PIPER SANDLER COMPANIES Q3 FY2026 earnings call

• Corporate Investment Banking: Achieved record Q3 advisory revenues of $307 million. The financial services group advised on six of the ten largest bank M&A deals announced. The energy team set a quarterly revenue record due to AI data center demand, completing 19 transactions. Private capital advisory exceeded full-year 2025 revenue targets early.
• Public Finance: Municipal financing revenues declined 50% sequentially due to rising interest rates delaying or downsizing deals. Underwrote 104 negotiated transactions raising $3.6 billion in par value.
• Brokerage & Trading: Equity brokerage revenues were $54 million, down 13% sequentially but up slightly year-over-year, reflecting lower market volumes. Fixed income trading rose 23% sequentially to $60 million as higher yields drove hedging and tax-loss selling activity. Launched equities trading in Europe via Piper Sandler Europe.
• Operational Discipline: Compensation ratio remained stable at 61.5%. Non-compensation expenses increased to 18.7% of net revenues primarily due to NYC office move costs and legal fees. Added key Managing Directors in London (infrastructure) and New York (private capital secondary advisory).

The firm reported third quarter adjusted net revenues of $456 million. Corporate investment banking was the primary driver, generating $307 million in advisory revenues (67% of total adjusted net revenues), marking the strongest third quarter on record. Within this segment, depository M&A and energy/power/infrastructure teams led performance. Corporate financing contributed $57 million (12.5% of total). Public finance generated $25 million (5.5%), while equity brokerage brought in $54 million (11.8%) and fixed income trading added $60 million (13.2%). Advisory revenue grew 18% year-over-year, driven by strong deal counts and average fees.

• Fourth Quarter Advisory Pipeline: Management expects Q4 to be the strongest quarter of the year, though likely below last year's record Q4.
• Corporate Financing: Activity is expected to slow in Q4 as investors become more selective; results are anticipated to be weaker year-over-year compared to the strong Q3 2025.
• Public Finance: Revenues expected to improve modestly from Q3 as issuers adjust to higher rates.
• Equity Brokerage: Revenues expected to improve in Q4 compared to Q3.
• Fixed Income: Revenues expected to remain consistent with Q3 levels.
• Full Year Expenses: Full-year non-compensation expense ratio is expected to be higher than last year due to ongoing litigation costs and occupancy expenses.

• Market Volatility and Interest Rates: High and volatile interest rates are creating uncertainty around deal timing, particularly in municipal financing where refundings are unviable and new money projects are delayed.
• M&A Headwinds: Overall M&A activity and sponsor activity declined year-over-year; investor selectivity has reduced the fee pool for equity capital markets.
• Regulatory and Political Uncertainty: Potential changes in administration and regulatory environments may impact M&A timelines, specifically regarding bank consolidation deadlines in 2028.
• Litigation Costs: Ongoing legal matters are driving increased outside service expenses, impacting profitability ratios.
• Execution Risk: Inflation and market volatility continue to create risks regarding the timing of deal closings as the year-end approaches.

Q: Analyst asked about the pace of improvement in sponsor M&A amid higher rates and the outlook for 2027. / A: CEO Chad Abraham noted that sponsor activity is improving slowly. While pitch calendars are healthy, higher interest rates marginally hinder activity. He emphasized that unless there is a sharp shock in rates, the firm should remain okay, noting that debt financing continues to support acquisition financing. The outlook for the first half of next year appears positive based on current pipeline strength.

Q: Analyst inquired about the lack of consolidation in the depository sector despite strong performance, and whether the company plans to move upstream into larger deals organically or via M&A. / A: Abraham explained that bank M&A hasn't accelerated because bank stocks have performed well, reducing urgency to sell. He stated the firm is growing organically into larger deal sizes (e.g., $2-3 billion sponsor deals) and leveraging its franchise in healthcare and energy. While corporate development remains part of the strategy, the focus is on cultural fit and growth opportunities across the size continuum rather than speculation on specific media reports.

Q: Analyst questioned why fixed income brokerage was resilient despite weak municipal issuance and subdued market indices. / A: President Deb Schoneman attributed the resilience to the firm’s lighter balance sheet approach and strong relationships with top-tier funds. High yields made tax-loss swaps economically viable, driving volume. Additionally, the financial strategies group combined advice on balance sheet optimization and hedging for depositories, allowing the firm to capitalize on yield opportunities and manage risk effectively compared to peers using heavier balance sheets.

Q: Analyst asked if mid-term election results would accelerate bank M&A activity due to potential regulatory shifts. / A: Abraham responded that political cycles have historically had limited impact on the pace of bank M&A. The primary driver is the natural deadline approaching in 2028. He indicated that regardless of election outcomes, the momentum is driven by time running out for consolidations rather than specific political waves, suggesting no immediate acceleration solely based on midterm results.

Q: Analyst sought clarity on product mix issues causing flat revenue despite increased share trading in equity brokerage, and the nature of recent investment income losses. / A: Schoneman clarified that the flat revenue relative to volume growth is due to a shift toward program trading and electronic platforms, which carry lower fees but allow for market share gains. CFO Kate Clune noted that the investment income loss stems from internal private equity fund investments. She described this as noisy but muted over time, with limited overall impact on the bottom line due to GAAP consolidation requirements.