white space, but where there's maybe bigger holes where you could, you know, kind of really turn the lever and still be quite a bit more. Yep, thank you. And we agree.
Chad Abraham: I mean, you know, lots of people have been doing, you know, quite a bit of hiring this year. You know, we've actually been going, going quite a bit slower this year, but you know, some of that's just been, you know, we've been on a pretty steady pace for. You know, five years and you just look back a few years ago, we had a, you know, 130 mds and now we're closer to 170 mds.
Chad Abraham: So yeah, we, we absolutely feel like, you know, 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. You know, when I think about big, big opportunities still for us, you know, we still think about tech and software in that, you know, relative to our market leading franchises and, you know, financials and healthcare, that business can be as big.
Chad Abraham: We've added a lot of mds. We have the sectors that DBO brought us into and, you know, it's 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, you know, many more mds in the tech world as well.
Devin Ryan: Okay, perfect. Maybe I'll just squeeze one more in here on expenses. So, you know, corporations are running a little bit higher this year, but, you know, much more contained than we're seeing if some others in the industry. And I think that speaks to kind of the diversification of the business. And just overall, you kind of look out, you know, thinking about some of the putting takes on expenses, you know, we're kind of in this inflationary environment, you guys have navigated that well.
Devin Ryan: At the same time, you'll see, you know, hopefully business related expenses come back in when that's banking pick back up. So just want to think about kind of how much expense inflation in your mind is kind of sticky. And if there's any view of impact on kind of normalize margins, you know, when we get back to maybe a market that's that's a little bit more conducive, then we've been in like the margins of the back to where they were pre in the last couple of years or how are you guys thinking about kind of normalize margins is given the puts and takes and some of the inflation that we're all dealing with.
Devin Ryan: Yeah, Devin, maybe I'll take that. I mean, I, you know, I think, you know, we've talked about, you know, the different components, you know, in the past in terms of, you know, the, the comp rate to start with. And, you know, it's, yeah, certainly as we get back to more, you know, normalized levels, you know, from a top line perspective, you know, we, we should, you know, have the ability to, you know, lever down, but, you know, the comp rate, you know, by a couple of points.
Devin Ryan: You know, I think we, we've also talked to look longer term, you know, we, we see comp rate somewhere between, you know, 60 and 65, right? Revenues are depressed. We're closer up to that, you know, 64, 65. When, when revenues are more normalized levels are even a little bit better or closer to 60. So, you know, I think there's certainly, you know, a couple of points in the comp rate that is, as we get more normalized, we would get that back from a margin perspective.
Devin Ryan: [inaudible] You know, leverage that we are going to get on non-comps and yeah, you might see the absolute, you know, level rise with increased business activity, but we're still going to get some leverage there. So, yeah, I guess, you know, we get back to, you know, all the way back to, you know, the Sandler deal, we said, look, we, you know, with that and sort of that scale, we should be in the, you know, the high teams.
Devin Ryan: I think now as we've continued to grow and scale the business, you know, back to that, you know, 20% margin, you know, maybe low 20s is really more of the focus in the area that we think the margin should run. Okay, very clear. Thanks very much. Thank you.
James Yaro: And next we'll go to James Yaro with Goldman Sachs. Please go ahead. Good morning, and thanks for taking my questions.
James Yaro: Firstly, Tim, you know, congratulations, you know, it's been great working with you and best wishes. Turn to M&H ad, maybe, you know, we could just touch on, you know, the question of how long it takes to get back to normalize, but obviously results have not been, you know, that's strong. I think for peers so far, this quarter, and, you know, it does sound like there's some headwinds there. So you're just maybe you could talk about some of the puts some takes around the timeline and whether this is going to look more like historic cycles versus the 2020 2021 cycle.
James Yaro: Yeah, yeah, I think obviously, you know, just obviously we're all we're all sounding like a bit of a broken record. I think in, you know, the end of 22, we all certainly thought the pace of 23 would be a little quicker. We've definitely seen in the back half, you know, more transactions start. So there's plenty of transactions to do plenty of backlog. They're all taking longer. There's definitely, you know, more deals dying sort of at the end when we can't, can't quite get there.
James Yaro: So, you know, my, my feeling is, you know, we're just going to continue to see very slow improvement. You know, we certainly can see what we have on the runway in Q4 and, you know, some of that stuff slipping into early next year. So we certainly have visibility and, you know, I just think this is going to be a slow M&A recovery. And, you know, for us, it sort of, it sort of depends, you know, we've got some things still going well in the energy side.
James Yaro: You know, obviously we're a market leader in healthcare and we've had some interesting transactions there. We haven't talked about this, but, you know, long term after a really, really tough period in depositories. We definitely expect that to pick up. But, you know, part of why the recovery is going to be slow for us in M&A is, you know, once we get those deals and outs, it just takes. It takes a while to close so in the depository space, you know, it feels like our shares are actually going up a little, but it's off a very, very small base.
James Yaro: So in general, I think we just expect to see more of the same a, you know, very slow recovery and, you know, hopefully it just keeps marching slowly better here. Okay. That makes a lot of sense. You know, it's not super uplifting.
Chad Abraham: Maybe just on the MDs and the hiring there. You know, 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, you know, how you're thinking about the hiring trajectory from here. Yeah, I would say, you know, obviously I think it's been quite a few quarters since we were even down one or two. So it's a very small number, a couple of retirements.
Chad Abraham: You know, I would say, if anything, when, you know, the times are difficult like this, you know, we're being, we're being pretty discerning on production and, you know, who can get it done and pretty careful on hiring. So, you know, we do use these market environments to figure out sort of where there's an upgrade or where there's a space, you know, we, we don't need to be in or where we've just got an MD that's not getting it done.
Chad Abraham: I would say relative to hiring though, our, our pace is, is, you know, we, we expected to be the same. We sort of talk about that net, you know, five to seven. We've got a couple of new hires. We've made that, that haven't been announced in a strategic sector. So we really just haven't changed, you know, that cadence. If anything, you know, we've probably slowed it a little bit. But I always got to remind people, you know, over five years, we've definitely grown empty head count, you know, more than others. So we've just taken the long term approach. And, and also just focused on productivity and performance. We've got plenty of MDs to drive, you know, significant revenue growth from here. Makes sense. Thanks a lot.
Unknown Executive: Perfect.
Mike Randall: And ladies and gentlemen, as a reminder, if you would like to ask a question that is star one on your telephone key pads, we'll next go to Mike Randall 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 road? [inaudible] 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.
Mike Randall: Anything else to call out about October? Yeah, what I would say for us in October, you know, 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 you know, first nine months, we've definitely gained a lot of share, frankly, a lot of share in health care. I think that trends, you know, continued in October. I would say relative to our brokerage businesses, you know, nothing materially changed in October.
Mike Randall: And then relative to our advisory business, you know, we gave some guidance about, you know, assuming we can get the big, the planes landed on some of the larger fees, we see, you know, good sequential uptick in Q4, you know, we had some of those deals in October and more in November, December. You know, so that, I guess that's what I'd say about October. Got it. Hey, thanks a lot. Thanks. Thank you. And at this time, we have no further questions.
Chad Abraham: 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. Thank you.