Piper Jaffray Companies reported net income applicable to common shareholders of $4.8 million, or $0.33 per diluted share, on $128 million of net revenue for the third quarter of 2013. If $5 million of acquisition-related costs and the results of discontinued operations are excluded, then the company would have reported pro forma earnings per diluted share of $0.57. We are maintaining our current Morningstar economic moat rating and fair value estimate for Piper Jaffray.

Net revenue increased 29% sequentially, but fell 3.5% from the previous year. The sequential increase came from strong equity underwriting and financial advisory revenue, up 38% and 115%, respectively. The company also had a rebound in fixed income trading revenue to $20 million from $5 million the previous quarter.

The previous quarter’s results were affected by the sudden rise in U.S. interest rates that caused Piper Jaffray and other investment banks to take losses on their fixed income inventory positions. The third quarter’s $20 million of fixed income trading revenue is still below the company’s normal level of about $25 million, as U.S. government uncertainty has decreased trading appetites. Debt underwriting was the weakest in several years, as rising interest rates have reduced refinancing demand, similar to traditional banks and their mortgage refinancing business. The slight decrease in revenue from the previous year was due to third-quarter 2012’s revenue being elevated by unusually high strategic fixed income trading results.

Piper Jaffray demonstrated its increased focus on capital light businesses and product differentiation by closing two acquisitions, financial advisory firm Edgeview Partners  and public finance company Seattle-Northwest Securities Corporation, in the recent quarter. We would characterize these acquisitions as sizable bolt-ons, as total headcount increased nearly 7% sequentially to about 1,000 employees.