Piper Sandler Companies Q2 2023 Earnings Call Transcript

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July 28, 2023

There are 8 speakers on the call.

Operator

Morning, and welcome to the Piper Sandler Company Conference Call to discuss the Financial Results for the Q2 of 2023. During the question and answer session, securities industry professionals may ask questions to management. The company will make forward looking statements on this call that are 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 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 c.gov. This call will also include statements regarding certain non GAAP financial measures.

Operator

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. The earnings release is available on the Investor Relations page of the company's website and at the SEC website. As a reminder, this call is being recorded. At this time, I would like to turn the call over to Mr.

Operator

Chad Abraham. Mr. Abraham, you may begin your call.

Speaker 1

Good morning, everyone. Thanks for joining us today to talk about our Q2 results. I'm here with Deb Schoneman, our President and Tim Carter, our CFO. In a challenging Q2 of 2023, HEYPSANDLER generated adjusted net revenues of $277,000,000 and adjusted EPS of $1.13 Activity across most of our businesses continued to be muted as a cloudy economic outlook has kept many clients and transactions on the sidelines waiting for the inflection point to better market conditions. We remain focused on helping our clients navigate a highly dynamic economic landscape.

Speaker 1

When markets stabilize, we expect activity levels to accelerate, And we believe that we are strongly positioned to help our clients transact across our various product and business lines. Turning to Corporate Investment Banking. We generated revenues of $167,000,000 during the Q2 of 2023, flat compared to the Q1. Highlighting the benefits of our diversified product and industry set, increased corporate financing activity offset a decline in advisory service revenues for the quarter. Specific to advisory services, Revenues of $130,000,000 for the quarter reflect the continuing challenges in the M and A and debt markets.

Speaker 1

We completed 61 advisory transactions during the quarter. Performance was led by our healthcare group with solid contributions from our energy and power and restructuring teams. The decline in our advisory activity for the quarter was largely driven by a market wide reduction in bank advisory transactions. The outlook for bank M and A over the next 6 months remains challenging, negatively impacted by company and portfolio valuations, a lack of clarity around credit quality and an uncertain regulatory capital framework. However, the longer term outlook for consolidation and capital markets activity in the depository space is compelling And our market leading bank franchise is well positioned to advise clients when the market improves.

Speaker 1

Overall, our performance on a relative basis remains solid. Completed U. S. M and A market activity is down approximately 50% compared to the first half of last year, while our revenues are down 29%. On a year to date basis, We maintained our ranking as the number 2 advisor on announced U.

Speaker 1

S. M and A transactions under $1,000,000,000 Importantly, the outlook for M and A is improving. We have a number of larger announced deals expected We expect advisory services revenues for the second half of twenty twenty three to be better than the first half. Turning to corporate financing. The equity financing market improved during the Q2 with lower volatility levels and an increase in investor demand for new issuance.

Speaker 1

However, activity continues to remain below historic levels. For context, 21 IPOs priced in the market during the Q2 of 2023 compared to an average of 102 IPOs per quarter for the last 5 years. We generated $37,000,000 of corporate financing revenues during the Q2 of 2023, up on a sequential basis. We completed 24 equity and debt financings, raising $5,000,000,000 in capital for corporate clients. Activity was driven by our market leading healthcare franchise, which ran the books on all 14 deals completed during the quarter, including one of the largest biotech IPOs in history.

Speaker 1

Highlighting our strong relative performance, on a year to date basis, Our economic fees from sub-five billion market cap companies increased approximately 200% compared to a 30 In addition, we ranked as a top 5 investment bank based on the number of book run deals for healthcare companies with less than $5,000,000,000 of market cap. As we look ahead, we expect financing activities to continue building as we progress through 2023. Turning to Investment Banking Managing Director headcount. MD headcount remained flat sequentially, finishing the quarter at 171 Managing Directors. We added 2 MDs during the quarter, 1 to continue growing our real estate team and 1 to further expand our restructuring practice.

Speaker 1

These additions were offset by planned attrition. We remain focused on strategically managing headcount and driving productivity, while at the same time continuing to strengthen our sector coverage and product capabilities to ensure we have the resources to execute against market opportunity as conditions improve. With that, I will turn the call over to Deb to discuss our public finance and brokerage businesses.

Speaker 2

Thanks, Chad. During the Q2 of 2023, our public finance business generated 17,000,000 Municipal financing revenues flat compared to the Q1. Marketing conditions remain challenging with higher nominal rates, interest rate volatility and weak investor demand. For the quarter, we underwrote 109 municipal negotiated transactions, raising $2,400,000,000 of par value for our clients. Our results continue to be disproportionately impacted relative to the overall market issuance due to our meaningful presence in the high yield sector and our middle market focus within the governmental business.

Speaker 2

As we look ahead, our pipeline is large and diverse. We have several significant high quality transactions scheduled for the second half of this year and a number of high yield issuers looking to raise capital. As a result, we expect revenue generation to improve modestly during the second half of twenty twenty three with additional upside if there is increased demand for the high yield offering. Moving to our equity brokerage business, we generated $50,000,000 of revenues for the Q2, down modestly from the Q1. Equity markets experienced lower volatility, which moderated volumes as well as our results.

Speaker 2

We traded 2 point 7,000,000,000 shares during the quarter on behalf of our clients, down 4% sequentially relative to a 9% decline in market volume. Client research votes and affirmation of the quality and capabilities of our platform continue to increase and we see opportunity for further market share gains in this business over time. However, with the expectation of reduced volatility in the near term, we expect our equity brokerage revenues the second half of twenty twenty three to be consistent with the first half. Moving to fixed income, market conditions continue to be challenging. The yield curve inversion grew steeper during the quarter, keeping investors on the sidelines awaiting more clarity on when the Fed will end its interest rate tightening.

Speaker 2

For the Q2 of 2023, we generated revenues of $37,000,000 down compared to the Q1. The breadth of our client relationships and product capabilities provided some level of resiliency to our results. Asset managers and public entity clients were active as they found relative value in the short end of the yield curve. Trading among our depository clients remained slow as they continue to focus on building liquidity and evaluating their capital and funding position. Advising clients On hedging strategies drove an increase in derivative activity and we remain active assisting clients with loan sales.

Speaker 2

While we expect the near term outlook to remain challenging, we anticipate more clarity on interest rates as the year progresses, which should provide a turning point to more constructive fixed income markets. Like our Investment Banking Group, we remain focused on broadening our fixed income platform. Our recruiting pipeline is active and we see opportunities to continue expanding our market reach. We believe we are well positioned to gain share assist clients when market conditions improve. Now, I will turn the call over to Tim to review our financial results and provide an update on capital use.

Speaker 3

Thanks, Deb. Before reviewing our non GAAP financial results, let me highlight an item impacting our GAAP results this quarter. Consistent with all prior periods, our GAAP results include restructuring and integration costs related to acquisitions and or headcount reductions. The Q2 of 2023, our GAAP results include $4,000,000 of restructuring expenses associated with headcount reductions, as well as vacated leased office space related to our previous acquisitions. Now let me turn to our adjusted non GAAP financial results, which should be considered in addition to and not a substitute for the corresponding GAAP financial measures.

Speaker 3

We generated net revenues of 277,000,000 Consistent with the Q1 of this year, market conditions during the Q2 remained difficult for most of our businesses. Corporate Investment Banking revenues were flat on a sequential basis and continued interest rate uncertainty has kept many of our fixed income and public finance clients On the sidelines. For the first half of twenty twenty three, net revenues totaled 5 $67,000,000 down 20% year over year. That said, our diversified platform is generating solid operating results. We continue to manage the business to reflect current market conditions while balancing our strategic objectives of growing the long term earnings capacity of our platform.

Speaker 3

Turning to operating expenses and margin. Our compensation ratio for the Q2 of 2023 was 63.8%, slightly higher compared to both the sequential quarter and the Q2 of last year driven by lower net revenues. For the first half of twenty twenty three, our compensation ratio was 63.6%. We continue to maintain our Managing compensation levels to be a balance of employee retention and investment opportunities, while delivering operating margins and shareholder returns. Based on our current outlook, we expect our compensation ratio to be around the year to date level for the remainder of the year.

Speaker 3

Non compensation expenses for the Q2 of 2023 excluding reimbursed deal expenses were 67,000,000 An increase of 12% on a sequential basis and 11% compared to the Q2 of last year, primarily due to the write off a receivable in our public finance business. On a year to date basis, excluding reimbursed deal costs, non compensation expenses totaled $126,000,000 or an average of $63,000,000 per quarter. Looking ahead, we expect our non compensation costs, excluding reimbursed deal expenses to be around $62,000,000 per quarter, in line with previous guidance. During the Q2 of 2023, we generated operating income of $26,000,000 and an operating margin of 9.5%. For the first half of twenty twenty three, operating income totaled $67,000,000 and an operating margin of 11.9%.

Speaker 3

Our income tax rate was 18.2 percent for the Q2 of 2023 and 2.1% for the first half of the year. Income tax expense for the year to date period was reduced by $15,000,000 of tax benefits related to restricted stock vestings. Excluding these benefits, our year to date tax rate was 25.3%. We expect our tax rate for the second half of twenty twenty to be within our range of 27% to 29%, excluding the impact from stock vestings. During the Q2 of 2023, generated net income of $20,000,000 and diluted EPS of $1.13 For the first half of this year, Net income totaled $63,000,000 and diluted EPS was $3.49 Let me finish with an update on capital allocation.

Speaker 3

We remain committed to returning capital to shareholders through market cycles. During the Q2 of 2023, we returned an aggregate of $16,000,000 to shareholders primarily through the quarterly dividend. For the first half, we returned an aggregate of $128,000,000 to shareholders. On a year to date basis, we repurchased approximately 447,000 shares of our common stock or $64,000,000 which more than offset the share count dilution from this year's annual stock grants. We also paid an aggregate of $64,000,000 or 2.45 per share to our shareholders through our quarterly and special cash dividends.

Speaker 3

In addition, today the Board approved a quarterly cash dividend of $0.60 Per share to be paid on September 8 to shareholders of record as of the close of business on August 25. While our Q2 and year to date results reflect the continued challenging market conditions, we've made significant strides over the last few years to increase the long term earnings power of our platform. Once markets open up, we believe we are in a position of strength to continue to

Operator

Our first question comes from Devin Ryan with JMP Securities. Your line is open. Please go ahead.

Speaker 4

Hey, thanks. Good morning, everyone.

Speaker 5

Hi, Devin. Hey.

Speaker 4

I just want to start on the equity financing market. Obviously, saw some improving results there and I think healthcare, you showed some strength and that helped offset some of the softness in advisory. So just want to maybe dig in a little bit around what you're seeing in the equity issuance environment, Whether you're seeing activity kind of building outside of just healthcare. And then the bigger picture is really you had A better quarter from the Q1, but you're kind of just back to the second half of last year levels and clearly far off of The 2021 record, which also wasn't normal, but just trying to get a sense of like how you guys think about what a normalization in that business line could look like for Piper, especially since you've Adding resources and bankers.

Speaker 1

Yes. So I guess first of all on the ECM question, Yes, it certainly continues to be better than the last few quarters. But the total overall fee pool in Centimeters is still down significantly from the averages from the last 4 or 5 years, but it's improving. I would say for us it has been Concentrated in healthcare, but you're slowly seeing some IPOs. Obviously, we were on a restaurant IPO.

Speaker 1

We Did a couple of financial services deals, secondaries. So I would say it's We're usually concentrated more than half in healthcare. That's still the case. We're slowly seeing it branch out, Expected to continue to get a little better, but it's not like it's fantastic levels of ECM at all. It's just better than how bad it's been.

Speaker 1

And then relative to just overall revenue levels and Where things are, we've definitely in the last couple of months seen a pickup in our deal announcements, certainly our deal announcements With any size, we announced a couple of significant depository transactions this week. And certainly, every few days, we're seeing more announcements. Obviously, some of that will trickle into Q3 and Q4 and so we made the comment that the advisory is definitely going to be better in the second half. I would say though it's not like The COVID snapback in 2020, it feels like a recovery, a slow build. It's Definitely getting better.

Speaker 1

We're definitely able to get some of the sponsor deals financed, It's slowly better. It's not racing back.

Speaker 4

Okay, terrific. Thanks, Chad. And then just a similar kind of framework for the advisory business. So, appreciate some of the commentary. It sounds like some of the Early indicators of business there are improving.

Speaker 4

So love to just dig in a little bit around that and if you can provide more Around either anecdotally or quantifying what you're seeing around some of these early indicators. And really, is it a function of just Deals that you've been mandated on and maybe people are feeling like let's kind of start to move these forward at a faster pace? Or Are you seeing kind of an uptick in new activity coming in or sponsors saying, okay, it's now been quite some time since we've done something, markets More interesting now and so maybe the risk isn't as extreme. Like what is the tone? And then does the recovery in your mind, Is it uneven where you have maybe the best assets trade and assets that are more cyclical or macro centric just sit and so it's not a Kind of a normal recovery in a sense of like everything is improving at the same time.

Speaker 1

Yes, I would just say the signals for us Is a bunch of the larger deal announcements and fees that we sort of announced the last couple of months that haven't closed. Obviously, that gives us Visibility into the second half, I would definitely say on our sponsor business, anything of size that needed Credit was very difficult. I wouldn't say it's great in the credit markets, but we're definitely getting financing packages. Some of those seller expectations are coming in line. So with some financing package, some seller Expectations coming to line.

Speaker 1

We're able to get more transactions done. Obviously, in Some of our industry groups, industrials and consumer and some of the ones that are heavy, sponsor focused, we've launched Quite a few deals in the last couple of months and those are 6 month processes. So we'll see what Close is what I would say is, we're getting you get plenty of bids at the beginning. And at the end of the process, There's not as many buyers standing as there certainly were a year or 2, but we're getting more and more of those Over the finish line. So I would say there is financing.

Speaker 1

And then I would I guess I would also add certain sectors You know, are obviously easier than others in the sponsor space, but really across the board in industrials and healthcare And consumer and energy, we're definitely seeing private equity get more active.

Speaker 4

Okay, got it. That's great. And then just if I can sneak one more in here for Tim. Just on The write off of the receivable, I'm assuming that's just a complete one off here with a one off client. Just want to make sure I understand that Make sure there's nothing else kind of note there on the expense side.

Speaker 4

Thanks.

Speaker 3

Yes. Devin, you're thinking about that right. I mean, it's a specific client who had a pretty unique Situation, we've determined we should write off that receivable. So we've fully written that off. There's no more exposure there.

Speaker 4

Okay, great. Good stuff. All right, thank you. I'll leave it there. Thanks guys.

Operator

Thanks, Devin. Our next question comes from James Yaro with Goldman Sachs. Your line is open, sir. Please go ahead.

Speaker 5

Good morning and thank you so much for taking my questions.

Speaker 6

Good morning. Hi, James.

Operator

Maybe if you could start

Speaker 5

with the Muti Finance business. I appreciate your comments, Deb, but maybe just thinking about the longer term trajectory of that business. What's The timeline over which you think the business fully normalizes? And then I guess with higher terminal rates, Is there any reason to expect it can't fully return to the previous revenue run rate?

Speaker 2

Yes. So first of all, just thinking about the path here, it's a little hard Predict exactly because one of the bigger drivers for us for our business is our specialty businesses, meaning the biggest driver of the improvement. And we need to see more inflows into high yield funds. And while that stabilized this year and there's been some modest inflows, It's less than 10% of the outflows that we saw last year. So that's something to watch, I guess, I would say, as it relates to How soon the recovery comes in that business?

Speaker 2

And I would say relative to your comment on Overall rates and where those are, so the refinancing side of our public finance business. That obviously is impacted. And I would say, As we move forward, you look back to the peak in 2021, that was driving part of it. So I would say we are focused on continuing to recruit and add to be able to build a Business that's bigger than that, but you're accurate in that interest rates will impact the ability to get back to that sort of level.

Speaker 1

Yes. And I would just add, I mean, obviously, The vast majority of projects we're financing are eventually going to happen. Yes. And so, yes, we will get back to the run rate. Some of the project finance, project development, real estate type stuff that is Specific to can you get it financed with that package, that may be on the margin in a much higher rate environment, More difficult, but most of the rest of the public finance stuff or projects that are happening, I mean they're eventually going to happen.

Speaker 5

Okay. That's really clear. Thank you for that. Chad, maybe I can just ask you about the competitive environment for hiring. On the one hand, the bulge bracket is pulling back and there have been some recent deals that have actually taken out some of the publicly traded independent Peers, and I would suspect that means more capacity.

Speaker 5

Against that, a number or maybe all of your independent peers have talked about Being a golden hiring opportunity. So how have these two things impacted the ability and cost of bringing in new hires today?

Speaker 1

Yes, I would say, I mean, certainly for me the last 4 or 5 months, we're spending more time than ever Talking to candidates, I think you just look across the board, the amount of successful It's a smaller number, so there's certain places people want to be. The reality though is just because Someone makes a move, wants to make a move doesn't mean it's necessarily a great hire. So it's just a lot of scrutiny on quality, a lot of scrutiny on in tough markets, Can people perform and we really don't want more bankers that are just good in great markets. So we're definitely seeing more hiring. I would say part of why it is interesting is The packages, the way they're structured, they're not as extreme as they've been in 2021 when things were great.

Speaker 1

That does make it more interesting. But I would also say for us, we're conscious of the fact that Over the last few years, we've grown faster than most. So the reality is we're still adding, we're going to add at a measured pace, But it's not like I mean, we don't need to add anybody to get significant uplift because productivity is at Pretty low point historically. So I think we'll keep adding like we have at a pretty measured pace. We'll also stay very focused on quality and productivity, and we'll continue to manage out underperformers or people that after A couple of tough years, it's sort of obvious they're not hitting productivity.

Speaker 5

That makes a lot of sense. And then just one more, which is sort of out of left field, We just saw the Basel III Endgame proposal for the big banks. There's clearly declining capacity for trading balance sheet across Both the U. S. And Europe, I think the proposal yesterday for the U.

Speaker 5

S. Was worse than expectation. So I guess And there are not that many independent full service investment banks like yourselves out there. So when you think about the opportunities that Does this additional regulation at all change your ability to take market share in some of your more balance sheet intensive businesses?

Speaker 1

Yes. I mean, I'll let Deb comment on the fixed income side. I mean, obviously, relative to the regulatory side, I said this on the call Last time, I think everybody was so excited with sort of what's happened. Was there going to be a lot more consolidation in Depositories and we sort of said that, yes, eventually that will happen. But it came to a screeching halt until people get Some clarity.

Speaker 1

This is the 1st week we announced a couple very significant transactions in the depository space. We're definitely seeing activity pick up. Obviously, there's a long close cycle on that. And whether that's a slow build Or it starts to pick up and really accelerate at the beginning of next year. What we do know is we're going to be If it's difficult for everybody, we're still gaining market share in depository.

Speaker 1

So eventually, it's going to be very good for us. And I'll let Deb talk about some of the rules relative to balance sheet.

Speaker 2

Yes. And what I would say relative to fixed income business, depositories are a large part of our business. It's actually the primary reason why we're seeing Softness in our fixed income results right now, because there's so such a lack of clarity on interest rates, etcetera. So as we think about our business, I would think about it much more as advisory in nature, working with banks across their asset liability management. Right now, we're doing a lot of work with banks on helping them manage interest rates through our derivative product, creating liquidity by selling loans.

Speaker 2

So it's not a use our balance sheet to drive business. It's much different and much more advisory based.

Speaker 5

Okay. That's very clear. Thank you so much.

Speaker 2

Thank you.

Operator

We'll go next to Steven Chiebelink with Wolfe Research. Your line is open. Please go ahead.

Speaker 7

Good morning. This is Brendan O'Brien filling in for Steven. I guess to start, I want to ask a bigger picture question. Last year, you outlined a target of growing the Corporate and Investment Banking business to over $2,000,000,000 At the time, you obviously were not anticipating the slowdown that we have endured, but at the same time, these types of environments do tend to offer better I was hoping you could discuss some of the areas that you have been investing in and are looking to invest in further To hit this target and whether there's any interest in doing a more meaningful acquisition in the current market and maybe you could speak to your confidence in able to hit that $2,000,000,000 number, I believe it was by 2026.

Speaker 1

Yes. What I would say is, I mean, When we did that, we had a lot of analysis sort of by industry team on what the opportunity was. And Frankly, even in our 2 biggest sectors in healthcare, where we've always been traditionally really good in medtech and biotech, And we thought services could be a 3rd leg on the stool. We've continued to invest there, absolutely still believe that even in financial services Where it's a very significant business and in the middle market, we're the leader. There was a huge opportunity for us in terms and outside of depositories.

Speaker 1

And we've significantly done that, invested in our Insurance business, asset management business, real estate business. And so we think that opportunity is significant. One of the biggest Areas of opportunity was could we ever have a tech business that was the same size as financial services and healthcare? Obviously, we're undersized relative to some peers there, but that market certainly presents that opportunity and we continue to invest Obviously, we did DVO. We talked about some of the products.

Speaker 1

We weren't big in. Obviously, We did TRS in restructuring and frankly that's gone incredibly well, keeps growing and eventually we'll get To the size and scale where it becomes countercyclical to some of the advisory businesses. And then even our other teams, There's lots of white space. So I would say we still believe in that $2,000,000,000 banking target. It's still out there for us.

Speaker 1

Do I think it's going to happen for 2026? Obviously, that depends on the recovery. When we talked about this, we sort of said, It doesn't really matter if it happens in 5 years, 7 years, 8 years, but getting that sort of continued growth path is important to us. And then I would say relative to other transactions, what definitely is happening in the marketplace, I mean, people have seen the success we had with Valence and Chemicals in the TRS team in restructuring, and obviously what we did with Sandler and Simmons in Energy. So yes, we're getting Lots of good looks.

Speaker 1

I would say the bigger deals get tougher because we don't like to do a lot of transactions that have a lot of people overlap. But the pace of things we're looking at and seeing is quite good. And I would also say We're starting to get to a zone where new boutiques or teams aren't talking about 2021 results. They're sort of being More realism on sort of the current market and that will help us get something executed.

Speaker 7

That's great color. Thank you. I guess switching pace here a bit, I wanted to talk on the fixed income business. Took another step down this quarter and it feels like it's been a story of 1 step forward and 2 steps back for the fixed income environment in general. In the past, you've talked about activity picking up once there's rate volatility, less rate volatility, and it does feel like we're closer to the end of this rate hike cycle.

Speaker 7

Just want to get a sense as to how we should be thinking about the outlook for this business from here. And Dave, I know you mentioned like yield curve inversion, whether or not That needs to resolve itself before we actually see activity pickup or if there's some other indicators we should be looking at?

Speaker 2

Yes. I would agree that it feels like we're heading towards the end of that fed rate cycle and there's just still uncertainty around that, which is driving lack of activity. And as I just mentioned, again, the primary driver of the challenges in the business have been within the depository space and their lack of activity. So you can think about that in terms of when banks are able to get back in. In terms of your question On the yield curve, the inversion doesn't have to be reversed.

Speaker 2

It's just that we need to see that There's a belief that the Fed has ended, that rates are going to start coming down and that's going to drive more investment out on the curve in So the inversion doesn't have to go away, but we need to feel like it's at the end and it's going to start moving the other way.

Speaker 1

Yes. And the one thing I would say, I mean, we obviously were asked about recruiting and investment banking. Since my time CEO, I haven't seen more opportunities coming to us in fixed income, I think, because it's difficult. Most places people know we have a pretty special platform and I would say things like loan trading, non agency trading, Things we're doing in credit unions. I mean, we've made some interesting additions.

Speaker 1

And frankly, in the fixed income market, Outside of some of the stuff we're doing in depositories, there's actually some areas of strength. So we certainly acknowledge that we're This is a very difficult year. Obviously, 2021 was a very good year, but we're still bullish on long term opportunity, size of the market, Our sort of position in that market and again are seeing some great opportunities to hire in fixed income.

Operator

We'll go next to Mike Grondahl with Northland Securities. Your line is open. Please go ahead.

Speaker 6

Hey, guys. Thanks. First question, I think I'm hearing advisories having a better second half, but not a blowout. Capital financing is also kind of continuing to improve and continuing to build. Am I right in thinking, hey, it's kind of steady recovery, slow to modest, but You're not seeing anything more than that at this point.

Speaker 6

Is that fair?

Speaker 1

Yes. I think that's fair. I mean, I think what we need to see, I mean, we certainly have the deals in the market. We need to see the close rate Continue to improve in advisory. And what I would say about the financing ECM business, we sort of been at this Steady, okay for 3 quarters.

Speaker 1

Obviously, in Q3, we always have August, which is Lighter. And then when we pick up in September, you sort of lose the 1st week with Labor Day. But for us, the financing markets, It's fine. We're doing business again. The whole first half of last year, it was shut down.

Speaker 1

The question about is it broadening Consumer and where we really haven't seen is a sort of a broadening to tech. Now there's a few interesting tech IPOs I think that will come to market towards the end of the back half. That will certainly help the tech market. So I think you characterized that right. We're definitely seeing improvement.

Speaker 1

We're definitely gaining confidence on sort of revenue improvement, but it's not a snapback like we saw in 2020. It's a slow recovery.

Speaker 6

Got it. And then my second question was just which sectors are sort of facing The greatest challenges for you and I think you kind of answered that with tech, maybe slowest to recover. Any others that stick out?

Speaker 1

Yes, I would say that the 2 toughest by far is in Financial Services Depositories. I mean, We were down significantly in Q2 in depositories even from end of last year and the beginning of this year. And then, yes, relative to tech, we haven't seen much ECM activity in a long time and that's a big business for us. And frankly, the M and A transactions in tech have been more difficult. Now you've seen a big rebound in Some of the software multiples and valuations.

Speaker 1

So that will work itself out. But if I would have to pick 2 of our most difficult teams, it would be the depository half of financials and tech in general.

Speaker 6

Got it. Maybe lastly, Chad and Tim, how are you guys feeling about the cost structure today?

Speaker 1

Yes. I mean, what I would say about the cost structure is, I think we're watching it very carefully. We did take a charge. We did Some small headcount reductions in certain areas where we're not seeing that Our rebound, the reality though is we still have what I would say is a couple hundred Employees more than we had at the 2020 level and frankly non comps are higher now than what they were back then. So I think it's Something we're watching very carefully, being very, very careful about new hires, obviously watching attrition, obviously managing out Underperformance and productivity of some of our producers.

Speaker 1

But I think we'll continue to watch that and be very careful there because When we get if we're only getting marginal revenue improvement the next couple of quarters, we're going to want to get more leverage on the bottom line.

Speaker 6

Fair enough, guys. Thank you.

Operator

Thank you. And with no other questions holding, I'll turn the conference back to Mr. Abraham for any additional Closing comments?

Speaker 1

Okay. Thank you, operator, and everyone that joined. We look forward to updating you on our Q3 results. Have a great day and weekend.

Operator

Ladies and gentlemen, that will conclude today's conference. We thank you for your participation. You may disconnect at this time.

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