Piper Sandler Companies

NYSE:PIPR

Earnings Call Transcript 2019-Q4

[Operator]

Good morning and welcome to the Piper Sandler Companies Conference Call to discuss the Financial Results for the Fourth Quarter and Full Year of 2019. During the question-and-answer session, securities industry professionals may ask questions of 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 that 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.gov.

This call will also include statements regarding certain non-GAAP financial measures. 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 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. Chad Abraham. Mr. Abraham, you may begin your call.

[Chad Abraham, Chairman & Chief Executive Officer]

Good morning, everyone. I'm here with Deb Schoneman, our President; and Tim Carter, our CFO. We would like to thank you for joining us to discuss the financial results for the fourth quarter and full year of 2019. After our remarks, we will open up the call for questions.

Reflecting on the year, we generated record revenues and earnings and completed a number of strategic actions. 2019 was a year of growth and transformation. It's very fitting that 2020 marks the firm's 125th anniversary. Our history is one filled with growth and change, the most recent being our new name Piper Sandler Companies.

Our dedication to serving the best interest of clients, employees, shareholders, and the communities where we live and work has been the foundation of our success. I'm excited to celebrate our 125th anniversary with clients and colleagues, while executing on our future strategic priorities.

Let me begin by providing a summary of the strategic activities that shaped 2019 and our goals for 2020 and beyond. In early August, we closed on the acquisition of Weeden & Company which significantly enhances the scale of our equity brokerage business by upgrading our trading capabilities and broadening our client base.

In late September, we closed on the sale of Advisory Research, our traditional asset management business. This business no longer fit with our strategic vision and the sale was the best course of action for our clients, employees, and shareholders.

Finally, early in July, we announced the acquisition of Sandler O'Neill. The acquisition closed on January 3rd of this year. Sandler adds the leading investment banking firm focused on the financial services industry to our growing investment banking platform. I look forward to working with Jon Doyle; and Jimmy Dunne and the fantastic team they lead.

In 2020, we look to build on the record financial results achieved in 2019. With Sandler successfully closed, we now look forward to providing clients access to the full breadth of our combined capabilities.

Both Weeden and Sandler were market leaders who chose to partner with us. Part of our continued growth will include selectively adding partners who share our client-centric culture and who can leverage the Piper Sandler platform to better serve clients. Development and retention of our own talent provides the most profitable growth and we continue to invest in the development of our future leaders.

Next, let me provide some overall comments on our financial results for 2019 and an update on our Advisory and Equity Capital Markets businesses. In Q4, we generated $276 million of adjusted net revenues and $2.89 of EPS both quarterly records. Our strong finish to the year led to adjusted revenues of $824 million for 2019 and EPS of $7.36 also records.

Turning now to Advisory services, Advisory generated quarterly revenues of $144 million, up 35% from Q3 and 12% from the year ago quarter. Q4 Advisory revenues were led by our market-leading healthcare franchise with strong contributions from consumer, technology, and industrials.

For the year, Advisory revenues were $441 million, up 12% reflecting strong broad-based performance. Our healthcare, consumer, and industrials teams all performed well, generating record or near-record results. We advised on 178 transactions during the year, up from 170 in 2018. We continue to focus on elevating our platform by leveraging our brand to win larger deals and enhancing our value proposition to clients by providing more products and deep sector expertise. This is reflected in our median fee increasing 16% from a year ago driving increased revenues.

Growing and broadening Advisory services has been a long-standing focus for us. Our revenues have more than doubled in the last five years, reflecting strong market share gains. These results are a function of internal development, selective hiring, and corporate development activities.

We've previously discussed remixing the business towards capital-light variable cost businesses such as Advisory. For the third year in a row, Advisory revenues represented over 50% of our total revenues, a trend we expect will continue. We're excited to add Sandler to our platform, a market leader in the financial services industry.

Sandler is also an advisory-led franchise with approximately 50% of revenues generated by Advisory services. The combination significantly elevates our Advisory practice with market leadership in health care, financial services, consumer and energy. And we expect to be in the top three of all U.S. investment banks in terms of deal flow.

Trade tensions, geopolitical risks, and the U.S. presidential election create headline risk for 2020. However, conditions for M&A in the middle market remain conducive to transactions due to demand from PE investors, attractive valuations, low-financing rates and continued solid economic growth. Our pipeline is relatively strong across our industry verticals albeit back half weighted again as we reload from the strong Q4.

Turning to ECM. Equity financing activity finished the year very strong with Q4 revenues of $43 million, driven by our health care team. For the quarter, we raised $3.9 billion in capital for our clients and were book runner on 76% of transactions.

For the full year, we generated $105 million in equity financing revenues, down 14% from 2018, reflecting challenges in the cyclical energy sector and the impact of the federal government shutdown in early 2019.

Looking forward to 2020, the combination with Sandler as a market leading franchise to our capital markets offerings and expands our platform as financial services represents a large and broad fee pool from a corporate capital raising perspective.

We previously set a long-term goal of growing annual advisory and corporate financing revenues to $750 million. With the addition of Sandler, we should be close to achieving that goal.

We see continued growth over the medium-term by adding talent in certain subsectors to broaden our industry teams and continuing to increase banker productivity. We also see an opportunity to capitalize on the strength of our U.S. franchises by expanding in Europe. As a result, our new goal is to grow advisory and corporate financing to over $1 billion of combined annual revenues over the next several years.

I will now turn the call over to Deb to discuss our public finance and brokerage businesses.

[Deb Schoneman, President]

Thanks Chad. Let me begin with an update on our equity brokerage business. Equity markets in the fourth quarter saw low volatility and volumes. There were a few catalysts motivating clients to trade as markets continue to advance higher despite global growth concerns and trade tensions. Our equity brokerage business generated revenues of $32 million for the quarter and $89 million for the year, up meaningfully compared to the prior period driven by the addition of Weeden to our platform.

On an annual basis inclusive of Sandler, we expect equity brokerage revenues to be approximately $130 million, providing meaningful operating leverage in the business as we capitalize on cost synergies. With a comprehensive suite of products, one of the largest client base as a domestically focused brokers and a high-quality research franchise covering 875 stocks, we believe that we have a significant market share opportunity in front of us as participants consolidate towards larger, broader and higher quality providers.

Turning to our public finance business. Debt financing finished the year very strong with $31 million of revenues for the fourth quarter, up 37% from Q3 and 13% from a year ago. We benefited from a surge of new issuance volume in the market as clients took advantage of low rates.

In addition, we completed several higher spread financings as demand remained strong for high-yield muni offerings in this low interest rate environment. For the full year, we generated $86 million of debt financing revenues, up 17% from a slow 2018. Market conditions significantly improved as the year progressed, driven by low rates and investor demand. Increased issuance for 2019 was driven by a pickup in refunding activity especially taxable refinancings and an increase in new money issuance.

We expect the debt financing momentum we experienced in 2019 to carry over into 2020 with another strong year of market issuance. Our pipeline is solid with several higher spread financings in the backlog. As always, our ability to execute on our backlog is contingent on market conditions. Investors value the tax exempt feature of municipals and differentiated high credit quality of this asset class, making it a valuable component of our product capabilities.

Our commitment and expertise in the public finance market has led to increasing market share over time and makes us a natural destination for talent looking to best serve their clients.

In 2019, we added nine senior bankers, expanding our presence in the Nebraska, Colorado, Pennsylvania and Ohio. We are one of the most active municipal debt underwriters in the market, ranking in the top 10 based on par value and top three based on volume of deals.

In the fixed income markets, yields normalized in the fourth quarter as the yield curve steepened easing concerns about an inverted curve. The two 10 spread expanded from five basis points at September 30th to 34 basis points at year-end. For the quarter, we generated fixed income brokerage revenues of $25 million consistent with Q3 and up 73% over the very challenging year ago period. For the full year, we produced $95 million of revenues, a 40% increase from 2018. A combination of conducive market conditions, increasing client activity and strong execution drove a very successful year for our fixed income franchise.

It's important to note, we achieved these results in a lower risk profile and with a reduced headcount and cost base, driving a meaningful increase in the returns for this business. Looking to 2020, we're excited by the opportunities, the combination with Sandler presents given the complementary products and expertise.

Now, I will turn the call over to Tim to review our financial results and provide an update on capital use.

[Tim Carter, Chief Financial Officer]

Thanks, Deb. My comments will be focused on our adjusted non-GAAP financial results. However, let me first highlight a few items impacting our GAAP results. Our GAAP results include amounts related to the discontinued operations of Advisory Research, our traditional asset management business.

For the year, we recorded net income from discontinued operations of $23.8 million or $1.65 per diluted common share, which included a gain on the sale of this business. In addition we incurred restructuring and integration costs of $1.8 million in Q4 and $14.3 million for the full year, related to the acquisitions of Sandler and Weeden. These costs consisted of severance benefits, contract termination costs and transaction-related professional fees. We expect to incur additional restructuring and integration costs in the first half of 2020 associated with the Sandler acquisition.

Turning to our adjusted financial results. We achieved record revenues of $276 million for the fourth quarter of 2019 and $824 million for the full year. Our Q4 revenues increased 36% sequentially, with strong performances across investment banking, but especially in equity capital markets, which finished the year very strong with $43 million of revenues, the highest quarterly level in over a decade. Compared to the year ago period, quarterly revenues were up 29%, with increases across all of our business lines.

For the year, revenues increased 12%, driven by growth in Advisory services and an increase in fixed income brokerage revenues, which rebounded 40% from the depressed 2018 levels. We produced an operating margin of 20.4% for the fourth quarter, generating pretax profits of $56 million and diluted EPS of $2.89, illustrating the operating leverage in the business at higher revenue levels.

For the year, pretax profits were $136 million, an increase of 26% from 2018. By maintaining cost discipline, we were able to grow profits at twice the rate of revenues. This drove a 16.6% operating margin for the year, a meaningful expansion from 14.7% in 2018. On a year-to-date basis, EPS was $7.36, an increase of 29% from 2018, driven by higher revenues and a higher operating margin.

Turning to operating expenses. Our compensation ratio of 61.2% for the quarter was below our target range of 62% to 63%. Robust revenues in the quarter enabled us to leverage fixed compensation costs in the business. For the full year, our comp ratio was 62% at the low end of our stated range.

Given our focus on corporate development activities in 2019, we did fewer senior investment banking hires, which drove our comp ratio to the lower end of the range. Quarterly non-comp expenses of $51 million were elevated due to increased deal-related expenses driven by higher investment banking revenues. For the year, non-comp expenses were $176 million. Although non-comps averaged $44 million per quarter, they trended higher in the second half of the year, given the addition of Weeden to our platform. We continue to carefully manage non-comp expenses as these costs are an important source of operating leverage.

Our adjusted tax rate was 26.3% for the quarter and 22.1% for the full year. The lower annual tax rate was a result of a $5.1 million tax benefit from restricted stock awards, vesting at values greater than the grant price. Excluding this tax benefit, our adjusted tax rate was 25.9% for the year.

Over the past few years, we have recorded a tax benefit, resulting from restricted stock awards, vesting at values greater than their grant date price. However, this is dependent on the share price at vesting relative to the grant date price and can result in either a tax benefit or additional tax expense. For 2020, we do not expect to generate a tax benefit at the same levels as the past few years.

At our current share price, we're projecting no tax benefit related to the awards vesting in the first quarter of 2020. Also, given the recent changes to our business related to corporate development and strategic activities, we expect our tax rate in 2020 to increase. As such, we are updating our full year estimated tax rate guidance to a range of 26% to 28%.

Turning to capital. Our goal is to maximize shareholder value. This includes, maintaining our dividend policy of returning 30% to 50% of non-GAAP earnings to our shareholders, repurchasing shares on an opportunistic basis and to offset the dilution from stock vestings and deploying capital towards high-quality acquisitions to accelerate growth in the business. Our relative weighting towards each of these levers is dependent on a number of factors, including the market environment and our performance. In the near term, we are more biased towards investing in the business.

In regards to dividends, the Board approved a special cash dividend of $0.75 per share to be paid alongside the first quarter dividend. When combined with the $1.50 of regular quarterly dividends, total dividends for fiscal 2019 will be $2.25 per share. This represents approximately 33% of our adjusted net income for 2019.

The Board also approved a quarterly dividend of $0.375 per share to be paid on March 13, 2020, to shareholders of record as of the close of business on March 2, 2020. In 2019, we repurchased $50.6 million, or 702,000 shares of common stock at an average price of $72.09 per share. In total, we returned $86 million to shareholders in 2019, through dividends and share repurchases.

These amounts are in addition to deploying capital towards the Sandler and Weeden acquisitions. We entered 2020 in a strong capital position, with only a modest level of debt on the balance sheet. We maintained the financial flexibility to continue returning capital to shareholders, while investing in the business.

Let me finish by reiterating some of the high-level guidance we provided in Q3 regarding our go-forward operations with a full year of both Weeden and Sandler in our results. We continue to project that Sander will add approximately $300 million of revenues in 2020.

Going forward, we expect our compensation ratio to be consistent with current levels in the range of 62% to 63%. This level gives us the flexibility to continue investing in the business. Non-comps may vary from period to period, depending on the amount of deal-related expenses. We're adjusting our non-compensation guidance to exclude the more variable deal-related expenses.

In 2020, we estimate non-comp expenses, excluding deal-related expenses, to range from $53 million to $57 million per quarter. We have revised this range to include office space consolidation costs in 2020. These office moves will generate savings in future periods and will allow us to integrate the teams across platforms and drive more connectivity and synergy amongst our employee partners.

In regards to deal-related expenses, these expenses should generally be viewed as a function of banking revenues. Based on historical experience, we estimate that deal-related expenses will represent approximately 3.5% to 4% of investment banking revenues.

Before going to Q&A, I'd like to turn the call back to Chad for a few additional comments.

[Chad Abraham, Chairman & Chief Executive Officer]

Thanks, Tim. Let me close by thanking all my employee partners for their hard work and dedication and congratulating them on a record year and also welcoming our new employee partners from Sandler. The new Piper Sandler has an enviable market position and financial profile.

Our market leadership, sector expertise and broad product capabilities are unparalleled in the middle market. With over $1 billion of annual revenues, strong margins, modest leverage and limited incremental operating capital needs, we are nicely positioned to generate profits to further propel our growth and shareholder returns.

Thanks and, now, let's open up the call for questions.

[Operator]

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from the line of Devin Ryan of JMP Securities.

[Devin Ryan, JMP Securities.]

Great. Good morning, guys. How are you?

[Chad Abraham, Chairman & Chief Executive Officer]

Hi, Devin.

[Deb Schoneman, President]

Great.

[Devin Ryan, JMP Securities.]

Congratulations on the nice end of the year. So first question, just on the Sandler deal. So I know you're still expecting $300 million of revenue contribution at the moment. And I'm just curious how that number compares to what the actual kind of 2019 level was. And it seems like business in the financial vertical starting on a pretty good note here.

So I'm just trying to get some context on maybe some of the areas that might be lower relative to last year, as it seems that that's the implication off of the $300 million, and maybe you're leaving yourself some room for upside, but just trying to think about the moving parts there.

[Chad Abraham, Chairman & Chief Executive Officer]

Yes. Yes, sure. I can take that. Yes. Sandler had another good year in 2019. We had disclosed in January, the revenues from the last few years. They had their third year in a row with revenues north of $300 million. Obviously, that was the target we gave in July, when we announced the deal. We still feel very comfortable with the guidance that we expect it will add $300 million of revenues, relative to some of their business segments.

They had another strong advisory year. And I would say, like our business and others we've seen on The Street, a really strong finish to fixed income as well. And, yes, I think, it's true, they've got a good backlog, good pipeline. I think, like our business, just looking at some of the announced deals and projected closing dates, I think, they like us, will be more back half weighted than first half weighted, but, yes, we expect another strong year.

[Devin Ryan, JMP Securities.]

Terrific. Thanks, Chad. And then, maybe, a follow-up for Tim, on the capital commentary and appreciate the detail. And it sounds like the philosophy is pretty consistent. But clearly, the business could be throwing off a lot of cash here. And I'm just trying to think about any additional capital needs of the business moving forward, whether there be opportunities in fixed income with the combined franchises, you've spend more time thinking about opportunities there or more to do on the financing side. I'm just trying to think about any other areas within the business that could actually consume capital relative to maybe, what you're running at previously?

[Tim Carter, Chief Financial Officer]

Yeah. Sure, Devin. I think you're right in terms of how we continue to think about it. It's really consistent with what we've talked about before. I don't think that additional capital within the business changes really all that much. With the Sandler acquisition, I think the capital we have deployed in the various businesses I think remains fairly consistent going forward. I think we've got some ability to leverage the combined platforms from that perspective. But for us, yeah, it's going to continue to obviously return capital through the dividend, which we very much expect to do and then look for other ways to invest in the business from a corporate development perspective, and then continue to look opportunistically at share buybacks. But that's probably the last priority here at least in the near-term.

[Chad Abraham, Chairman & Chief Executive Officer]

Yeah. Devin, its Chad. I would just add, we continue to be active. And I think just given the growth of the platform continue to be shown, interesting opportunities on the corporate development side. Clearly, our integration with Sandler has gone well. I mean, frankly, the – especially, the integration on the investment banking side just given there was so little overlap that was pretty seamless and we're off to the races. So I think it's unlikely, we would do something large, but very likely we'll continue to look at tuck-in acquisitions or boutiques, especially where there's very little overlap and it gives us some market leadership in some sub-verticals.

[Devin Ryan, JMP Securities.]

Terrific. Maybe just to end on that point. So you highlighted the $1 billion-plus Advisory financing target. It seems like you guys are – you're well on the way there. So maybe just kind of outline the path that you see to that and I believe that would be all organic? And then to the extent there are kind of M&A opportunities just maybe update us on some of those verticals that you feel like it would make more sense to buy versus build organically and even maybe to end on any other areas outside of investment banking that could be complementary inorganically to the business as you're thinking about kind of the overall corporate development?

[Chad Abraham, Chairman & Chief Executive Officer]

Yes. Yeah I would take that. I mean, for us we like to have sort of these internal targets of where we think we're going to take the banking business. And I just think back to 10 years ago, when we had $150 million banking business we really felt we could drive that to $500 million. We've now had three years sort of in and around that range and as we've said many times that came from about half organic and half corporate development. I think a year ago, we sort of set a new goal that we could do $750 million. I think we thought that would take several years through smaller acquisitions and organic growth.

Obviously, we were very happy to partner with Sandler and that probably launched us right to that $750 million mark and so now we've just got this $1 billion target for financing and M&A over the next few years. And I would say that will be a combination of continued organic growth, as we've said in energy even in health care. Even in our strongest places there are subverticals for organic growth. We talked a lot about the opportunity to do more in FinTech with the combination of our software platform and Sandler's financial services platform. But I think also in that goal would be some smaller boutiques, smaller team lift-outs like we talked about. So I think it's a combination of those.

And then your last question is, we'd still be very open to opportunistic acquisitions or team lift-outs in our public finance space and some of our specialty areas. And then I would also just add we're – the combination we're seeing some great early signs in fixed income. Obviously, the integration in fixed income and equities is a little harder than banking since we are already in some of those businesses. But I don't think it's out of the question that we could look to more corporate development and fixed income down the road as well.

[Devin Ryan, JMP Securities.]

Great. Thanks for all the color and taking all my questions.

[Deb Schoneman, President]

Thanks, Devin.

[Chad Abraham, Chairman & Chief Executive Officer]

Thanks, Devin.

[Operator]

Our next question comes from the line of Chris Walsh of Wolfe Research.

[Chris Walsh, Wolfe Research]

Hey guys. Good morning.

[Chad Abraham, Chairman & Chief Executive Officer]

Hi, Chris.

[Chris Walsh, Wolfe Research]

Congrats on the quarter.

[Chad Abraham, Chairman & Chief Executive Officer]

Thank you.

[Chris Walsh, Wolfe Research]

First one, I just wanted to touch on was the ECM outlook. You saw a big step-up in 4Q. Based on all the commentary from the universals that have already reported it seems like the outlook there is still fairly bullish and there might be clients that are trying to pull forward some of their equity raises in front of the U.S. election. We're just looking for any color on what you're seeing amongst your client base?

[Chad Abraham, Chairman & Chief Executive Officer]

Yes. So I can take that. We are definitely off to a better start this year in January. Admittedly, we had a crazy low bar with the government shutdown last year. But I would say, we are seeing very much the same thing. I think the first half will be quite active. And I do think that there are people that are going to try to stay away from October and November with the election. And if they were going to finance around that time, they'll try to do it sooner, but it's really hard to predict how that will impact the second half. But I would agree, generally we see pretty good climate here in the first half for ECM.

[Chris Walsh, Wolfe Research]

And then just in terms of the sector mix, I would assume that's fairly skewed toward health care. Would that be fair?

[Chad Abraham, Chairman & Chief Executive Officer]

Yes. The entire sort of middle market fee pool in ECM has continued to concentrate even more in health care. Obviously, we're really strong in health care. So that's good for us. But even our ECM results were impacted. We did much less energy ECM last year than we did the year before. So I actually expect we'll do a little better in some of the other sectors this year, but the lion's share again will be health care. And obviously, we're really excited to add the financial services fee pool for ECM because that's a fairly large people.

[Chris Walsh, Wolfe Research]

And then just one last one on the Advisory business. You said there are at a higher number of transactions, but also an increase in median fees, which I think you said were up 16% over the course of 2019, it'd be great if you could just comment on the underlying drivers there that have been driving your median fee rate higher?

[Chad Abraham, Chairman & Chief Executive Officer]

Yes. So our median fee rate went up. It's -- sometimes when you're looking at an average, it can be driven by the bigger. The bigger tickets obviously here we're talking about the median fee I would just say. And this is true for our outperformance in Q4. We had a couple of nice transactions slightly north of $10 million, but the massive -- or the biggest part of our revenue stream really just came from fees $2 million to $5 million. We just see more and more $3 million, $4 million, $5 million fees as our -- lots of our bankers are doing somewhat larger transactions. So I think all of that has helped. We still do plenty of $1.5 million fee. So that's in the sweet spot of the middle market, but we're definitely just seeing more 3s, 4s and 5s on the Advisory side.

[Chris Walsh, Wolfe Research]

Awesome. Thanks, Chad.

[Operator]

Our next question comes from the line of Michael Brown of KBW.

[Michael Brown, KBW]

Hi, good morning, guys.

[Chad Abraham, Chairman & Chief Executive Officer]

Hi.

[Deb Schoneman, President]

Good morning.

[Tim Carter, Chief Financial Officer]

Hi, Mike.

[Michael Brown, KBW]

So I appreciate the color on the Sandler integration. I just kind of wondering are you seeing any material changes and how you're viewing some of the synergy potential across the platforms? And then specifically on the expense side, how far along is integration. I understand it's been only a couple of weeks. But is there still kind of more redundancies that need to be eliminated? And kind of how should we think about how that path will play out through 2020?

[Chad Abraham, Chairman & Chief Executive Officer]

Yes. I'll take the first stab at that. Obviously, we look at synergies two ways, what are the revenue opportunities and then on the expense side. I think relative to the revenue opportunities, obviously we haven't -- we're early days and we haven't sort of closed any of those transactions through cross referrals. But we're definitely seeing across public finance and our various industry groups, lots of collaboration, lots of relationships. And so we do still think in the long term we'll see some revenue pickup. And as when we announced the deal in July relative to expenses this -- Sandler already ran very efficient operating margins.

And while there are some opportunities for cost synergies sort of as planned and we're still sort of tracking those, the transaction was never about super huge cost synergies. And there will be things that go the other way. We're actually looking now with some offices that we've got an ability to consolidate more quickly. So we may end up having some more double rents this year, but we feel really, really good about the combination how the early teams are working together. Ultimately, over the long-term, we will get some more cost synergies, but that wasn't the big driver here in the short-term.

[Michael Brown, KBW]

Great. Thank you. And then, the 17% to 19% targeted operating margin you hit 16.6% this year. Can you just remind us kind of what's the time line that you expect to kind of achieve that post the Sandler integration?

[Tim Carter, Chief Financial Officer]

Yes, Mike. You're right. I mean we saw a pretty big expansion this year. I think just there's a lot of leverage that can be in the business at sort of these higher revenue levels. As we look at it sort of going forward, we may not get to that targeted level in 2020 partly based on some of the costs that we've talked about Chad mentioned sort of this occupancy piece that as we consolidate we've got some additional costs in 2020.

So it may not get to that level in the near term, but there's a clear path to get to that level evidenced by sort of the leverage that you see in 2019. And obviously with the Sandler acquisition coming in it, drives earnings nicely and is sort of in line with what we planned from an overall earnings accretion perspective.

[Chad Abraham, Chairman & Chief Executive Officer]

Good. And I would just add, I mean, when we announced that in July that was obviously based on Sandler having really good margins some opportunity to get some minimal expense synergies. So our target was in the first couple of years, we could get to the bottom of that, and it might take a couple more years to get to the top of that, but we still very much believe on a combined basis we can get to the top of that range.

[Michael Brown, KBW]

Okay. Great. Thank you for the color on that. And just one more for kind of modeling purposes, as we think about the quarterly trajectory in 2020, I heard you loud and clear on kind of the back half weighting for investment banking. Obviously, with the integration of Weeden, the brokerage business certainly has a little bit of a different quarterly trajectory as well. So, any color there as to how you expect those revenues to flow through? And then is there any other seasonality we need to make sure we consider in our modeling?

[Deb Schoneman, President]

Yeah, maybe starting with equities as you were just speaking to within one of the things as you probably know as we've seen more cyclicality of that business historically as we've paid for research more in the maybe second half of the year. Not perfectly clear what that will look like as we head into a New Year with the combined platform, but clearly having a stronger execution platform and a commission management business there it is likely we could see some less cyclicality, but less to be played out.

And then maybe I would also just note on the public finance business, a business that historically has had pretty weak Q1s over the last number of years. And we're feeling good about the momentum we're seeing carrying over from Q4 into Q1 not necessarily at that same level, but maybe more than we've seen historically.

[Chad Abraham, Chairman & Chief Executive Officer]

Yeah. And I would just say, yeah, relative to the rest of the business, I mean, if you go back 15 years or 20 years, usually four out of the five years we're stronger in the back half than the first half and that can be sometimes skewed based on some big transactions.

In Q1, Q2, we feel very good about our visibility in the pipeline and we're off to a good start, but we're highly confident in the pipeline, but I really do think it will be the closures -- maybe not the announced deals, but the closures will be and the revenue recognition will be more back-half weighted.

[Michael Brown, KBW]

Thanks for taking my questions.

[Deb Schoneman, President]

Thank you.

[Operator]

[Operator Instructions] Our next question comes from the line of Mike Grondahl of Northland Securities.

[Mike Grondahl, Northland Securities]

Hi. Yeah. Congratulations on the great year kind of transformational and also a strong fourth quarter. Chad, you talk about 122 investment banking MDs, what is a rough range to think about that maybe one year from now and two years from now? What would you like to get that to as you make some tuck-ins or contemplate some tuck-ins?

[Chad Abraham, Chairman & Chief Executive Officer]

Yes. No, I think that's a good question. I mean, when we were kind of operating close to 90 MDs on our own, obviously with the combination about half of our financial services team joined the Sandler platform, plus you had their MDs. So that's sort of why we used the 122 that sort of as of January 3, how many MDs we had, that number does not include our own organic promotion class, which we will announce in March, which is one of our larger classes.

So, I sort of expect and hope we could end in the high 120s maybe close to 130 this year. And yes, we've sort of targeted to get to that $1 billion, that's probably 150 or 160 MD number over the next three, four, five years. And I would say probably that incremental 20 will come through a combination of organic hires and team lift-outs and internal development.

[Mike Grondahl, Northland Securities]

Got it. That's helpful. Anything to call out, I know you're -- you did a lot of planning with Sandler before the close. It's closed less than a month, but anything that you're really delighted with so far or maybe even a little bit pleasantly surprised with?

[Chad Abraham, Chairman & Chief Executive Officer]

Yes. I mean, maybe I'll give you a couple of things. I mean it -- the Sandler folks are super collaborative. I think, you can just tell from their culture of how they run the business the last 30 years. Everybody thinks about driving revenue across sort of silos or products it doesn't matter. I mean, they're all sort of sharing. Our relationship is already bringing us ideas in different verticals. So I'm very optimistic about that.

And I would just say if there's sort of a little extra giddy-up in our step, it's just the opportunity in fixed income. We're seeing some very cool things across the combination of our two platforms that it's going to take a while for us to see major upside on that revenue, but some of the stories are quite fun.

[Mike Grondahl, Northland Securities]

And just lastly, on the fixed income side, is it more clients' cross-sell product, maybe just detail that a little bit more for us on fixed income?

[Deb Schoneman, President]

Yes. Fixed income from a client perspective we really saw minimal overlap unlike maybe the equity side of the business as you think about bringing in both Sandler and Weeden. So, it's really more I would say and a combination of products and analytics and expertise. And on both sides, both Sandler and Piper historically had different expertise in different products call it say municipals and some other taxable products on our side and things like loan trading and derivatives products and some things that are more unique. In both cases, we can leverage that across our broader client platform.

[Mike Grondahl, Northland Securities]

Got it. Great. And good luck in 2020.

[Deb Schoneman, President]

Thanks, Mike.

[Chad Abraham, Chairman & Chief Executive Officer]

Thanks, Mike.

[Operator]

And that was our final question. I'd like to turn the floor back over to Chad Abraham for any additional or closing remarks.

[Chad Abraham, Chairman & Chief Executive Officer]

Okay. Thanks, operator. We look forward to updating you again in April and hope everybody has a great day. Thank you very much.

[Operator]

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.