Good morning, welcome to the Piper Sandler Companies' first quarter 2026 earnings conference call. Today's call is being recorded and will include remarks by Piper Sandler management, followed by a question- and- answer session. I'll begin by turning the call over to Kate Winslow. Please go ahead.
Thank you, operator. Good morning, and thank you for joining the Piper Sandler Companies' first quarter 2026 earnings conference call. Hosting the call today are Chairman and CEO, Chad Abraham, our President, Deb Schoneman, and CFO, Kate Clune. Earlier this morning, we issued a press release announcing Piper Sandler's first quarter 2026 financial results, which is available on our website at pipersandler.com/earnings. Today's discussion of the results is complementary to the press release. A replay of this call will also be available at that same website later today. Before we begin, let me remind you that remarks made on today's call may contain forward-looking statements that are not historical or current facts, including statements about beliefs and expectations and involve inherent risks and uncertainties.
Factors that could cause actual results to differ materially from those anticipated are identified in the company's reports on file with the SEC, which are available on our website at pipersandler.com and on the SEC website at sec.gov. Today's discussion also includes statements regarding certain non-GAAP financial measures that management believes are meaningful when evaluating the company's performance. The non-GAAP measures should be considered in addition to, and not a substitute for, measures of financial performance prepared in accordance with GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in our earnings release issued today. I will now turn the call over to Chad.
Thank you, Kate. Good morning, everyone. Thank you for joining us. We posted a strong start to the year, generating first quarter adjusted net revenues of $470 million, our 10th consecutive quarter of year-over-year growth, a 20% operating margin, and adjusted EPS of $1. Corporate investment banking achieved a first quarter record with revenues of $324 million, up 30% year-over-year due to robust corporate financing activity as well as solid contributions across advisory services. Our healthcare franchise produced an exceptionally strong quarter, setting a new high watermark in terms of revenues. Results were driven by our MedTech and biopharma teams, as well as meaningful contributions from healthcare IT and services, two areas where we have invested in strengthening our capabilities. Within U.S. MedTech M&A, we rank as the top advisor based on number of announced deals.
Our financial services group also registered a strong quarter as they closed several significant bank M&A transactions. We ranked as the number one advisor in U.S. bank M&A based on deal value announced during the quarter. Our insurance and asset management subsectors also contributed to the strong performance. Advisory revenues were a first quarter record of $251 million, up 16% year-over-year due to the strong performance from healthcare and financial services and contributions from our services and industrials and energy teams. For the quarter, we ranked as the number two advisor in U.S. M&A based on announced deals under $2 billion and ranked number three based on announced deals under $5 billion. In addition, our non-M&A advisory teams remain active and are a growing component of our performance.
Our debt capital markets advisory business recorded a strong start to the year and was a meaningful contributor to this growth. Our deep product expertise, trusted relationships with market participants, and close collaboration with our industry teams continue to deliver consistent high-quality execution for our clients. We are also seeing positive momentum within our private capital advisory group, where we are leveraging our sponsor relationships and sector expertise to grow market share. As market conditions evolve, we continue to benefit from our broad industry coverage and comprehensive product capabilities. Looking ahead, our industry and product teams are busy advising clients and pipelines remain strong. However, the timing of these transactions may be influenced by market conditions. We expect second quarter advisory revenues to be similar to the first quarter.
Turning to corporate financing, the equity underwriting market was resilient during the quarter, despite the volatility, with the fee pool up 73% year-over-year, driven mainly by the healthcare sector. Corporate financing revenues for the quarter were $73 million, up 122% from the first quarter of last year. We completed 36 equity, debt, and preferred financings, raising $14 billion for corporate clients. Activity was led by our healthcare team, which served as book runner on all 23 equity deals they priced during the quarter. Our absolute and relative outperformance was driven by strong equity issuance for biopharma companies. In this sector, we ranked as the number two investment bank based on the number of book-run deals.
Over the last decade, we've built a scaled biopharma platform with deep expertise and products across banking, research, capital markets, and sales, positioning us to capture share and drive strong results. As we look ahead, we expect second quarter corporate financing revenues to decline from a strong first quarter. Shifting to talent, we finished the quarter with 192 investment banking managing directors, the highest number in firm history. Development of our internal talent, along with identifying talented partners to join our platform, continues to be a priority as we strengthen our product and sector teams. During the quarter, we promoted six of our bankers to managing director, and we hired three MDs that strengthen our advisory capabilities in healthcare IT, European life sciences, and upstream energy. Let me close with a few final points. While the near-term macroeconomic environment remains uncertain, our core strategy is unchanged.
We remain focused on advising clients with deep expertise and providing a comprehensive suite of capital market solutions. We are committed to expanding our platform for continued growth while delivering strong margins to our shareholders. With that, I will turn the call over to Deb to discuss our public finance and brokerage businesses.
Thanks, Chad. I'll begin with an update on our public finance business. We generated $24 million of municipal financing revenues for the quarter, down 9% year-over-year. Revenues were balanced between our governmental and specialty businesses. During the first quarter, we underwrote 98 municipal negotiated transactions, raising $3 billion of par value for our clients. As we look ahead, our pipelines are strong with clients looking to access the market. We anticipate that second quarter revenues will improve modestly from the first quarter, aligning with the typical seasonality of this business. Turning to our equity brokerage business, higher volatility drove increased trading volumes in response to geopolitical events, resulting in record first quarter revenues of $60 million, an 11% increase from the prior year. Performance was broad-based across our trading desks, including our derivatives desk as clients increased their hedging activity.
Our platform offers clients many execution and payment channels to take advantage of our differentiated research and trading capabilities. Looking ahead, our results will continue to be correlated with market volatility and trading volumes. We expect our second quarter revenues to decline from the record first quarter levels. While volatility helped our equity brokerage business, it negatively impacted our fixed income business. As the quarter progressed, the day-to-day volatility during March significantly reduced our regular-way client activity. We were able to mitigate this reduction by completing balance sheet restructuring trades in conjunction with the closing of bank M&A transactions. We produced fixed income revenues of $50 million in the first quarter, up 6% from the prior year period. The diversification of our product capabilities and client relationships, coupled with our capital-light model, provided a level of resiliency to our results. The near-term fixed income outlook remains challenging.
We've experienced a slow start to the second quarter as ongoing geopolitical developments are keeping many clients on the sidelines. Now, I will turn the call over to Kate to review our financial results and provide an update on capital use.
Thanks, Deb. 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. As a reminder, we effected a four-for-one forward stock split of our common stock on March 23rd, and our common stock began trading on a split-adjusted basis at the start of trading on March 24th. All share and per share amounts discussed on the call have been retrospectively adjusted to reflect the impact of the stock split. For the first quarter of 2026, we generated net revenues of $470 million, operating income of $94 million, and an operating margin of 20%. Net income totaled $72 million, and diluted EPS was $1.
Net revenues for the first quarter of 2026 declined from the seasonally strong fourth quarter of 2025 but increased 22% over the first quarter of last year. The year-over-year growth was driven by a 30% increase in corporate investment banking revenues. Advisory services delivered the strongest first quarter on record, and corporate financing activity was robust. In addition, our equity brokerage business achieved strong results. Margin expansion remains a strategic priority as we continue to scale our platform. Current quarter operating income grew 37% over the first quarter of 2025, outpacing our year-over-year revenue growth of 22%. Turning to expenses. We reported a compensation ratio of 61.6% for the quarter, an improvement of 90 basis points from the first quarter of last year, driven by increased net revenues.
This improvement in our ratio reflects our continued commitment to exercising operating discipline while balancing employee retention and investment opportunities. For the first quarter of 2026, non-compensation expenses were $86 million, up 15% over last year, in part due to an $8.5 million litigation-related expense taken during the quarter. This expense relates to the pending settlement of a California lawsuit originally filed in 2014 specific to variable rate demand notes within our municipal finance business. Excluding the $8.5 million litigation expense, non-compensation costs for the quarter increased 4% year-over-year, driven by higher underwriting expenses associated with increased corporate financing activity and were 16.6% of net revenues. This ratio reflects an improvement of 300 basis points from the first quarter of last year as we continue to drive leverage from higher revenues. Moving to income tax expense.
For the first quarter of 2026, our income tax expense was reduced by $7 million of tax benefits related to the vesting of restricted stock awards, which resulted in an income tax rate of 23.4%. Excluding these benefits, our effective tax rate was 30.8%. Finishing with capital. Our consistent operating discipline and capital-light approach continued to result in strong cash generation to deploy in order to drive shareholder returns. During the first quarter, we returned an aggregate of $171 million to shareholders, which included dividends totaling $101 million, or $1.425 per share, paid to shareholders through our quarterly and special cash dividends.
It also includes repurchases of approximately 884,000 shares of our common stock, or $70 million, which offset a significant portion of the share count dilution from this year's annual grants. Lastly, I'm pleased to announce that effective today, the board approved a quarterly cash dividend of $0.20 per share, a 14% increase from our previous quarterly cash dividend. The dividend will be paid on June 12th to shareholders of record as of the close of business on May 29th. We are pleased with our start to 2026 and remain focused on driving long-term growth and further elevating the durability of the platform while generating best-in-class returns. With that, we can open the call up for questions.
Thank you. If you are dialed in via the telephone and would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will now take our first question from James Yaro with Goldman Sachs. Please go ahead.
Good morning, and thanks for taking the questions. Chad, I'd love to just get a update for you on whether the upward sloping trend of activity in bank M&A has slowed at all in your opinion or continues. Then maybe, you know, to the degree you could also comment on the recent rate vol in the forward curve in particular, and whether that should have an impact on the bank hedging business and fixed income?
Okay. Well, why don't I take the first question, James, and I'll let Deb take the second one. On bank M&A, we had a good Q1, with, you know, significant amount of closings. I would say on the announced bank M&A, I do think it's a little slower than we anticipated. We announced a couple more transactions this week. I would say we're seeing decent volume on some of the smaller transactions. Just haven't seen, you know, the pace we were seeing on a little bit of the larger transactions. Just as a reminder, you know, that happened a little bit last year, and it, and it picked up as well. We'll have to see.
James, and then on your question relative to hedging activity with banks, our derivatives desk has been incredibly busy relative to conversations. We've seen some increased actual activity of transactions being completed. I think one of the things that you see is when there's volatility, while you might naturally think, "Boy, there should be a lot of hedging," it also makes it challenging to determine how they want to position given that volatility. Definitely a lot of activity going on there, but nothing that's necessarily outside of the norm.
That's super helpful. Maybe just on the equity capital market side, you talked about strength in healthcare. That's obviously been one of the two sectors alongside industrials that has performed very well so far this year. I'd love to just get your sense on, you know, based on your backlogs, how sustainable you think the equity capital markets activity could be, and specifically as it relates to the healthcare business, which is driving a lot of that, I believe.
It was a good quarter for the market, but it was a particularly good quarter for us just with market share. You know, that happens sometimes with, you know, if we have a handful of, you know, larger fees. Obviously, we specifically said in the commentary we thought capital markets would be down. It's just hard for us to maintain sort of that super outsized market share performance in Q2 . That market remains open and, you know, especially how biotech trades, you know, sometimes that market trades just differently than the overall market. We feel pretty good about that backdrop, but do not think that first quarter market share is sustainable.
Excellent. Super clear. Thank you.
Thank you. We'll next go to Steven Chubak with Wolfe Research. Please go ahead.
Hi, good morning, and thanks for taking my questions.
Absolutely.
Yeah, I wanted to start with unpacking some of the comments around the advisory outlook. You mentioned advisory fees should be down sequentially. Not surprising, given the choppy macro. I was hoping to get some perspective on which sectors you're seeing the biggest slowdown in deal activity, and based on your current visibility into the backlog, just how long do you expect this moderation or, what's it called, somewhat of an air pocket to persist?
Yeah. Obviously in our commentary, we said, you know, advisory would be similar. I would say, you know, it sort of depends on the sector. We obviously talked about banks and, you know, with announcement volume down in Q2 or Q1, you know, obviously that has some impact on the go forward. We had a spectacular Q1 in parts of healthcare and MedTech that are sort of hard to repeat. Some of that is just relative to our own performance. I would say, you know, in the overall market, especially on the sponsor side, while I think sponsors, you know, pitch activity's been good, I think the question is how quickly do they launch and do they transact?
While I don't think there's any real panic, there's also not tremendous urgency. I think the market's fine. I just don't think it's, I don't think it's accelerating. Those three combinations of things probably drove our commentary.
Understood. I mean, with regard to sponsors, it certainly feels like waiting for Godot. Maybe just to switch gears and focus on the software side. Just given technology's been a meaningful contributor to your M&A business historically, we're all hearing of emerging concerns on AI disruption. The SaaSpocalypse. Was probably good to speak to your outlook for software M&A and the willingness of these corporates to consider inorganic growth or even consolidation amid some of the growing AI fears.
Yeah. Obviously for us, technology is one of the areas we've been investing heavily in, but on a historic basis, you know, it's out of our seven industry teams, one of the smallest. I think on a relative basis, we will be impacted less. But no question, we will be impacted. You know, we actually had a decent Q1 in technology up from last year. What I would say with you know, the software transactions, I think the market's slowly figuring out, you know, where is the real disruption gonna be. Where does sort of the data and vertical expertise really sort of find its way through in the new tech market. There is no question, especially on the larger deal side, things are gonna be slower. Folks are gonna be cautious.
Valuations are down, valuations are down versus, you know, prior financing levels, which makes it hard to transact. I do think that, you know, we've seen that in other tech cycles. We will see that work its way through the system. Then, like you said, just with AI and technology shifts for the survivors, you know, that'll probably accelerate other activity. That's gonna take a while to work out. I think our expectations are fairly cautious for our tech and software business this year.
Really interesting color. Thanks so much for taking my questions.
Thank you.
We'll next go to Devin Ryan with Citizens Bank. Please go ahead.
Thanks. Good morning, everyone. Wanna stay on advisory and maybe talk a little about some of the non-M&A businesses. Obviously, sounds like private capital is continuing to gain steam. We're still hearing restructuring is relatively active. Could you talk about kinda contribution that you're seeing from non-M&A, and then just more broadly, how that impacts kind of the outlook as you look out over the next year or even two? Thanks.
Yeah, sure. We had a good Q1 in non-M&A. Obviously, we've got the major pieces of that, DCM advisory, restructuring and then private capital advisory. For us, sort of the real bright spot in Q1 is even after a good end of the year, our debt capital markets advisory business had a very good Q1. I would say, you know, restructuring and private capital were fine, but the outsized performance was driven by debt capital markets.
I do think relative to private capital advisory, now that we're kind of a year and a half in our acquisition, I'm pretty encouraged by what we're seeing on some of the continuation and, you know, other transactions as we've now closed a few and frankly, we have a few more, and it's really across all of our industry teams, which is good for us to see. You know, over time, I think that's gonna be more and more of a contributor for us.
Got it. Thanks, Chad. Maybe one for Deb here. You know, on fixed income revenues, mentioned kind of resiliency with balance sheet restructuring trades, with the bank closings, but 2Q has started slowly with clients on the sidelines. Can you just help us understand kind of the moving parts of that? Is that, you know, bank M&A? Was that interest rates? Is that just market volatility? Just trying to think about what needs to change to kind of bring people off the sidelines.
I think the biggest thing that needs to change is just volatility needs to come down.
Some vol is great for trading businesses, but it's been too extreme, and I think part of that's rates, part of that just is looking at what's happening in the geopolitical environment. I would say that's the biggest thing that we just need to see some sustained reduction in just volatility in the marketplace, r elative to the bank restructurings and that's going to follow the closings of M&A transactions. That's just something to watch there. As Chad talked about a little bit of a slowdown in some of the announcements, this is an industry-wide phenomenon actually. That does, you know, ultimately impact our opportunities in, you know, say the next quarter to be able to have more of those.
Let me know if there's anything else I can add color on there, but I think those are the biggest components.
No, that's great. Maybe if I could just squeeze one in to get Kate involved just on the comp ratio and kind of the outlook. Obviously, appreciate the year is still, you know, somewhat uncertain, but you started the year with, you know, nice revenue growth, some comp leverage, I think down 90 basis points from the beginning of 2025. How are you thinking about the ability to drive? You've been incredibly consistent on the comp ratio, which is, which is great, but, like, the ability to continue to drive leverage from here off of a better jumping-off point for 2026 relative to 2025.
Thanks, Devin. You know, we're now sort of consistently at the low end of the range that we had previously guided to, which was, you know, 61.5-62.5, pleased with that progress and also pleased with the leverage we were able to drive in the first quarter given the improvement in the top-line revenue number. That being said, we do have a highly variable comp model, which has allowed us to be as consistent as we have been through the cycle. While we'll certainly look to drive leverage where opportunities present off certain parts of our comp expense base, that leverage could be a little bit more modest than perhaps you'd see elsewhere. We're also always looking for, you know, additive investment opportunities, it's a bit of a balance.
We intend to continue to operate within the low end of the range, or just below as we have for the first quarter here, you know, for the rest of the year.
Okay. Great. I will leave it there. Thanks, guys.
As a reminder, ladies and gentlemen, it is star one for a question. We'll next go to Mike Grondahl with Northland Securities. Please go ahead.
Hey, guys. Thank you. You know, Chad, if we think about your advisory pipeline, there's probably traditionally some activity as you go from winter to spring, some inflows, a little bit of outflows. Can you comment at all how winter to spring activity happened this year? Did it kind of stop recently with the war? I'm just trying to get a sense of how different the activity was this year versus, you know, more normal years.
Thanks, Randy. What I would say is, you know, Q1's always a challenge for us 'cause it's, you know, just seasonally and down. Especially , we had such a, y ou know, Q4 is always good, but last Q4 was really, really strong, so you never know exactly how that's gonna impact Q1 pace. I think the fact that on a relative Q1 basis is it was a record and it was so good, I think we're especially excited just given that was off of a really strong Q4.
I do think, you know, the combination of those two quarters, you know, you're always looking at what you're adding and what you're taking and, you know, I think that probably drove some of our commentary about why we thought advisory would be similar in Q2. You know, other than that, nothing sort of extraordinary there.
Okay. What do you think the markets need to see to kind of get, you know, back on an upward slope? Is it the Iran war? Is it lower oil prices? Is there you know, if you had to call out two or three things, what do you think it is?
Yeah, I mean, that's hard to just talk about the whole market. I mean, honestly, each of our sort of segments is driven by certain things. I mean, in our energy business now, you know, things are rocking. They've got a lot of interesting things going on. We talked a little bit about. I think in bank land, you know, one of the things that's pretty important is just what's the starting point of stock prices. You know, they're down a little bit and, you know, that's not a perfect time to transact. Just, yeah, relative to the sponsor business, I think it's just gonna be some stability. It's not like we're not transacting, but sort of at. You know, there's really three decision points for sponsors.
April is always our heaviest pitch month, and that's true today. We know what's coming, but then there's the decision point of do you launch before the decision point of do you transact? I think it's just certainty of close and, you know. Do we get some resolution on global macro, and do people feel like, you know, they're gonna hit their valuation points? You know, we'll learn a lot the next couple months here. The, you know, the good part is I think people are at least confident enough in sponsor land to do the pitch, start the process, but there'll be another big decision point this summer about, you know, do we launch.
Got it. That's helpful. Best of luck this summer.
Thank you
Thank you. At this time, we have no further questions. I would like to turn the call back over to Chad Abraham for closing remarks.
Thank you, Margo. Thanks to everyone that joined us this morning. We look forward to updating you on our second quarter results this summer. Have a great day.
This does conclude today's call. We thank you for your participation. You may now disconnect.