Q4 2019 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue the standby think their patients.
[music].
Good morning, Thank you for joining Cowens conference call.
Discussing the results for the fourth quarter and full year 2019.
By now you should have received a copy of the company's earnings release.
Can be accessed at www dot Cowen Dot com.
Before we begin the company has asked me to remind you that some other comments.
On today's call and some of the responses to questions may contain forward looking statements.
These statements are subject to the risks and uncertainties described in the company's earnings at least.
The other filings with the FCC.
Colin has no obligation to update the information because I know I'm not complete description of these and other risks and uncertainties and assumption is included in the company's filings with the FCC.
Which are available on the company's website also on todays call because will reference.
Non-GAAP financial measures, which the company believes will provide useful information for investors.
Reconciliation of those measures to GAAP, it's consistent with the company's reconciliation as presented in today's earnings at least.
Now I'd like to attend the call over to Mr., Jeffrey Solomon Chairman and Chief Executive Officer.
Thank you John Good morning, and welcome to Cowens fourth quarter and full year 2019 earnings call. This is Jeff Solomon and joining me today on the call is our CFO Steve Lasota.
As a reminder, we make quarterly financials. So we make a quarterly financial supplement available in the Investor Relations section of our web site and we encourage you to review it in conjunction with our earnings release.
Before we review our results I'd like to talk about the work we've done over the past two years since I became CEO.
Our team has taken some great steps to simplify our business diversify our revenue streams and to ensure that we can be consistently profitable over the long run.
Early on we adopted the mantra simpler if you were deeper and we work to put that into practice.
In Cowen investment management, we've exited five strategies that were not a scalable.
Focused on private equity fell strategies, which leverage our industry expertise or what we call Cowen DNA.
Those are strategy, such as Cowen healthcare investment in counts sustainable investments.
We've also taken steps to significantly reduce the volatility in our investment portfolio by refocusing, our capital and dealer businesses like Saxon securities lending, we can earn spreads in excess of our cost of financing.
We've worked to provide more transparency into the earnings power of our operating business are reporting two discrete segments.
Operating company or Opco.
And our non core asset company or Asacol. This format highlights the earnings power of our core business as well as the monetization potential legacy investments on our balance sheet.
And while we've been consistently profitable for the past eight quarters. We also made investments funded out of operations that are designed to strengthen our firm and help fuel our future growth. We've hired new teams in consumer and technology banking European trading an outsourced trading.
Hi expanded offerings in areas, such as debt capital markets Global Prime brokerage Securities finance and swap execution.
In addition, we completed the coordinate acquisition, which expanded our investment banking footprint in middle market Advisory.
As stated in Europe, and while there's still plenty of work to do we've made clear progress I'm confident about our prospects looking ahead into the remainder of 2020 and beyond.
Turning now to our result.
We had record economic revenues for both the fourth quarter and the full year 2019.
Fourth quarter profitability was up on both the consecutive year basis any year over year.
Looking at our four core divisions.
In our Opco segment in investment banking, we had a strong finish the year.
With the record year revenues, driven by higher equity capital markets activity and increased contribution from debt capital markets as well as advisory revenues from the corn acquisition.
Health care continues to be our strongest sector and is a core engine a profitability. Many of you probably have heard me say that's been it bears repeating oh, the 4500 or so publicly traded companies in the United States. Today about 400 are those are health care companies that have gone public since 2012, and 300 to those are publicly traded biotech.
Companies.
That is a tremendous market focus for us and one which we expect will generate significant capital markets activity. This year.
And in the years to calm as our clients are consistently raising capital to fund their growth.
There's a bit of a misperception in the market that our revenues are driven by IPO activity and while a robust IPO environment generally portends healthy equity markets. Our revenues are primarily driven by or follow on.
Offering activity.
Back in 2019, approximately 30% of our banking revenue was from follow on activity in Biopharma.
That is why the number of publicly traded life sciences tools and diagnostics and digital health companies, it's such an important indication of the persistence of our revenues in that area.
That said.
Our industry diversification beyond health care is also continuing non healthcare investment banking revenue represented about 46% I'm total investment banking revenue in 2019, which is up from 38% in 2018.
And it was well diversified across M&A advisory private placements and equity capital markets.
It was a record year for equity capital markets.
As we had 126 transactions in 2019, which was an 11% increase year over year and we were a book runner on 83% of those deals.
Underscoring the importance of follow ons, only 34 of those hundred 26 transactions where IPO.
Full year M&A revenues were up 3% to 84 million, which includes a 35 million dollar contribution from korten.
The U.S. side important perform within the expected range well Gordon Europe was weaker given the macro and Brexit related concerns in the market slowdown in the German economy.
The M&A pipeline remains strong and while macro uncertainty could certainly impacted timing of the closing of deals. We're seeing a number the larger mandates that are backlogs moving nicely towards closing.
Now turning to our markets Division markets revenue, which includes brokerage securities financing and other revenues was down 2% year over year outperforming a 4% decline in market wide U.S. volumes.
Highlights during.
During the quarter included the strength in securities finance derivatives across asset treating including special situations. We also continue to expand our footprint in Europe, where we see an opportunity to grow our share.
Building on the hiring of European training team last fall with the addition of a small prime broker seem from global Prime partners.
We've also recently joined the London stock exchange as a member from and have rolled out a suite of treating algos tailored for European market structure.
Even as the Buyside commissioned want has contracted we gained share and we believe we're well positioned.
To firm up our role as a trusted execution partner just some of the strongest institutional investors in the marketplace.
Research, we now cover about 800 stocks and continue to grow our coverage across nearly every industry vertical.
The research team published a 174 of our flagship added to curb series reports in 2019, and overall readership of Cowen Research reports was up notably year over year.
We're also capturing more mindshare as a result of our differentiated approach. These centers on collaboration between teams and proprietary data analytics and.
We continue to leverage the depth of our industry knowledge to inform our internal strategies by identifying emerging areas of growth that can be meaningful drivers to our business in just a few years.
Moving to investment management, we had a strong investment performance across the board and our strategies generating solid investment and incentive income while new assets raising 2019 are the highest since several years the impact of our asset raising and our focus on private equity style products is evident in our management the run rate.
Which was at the highest level and more than two years in the fourth quarter 29 team.
Looking at our five main investment strategies are sustainable investing strategy, which launched in the third quarter of 2019 had approximately 210 million in assets.
Of the ended the year.
It just made its first investment along with a co invest we're taking a $200 million stake in a mobile phone reseller and recycler called Eco ATM strategy will continue to look for opportunities in the areas of renewables and storage lean transportation sustainable food production and industrial efficiency.
Our health care investment strategy had approximately 680 million in assets in the ended the year and is currently making new investments in portfolio companies.
The healthcare royalty strategy held a final close when it's worth one during the quarter, representing 1.8 billion or capital on commitments for that fun and affiliated entities and it has now ended the year with about 3.3 billion and assets under management.
The third fund is now fully committed across 25 investments in both royalties and debt like structures of commercial or near commercial stage health care products in companies.
Our merger arbitrage strategy at approximately 590 million an asset to the end of the year and it had solid investment returns in 2019 outperforming the HF Rx merger Arb index.
The Activestrategy had almost 6 million analysis of the year end and it generated positive returns for the fourth quarter and for the full year of 29 team.
Turning to Asacol as a reminder, we're committed to monetizing these legacy investments when we can well consider both price and timing as factors when looking to divest these holdings, which amounted to approximately $137 million in the fourth quarter of 2019.
The biggest holdings remain or stake in the Italian wireless broadband provider Lincoln at 72.4 million and the stake in private venture funds formation any clubs at 40 million.
Regarding Lincoln, we continue to work closely with our partners at Jefferies to explore pads for the company to grow while providing existing shareholders a path to liquidity.
Well, there's clear value in those asset comedy investments to utilize value valuable balance sheet capital inhabit I've been a strong drag on our overall performance.
Generating negative returns on equity over each of the past few years.
In contrast, our operating company is performing quite well generating return on average common equity of 13.6% in the fourth quarter 2019, and 11.6% for the full year approaching our long term target a mid teens pre tax returns on average equity how does a far cry from a full year 22017 or are we.
I've just 3.1%.
Part of the effort to deliver high returns on equity is optimizing our capital returns to shareholders.
As we announced today our board has initiated a quarterly cash dividend a four cents per share, which is approximately a 1% yield.
During the fourth quarter. We also bought back 793000 shares of our common stock for $12 million or an average price of 15 21 per share.
In 2019, we purchased 2.2 million shares of stock for 34 million at an average price of 15 for 44 this buyback kept our share count.
Almost flat year over year, even with the investment me important acquisition as well as the restricted stock issued as a part of our compensation program.
As we've noted previously we intend to repurchase stock opportunistically out of cash flow at least sufficient to keep our share count flat on an annual basis, and we intend to return additional capital as and when we're able to monetize investments in Africa.
Now before we answer questions I'll turn the color Steve Lasota for a brief review of our financial Eve.
Thank you Jeff for the fourth quarter of 29 keen we reported GAAP net income attributable to common share shareholders of 3.5 million increase of 145000 from the prior year period for the full year 2019, GAAP net income was 17.8 million versus 36 million in 2018.
The quarter GAAP revenue was up 8% year over year to 281.1 million from 259.9 million in full year gap revenue was up 9% year over year to just over a billion dollars and the fourth quarter of 29 team got comp and benefit expenses were 147.2 million.
For the full year 2019, there were 535.8 million.
Non comp expenses, which exclude comp in DNA were 106.2 million for the fourth quarter and DNA was 5.5 million full year 2019, Noncomp expenses were 388.5 million in DNA was 20.5 million. Additionally, there was a goodwill impairment charge or 4.1 million related to that.
The change in segments in restructuring.
Reporting units in the second quarter of 29 team.
Income from gains on investments was 55.8 million in the fourth quarter income tax expense was 5.2 million in non controlling interest expense was 24.1 million for the full year 2019. Other income was 138.8 million income tax expense was 14.9 million and non controlling interest expense was.
31.2 million.
Now turning to our non-GAAP financial measures, which we refer to as economic income as a reminder, we use economic income to measure our performance and to make certain operating decisions and general economic income as a pre tax measure that eliminates the impact of consolidation, we consolidated funds and excludes goodwill and intangible.
Impairment certain other transaction related adjustments are reorder expenses in certain costs associated with debt.
Economic income revenues also include incentive income during the period when incentive fees are not yet crystallize with GAAP reporting investment banking retainer fees collectibles during the period that would otherwise be deferred for GAAP.
Economic income also records costs associated with starting a fund over the expected life of the fund the remainder of my remarks will be based on these non-GAAP financial measures reported economic income of 12.3 million for the fourth quarter of 29 team compared to 6 million in the prior year period fourth quarter economic operating income, which.
Comic income before DNA expenses was 17.8 million compared to 8.7 in the prior year period.
For full year 2019, economic income was 48.6 million an economic operating income was 69.1 million fourth quarter economic income revenue increased 20% year over year to a record 249.8 million well for your economic income revenue was up 4% to a record 900 and.
44.8 million.
For the quarter investment banking revenue was up 22% year over year to 95 million full year investment banking revenue was 352 point 1.2 million.
Q4 brokerage revenue was 108.7 million in full year 2019 brokerage revenue was 440.4 million.
Management fees for the quarter were 13.9 million compared to 11.2 million in the prior year period, and full year management fees will 45.7 million.
Incentive income was 10.8 million in the fourth quarter up from 2.3 million into fourth quarter of 2018, due impart to higher performance fees from our healthcare investment strategy and full year inset incentive income was 46.2 million.
Investment income for the quarter was 20.9 million up from a loss of 5.6 million in the prior year period due in part to stronger performance in the health care, an active strategies and in merchant banking.
Oh, Yeah, 2019 investment income was 54.5 million in finally other revenue was point 5 million in the fourth quarter up from a loss of 1.4 million in the any in the year ago period. Other revenues for the full year with 20 or 29 team were 5.8 million.
Turning now to our expenses beginning in Q3 2019 compensation now includes profit sharing arrangements to certain employees, which were previously shown is NCR by the impacted the coordinate acquisition as well as the effective some new hires in banking and markets in the second half of 2019.
Comp and benefit expense for the quarter was 146.6 million compared to 114.2 million in the prior year period, our comp to revenue ratio rose year over year from 55.1% to 58.7% of economic income revenue.
Full year 2019 comp to rub ratio was 56.9% versus 56% in 2018 going forward, we'd expect our comp to revenue ratio to be in the target range of 56% to 57% on an annual basis, although it could fluctuate from quarter to quarter.
Fixed non comp expenses totaled 36.3 million in the fourth quarter down from 37.2 million in the prior year period full year 2019 fixed non comps were 146.7 million an increase of 6.2 million.
Primarily due to the important acquisition as well as an increased spend on technology and business applications.
Variable non comp expenses in the fourth quarter of 2019 were 38 million compared to 37.7 million in the fourth quarter of 2018.
Variable non comp expense for the full year of 2019 was 151.9 million an increase of 8.2 million was primarily related to increase business development, including conferences and travel is lowest cost associated with new hires.
Fourth quarter, depreciation and amortization expenses were 5.5 million compared to 2.7 million in the fourth quarter of 2018 due to intangibles acquired as a result with the important acquisition full year DNA was 20.4 million.
Looking at our business segments as of December 30, Onest 2019, the company had invested capital and operating company totaling 580.6 million Opco had total revenues of 251.4 million an economic operating income 23 million in the fourth quarter for the full year 2019, Opco had total.
Revenues of 938.5 million, an economic operating income of 78.6 million.
As of December 31st 2019, the company had investing capital in asset CTO totaling 137 million Asacol had negative revenues of 1.5 million, an economic operating loss of 5.3 million in the fourth quarter of 2019.
For the full year Asacol had revenues of 6.3 million, an economic operating loss of 9.5 million.
Turning to our equity common equity, which is stockholders' equity less preferred equity was seven 708.5 million compared to 693.1 million as of December 31st 2018.
Common book value per share, which is common equity divided by total shares outstanding increased slightly to $24.77 as of December 30, Onest 2019, compared to $24.37 as of the prior year period.
Return on common equity was annualize, 10% in the fourth quarter of 29 teeing up from 5% for fourth quarter of 2018.
IRO CE for the full year 2019 was 9.7% versus 11.8% in 2018.
And the financial supplement we also provide this segment breakout of return on common equity.
As Jeff noted Opco had aro see of 13.6% for the fourth quarter and 11.6% for full year. In contrast asset co head our ROE CEO of at negative 56.6% for the fourth quarter and a negative 25.6 for the full year with that I'll turn the call back over to Jeff. Thanks.
Steve and I look back on the last two years.
More than 10 years since the merger Ramius and Cowen Im proud of what we built a world class investment bank and brokerage firm focused on key growth industries, such as life Sciences, TMT consumer and industrials.
We are actively extending that domain expertise to our investment management business, where we can drive meaningful margin.
As we think about the next decade, we've identified a number of new areas of growth and disruption such as cannabis robotics disruptive consumer technology is digital health and sustainability.
We are already thought leaders in these areas that are increasingly using our insights to drive our operating strategy.
As we build higher margin businesses like merger advisory and investment management.
Overall 2019 was a solid year for Cowen we had another full year consistent profitability increased our revenue diversity by product in industry may targeted investments in people and capabilities and significantly revamped our investment management Division 2020 is off to a strong start.
With impressive capital markets and trading activity in January and robust advisory pipeline looking ahead to the first half of the year.
Our theme. This year is execution will continue to focus on the investments we've made over the past two years to grow the business.
Share and improved profitability.
We will also selectively look for tuck in opportunities and team lift outs, where we see opportunities to plug and play in relatively short order.
I'm confident that we'll be able to execute on our plans as we help our clients strive to outperform.
And with that I'll open it up for questions operator.
Thank you to ask a question you will need to press star one on your telephone.
To withdraw your question passed the punky, please standby will be compiled weekend day roster.
My first question comes from Jim Mitchell with Buckingham Research. Your line is now open.
Hey, good morning, Jim.
Hey, how are you.
Maybe just a question since you brought it up on on trading obviously, a little more opaque.
You said off to a strong start how much of that as the environment versus.
The European business, maybe update us a little bit on how that's going just the overall environment for for trading or what you're seeing.
Hi, since it's been pretty strong across the board. So far in 2020, certainly the European business, which we didn't really have last year operating meaningful time is certainly.
It's certainly adding meaningfully as we continue to add clients and we continue to do really well in areas like.
Derivatives are listed options trading business and event business.
He has been doing quite well and continues to do well so.
I'd say, it's pretty much across the board.
I think it's and it's simply a matter of you know.
Overall market volumes, but Ah, but the fact that we've already taken share from other players.
Right, Okay, and then on I, just see it looks like.
The capital in the asset co came down and you had kind of a revenue loss. There was there was there a small sale there that reduce capital in that business and.
The loss was obviously a little.
Doubled I think.
Year over year aside how do we think about the loss content and whats remaining as you sell sell down assets.
But on the for the quarter on there was a slight small write down on a property that we own in in the real estate business. So.
But.
Going forward.
As we've talked about with asset CFO.
We were looking towards Jeff commented, we're looking to liquidate as much as possible.
Yeah, I mean, we're we're still moving on a on the path that we outlined on previous calls.
In terms of monetizing that from time to time, we have to take marks just because we do quarterly valuations, sometimes they get mark up a little sometimes they get mark down a little based on.
A number of environment, a number of the assumptions that go into pricing level three assets.
Right, Okay, and you feel any better or worse in terms of.
What's what's out there given the market environment do you feel better that.
You can get good valuations for what's left.
Yeah, I mean, I think each each individual investment you've kind of stands on its own. So we talk about them collectively because they're in one division, but they're not correlated at all and so we look I want to individual basis, you know surface certainly for the large when there's been some pretty pretty good.
Operating progress has been made I think Lincoln made announcement at the end of the year that they signed up a wholesale agreement, which is one of the first of its kind to basically remarket are our fixed wireless capability to a number of customers who are currently.
Using DSL, that's a huge feather in the cap for the technology and for the company we've been talking for years about getting wholesale agreements and so I thought that was a big step forward.
In terms of their ability to execute.
And I think everybody probably read about the article.
Management made some comments in the.
In the press about seeking liquidity and financing the company through an IPO.
I don't I can't speak to that because I'm actually a shareholder not really on the board and probably not appropriate for me to do that but that's in the public domain. So all in all I think we're moving in the direction that we want to move in.
Okay, great. Thank you very much.
Thank you Sir our next question comes from Devin Ryan with JMP Securities. Your line is now open.
Great Good morning, Jeff and Steve how are you.
Good how are you.
Doing well.
So maybe just a follow up on the last point just to dig in a little bit more about asset cow win.
Appreciating kind of the drag that it's been and I also appreciate that theres some lumpy investments in there.
But I think that some of them maybe had some restrictions around ability to sell or.
Timing and so I'm just curious.
Or any of those investments.
In a position where you technically couldn't sell them today and I appreciate where you just mentioned about when they come and potentially moving towards a process.
Even outside of that route.
You can do you think about selling that or some of these other investments in the meantime, and how are you balancing the trade off of potentially maybe not maximizing the fair value of the investment today, but you would obviously be able to bring back a lot of capital that you could do something more productive with.
Got to reduce that Dragon, and obviously clean clean up the optics as well. So just trying to think about a more holistically, but also specifically, whether there's any restrictions to be able to to be opportunistic.
Hi, there aren't restrictions like legally but I think their system impediments to getting to where we want to get to buy as we work with our partners we don't.
I have in many instances the unilateral ability to for example, you know a forced Lincoln to do an IPO like we don't have that unilateral right. We have the ability to go seek liquidity offer our position that we are pursuing I think strategies that balance that.
Where we can get good outcomes for our shareholders I and also helped the company to continue to grow by having our we were working collaboratively with our partners at Jefferies to figure out how to make that happen.
You know.
That's probably the best is that I can say there in other instances, where we're moving along we're moving along the process of of monetization I I can't give you specifics because there's intricacies in each of them.
But we're further along in that process than we were some of them just.
Take a while for legal entanglements in partnership.
We have with certain other members to get to a spot where we can seek liquidity we're closer in some of those and then of course, there than in others and I would say as it relates to some of our limited partnership investments there. We're waiting for the return of capital. We can certainly go out and seek liquidity in the secondary market, but there hasn't been any.
For the assets that we own or at prices that we think are attractive relative to what the earnings relative to where we have them.
The value.
Got it thanks, Jeff appreciate the color there maybe a follow up either for you or Steve around expenses and you heard the comment about kind of the comp ratio range in some of the new moving parts there.
But I, but I guess, what are you thinking about non compensation.
Bottles either.
The absolute level or ratios and the ability to kind of leverage some of your non compensation costs moving forward and just more broadly as you look out over the next several years, how you're thinking about operating leverage the ability to maybe dropped the comp ratio lower than the current range. If there is or even leveraging fixed costs or just kind of a broad.
Our view on the operating leverage in the model and expectations there.
So I think.
Those are good questions and I think.
Weeks it we've given some guidance on where we think for the near term.
It's likely to fall based on what we think the revenue mix is likely to be.
I'd say is we grow the advisory business your compensation to revenue ratios will go up but you're obviously not adding meaningful non comps as a result of those revenues. You also see when we have investment income or incentive income, we don't really at Theres, no incremental noncomp cost associated with those either.
So the better we do in those areas the lower our non contra revenue ratio is gonna be and frankly, the better our our comp to revenue ratio is going to be as it relates investment income and incentive income.
So you know these are our goal is to scale businesses and a and to create the lower non comp and comp to revenue ratios by scaling the businesses that we put some.
Businesses on on we made some investments in businesses that we think will add meaningful margin.
And out of that will fall the appropriate comp and non comp ratio.
Again, if it's if its advisory business will be probably higher comp to revenue, but lower non comp to revenue and as we scale. Some of the trading businesses in the prime brokerage business. It will be probably lower comp to revenue ratio and higher non comp to revenue ratio because they're more transaction oriented businesses.
And so that's really where we think about it.
You know the goal obviously overall is if we if we continue to grow revenues at the pace that we've been growing them.
Over the course over the past few years your fixed cost just goes down.
Because we're not really adding meaningful fixed costs anywhere.
To be in these businesses.
Got it okay.
Thanks, Jeff and then maybe just final one for me on just the investment banking outlook it.
It seems that you guys. If that's a really good momentum to start the year just based on.
What we can see out there in terms of revenues and deals I guess, you talked about a little bit on the prepared remarks, but where are you seeing the strength at the moment and is if some of the I guess early year success here in a function of kind of realizing backlog that maybe delayed into the first quarter or.
Our things.
Replacing what your what you're essentially realized just trying to get a sense for the tone of business because youve clearly from at least what we can see sort of the year on on a really good though.
Yeah, it's a it's been it's been a good first.
Hi weeks to the year I'm not you know you can see it is as much as anybody but what you can't see is obviously how are you know what's happening the M&A backlog is either we haven't announced those deals yet or.
When we do.
There may not close in the first quarter, we are definitely seeing some things that.
That we we expected would close last year.
That are closing in this year and that happens no. It's there those revenues are lumpy.
It had one or two meaningful transactions close in the year last year, we'd be having a very different discussion around M&A. The bottom line is it just some of them closed earlier this year and some of them or or just about to close what I will say is I continue to be impressed with our ability to win.
And so in the aggregate when you look at the scrubbed you know.
Backlog and nature that backlog, there's more transactions.
With higher fee potential than in any other times since we've been doing that.
And other than the corn acquisition, we've grown our M&A advisory business.
Organically and it takes a couple of years for people to get up and moving on the platform, but I would say already we're seeing wins in areas, where we've made investments in those those are just those are great and until I I'm fairly optimistic.
As we look at our ability to convert this backlog.
Okay, Great maybe I'll squeeze in one more just one here. So the dividend that you initiated how are you thinking about that now is your.
Where outlets to return capital to the extent.
You do monetize assets go.
Is that an outlet or.
Strategy do you would think about.
It's kind of going.
Up significantly or how are you thinking about kinda now that you initiated that using the dividend as I have an outlet for capital turn from here.
Well I think I think will it opens up another path for us to return capital to shareholders and I think theres some shareholders, who appreciate the fact that theres a yield on the stock or and there's some new shareholders. It probably would have a better look at us because there is a yield on the side Theres definitely people, who who just won't look at companies that don't have.
And so for US it's weird pride, an outlier in our comparable group where is really the only investment banks. It doesn't have some dividend yield until we felt we certainly have our operating businesses that are in the best positioned they've been in you know in a decade.
And so there's no reason for us to not begin returning shareholder capital in a variety of waste and so this one adds to it.
And obviously the better we do in our operating businesses.
Options are on the table to increase buybacks or.
Increase the dividend, we but but I think we're making a strong statement today that the operating businesses.
There are two full years of solid performance in what we what we see in the future.
Horizon, we can certainly support this dividend, we're glad to be able to do it for shareholders that had been asking.
Yeah, Okay terrific. Thanks, Jeff Thanks, Steve.
Great. Thanks, Kevin. Thank you. Our next question comes from Summit Modi with Piper Sandler Your line is now open.
Thanks, Good morning, guys.
Wanted to piggyback on on Devin assessed back question just wanted to maybe get an update on the fee rate trends within banking, maybe talk about progress getting lead roles on deals over time I got your expectation and then maybe secondly in her comments on DCM just wanted to get a feel for the trajectory of that you know how did the yearend and that.
Segment and should we expect to see something maybe more material this year.
Yeah, I should say we.
We have seen meaningful increase in the debt capital markets I'll take that question first in that part because as your business is growing in advisory there kind of hand in glove until when were pitching business, where pitching both capital solutions as well as.
Outright sale, so if sponsors or clients are looking to recap their businesses or you're looking to acquire something they need to financing attached to it those are great discussions to be having.
And we got a team here that works really hand in glove with are our industry bankers that frankly worked hand in glove with our restructuring practice.
There is there's a lot of different avenues that we have.
For us to get to scale that business I'll also say the acquisition important, particularly in the United States has open us up to.
Middle market lower middle market sponsor is an area. We didn't really have extensive connectivity within and many of those portfolios need to be the companies and those portfolios are getting refinancing. So the combination of what portion was already doing on debt advisory along with the they can cowen debt capital markets seem has increased our way.
Win rate.
Oftentimes if were co pitching and it turns into a sale that shows up in the M&A mandate, but where we're pitching.
Multiple pads dual track processes and solutions and so having that there.
Is helping us to win in M&A.
And we see that pretty meaningfully.
I I think the interesting the interesting thing about what were doing is is that we're starting to see increased a co pitching with industry expertise.
And middle market expertise, so increasingly the teams are integrating and and making I would say a really solid pitches their companies at Cowen would have historically looked at it might have been too small and so.
Our historical coverage bankers wouldn't necessarily be spending time on it and and so you know really being being able to bring in high quality partners, who can focus on middle market and the intricacies of lower middle market deals has been extremely helpful and so we've been able to.
Work, but by increasing I would see the backlog at important, particularly in the United States Europe's a little bit of a different story you know the backlog actually has.
It's been pretty stable, it's just there hasnt did trend the amount of transaction activity.
It has fallen off.
And so I think we haven't lost deals, but we just the deals we have an things are working on.
You know either buyers aren't aren't ready to go ahead and buyers sellers are willing to sell at those prices.
And so just that market for us it seems to be a little bit locked, but it's not that there's anything fundamentally wrong with what we're doing it's just a slower time and and then I'll turn back around again I think we'll we'll we'll certainly capture our fair share a there is.
Is that helpful.
There are questions I'm happy to dig in on that more.
Oh no. That's that's great. That's all have so thanks.
Great Great Sumit.
Thank you as a reminder to ask a question you'll need to press star one on your telephone.
Our next question comes from Chris Walsh with Wolfe Research. Your line is now open.
Hey, Jeff Hi, Steve Good morning.
Hi, Chris scenario.
Well.
I just had one cleanup question.
I think I heard you touch on court and briefly in your prepared remarks, but I couldn't quite here, whether you called out the revenue impact. This past year did I hear you say it was a 34 million dollar contribution.
30 535.
Okay, and then just looking back historically.
To even 2018, they were at a higher level of around 15 million a year.
As we look ahead do you think that that piece of business could re approach that 50 million issue your run rate.
For sure I mean.
Again, these businesses tend to be a little bit lumpy that $50 million here. If you look at it was oh by the best year they ever had.
We certainly didn't pricey acquisition off of that number.
You know so we price it off of a more about a more reasonable number and certainly we have earn outs in a bunch of things in there that ill just if the numbers don't pick up but our view is that again, we're continuing to show people what what we did in the core never mentioned because we paid.
For it.
But the way we pitch the businesses in a much more integrated basis, and so you know if it there's a deal that we're working on collectively and it's a it's a traditional industry banker, who is the lead on that and their support from the important team you know that may not show up in a korten revenue numbers.
And what you can't see is you know how much of the backlog actually is a function of the fact that were working across the entirety of platform as we integrate.
I think our first goal for the first year with corn was first and foremost do no harm important team is extremely talented and they know their business really well and we don't at Cowen and I mean, I think we know what a lot better now, but we didnt want to be in a position, where we were changing the way that they were going to.
Market with their product.
Having said that we have we bring a lot of tools to those clients into those bankers that they didn't have before and learning how to work with one another and integrate that.
Wins, we might be seeing and debt debt capital markets and things like that for korten clients, that's not showing up in that M&A number.
So.
I I think we've done a really good job.
Actually converting particularly in the U.S. and and I am I I think we can certainly see bumps in that number in the future that backlog would suggest that thats likely.
Great. Thanks, Jeff That's all for me best of luck to you guys and 2020.
Thanks, Chris.
Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Jeff Solomon any further remarks.
Well. Thank you operator in closing I, just want to express my gratitude to the team here at Cowen for your passion and dedication.
Everyday you guys remind me that our values a vision empathy sustainability intonations teamwork are meeting part meaningful part of who we are as a firm.
Certainly our commitment to these values will continue to deliver results for our clients for our shareholders and our other stakeholders over the long long term.
And we look forward to doing that thanks for joining us today and we look forward to speaking you do you again on our next call in April.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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