Q1 2024 Piper Sandler Co Earnings Call
Operator: Good morning, and welcome to the Piper Sandler Companies conference call to discuss the financial results for the first quarter of 2020. During the question and answer session, securities industry professionals may ask questions of managers.
Good morning, and welcome to the Piper Sandler companies conference call to discuss the financial results for the first quarter of 'twenty 'twenty four.
A question and answer session Securities industry professionals may ask questions of management.
Unknown Executive: 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 uncertainty. 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.pipersandler.com and on the SEC website at www.sec.gov. This call will also include statements regarding certain non-GAAP financial measures.
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 S. E C, which are available on the company's website at Www Dot Piper Sandler Dotcom and on the S. E C website at.
W. Dot S E C dot Gov.
This call will also include statements regarding certain non-GAAP financial measures.
Unknown Executive: The non-GAAP measures should be considered in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP; refer to the company's earnings release issued today for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. The earnings release is available on the Investor Relations page of the company's website and on the SEC website. As a reminder, this call is being recorded. Now, I'd like to turn the call over to Mr. Chad.
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 there.
The earnings release is available on the Investor Relations page of the company's website and at the S. E C website.
As a reminder, this call is being recorded.
And now I'd like to turn the call over to Mr. Chad Abraham.
Chad R. Abraham: Good morning, everyone. Thanks for joining us. It's great to be with you to talk about our first quarter 2024 results. I am here with Deb Schoneman, our president, and Kate Clune, our CFO. During the first quarter, we generated adjusted net revenues of $334 million, 16.8% operating margin, and adjusted EPS of $2.79. Will market headwinds persist, we're encouraged by the improvement in certain businesses, notably equity capital markets. Our diversified platform continues to perform well through varied cycles. Corporate Investment Banking generated revenues of $210 million during the first quarter.
Mr. Abraham good morning, everyone. Thanks for joining us it's great to be with you to talk about our first quarter 2024 results.
Chad R. Abraham: I am here with Deb, Schoneman, our president and Craig <unk> our CFO.
Chad R. Abraham: During the first quarter, we generated adjusted net revenues of $334 million or.
Chad R. Abraham: 16, 8% operating margin and adjusted EPS of $2 79.
Chad R. Abraham: Well market headwinds persist we are encouraged by the improvement in certain businesses.
Chad R. Abraham: Most notably equity capital markets.
Our diversified platform continues to perform well through various cycles.
Chad R. Abraham: Corporate investment banking generated revenues of $210 million during the first quarter.
Chad R. Abraham: A 25% increase over the same period last year, driven by higher revenues from both advisory and corporate finance. We benefited from the sector and product diversification of our business, along with increased revenues from private equity clients. Advisory Services revenues were $157 million during the quarter and increased year-over-year driven by higher average fees. The trend of advising on larger transactions and generating larger fees continues to be a key driver of our results. We completed 57 advisory transactions during the first quarter.
Chad R. Abraham: 25% increase over the same period last year, driven by higher revenues from both advisory and corporate financing.
Chad R. Abraham: We benefited from the sector and product diversification of our business along with increased revenues from private equity clients.
Chad R. Abraham: Advisory services revenues were $157 million during the quarter and increased year over year, driven by higher average fees.
Chad R. Abraham: The trend of advising on larger transactions and generating larger fees continues to be a key driver of our results.
Chad R. Abraham: We completed 57 advisory transactions during the first quarter.
Chad R. Abraham: The performance was led by the best quarter on record from our energy and power team, with solid contributions from our financial services, consumer, and healthcare groups. In addition, following a record 2023, both our restructuring and debt advisory groups started this year with strong results. The outlook for M&A has improved as CEO confidence strengthens. We expect our second quarter advisory revenues to be consistent with the first quarter before improving in the second half of 2024, resulting in revenue seasonality similar to last year.
Chad R. Abraham: Performance was led by the best quarter on record from our energy and power team.
Chad R. Abraham: With solid contributions from our financial services consumer and health care groups.
In addition, following a record 2023, both our restructuring and debt advisory groups started this year with strong results.
Chad R. Abraham: The outlook for M&A has improved as CEO confidence strengthened.
Chad R. Abraham: We expect our second quarter advisory revenues to be consistent with the first quarter before improving in the second half of 2024, resulting in revenue seasonality similar to last year.
Chad R. Abraham: Turning to Corporate Finance, the market for equity underwriting improved considerably during the quarter, driven by a more accommodative backdrop and increased demand from companies looking to raise capital. For context, the economic fee pool was approximately $2 billion during the quarter, almost double the average of the last eight quarters and more in line with normalized levels. The sub-five billion market cap fee pool also increased meaningfully and included an outsized contribution from health care.
Chad R. Abraham: Turning to corporate financing the market for equity underwriting improved considerably during the quarter driven by a more accommodative backdrop and increased demand from companies looking to raise capital.
Chad R. Abraham: For context, the economic people was approximately 2 billion during the quarter.
Chad R. Abraham: Almost double the average of the last eight quarters and more in line with normalized levels.
Chad R. Abraham: The sub 5 billion market cap Vipul also increased meaningfully and included an outsized contribution from health care.
Chad R. Abraham: Corporate financing revenues were $53 million during the first quarter, nearly double the prior year quarter driven by higher average fees and more completed transactions. We completed 35 equity, debt, and preferred financings, raising over $10 billion for corporate clients. Performance was led by our market-leading healthcare franchise, which served as bookrunner on 19 of the 20 equity deals priced during the quarter.
Chad R. Abraham: Corporate financing revenues were $53 million during the first quarter nearly double the prior year quarter, driven by higher average fees and more completed transactions.
Chad R. Abraham: We completed 35 equity debt and preferred financings raising over $10 billion for corporate clients.
Chad R. Abraham: Performance was led by our market, leading health care franchise, which served as book runner on 19 of the 20 equity deals price during the quarter.
Chad R. Abraham: Looking ahead, if this level of market activity is sustained, we expect participation will broaden across sectors. Turning to Investment Banking Managing Director Headcount, our approach has not changed, and we continue to target the addition of 5 to 7 MDs annually. We added a net two managing directors during the quarter, finishing with 171 MDs.
Chad R. Abraham: Looking ahead, if this level of market activity is sustained we expect participation will broaden across sectors.
Chad R. Abraham: Turning to investment banking managing director head count.
Chad R. Abraham: Our approach has not changed and we continue to target. The addition of five to seven <unk> annually.
Chad R. Abraham: We added a net two managing directors during the quarter, finishing with 171 mbps.
Chad R. Abraham: We remain focused on strengthening sector coverage and expanding our product offering, and we are well positioned to drive revenue growth as markets continue to normalize. During the last several years, we have grown our market leadership meaningfully, and Piper Sandler is increasingly seen as a destination of choice for talented professionals and teams looking to leverage our full suite of products to better serve their clients and grow their books of business. Our recruiting pipeline is robust, with a number of investment banking managing directors slated to start during the second and third quarters of this year.
Chad R. Abraham: We remain focused on strengthening sector coverage and expanding our product offerings.
Chad R. Abraham: And we are well positioned to drive revenue growth as markets continue to normalize.
Chad R. Abraham: During the last several years, we have grown our market leadership meaningfully and Piper Sandler is increasingly seen as a destination of choice for talented professionals and teams looking to leverage our full suite of products to better serve their clients and grow their book of business.
Chad R. Abraham: Our recruiting pipeline is robust with a number of investment banking managing directors slated to start during the second and third quarters of this year.
Chad R. Abraham: Over the long term, we remain focused on growing our corporate investment banking revenues by continuing to advance corporate development, scaling industry teams, gaining market share with a focus on technology, increasing our product delivery to private equity clients, and continuing to build out our equity capital markets business with a disciplined focus in each of our industry sectors. With that, I will turn the call over to Deb to discuss our public finance and brokerage.
Chad R. Abraham: Over the long term, we remain focused on growing our corporate investment banking revenues by continuing doing advanced corporate development scaling industry teams.
Chad R. Abraham: Gaining market share with a focus in technology, increasing our product delivery to private equity clients and continuing to build out our equity capital markets business with a disciplined focus in each of our industry sectors.
With that I will turn the call over to Deb to discuss our public finance and brokerage businesses.
Debbra Lynn Schoneman: I'll begin with an update on our public finance business. While interest rates trended higher during the quarter, the market for higher-yielding municipal debt offerings has thawed. Credit spreads have tightened due to increased investor demand, allowing us to execute on a number of specialty transactions. We generated $21 million in municipal financing revenues during the first quarter of 2024, up 23% year over year driven by our specialty sector business. We underwrote 86 municipal negotiated transactions, raising $4 billion in par value for our clients.
Debbra Lynn Schoneman: Thanks, Chad.
Debbra Lynn Schoneman: I'll begin with an update on our public finance business.
Debbra Lynn Schoneman: Interest rates trended higher during the quarter the market for higher yielding municipal debt offerings has Scott.
Debbra Lynn Schoneman: <unk> spreads have tightened due to increased investor demand, allowing us to execute on a number of specialty transactions.
Debbra Lynn Schoneman: We generated $21 million of municipal financing revenues during the first quarter of 2024 up 23% year over year, driven by our specialty sector business.
We underwrote 86 municipal negotiated transactions, raising 4 billion of par value for our clients.
Debbra Lynn Schoneman: Performance during the quarter was driven by our real estate, health care, and affordable housing sectors, as well as our state and local government practice in Texas and Washington. As we look ahead, we believe a period of sustained municipal fund inflows and lower nominal interest rates are needed for middle market issuance to increase. Turning to our equity brokerage business, equity markets saw muted volatility during the first quarter as markets ground higher, with indices hitting new highs.
Debbra Lynn Schoneman: Performance during the quarter was driven by our real estate healthcare and affordable housing sectors as well as our state and local government practice in Texas and Washington.
Debbra Lynn Schoneman: As we look ahead, we believe a period of sustained municipal fund inflows and lower nominal interest rates are needed for middle market issuance to increase.
Debbra Lynn Schoneman: Turning to our equity brokerage business equity markets are muted volatility during the first quarter as markets Grand higher with indices hitting new highs.
Debbra Lynn Schoneman: We generated revenues of $49 million for the first quarter of 2024, down 8% from the first quarter of last year, which benefited from increased volatility. We traded 2.6 billion shares during the quarter on behalf of over 1,200 unique clients as they sought our market-leading research, corporate access, and trading capabilities. We continue to see client research votes increase as we demonstrate the value of our capabilities and ability to assist clients generate alpha.
Debbra Lynn Schoneman: We generated revenues of 49 million for the first quarter of 2024 down 8% from the first quarter of last year, which benefited from increased volatility.
Debbra Lynn Schoneman: We traded $2 6 billion shares during the quarter on behalf of over 1200 unique clients as they sat our market, leading research corporate access and trading capabilities.
We continue to see client research votes, increasing as we demonstrate the value of our capabilities and ability to assist clients generate alpha.
Debbra Lynn Schoneman: During the quarter, we hired a senior research analyst in healthcare with coverage focused on biotech companies, a key addition in the build-out of our biotech franchise. With muted volatility, we see near-term results to be relatively consistent with the first quarter, while expecting increased volumes and activity in the second half of the year. Lastly, turning to fixed income, we generated revenues of 42 million for the first quarter of 2024, consistent with the year-ago quarter.
Debbra Lynn Schoneman: During the quarter, we hired a senior research analyst in health care with coverage focused on biotech companies. A key addition in the Buildout of our biotech franchise.
Debbra Lynn Schoneman: With muted volatility, we see near term results to be relatively consistent with the first quarter, while expecting increased volumes and activity in the second half of the year.
Debbra Lynn Schoneman: Lastly, turning to fixed income, we generated revenues of $42 million for the first quarter of 2024, consistent with the year ago quarter.
Debbra Lynn Schoneman: Client activity is slowly improving, but remains fairly muted as market participants wait for more certainty on interest rates. The breadth of our client relationships and product capabilities continues to provide a level of resilience to our results. Public entity clients were active as they found relative value in the short end of the yield curve, while insurance companies were active due to the higher rate environment. Now, I will turn the call over to Kate to review our financial results and provide an update on capital use.
Debbra Lynn Schoneman: Activity is slowly improving but remains fairly muted as market participants wait for more certainty on interest rates.
Debbra Lynn Schoneman: The breadth of our client relationships and product capabilities continues to provide a level of resiliency to our results.
Debbra Lynn Schoneman: Public entity clients were active as they found relative value in the short end of the yield curve, while insurance companies were active due to the higher rate environment.
Debbra Lynn Schoneman: Now I will turn the call over to Keith to review, our financial results and provide an update on capital use.
Kate Clune: Thanks, Deb. As a reminder, my comments will address our adjusted non-GAAP financial results, which should be considered in addition to and not as a substitute for the corresponding GAAP financial measures. Net revenues of $334 million for the first quarter of 2024 increased 15% compared to the year-ago quarter, driven by higher corporate investment banking revenues, primarily equity capital markets. Turning to Operating Expenses and Margin. Our compensation ratio was 63.1% for the first quarter of 2024, lower compared to the prior year quarter driven by increased net revenues. However, our compensation philosophy remains unchanged.
Keith: Thanks, Scott as a reminder, my comments will address our adjusted non-GAAP financial results, which should be considered in addition to and not a substitute for the corresponding GAAP financial measures.
Keith: Net revenues of $334 million for the first quarter of 2024 increased 15% compared to the year ago quarter, driven by higher corporate investment banking revenues, primarily equity capital market.
Keith: Turning to operating expenses and margin.
Keith: Our compensation ratio was 63, 1% for the first quarter of 2024.
Keith: Lower compared to the prior year quarter, driven by increased net revenues.
Keith: Our compensation philosophy remains unchanged.
Kate Clune: We will continue to exercise solid operating discipline, balancing employee retention, investment opportunities, and near-term margin. Based on our current outlook of improving conditions and recruiting opportunities, we continue to expect our compensation ratio for the full year of 2024 to be near this level. Non-compensation expenses for the first quarter of 2024, excluding reimbursed deal expenses, were $61 million. We continue to focus on managing actionable non-compensation expenses as they are a key driver of operating leverage.
Keith: We'll continue to exercise solid operating discipline balancing employee retention investment opportunities and near term margin.
Keith: Based on our current outlook is improving condition and recruiting opportunities. We continue to expect our compensation ratio for the full year of 2020 for it to be near this level.
Keith: Non compensation expenses for the first quarter of 2024, excluding reimbursed fuel expenses were $61 million, we continue to focus on managing the actionable non compensation expenses as they are a key driver of operating leverage.
Kate Clune: During the first quarter of 2024, we generated operating income of $56 million and an operating margin of 16.8%, highlighting the earnings capacity of our platform. Our income tax rate was 10.7% for the first quarter of 2024. However, income tax expense for the first quarter was reduced by $11 million of tax benefits related to restricted stock award vestings. Excluding these benefits, our first quarter tax rate was 29.6%.
Keith: During the first quarter of 2024, we generated operating income of $56 million and an operating margin of 16, 8% highlighting the earnings capacity of our platform.
Keith: Our income tax rate was 10, 7% for the first quarter of 2024.
Income tax expense for the first quarter was reduced by $11 million tax benefit related to restricted stock Award vesting.
Keith: Excluding these benefits our first quarter tax rate was 29, 6%.
Kate Clune: We continue to expect our full-year tax rate to be within a range of 27% to 29%, excluding the impact of stock vestings. During the first quarter of 2024, we generated net income of $50 million and a diluted EPS of $2.79. Let me finish with an update on capital allocation. Our earnings resilience and capacity, combined with our capital-wide approach, enable us to generate meaningful amounts of excess cash to deploy through share repurchases, dividends, and corporate development.
Keith: We continue to expect our full year tax rate to be within a range of 27% to 29% excluding the impact from stock vesting.
Keith: During the first quarter of 2024, we generated net income of $50 million and the diluted EPS of $2 79.
Keith: Let me finish with an update on capital allocation.
Keith: Our earnings resilience and capacity combined with our capital light approach enables us to generate meaningful amounts of excess cash to deploy through share repurchases dividends and corporate development.
Kate Clune: We remain committed to returning capital to shareholders through market cycles. During the first quarter of 2024, we returned an aggregate of $88 million to shareholders through buybacks and dividends paid. We repurchased approximately 289,000 shares of our common stock, or $52 million, related to employee tax withholding on the vesting of restricted stock awards. These repurchases more than offset the share count dilution from this year's annual stock grant. We also paid an aggregate of $36 million, or $1.60 per share, to our shareholders through our quarterly and special cash dividends.
Keith: We remain committed to returning capital to shareholders through market cycles.
Keith: During the first quarter of 2024, we returned an aggregate of $88 million to shareholders through buybacks and dividends paid.
Keith: We repurchased approximately 289000 shares of our common stock were $52 million.
Keith: Related to employee tax withholding on the vesting of restricted stock awards.
Keith: These repurchases more than offset the share count dilution from this year's annual stock grants.
Keith: We also paid an aggregate of $36 million or $1 60 per share to our shareholders through our quarterly and special cash dividends.
Kate Clune: In addition, the board approved a quarterly cash dividend of $0.60 per share to be paid on June 7th to shareholders of record as of the close of business on May 24th. Our first quarter results demonstrate the firm's resiliency during mixed market conditions, and our profitability metrics reflect strong performance relative to our peer set. We remain focused on providing near-term value to our shareholders while continuing to grow our platform, and we're strongly positioned to accelerate earnings growth as markets continue to normalize. With that, we can open up the call to questions.
Keith: In addition, the board approved a quarterly cash dividend of <unk> 60 per share to be paid on June seven to shareholders of record as of the close of business on may 24th.
Keith: Our first quarter results demonstrate the firm's resiliency during the mixed market conditions and.
Keith: In our profitability metrics reflect strong performance relative to our peer set.
Keith: We remain focused on providing near term value to our shareholders, while continuing to grow our platform and we are strongly positioned to accelerate earnings growth as markets continue to normalize with that we can open up the call for questions.
Operator: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. And we'll take our first question from Devin Ryan with Citizens JMP. Please go ahead.
Speaker Change: Thank you.
Speaker Change: I'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker Change: If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: Press Star one to ask a question.
Speaker Change: For just a moment to allow everyone an opportunity to signal for questions.
Speaker Change: And we will take our first question from Devin Ryan with citizens JMP. Please go ahead.
Chad R. Abraham: Great Good morning, everyone. How are you? Good Hey Devin, First question, just want to hit on kind of the advisory outlook and Chad, I heard you comment that private equity clients were more active or drove a bigger contribution in the quarter, and I would love to get a little more color around that client base. And Also, You know, how recent moves in interest rates are affecting kind of the recovery you're seeing there and whether, you know, the recovery is coming back at a fast pace or if you think this is going to play out over, you know, a couple years. Just trying to think about what the current conditions look like, and then how you think about kind of a normalization for sponsors, who have really been out of the market for the past couple of years.
Devin Patrick Ryan: Great. Good morning, everyone. How are you.
Devin Patrick Ryan: Hey, David.
Devin Patrick Ryan: Okay.
Devin Patrick Ryan: First question I, just wanted to hit on.
Devin Patrick Ryan: The advisory outlook and Chad I heard you comment that your private equity clients were.
Devin Patrick Ryan: October drove a bigger contribution in the quarter and.
Devin Patrick Ryan: I wanted to give a little more color around that client base and.
Devin Patrick Ryan: How I guess recent moves in interest rates are affecting kind of the recovery youre seeing there and whether.
Devin Patrick Ryan: Hi.
Devin Patrick Ryan: The recovery is coming back.
Devin Patrick Ryan: At a fast pace or if you think this is going to play out over a couple of years just trying to think about what the current conditions look like and then how you think about kind of a normalization for sponsors which have really been out of the market for the past couple of years.
Chad R. Abraham: Yeah, I think Devin, we all got to keep in mind that compared to the first couple quarters of 2023, that that was sort of a trough level. And so you know, our PE, you know, contribution to M&A was definitely better than the first quarter of last year, but it, but again, off of a pretty low comp. So we've definitely seen an improvement, you know, for the most part, at least on the middle market deals. If a sponsor wants to do the deal, they can, they can get financing, but it's still not, by any means, a great environment.
Speaker Change: Yes, I think I think Devin we all got to keep in mind that.
Speaker Change: Compared to the first couple of quarters of 2023 that was sort of a trough level.
Speaker Change: So our pea.
Speaker Change: Contribution to M&A.
Speaker Change: It was definitely better than first quarter of last year, but but again off of a pretty.
Speaker Change: Pretty low comp so we've definitely.
Speaker Change: <unk> seen an improvement for the most part at least on the middle market deals.
Speaker Change: If the sponsor wants to do the deal they can they.
They can get.
Speaker Change: Financing, but it's still not by any means a great environment. So I think this build is just.
Chad R. Abraham: So I think this build is just, you know, it's just a pretty slow build. And then, you know, as we've talked about many times, if we look back many years, our sponsor business just tends to be a little more seasonal in the back half versus the front half. And a lot of that just has to do with a lot of processes, kind of starting in the spring, you know, hoping to close in the fall, trying to get, you know, full credit for that year's finances.
Speaker Change: It's just a pretty slow build and then as we've talked about many times.
Speaker Change: If we look back many years, our sponsor business just tends to be a little more seasonal in the back half versus the front half and a lot of that just has to do with a lot of processes.
Speaker Change: Starting in the spring.
Hoping to close in the fall trying to get.
Speaker Change: Full credit for that year's financials.
Chad R. Abraham: Okay, I got it. Really helpful. Thanks, Chad.
Speaker Change: Okay got it really helpful. Thanks, Chad and then.
Follow up here just on the recruiting landscape.
Chad R. Abraham: And then follow up here just on the recruiting landscape. You mentioned that a couple times on the call and 2023 was a little bit of a slower year of recruiting, but you had very active years, maybe more so than some of your peers in the couple years leading into 2023. So is there any way to kind of frame out what you're hoping to accomplish in recruiting in 2024? And then, beyond recruiting, how you're thinking about maybe inorganic lift-out or opportunities to do small M&A? Thanks.
Speaker Change: You mentioned that a couple of times on the call and 2023 was a little bit of a slower year recruiting but you had very active years, maybe more so than some of the peers in a couple of years leading into 2023. So is there any way to kind of frame out what you are hoping to accomplish on recruiting.
Speaker Change: 2024, and then.
Beyond recruiting how youre thinking about maybe inorganic.
Speaker Change: Lift outs or opportunities to do small M&A. Thanks.
Chad R. Abraham: Yeah, I would say on the investment banking side of recruiting, you know. We actually did about the same amount of hiring in 23. I would say when you hit these, you know, tough periods like 22 and 23.
Speaker Change: Yes, I would say on that.
Speaker Change: On the investment banking side of recruiting.
Speaker Change: No.
Speaker Change: We actually did about the same amount of hiring in 'twenty three I would say when you hit these.
Speaker Change: Tough periods like 22 and 20.
Speaker Change: 'twenty three.
Chad R. Abraham: You know, we're a little more careful, you know, there's some MDs that you know, if they're not productive, uh... work off the platform, so you know there's a little bit of a netting going on there, for us, probably in twenty-three more than other years just given the environment, but we do feel pretty good about the recruiting pipeline. You know, we called out that, you know, both in q2 and q3, we should have some good announcements; we have a, you know, a good slate of five to seven kind of MDs that we usually talk about adding. We have that number sort of lined up, ready to go.
Speaker Change: We're a little more careful.
Speaker Change: There is some mds that if they're not productive.
Speaker Change: Work off the platform. So there's a little bit of a netting going on there for us probably in 'twenty three more than other years just.
Speaker Change: Given the environment, but we.
Speaker Change: We do feel pretty good about the recruiting pipeline, we called out that.
Both in Q2 and Q3, we should have some good announcements we have a good a good slate of.
Five to seven kind of Mds that.
We usually talk about adding we have that number sort of lined up ready.
Speaker Change: We're ready to go.
Chad R. Abraham: And then, you know, I would say our outlook. Yeah, I think if you look back, you know, 10 years, we've, you know, unless we do a big M&A deal, we've just kind of been averaging that number. And I think, you know, we'll just keep that steady pace. I would say we're, you know, given relative performance, probably seeing more opportunities than we usually do. But we're also being, you know, very careful with the environment to kind of add the right people and really try to add MDs that, you know, boost productivity and boost the average and boost the franchise and quality.
Speaker Change: And then.
Speaker Change: I would say our outlook, yes, I think if you look back 10 years, we've unless we do a big M&A deal, we've just kind of been averaging that number.
Speaker Change: And I think we'll just keep that.
Speaker Change: Steady pace I would say, we're given relative performance, we're probably seeing more opportunities than we usually do but we're also being.
Speaker Change: Very careful with the environment to kind of add the right people and really try to add mds that boost productivity and boost the average and boost the franchise and.
Speaker Change: Quality.
Chad R. Abraham: Okay, terrific. Maybe squeeze one more in on just kind of the comp ratio interplay. So you heard the commentary from Kate around kind of around the 63% level. You know, as we think about a recovery scenario for capital markets, like, how can we think about? I know you guys have given ranges before, but just think about kind of the comp leverage that will be inherent in the model. And you may be wondering what a more normalized compensation ratio for you guys looks like now as the firm evolves.
Speaker Change: Okay terrific, maybe squeeze one more in just on kind of the comp ratio interplay. So.
Speaker Change: You heard the commentary from Kate around kind of around the 63% level.
Speaker Change: As we think about a recovery scenario for capital markets.
Speaker Change: How should we think about I know you guys are good ranges before but just think about kind of the comp leverage that will be inherent in the model and maybe what a more normalized compensation ratio for you guys. It looks like now is the firm evolves.
Chad R. Abraham: Yeah, I mean, I've sort of given this answer before. I mean, obviously, we've had, you know, not a lot, but years where we've gotten it closer to 60 or 61. We always think about 61 and a half or 62 probably is, closer to, you know, in a good environment, normalized. I do think, you know, we're being careful this year, given some of the hiring opportunities. And, you know, even though, you know, Q124 was up over Q123, I mean, it was all marginal.
Speaker Change: Yes.
Speaker Change: I've sort of given this answer before I mean, obviously.
We've had.
Speaker Change: Not a lot, but years, where we've gotten closer to $60 or 61, we always think about 61, five or <unk> 62, probably is.
Speaker Change: Closer to.
Speaker Change: In a good environment normalized I.
Speaker Change: I do think we're being careful this year given.
Speaker Change: Some of the hiring opportunities and even though.
Speaker Change: Q1, 24 was up over Q1, 'twenty three I mean.
Speaker Change: It was all margin. So I think we're still being careful about that cap ratio, which is why we made the comment that.
Chad R. Abraham: So I think, you know, we're still being careful about that comp ratio, which is why we made the comment that, you know, we expect it for this year to stay in and around that level. You know, obviously, if we get some revenue upside, we'll do better than that.
Speaker Change: We expect that for this year to stay in and around that level. Obviously, if we get some revenue upside we will do better than that.
Chad R. Abraham: Yep. Okay, terrific. I'll get back in the queue. Thanks, guys.
Speaker Change: Yeah, Okay terrific I'll get back in the queue. Thanks, guys.
Speaker Change: Thanks.
Operator: And we'll take our next question from Steven Jubach with Wolf Research. Please go ahead.
Speaker Change: And we'll take our next question from Steven <unk> with Wolfe Research. Please go ahead.
Chad R. Abraham: Good morning, this is Brendan O'Brien filling in for Stephen. To start, I just want to get an update on the opportunity with your bank clients given it's now been a little over a year since the SVB and SBNY collapses. I just want to get a sense as to what you're hearing from your bank clients across your different business lines and how the potential rollback of Basel III's endgame impacted your expectations for the sizing or timing of this opportunity.
Speaker Change: Good morning, This is Brendan O'brien filling in for Steven.
Brendan O'brien: To start I, just wanted to get an update on the opportunity with your bank clients given it's now been a little over a year since the SBB in SPN why collapses I just wanted to get a sense as to what Youre hearing from your bank clients across your different business lines and how has the potential rollback of Basel III and game.
Brendan O'brien: Did your expectation for the sizing or timing of this opportunity.
Chad R. Abraham: Yeah, what I would say about our depository business, you know, obviously, obviously, we got pretty diversified across sectors, you know, honestly, Q1 was probably on the lower side for our financial services group and our depository group. And, you know, I would actually argue the last couple quarters, you know, the environment for M&A and depositories, it may have even gotten tougher, you know, just with the different regulatory agencies looking at things and just looking at, you know, the financial results, you know, how the stocks are performing, depository environment to stay difficult, you know, there's still opportunities within that, you know, you know, when there's some capital raising, you know, some ability to do some, you know, recapitalization on the equity side, you know, some debt financing, and we're still have, you know, a steady stream of smaller deals, but, you know, anything of size, you know, continues to be very difficult.
Speaker Change: Yeah, what I would say about our depository business.
Speaker Change: Obviously, we got pretty diversified across sectors honestly.
Speaker Change: Q1 was probably on the lower side for our financial services group and our Depository group and.
Speaker Change: I'd actually argue the last couple of quarters.
Speaker Change: The environment for M&A and depositary as it may have even gotten tougher.
Speaker Change: Just with the different regulatory.
Speaker Change: Agencies looking at things and just looking at the financial results.
How the stocks are performing.
Speaker Change: So we.
Speaker Change: I think like we've been saying for the last couple of quarters, we expect.
Speaker Change: Depository environment to stay difficult theres still opportunities within that.
Speaker Change: There is some capital raising some ability to do some.
Speaker Change: Recapitalization on the equity side some.
Speaker Change: Debt financing and we're still have a steady stream of smaller deals but.
Speaker Change: Anything of size continues to be very difficult.
Chad R. Abraham: Got it. And I guess for my follow-up, I want to move over to, you know, ECM and underwriting. You know, while the biotech ECM market has been dormant for much of the past two years, as you know, in your prepared remarks, there's been a notable pickup in activity year to date. However, I just want to get a sense as to whether this result is sustainable in your view, or did 1Q benefit from what is likely significant pent-up demand for capital in this space?
Speaker Change: Got it and I guess for my follow up.
Speaker Change: Want to move over to ECM and underwriting while the biotech ECM market has been dormant for much of the past two years as you know in your prepared remarks, there's been a notable pick up in activity year to date. However, I just want to get a sense as to whether this result is sustainable in your view or <unk> benefit from what is likely.
Speaker Change: Significant pent up demand for capital in this space.
Chad R. Abraham: Yeah, I would honestly say it's probably somewhere in between there. You know, we made some comments just about the total overall fee pool, you know, across the street. It was a good quarter for ECM. We definitely had a good quarter. You know, we had some outsized biotech. Performance, I would say, you know, we have a really good backlog there. You know, as I think, you know, obviously, people can see our geologic numbers. If I think about April, you know, we're probably still on that same kind of run rate for ECM.
Speaker Change: Yes.
Speaker Change: I would actually say its probably somewhere in between there.
Speaker Change: Yes.
Speaker Change: We made some I made some comments just about.
Speaker Change: The total overall fee pool across the street. It was a good quarter for ECM, we definitely had a good quarter.
Speaker Change: We had some.
Speaker Change: Outsized biotech.
Speaker Change: Our performance I would say, we have a really good backlog there.
Speaker Change: I think obviously people can see our dealogic numbers, if I think about April we're probably still on that same kind of run rate for ECM, but this isn't a business, where we have visibility six months out.
Chad R. Abraham: But you know, this isn't a business where we have visibility six months out, you know; it depends on what happens with the equity markets and the mood of investors that you know that particular week, but you know, I think based on what we're seeing now in the deals we're doing, we feel pretty good. You know, we feel pretty good about that environment.
Speaker Change: Hands on.
Speaker Change: What happens with the equity markets and the mood of investors.
Speaker Change: That particular week, but I think based on what we're seeing now and the deals were.
Speaker Change: Duane we feel pretty good.
Speaker Change: Feel pretty good about that environment and I would say, we've we've just started.
Chad R. Abraham: And I would say we've just started to see, you know, across some of the other industry teams. You know, a little more activity in IPOs, a little more activity in energy. We were on an IPO in financials. So there was a little bit of discussion around broadening to some of the other industries, but that's going to be very tied to the overall markets. I mean, if we get some big... You know, negative correction, you know, that's never good for the mood of new issues. That's great.
Speaker Change: To see across some of the other industry teams.
Speaker Change: A little more activity in IPO is a little more activity in energy.
Speaker Change: We were on an IPO in financials, so a little bit of <unk>.
Speaker Change: Discussion around some broadening to some of the industries, but that's going to be very tied to the overall market. So I mean, if we get some big.
Speaker Change: Negative correction that's never good for.
Speaker Change: The mood of new issues.
Operator: Great color. Thank you for taking my question.
Speaker Change: That's great color. Thank you for taking my questions.
James Edwin Yaro: And we'll take the next question from James Yaro of Goldman Sachs. Please go ahead.
Speaker Change: And we will take the next question from James <unk> with Goldman Sachs. Please go ahead.
Chad R. Abraham: Hey, good morning, and thanks for taking my questions. Chad, these were excellent advisory results and, I think, especially strong versus the publicly available data.
James: Hey, good morning, and thanks for taking my questions. Chad. These were excellent advisory results and I think especially strong versus the publicly available data maybe you could just help us understand some of the moving parts here I know you talked about higher fees, but maybe just on the other businesses within advisory aside from M&A, such as restructuring and then I guess.
Chad R. Abraham: Maybe you could just help us understand some of the moving parts here. I know you talked about higher fees, but maybe just on the other businesses within advisory, aside from M&A, such as restructuring and then, I guess, other advisory services, and perhaps the outlook for these. And then, secondly, do you feel more or less comfortable about the cadence of the advisory bill versus the beginning of the year, when we had five or six rate cuts in expectation?
Chad R. Abraham: Advisory and perhaps the outlook for these and then secondly, do you feel more or less comfortable about the cadence of the advisory build versus the beginning of the year, when we had five or six rate cuts and expectation.
Speaker Change: Yes, so may.
Chad R. Abraham: Maybe just a few comments on, you know, Q1 advisory. We had a, you know, one business we're incredibly proud of right now is our energy business. You know, obviously, we did the Simmons deal in 2015. And we've had various cycles, but I would say relative to peers, you know, some people that really cut back on energy, you know, we stayed pretty committed. And, you know, we've really broadened that out.
Speaker Change: Just a few comments on.
Speaker Change: Q1 advisory.
Speaker Change: We had a.
Speaker Change: One business, we're incredibly proud of right now is our energy business.
Speaker Change: Obviously, we did the <unk> deal in 2015, and we've had a very.
Speaker Change: <unk> cycles, but I would say relative to peers. Some people that really cut back in energy, we stayed pretty committed and.
Speaker Change: We've really broadened that out obviously, we got a lot of history in oilfield services, but.
Chad R. Abraham: You know, obviously, we have a lot of history in oil field services. But, you know, we're doing a lot in E&P and development. We're doing a lot in the midstream and that business, and frankly, now in the energy transition. So we got a great, great pipeline and energy, but, you know, also, had a pretty balanced, I think, healthcare and financials and industrials, you know; they were all about the same size.
Speaker Change: We're doing a lot in.
Speaker Change: E&P in development, we're doing a lot in.
Speaker Change: Our midstream and.
Speaker Change: That business and frankly now in energy transition. So we got a great great pipeline in energy, but.
Speaker Change: <unk> also had a pretty balanced I think healthcare and financials and industrials they were all about.
Speaker Change: The same size. So we're just benefiting from that.
Chad R. Abraham: So we're just benefiting, you know, from that, from that diversification. As far as the cadence goes, like I said, you know, that while the results were good on a peer basis and versus last year, you know, still relatively depressed levels. And you know, that's not getting a lot better anytime quick; it's getting better, and it's improving, but it's a pretty slow, slow pace. You know, can I see a noticeable difference in the last few weeks with sort of the different inflection points on rates?
Speaker Change: From that diversification.
Speaker Change: As far as the cadence.
Speaker Change: Like I said.
Speaker Change: While the results were good on a peer basis and versus last year still relatively.
Speaker Change: Depressed levels and that's not that's not getting.
Speaker Change: A lot better anytime quick, it's getting better and it's improving but it's a pretty slow.
Slow pace.
Speaker Change: Can I see a noticeable difference in the last few weeks with sort of the different inflection points on rates.
Chad R. Abraham: You know, probably not, but you know, it obviously can't be great for the business. So I think our conclusion and, based on our pipeline, private equities have definitely picked up. They're definitely, you know, we're definitely seeing more pitches, we're definitely starting more processes, and we'll definitely continue to see an improvement. But I think, like we've been saying, it'll be a slow improvement.
Speaker Change: Probably not but it obviously can't be great.
Speaker Change: For the business. So I think our conclusion and based on our pipeline as private equity is definitely pick their head up there definitely we're definitely seeing more pitches were definitely starting more processes and we will definitely continue to see an improvement, but I think like we've been saying it'll be it'll be a slow improvement.
James Edwin Yaro: Okay, that makes a lot of sense. Maybe just on non-comps. You did demonstrate, you know, strong non-comp discipline again this quarter. Maybe just an update on, you know, the outlook for non-comp costs for the rest of the year.
Okay that makes a lot of sense, maybe just.
Speaker Change: Non comps you did demonstrate strong noncom disciplined again this quarter, maybe just an update on.
Speaker Change: The outlook for non comp costs for the rest of the year.
Kate Clune: Good morning, James. This is Kate.
Speaker Change: Good morning, James This is Kate.
Kate Clune: So for non-coms, we kind of reiterate our guidance of $62 million per quarter, excluding those reimbursed deal expenses. You know, we remain really committed to a lot of discipline in that space and want to ensure we're controlling the expenses that we're able to control. That being said, we've seen a little bit of a pickup in terms of T&E expense, as expected, and there's going to be continued pressure as it pertains to things like data com services and occupancy. So, again, maintaining that discipline around the areas we can control, consistent guidance with that $62 million a quarter, excluding those deal expenses, and really focused on maintaining that level.
Kate: So for non com three kind of reiterate our guidance of that $62 million per quarter. Excluding those reimburse deal expenses, we remain really committed to a lot of discipline in that space.
Kate: And wanted to make sure we're controlling the expenses that we're able to control.
Kate: That being said, we've seen a little bit of a pickup in terms of G&A expense as expected and theres going to be continued pressure as it pertains to things like Datacom services and occupancy.
Kate: So again, maintaining that discipline around the areas we can control.
Kate: Just in guidance with that $62 million a quarter, excluding those deal expenses.
Kate: And really focused on maintaining that level.
Kate: Yeah.
Kate Clune: Okay, I really appreciate it. Thank you.
Speaker Change: Okay really appreciate it thank you.
Operator: And as a reminder, it's star number one to ask a question. We'll take our next question from Michael Grondahl with Northland Securities. Please go ahead. Hey, thank you.
Speaker Change: And as a reminder, its star one to ask a question we will take our next question from Mike Grondahl with Northland Securities. Please go ahead.
Michael John Grondahl: Hey, thank you. Hey, Chad, when you talked about recruiting and kind of having five to seven banking MDs ready to go for 2Q and 3Q, could five to seven end up being low? Um, is that something kind of coming out of your messaging there that this could be sort of a higher level than that by the time we get to 24?
Michael John Grondahl: Hey, Thank you.
Michael John Grondahl: Hey, Chad when you talked about recruiting and kind of having five to seven banking Mds ready to go for <unk> and <unk>.
Michael John Grondahl: Could could five to seven ended up proving low.
Is that something kind of coming out of your messaging there.
Michael John Grondahl: This could be sort of a.
Michael John Grondahl: A higher level than that by the time, we get to 'twenty four.
Chad R. Abraham: Randy, the reason we sort of said the five to seven is, you know, typically, it's sort of 90 to 100 days to onboard, there's garden leave, there's the various sectors, that's sort of the group we have lined up today. Now, you know, we happen to be in sort of the heavy recruiting season. Could it be a couple higher than that?
Michael John Grondahl: Yes.
Michael John Grondahl: The reason, we sort of said the five to seven years.
Michael John Grondahl: <unk>.
Michael John Grondahl: Typically it's sort of 90 to 100 days to onboard Theres garden leave there's the various sectors that sort of.
Michael John Grondahl: The group, we have lined up today now we happen to be in sort of the heavy recruiting season could be it could it be a couple of higher than that maybe but the chances of adding people to later, we get into the year.
Chad R. Abraham: Maybe, but you know, the chances of adding people the later we get into the year are less. But I would say, compared to a normal year, particularly on the banking side, yeah, we've done a little bit more than we normally would by this time in May. So, you know, we feel pretty good about where we're going to be with those ads towards the end of the year.
Michael John Grondahl: Is less but I would say compared to a normal year.
Michael John Grondahl: Particularly on the banking side, yes, we've done a little bit more than we normally would at by this time in may So we feel pretty good about we feel pretty good about where we're going to be with those ads towards the end of the year.
Michael John Grondahl: Got it, got it. And then on the corporate finance comment...
Speaker Change: Got it got it.
Speaker Change: And then on the on the corporate finance comments.
Chad R. Abraham: It sounded like you were saying that, you know, you had a very robust 53 million in one cube and that April was pretty solid or kind of maintained that level. But the outlook, you know, the visibility isn't that far out. But at least into April, it kind of maintained that level. Did I hear that right?
Speaker Change: It sounded like you were saying that.
Speaker Change: You had a very robust $53 million in one Q.
Speaker Change: And that April was pretty solid or kind of maintain that level.
Speaker Change: But the outlook.
Speaker Change: The visibility isn't that far out.
Speaker Change: But at least in the April it kind of maintained that level. It did I hear that right.
Chad R. Abraham: Yeah, I mean, nothing's really changed. We've got a great pace.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Nothing has really changed.
Speaker Change: We've got at Great pace, we've done a bunch of good deals in April that is on the same run rate.
Chad R. Abraham: We've done, you know, a bunch of good deals in April that I, you know, is on the same run rate as March. If things don't change, you would feel great about that for the quarter. But this is also a business that you just don't get five months of visibility. And even if you do, and you have deals lined up, things change quick. So we definitely feel better about the ECM business and, frankly, our debt financing business.
Speaker Change: As March.
Speaker Change: If things don't change, we would feel great about that for the quarter. But this is also a business that you just don't get five months of visibility and even if you do and you have deals lined up.
Speaker Change: Things things change quick so we definitely feel better about the ECM business and frankly our debt.
Speaker Change: Financing business.
Chad R. Abraham: And so, you know. Pending, you know, not a lot of change in the overall market, you know, it'll be a nice up year in ECM. It's just I don't I don't like to make comments on, http://TheBusinessProfessor.com Sure. Okay. Hey, thanks a lot.
Speaker Change: So.
Speaker Change: Pending not a lot of change in the overall market it'll be.
Speaker Change: A nice up year in ECM.
I don't like to make comments on ECM, two or three quarters out because things can change pretty fast.
Speaker Change: Sure, Okay, Hey, Thanks, a lot.
Operator: It appears there are no further questions at this time. I will now turn the conference back to Mr. Chad Abraham for any additional or closing remarks.
Speaker Change: And it appears there are no further questions at this time.
Speaker Change: I will now turn the conference back to Mr. Chad Abraham for any additional or closing remarks.
Chad R. Abraham: All right. Thank you, operator, and everyone that joined us. We look forward to updating you on our second quarter results.
Chad R. Abraham: Alright, Thank you operator, and everyone that joined we look forward to updating you on our second quarter results.
Operator: Have a great day and a good weekend. And this concludes today's call. Thank you for your participation. You may now disconnect. Thanks for watching!
Have a great day and a good weekend.
Speaker Change: This concludes today's call. Thank you for your participation you may now disconnect.
Operator: And this concludes today's call. Thank you for your participation. You may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.