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Form 10-Q PIPER SANDLER COMPANIES For: Jun 30

August 2, 2022 1:58 PM EDT

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to                     

Commission File Number: 001-31720
PIPER SANDLER COMPANIES
(Exact Name of Registrant as specified in its Charter)
Delaware 30-0168701
(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
800 Nicollet Mall, Suite 900 
Minneapolis, Minnesota
55402
(Address of Principal Executive Offices) (Zip Code)
(612)303-6000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange On Which Registered
Common Stock, par value $0.01 per sharePIPRThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   No  

As of July 27, 2022, the registrant had 17,436,145 shares of Common Stock outstanding.



Piper Sandler Companies
Index to Quarterly Report on Form 10-Q


PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS.

Piper Sandler Companies
Consolidated Statements of Financial Condition
June 30,December 31,
20222021
(Amounts in thousands, except share data)(Unaudited)
Assets
Cash and cash equivalents$237,786 $970,965 
Receivables from brokers, dealers and clearing organizations206,216 254,130 
Financial instruments and other inventory positions owned311,789 230,423 
Financial instruments and other inventory positions owned and pledged as collateral110,318 118,551 
Total financial instruments and other inventory positions owned422,107 348,974 
Fixed assets (net of accumulated depreciation and amortization of $81,250 and $76,823, respectively)
58,932 51,761 
Goodwill244,321 227,508 
Intangible assets (net of accumulated amortization of $121,986 and $115,672, respectively)
133,995 119,778 
Investments (including noncontrolling interests of $183,538 and $164,565, respectively)
267,017 252,045 
Net deferred income tax assets160,362 158,200 
Right-of-use lease asset98,584 71,341 
Other assets121,652 110,605 
Total assets$1,950,972 $2,565,307 
Liabilities and Shareholders' Equity
Long-term financing$125,000 $125,000 
Payables to brokers, dealers and clearing organizations10,417 13,247 
Financial instruments and other inventory positions sold, but not yet purchased122,184 128,690 
Accrued compensation340,137 900,079 
Accrued lease liability117,105 89,625 
Other liabilities and accrued expenses58,494 81,811 
Total liabilities773,337 1,338,452 
Shareholders' equity:
Common stock, $0.01 par value:
Shares authorized: 100,000,000 at June 30, 2022 and December 31, 2021;
Shares issued: 19,542,612 at June 30, 2022 and 19,541,037 at December 31, 2021;
Shares outstanding: 13,792,668 at June 30, 2022 and 14,129,519 at December 31, 2021
195 195 
Additional paid-in capital1,006,093 925,387 
Retained earnings418,406 450,165 
Less common stock held in treasury, at cost: 5,749,944 shares at June 30, 2022 and 5,411,518 shares at December 31, 2021
(425,095)(312,573)
Accumulated other comprehensive loss(2,960)(964)
Total common shareholders' equity996,639 1,062,210 
Noncontrolling interests180,996 164,645 
Total shareholders' equity1,177,635 1,226,855 
Total liabilities and shareholders' equity$1,950,972 $2,565,307 
See Notes to the Consolidated Financial Statements
3

Piper Sandler Companies
Consolidated Statements of Operations
(Unaudited)
Three Months EndedSix Months Ended
June 30,June 30,
(Amounts in thousands, except per share data)2022202120222021
Revenues:
Investment banking$234,132 $387,147 $491,634 $683,221 
Institutional brokerage104,942 95,830 209,504 205,318 
Interest income4,536 1,673 8,392 3,730 
Investment income/(loss)10,936 26,694 (2,138)50,462 
Total revenues354,546 511,344 707,392 942,731 
Interest expense2,355 2,696 4,556 5,476 
Net revenues352,191 508,648 702,836 937,255 
Non-interest expenses:
Compensation and benefits239,917 325,252 487,816 605,580 
Outside services14,429 10,593 25,605 18,268 
Occupancy and equipment15,562 13,720 30,098 27,742 
Communications13,215 10,026 25,640 21,834 
Marketing and business development12,238 5,114 20,870 7,181 
Deal-related expenses8,308 8,710 13,852 21,141 
Trade execution and clearance5,891 4,207 9,926 8,387 
Restructuring and integration costs1,609 3,433 2,856 3,568 
Intangible asset amortization3,393 7,520 6,314 15,040 
Other operating expenses469 6,013 7,062 11,587 
Total non-interest expenses315,031 394,588 630,039 740,328 
Income before income tax expense37,160 114,060 72,797 196,927 
Income tax expense9,385 27,066 20,364 44,340 
Net income27,775 86,994 52,433 152,587 
Net income/(loss) applicable to noncontrolling interests6,385 17,173 (5,608)33,307 
Net income applicable to Piper Sandler Companies$21,390 $69,821 $58,041 $119,280 
Earnings per common share
Basic$1.53 $4.86 $4.07 $8.30 
Diluted$1.26 $4.12 $3.39 $7.14 
Dividends declared per common share$0.60 $0.45 $5.70 $2.70 
Weighted average number of common shares outstanding
Basic14,018 14,358 14,248 14,366 
Diluted16,920 16,951 17,106 16,709 

See Notes to the Consolidated Financial Statements
4

Piper Sandler Companies
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months EndedSix Months Ended
June 30,June 30,
(Amounts in thousands)2022202120222021
Net income$27,775 $86,994 $52,433 $152,587 
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustment(1,310)197 (1,996)503 
Comprehensive income26,465 87,191 50,437 153,090 
Comprehensive income/(loss) applicable to noncontrolling interests6,385 17,173 (5,608)33,307 
Comprehensive income applicable to Piper Sandler Companies$20,080 $70,018 $56,045 $119,783 

See Notes to the Consolidated Financial Statements

5

Piper Sandler Companies
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
AccumulatedTotal
CommonAdditionalOtherCommonTotal
(Amounts in thousands,SharesCommonPaid-InRetainedTreasuryComprehensiveShareholders'NoncontrollingShareholders'
 except share amounts)
OutstandingStockCapitalEarningsStockIncome/(Loss)EquityInterestsEquity
Balance at December 31, 2021
14,129,519 $195 $925,387 $450,165 $(312,573)$(964)$1,062,210 $164,645 $1,226,855 
Net income/(loss)— — — 36,651 — — 36,651 (11,993)24,658 
Dividends
— — — (81,390)— — (81,390)— (81,390)
Amortization/issuance of restricted stock (1)
— — 114,048 — — — 114,048 — 114,048 
Repurchase of common stock through share repurchase program
(653,029)— — — (92,945)— (92,945)— (92,945)
Issuance of treasury shares for restricted stock vestings
854,668 — (50,934)— 50,934 —  —  
Repurchase of common stock from employees
(136,440)— — — (20,927)— (20,927)— (20,927)
Shares reserved/issued for director compensation
2,038 — 253 — — — 253 — 253 
Other comprehensive loss— — — — — (686)(686)— (686)
Fund capital distributions, net
— — — — — —  (13,503)(13,503)
Balance at March 31, 202214,196,756 $195 $988,754 $405,426 $(375,511)$(1,650)$1,017,214 $139,149 $1,156,363 
Net income— — — 21,390 — — 21,390 6,385 27,775 
Dividends
— — — (8,410)— — (8,410)— (8,410)
Amortization/issuance of restricted stock (1)
— — 17,612 — — — 17,612 — 17,612 
Repurchase of common stock through share repurchase program
(415,358)— — — (49,991)— (49,991)— (49,991)
Issuance of treasury shares for restricted stock vestings
10,207 — (738)— 738 —  —  
Repurchase of common stock from employees
(2,633)— — — (331)— (331)— (331)
Shares reserved/issued for director compensation
3,696 — 465 — — — 465 — 465 
Other comprehensive loss— — — — — (1,310)(1,310)— (1,310)
Fund capital contributions, net— — — — — —  35,462 35,462 
Balance at June 30, 2022 13,792,668 $195 $1,006,093 $418,406 $(425,095)$(2,960)$996,639 $180,996 $1,177,635 
Continued on next page
6

Piper Sandler Companies
Consolidated Statements of Changes in Shareholders' Equity - Continued
(Unaudited)

AccumulatedTotal
CommonAdditionalOtherCommonTotal
(Amounts in thousands,SharesCommonPaid-InRetainedTreasuryComprehensiveShareholders'NoncontrollingShareholders'
 except share amounts)
OutstandingStockCapitalEarningsStockIncome/(Loss)EquityInterestsEquity
Balance at December 31, 202013,776,025 $195 $847,785 $271,001 $(289,359)$(197)$829,425 $96,657 $926,082 
Net income— — — 49,459 — — 49,459 16,134 65,593 
Dividends
— — — (34,551)— — (34,551)— (34,551)
Amortization/issuance of restricted stock (1)
— — 62,691 — — — 62,691 — 62,691 
Repurchase of common stock through share repurchase program
(58,519)— — — (6,218)— (6,218)— (6,218)
Issuance of treasury shares for restricted stock vestings
823,951 — (41,500)— 41,500 —  —  
Repurchase of common stock from employees
(120,222)— — — (12,735)— (12,735)— (12,735)
Shares reserved/issued for director compensation
849 — 104 — — — 104 — 104 
Other comprehensive income— — — — — 306 306 — 306 
Fund capital distributions, net
— — — — — —  (10,046)(10,046)
Balance at March 31, 202114,422,084 $195 $869,080 $285,909 $(266,812)$109 $888,481 $102,745 $991,226 
Net income
— — — 69,821 — — 69,821 17,173 86,994 
Dividends
— — — (6,456)— — (6,456)— (6,456)
Amortization/issuance of restricted stock (1)— — 19,775 — — — 19,775 — 19,775 
Repurchase of common stock through share repurchase program
(139,178)— — — (16,856)— (16,856)— (16,856)
Issuance of treasury shares for restricted stock vestings
9,287 — (497)— 497 —  —  
Repurchase of common stock from employees
(2,874)— — — (361)— (361)— (361)
Shares reserved/issued for director compensation
3,648 — 453 — — — 453 — 453 
Other comprehensive income— — — — — 197 197 — 197 
Fund capital distributions, net— — — — — —  (2)(2)
Balance at June 30, 202114,292,967 $195 $888,811 $349,274 $(283,532)$306 $955,054 $119,916 $1,074,970 
(1)Includes amortization of restricted stock issued in conjunction with the Company's acquisitions.

See Notes to the Consolidated Financial Statements
7

Piper Sandler Companies
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
(Amounts in thousands)20222021
Operating Activities:
Net income$52,433 $152,587 
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization of fixed assets7,328 5,867 
Deferred income taxes(2,162)(14,601)
Stock-based compensation60,438 78,532 
Amortization of intangible assets6,314 15,040 
Amortization of forgivable loans4,148 2,871 
Decrease/(increase) in operating assets:
Receivables from brokers, dealers and clearing organizations50,855 (100,754)
Net financial instruments and other inventory positions owned(79,639)(17,119)
Investments(14,972)(31,951)
Other assets(31,197)(27,271)
Increase/(decrease) in operating liabilities:
Payables to brokers, dealers and clearing organizations(2,830)(6,183)
Accrued compensation(493,653)(47,879)
Other liabilities and accrued expenses(7,338)2,120 
Net cash provided by/(used in) operating activities(450,275)11,259 
Investing Activities:
Business acquisitions, net of cash acquired(33,044) 
Purchases of fixed assets, net(14,357)(14,883)
Net cash used in investing activities(47,401)(14,883)
Financing Activities:
Repayment of long-term financing (20,000)
Payment of cash dividend(89,800)(41,007)
Increase/(decrease) in noncontrolling interests21,959 (10,048)
Repurchase of common stock(164,194)(36,170)
Net cash used in financing activities(232,035)(107,225)
Currency adjustment:
Effect of exchange rate changes on cash(3,468)424 
Net decrease in cash and cash equivalents(733,179)(110,425)
Cash and cash equivalents at beginning of period970,965 507,935 
Cash and cash equivalents at end of period$237,786 $397,510 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$4,468 $5,554 
Income taxes$45,128 $59,907 
See Notes to the Consolidated Financial Statements
8

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)

Index
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Note 18
Note 19
Note 20
Note 21
9

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)

Note 1 Organization and Basis of Presentation

Organization

Piper Sandler Companies is the parent company of Piper Sandler & Co. ("Piper Sandler"), a securities broker dealer and investment banking firm; Piper Sandler Ltd., a firm providing securities brokerage and mergers and acquisitions services in the United Kingdom; Piper Sandler Finance LLC, which facilitates corporate debt underwriting in conjunction with affiliated credit vehicles; Piper Sandler Investment Group Inc., PSC Capital Management LLC and PSC Capital Management II LLC, entities providing alternative asset management services; Piper Sandler Loan Strategies, LLC, which provides management services for primary and secondary market liquidity transactions of loan and servicing rights; Piper Sandler Hedging Services, LLC, an entity that assists clients with hedging strategies; Piper Sandler Financial Products Inc. and Piper Sandler Financial Products II Inc., entities that facilitate derivative transactions; and other immaterial subsidiaries.

Piper Sandler Companies and its subsidiaries (collectively, the "Company") operate in one reporting segment providing investment banking services and institutional sales, trading and research services. Investment banking services include financial advisory services, management of and participation in underwritings, and municipal financing activities. Revenues are generated through the receipt of advisory and financing fees. Institutional sales, trading and research services focus on the trading of equity and fixed income products with institutions, corporations, government and non-profit entities. Revenues are generated through commissions and sales credits earned on equity and fixed income institutional sales activities, net interest revenues on trading securities held in inventory, profits and losses from trading these securities, and fees for research services and corporate access offerings. Also, the Company has created alternative asset management funds in merchant banking and healthcare in order to invest firm capital and to manage capital from outside investors. The Company records gains and losses from investments in these funds and receives management and performance fees.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and the rules and regulations of the Securities and Exchange Commission ("SEC"). Pursuant to this guidance, certain information and disclosures have been omitted that are included within the complete annual financial statements. Except as disclosed herein, there have been no material changes in the information reported in the financial statements and related disclosures in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

The consolidated financial statements include the accounts of Piper Sandler Companies, its wholly owned subsidiaries, and all other entities in which the Company has a controlling financial interest. Noncontrolling interests represent equity interests in consolidated entities that are not attributable, either directly or indirectly, to Piper Sandler Companies. Noncontrolling interests include the minority equity holders' proportionate share of the equity in the Company's alternative asset management funds. All material intercompany balances have been eliminated.

Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates and assumptions are based on the best information available, actual results could differ from those estimates.

Note 2 Accounting Policies and Pronouncements

Summary of Significant Accounting Policies

Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2021 for a full description of the Company's significant accounting policies.


10

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)

Future Adoption of New Applicable Accounting Standards

Equity Securities Subject to Contractual Sale Restrictions

In June 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2022-03, "Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions" ("ASU 2022-03"). This guidance clarifies that a contractual sale restriction should not impact the fair value of the security and a discount to reflect such restriction is no longer permitted to be applied. ASU 2022-03 also includes new disclosure requirements and is effective for annual and interim periods beginning after December 15, 2023, with early adoption permitted. As of June 30, 2022, the Company does not hold equity securities subject to contractual sale restrictions.

Note 3 Acquisitions

The following acquisitions were accounted for pursuant to FASB Accounting Standards Codification Topic 805, "Business Combinations." Accordingly, the purchase price of each acquisition was allocated to the acquired assets and liabilities assumed based on their estimated fair values as of the respective acquisition dates. The excess of the purchase price over the net assets acquired was allocated between goodwill and intangible assets. The fair value of the restricted stock was determined using the market price of the Company's common stock on the date of the respective acquisition.

Cornerstone Macro Research LP

On February 4, 2022, the Company completed the acquisition of Cornerstone Macro Research LP, including its subsidiary, Cornerstone Macro LLC (collectively, "Cornerstone Macro"), a research firm focused on providing macro research and equity derivatives trading to institutional investors. The transaction was completed pursuant to the Securities Purchase Agreement dated October 12, 2021. The acquisition adds a macro research team and increases the scale of the Company's equity brokerage operations.

The purchase price of $33.9 million consisted of cash consideration of $32.4 million and contingent consideration of $1.5 million, as detailed in the net assets acquired table below. As part of the acquisition, the Company granted 64,077 restricted shares valued at $9.7 million on the acquisition date. The restricted shares are subject to graded vesting on the fourth and the fifth anniversaries of the acquisition date, so long as the applicable employee remains continuously employed by the Company for the respective vesting period. As these shares contain service conditions, the value of the shares is not part of the purchase price. Compensation expense will be amortized on a straight-line basis over the requisite service period of five years.

The Company also entered into acquisition-related compensation arrangements with certain employees of $10.7 million, which consisted of restricted stock ($7.5 million) and forgivable loans ($3.2 million), for retention purposes. As employees must fulfill service requirements in exchange for the rights to the restricted shares, compensation expense will be amortized on a straight-line basis over the requisite service period (a weighted average service period of 3.4 years). See Note 16 for further discussion. The loans will be forgiven, so long as the applicable employee remains continuously employed for the loan term. Compensation expense will be amortized on a straight-line basis over the respective loan term (a weighted average period of 3.6 years).

Additional cash of up to $27.8 million may be earned (the "Cornerstone Earnout") if a net revenue target is achieved during the performance period from July 1, 2022 to December 31, 2023. Of the total amount, up to $6.0 million may be earned by Cornerstone Macro's equity owners with no service requirements. If earned, this amount will be paid by March 31, 2024. The Company recorded a $1.5 million liability as of the acquisition date for the fair value of the contingent consideration, which is included in the purchase price. The remaining amount may be earned by the equity owners, whom are now employees of the Company, and certain employees in exchange for service requirements. As this amount compensates employees for future services, the value is not part of the purchase price. Amounts estimated to be payable, if any, will be recorded as compensation expense on the consolidated statements of operations over the requisite service period. If earned, these amounts will be paid by June 30, 2025 and June 30, 2026.

11

Piper Sandler Companies
Notes to the Consolidated Financial Statements
(Unaudited)

The Company recorded $9.9 million of goodwill on the consolidated statements of financial condition, all of which is expected to be deductible for income tax purposes. The final goodwill recorded on the Company's consolidated statements of financial condition may differ from that reflected herein as a result of measurement period adjustments. In management's opinion, the goodwill represents the reputation and operating expertise of Cornerstone Macro. Identifiable intangible assets purchased by the Company consisted of customer relationships with an acquisition-date fair value of $