Andrew Duff - Chairman and CEO Deb Schoneman - CFO.

Mike Adams - Sandler O'Neill Hugh Miller - Macquarie Research Equities Justin Tarantin - Susquehanna Financial Group.

Good morning and welcome to the Piper Jaffray Companies Conference Call to discuss the financial results for the Third Quarter 2015. During the question-and-answer session, securities industry professionals may ask questions to management.

The Company has asked that I remind you that statements on this call that are not historical or current facts including statements about beliefs and expectations are forward-looking statements and involve inherent risk 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.PiperJaffray.com and on the SEC website at www.SEC.gov.

This call will also include statements regarding certain non-GAAP financial measures. Please refer to the Company's earnings release issued today for a reconciliation of those non-GAAP financial measures to the most comparable GAAP measure. The earnings release is available on the investor relations page of the Company's website or at the SEC website.

As a reminder this call is being recorded. And now I'd like to turn the call over to Mr. Andrew Duff. Mr. Duff, you may begin your call..

Good morning and thank you for joining us to review our third-quarter results. I will cover our operating performance and provide an update on areas of strategic progress and then turn the call over to Deb to go through our financial results.

We demonstrated relative strength across nearly all of our businesses this quarter as we continue to build on a foundation of operating discipline and strategic priorities which have improved the mix of our business over the past couple of years.

Notably we are realizing the benefits of investments and efforts in our advisory and public finance groups as both of these areas continue producing strong results. In addition we made significant progress on our growth initiatives during the quarter. For the most part we entered the quarter with generally accommodative market conditions.

As we've progressed through the quarter, however, the market's preoccupation with the Fed's interest-rate decision and concerns over US and global growth injected considerable volatility across most of our markets. Nevertheless our business exceeded or performed in-line relative to market conditions.

Our advisory business continues to be a standout performer for the firm. A combination of focused development of internal talent, selective hiring and the acquisition of Edgeview is driving momentum and strong results.

We have extended our market leadership in healthcare, firmly established a strong consumer practice and expanded our coverage of financial sponsors in a meaningful way. As an example of our strength in Q3 we closed 21 deals, an increase of 50% over Q2 while the number of deals closed in the broader market declined 10%.

Our FIG expansion with its advisory focus should build on the momentum we are generating in this area. We expect this momentum will carry us through to a very strong year for our advisory business.

Capital raising in both equity and public finance markets was good during Q3 but still a drop-off from the very strong market conditions we saw in the first half of the year. Our relative outperformance in equity capital raising helped mute the impact of less active markets.

Our share of the economic fee pool was up 15% sequentially as we participated in one out of every four IPOs during the quarter compared to one out of eight in Q2. In addition looking at the number of combined IPO and follow-on offerings for the quarter we were manager on 10% of all offerings versus 8% in Q2.

Our public finance business declined from a robust Q2 as new issue, its volume declined but nevertheless continues to demonstrate considerable strength. Our year-to-date revenue in public finance has exceeded our total revenue for 2014 as we continue to extend on market share gains we captured over the last couple of years.

These gains were driven by our geographic expansion and the acquisition of Seattle-Northwest. Through the third quarter our year-to-date market share is up about 15% versus the same period last year.

Commissions in our equity sales and trading group were up both sequentially and year over year due to increased market volatility which emerged toward quarter's end. Our trading volume which was up over 8% for the quarter drove these increases.

Our trading volumes during the quarter lagged the broader market given our lack of exposure to energy stocks and our limited exposure to FIG. We believe that our FIG expansion will help close this gap in the future. Fixed income trading markets were challenged across most asset classes.

Interest rate uncertainty and low yields continue to suppress low volumes on our trading desk. Reasonably strong new issuance activity in tax-exempt securities further muted secondary trading activity during the quarter.

Also consistent with our posture for most of the year, given the uncertainty surrounding the Fed's interest-rate policy we maintained neutral exposure to interest rates which limited our trading gains for the quarter. Asset management was challenged during the quarter.

In terms of net asset flows we were essentially flat for the quarter and the year to date. Steep market declines during the quarter, however, adversely impacted our total assets under management. Out-performance across most of our key strategies proved to be a mitigating factor in the overall decline in AUM.

In our domestic value strategies our small-cap value product outperformed the benchmark by 660 basis points year to date while the all-cap strategy has outperformed its benchmark by 250 basis points year to date. The most challenging area for us was our energy-related strategy.

Energy-related stocks have been under pressure most of the year and declines accelerated in Q3. Year to date our key benchmarks were off 30% to 35%. We have produced considerable out-performance to mute these declines. Our energy fund has generated excess returns year to date of close to 1,000 basis points over its benchmark.

MLPs faced a particularly challenging quarter with the Alerian Index declining almost 25%. We tracked the benchmark on our MLP strategies during the quarter. On a year-to-date basis our balanced strategy which includes investing in energy debt securities has outperformed the benchmark by 600 basis points.

Given the sharp drop-off in MLP valuations we believe that the market may have entered oversold territory and might expect some recovery in valuations in the coming period. A bright spot is our Japan value product within our international strategy group which has more than doubled its benchmark year to date.

Also doing well is our emerging-market strategy which we are still seasoning as it comes up on its two-year track record has outperformed its benchmark by over 300 basis points year to date. Strategically we continue to make progress on key initiatives. In recent weeks we've closed on the two acquisitions we announced earlier in the year.

River Branch which closed on September 30 accelerates our FIG expansion with the addition of strong revenue producers, senior management and an existing set of clients that immediately port over to Piper Jaffray.

On October 9, we closed the acquisition of BMO's GKST business which is focused on trading and underwriting municipal securities and providing strategic analytics services to a range of clients, mostly significantly community banks.

The GKST team will provide meaningful operating leverage to our fixed income sales group, enhance our municipal underwriting and trading business and deepen our penetration into the community bank set. Now I'd like to turn the call over to Deb to discuss our financial results in greater detail..

Thank you, Andrew. My remarks on our quarterly results will be based on the non-GAAP financial measures we referred to at the start of the call. For the third quarter on an adjusted basis we recorded net income of $7 million, or $0.48 per diluted common share.

Margins and profits were down compared to both the year-ago period and the sequential quarter due to lower revenues and a $9.8 million legal settlement charge. Excluding the legal settlement adjusted net income would have been $13 million and EPS $0.87 per diluted common share.

Adjusted net revenues of $148 million in the third quarter were down 5% compared to the third quarter of 2014. Advisory services revenues were lower compared to a record third quarter last year along with lower asset management revenues resulting from market depreciation.

These declines were partially offset by higher equity and debt financing revenues. Revenues were down 9% sequentially due to lower equity and debt financing revenues partially offset by higher revenues generated by our advisory services business. The diversity of our business continues to help moderate the volatility in our total revenue.

I would like to provide some additional color on the financial aspects of our results for the quarter starting with our capital markets businesses. In equity capital raising increased volatility in the equity markets began in late August and extended through the end of the third quarter resulting in a slowdown in corporate financings.

During the third quarter the VIX ranged from a low of 12 to a high of 41. Despite this volatility we completed 22 equity financings in the third quarter raising $3 billion of capital for our clients. Our level of equity capital raising was higher compared to the slow third quarter of 2014 but down from the previous quarter.

As a result our equity financing revenues increased over 70% compared to the year-ago period and decreased 30% from the sequential quarter. Our debt financing revenues increased more than 40% from the year-ago period and were down 30% sequentially.

Although municipal issuance volumes increased over the year-ago period there was a meaningful decline in the number of negotiated issues from the second quarter which was at a high point. This decline was attributed to volatility and interest rates coupled with anxiety around the Federal Reserve's future actions.

Moving to our advisory business we completed 21 transactions in the current quarter compared to 22 in the year-ago period and 14 in the sequential quarter. Our advisory services revenues were down from a record quarter a year ago and increased 17% from the second quarter of 2015.

As Andrew noted we anticipate that M&A activity will remain strong through the end of the year. Switching to our institutional brokerage businesses, our equities trading business is up 20% year over year due to higher client trading volumes which have increased due to greater market volatility as well as contributions from our FIG expansion.

The fixed income sales and trading business continues to be hampered by challenging market conditions characterized by volatility in treasury rates and uncertainty in treasury rate direction or interest rate direction. Excuse me. These conditions resulted in decreased customer flows.

Also while our hedging and risk mitigating activities have protected our downside risk they also limit our upside potential. We will continue to focus on areas of the market that we know well which should help mute the volatility in our results during these difficult periods.

In our asset management business we experienced revenue declines both year over year and sequentially. These declines reflect the impact of market depreciation on our levels of AUM as well as losses on firm capital invested in our strategies.

In the third quarter we experienced a significant downdraft in market valuations for the MLP sector which represents over 45% of our AUM. We also experienced market depreciation in our value equity product offerings but to a much lesser extent than in MLP.

These market declines resulted in $5.1 million of unrealized losses on our firm capital invested in these strategies for the quarter. I will now spend a few minutes on our noninterest expenses for the quarter. Adjusted compensation and benefits expenses were 64.3% of adjusted net revenue.

This ratio increase compared to both the year-ago period and the sequential quarter primarily due to compensation expenses associated with the expansion of our Financial Institutions Group.

As communicated last quarter we expected that our expansion into the Financial Institutions sector would add as much as 200 basis points to our compensation ratio over the next two to three quarters. The increase in the current quarter was slightly above those expectations.

Excluding the impact of our recent hiring activity the compensation ratio was at the high-end of our range due to the revenue mix.

Adjusted non-compensation expenses of $43 million for the third quarter included the previously mentioned $9.8 million settlement of our municipal derivatives antitrust litigation resulting from an issue dating back to 2006. Excluding the settlement charge non-compensation expenses were below our target range of $34 million to $36 million.

We anticipate that quarterly adjusted non-compensation expenses will be within our targeted range in subsequent periods. We anticipate being able to increase the operating leverage from non-compensation expenses with revenue growth from our FIG expansion and recent acquisitions over time.

On an adjusted basis our effective tax rate was 30% for the third quarter, lower than our expectation of a 34% to 37% effective tax rate. The impact of tax-exempt interest income representing a larger proportion of our pretax income drove the decline in our effective rate. I will conclude my remarks with some comments on our capital deployment.

As we have demonstrated historically we are firm proponents of returning capital to our shareholders through share repurchases. We continually assess various strategies for capital deployment including trading, investing, corporate development and share repurchases.

Included in the mix of considerations this quarter were our efforts to refinance a portion of our debt. Taking various factors into consideration we elected to not repurchase shares during the quarter but nevertheless still believe that remains an attractive use of capital to benefit our shareholders. That concludes our formal remarks.

Operator, we will now open the line for questions..

[Operator Instructions] The first question comes from Mike Adams of Sandler O'Neill..

Good morning everyone. I'd like to start with a question on the asset management business.

I know you cited the market depreciation especially for the MLP strategy but what did the flows look like in the third quarter both for MLP and some of your equity strategies? And then can you update us on where AUM is today given the recovery we've seen in the MLP market?.

So from an asset flow perspective it was essentially flat. There were very small changes across both products.

And the second part of your question?.

It was total AUM at the end of the quarter..

So it was $9.4 billion at the end of the quarter versus $11….

Right. I'm just curious where it is today in October given the recovery we've seen in the Alerian MLP Index..

We don't have the numbers as of the end of October yet. But as you've probably seen there has been some recovery of approximately 7% already in the first month..

Got it..

On the Alerian Index..

And then maybe just touching on the trading businesses, just given the level of activity that we saw in the market and a full-quarter contribution from some of the FIG hires and sales and trading I guess I was expecting maybe a bit stronger equity trading revenue number.

And I'm just trying to figure out what I'm missing and was there anything else that was perhaps a drag on that business in 3Q?.

So part of it is the ramp for FIG is obviously building, it is in line with our expectations and there was some sequential improvement but it was really modest quarter over quarter.

And I think more impactful is the fact that relative to the market where we are the sectors that we focus on unlike say energy or materials which were up significantly we're just not up to that extent that you saw in some of those other sectors, even FIG which we are just entering..

Got it, got it. So a mix issue. All right. And then one last one for me but Deb, I know you touched on this but I'd like to circle back to the capital management.

Because you took a couple of steps that would seem to indicate that you're taking a more aggressive stance in returning capital to shareholders, namely the increased authorization in 3Q and then the capital raise you did earlier this month, I think you raised like net $50 million from that private offering.

So is my interpretation accurate? Are you a little bit more inclined to repurchase shares given where the stock is today and some of these recent actions?.

So I'd underscore -- I'll take that. We really value returning capital to shareholders. I think we've bought $1.8 million in shares so far this year. And those decisions on a quarter-to-quarter basis are integrated with multiple considerations, including other activities at the firm and maintaining flexibility for future needs.

When we thought about this quarter we had a great deal going on including closing two acquisitions, working our way through a legal settlement, refinancing our debt and it makes sense to us to make a post for the quarter. But I would underscore we are a believer in returning capital to our shareholders..

Got it. Thank you, Andrew..

And the next question comes from the line of Hugh Miller with Macquarie..

Good morning. Thanks for taking my questions. So I had a question on the healthcare side of the business. I know you guys have indicated on the M&A front you see things ramping up well into the fourth quarter. It seems like in biotech we've seen a correction in valuations, maybe some concern in the marketplace over drug pricing power.

Can you just give us a sense of what you're hearing from clients in terms of are they resetting expectations about demand for M&A activity over the longer term the next couple of years or has there been any change in dialogue there within biotech?.

I would say the capital raising in the biotech area is experiencing a slowdown. The number of, you've clearly seen this, the number of deals that have come that are priced below the range and then actually even traded down has been reasonably significant.

Now I would remind you that our healthcare franchise is much, much broader than that with leading medtech healthcare services, etc., information services. And from an M&A perspective we remain very active not only in announced deals that we're closing successfully but there's a lot of pitch activity and assignments.

So those dynamics seem very much in place..

Okay, that's helpful. And then you gave us some color on MLP and around the flows.

Can you give us a sense of the MLP asset, what percent are enclosed funds? And what are you seeing in terms of just demand for that product from a flows perspective given the pullback in valuations?.

So overall I know from a total perspective it's about 20%. So on just pure MLPs it would be 40% of the MLP assets are in closed-end funds. And we do -- we continue to see flows really across not only the closed-end funds but the others. Now obviously I said for the quarter there wasn't significant net inflows.

But overall we continue to see that as being positive. And we look back to Q2 and we had pretty significant inflows in those closed-end funds..

I guess I would just add a comment from our perspective, as we look at the fundamentals for MLP companies we're of the opinion that it's really delinked from the reasonably strong fundamentals that MLP companies have.

Throughput volumes remain strong, revenues are steady and if you look now post the very significant correction, the yield on the product is a very, very competitive 7% to 8% depending on how the actual fund is managed. That's pretty compelling. We continue to see interest in it. We have some firm capital invested in it.

We're absolutely a believer that there's current and future value..

Sure. That's helpful.

Then any other color that you can provide on the $5 million within the asset management segment that was a loss, is that I assume that's probably tied within the MLP space?.

It's actually broader. We have capital invested across seven of our different asset management strategies. I would say slightly less than that is actually MLPs. Obviously that piece was most impacted for the quarter and was a significant portion of the $5.1 million but we are invested across strategies..

And we would point out those were marks..

Unrealized marks..

Unrealized marks..

That was my next question. Okay, thank you so much..

[Operator Instructions] And the next question comes from the line of Justin Tarantin with Susquehanna Financial Group..

Hello? Hi, sorry about that guys. This is actually Justin Tarantin on the call for Doug. I apologize for the delay there. Just a couple of questions. The first one, trying to drill down on the M&A a little bit more if possible, you know the market has been really geared towards the larger, more strategic sized deals but you guys seem to be doing okay.

And I'm just trying to get an idea of what's driving that, what sectors? And we know the back half of the year is going to be good for you guys but just trying to get an idea around activity going forward and what the pipeline looks like..

healthcare, industrial, consumer. We've got pretty good activity across the board. I would also say that we're doing some significantly larger transactions and have successfully moved up cap, particularly our position in healthcare and are experiencing larger fees.

Collectively it's all working and the backlog is very strong and the pitch activity remains very strong..

Great, thanks. I appreciate that. And then just one last question, just kind of around just the acquisition piece. Two deals recently both closed.

What is your outlook now regarding acquisitions going forward? Considering where the market is and the volatility we see in the market, are you guys still playing the market opportunistically or we're trying to get a sense of what your thoughts are there..

So we have consistently said that we think the opportunity for us to grow the business and get to and remain a return that's our cost of capital is going to be include acquisitions. We do continue to look at the marketplace. There are adjacent and complementary industry sectors from a banking business.

There are complementary public finance concentrated geographic ones or industry verticals there as well, including senior living which has got some very good demographics and is an emerging financing need coast-to-coast. So our approach is to continue to look actively. We do see quite a few number of opportunities.

We think we're well-positioned in the marketplace with our performance. We do have resources, good market share, solid culture. So those activities remain open. We're mindful that you need to successfully complete transactions, integrate them.

There's often an opportunity when people join our platform to broaden their client relationships with products and services and that takes some work to get that done and done effectively and get share from competitors who might be currently enjoying that business.

We've said it before, I'll say it again we do believe in adding to the platform and integrating new teams and new firm so that you get to the full breadth and capability of our firm..

Okay great. That's it for me. Thank you very much..

There are no further questions -- there is now a follow-up question from Mike Adams with Sandler O'Neill..

Yes, one follow-up for me, I actually wanted to follow-up on that last line of questioning. So you're clearly entering a growth phase with some of these acquisitions.

So are there any targets or metrics that you look at or that we can look at to measure whether you're meeting your growth objectives such as ROE targets, earnings growth, some sort of margin.

What are you guys focused on?.

I would say number one over time is our return on equity. And obviously as we have invested organically through the FIG buildout that puts more pressure on the near-term returns than you would see maybe in an acquisition. So I think definitely over time watching the progress we make on our return on equity.

The other thing is what we are able to do through acquisitions, at least all them that we have done it recently over the last few years, is really be able to create operating leverage on our core infrastructure and corporate support services within the firm and we feel we still have capacity there.

So from that perspective operating margin is another metric that you also I think should look at to look at our success over time..

So I would underscore Deb's original comment that a lot of it foots back to improving our ROE on a consistent basis and getting to our long-term cost of capital and believe that in a relatively reasonable period of time these need to be accretive to those efforts.

Individually another metric we certainly look at when making an acquisition is the IRR, the cash on cash return. And depending on the profile of the business, the risks, the knowledge we have around that business and adjacency we'd still expect those to be in the low to middle teens likely..

And Andrew, would you mind maybe quantifying some of these ROE targets like near-term and two to three years out once you've digested these deals?.

Okay, so we had stated for a couple of years that our objective was to get into the 7% to 9%. And we're consistently operating there now.

And again you've got some tension as Deb said because we've seen what we thought were compelling opportunities on let's call it accelerated organic lift-outs, etc., and those put immediate pressure on your P&L and take you backwards.

Having said that if we think that that's going to get to an accretive return within two years we're going to do it if it's a good fit. I would now say that our objective is in the intermediate term to get to our cost of capital which we think is approximately 10% to 11% and be able to sustain that through all market cycles..

Perfect. Thank you..

There are no questions at this time..

Thank you very much for joining us for the call. We look forward to hosting you on our fourth-quarter results. Thank you, operator..

Thank you. This will conclude today's Q3 analyst conference call. You may now disconnect your lines..