Q3 2020 Cohen & Company Inc Earnings Call

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To begin momentarily until that time your lines. So we can be placed on these calls thank you.

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Good morning, ladies and gentlemen, and welcome to the Cowen and company third quarter 2020 earnings Conference call.

My name is Nicole and I'll be operator for today.

Before we begin holding company would like to remind everyone that statements. The company makes during this call may contain forward looking statements.

Well as long.

Statements may involve risks and uncertainties that.

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<unk> results to differ materially.

Yes, that's what we're supposed to be stable.

Forward looking statements made during this call made only as of the date.

The company undertakes no obligation to update such statements to reflect the secret admit I'm circumstances.

Cowen and company advises you to read the cautionary note regarding forward looking statements in its earnings release and its most recent annual report on form 10-K filed with the FCC.

I would now like to turn the call over to just the Westar Bachman Chief Executive Officer of Cowen.

Thank you Nicole and thank you everybody for joining us on our third quarter 2020 earnings call.

With me on the call is Joe Pooler, our CFO.

We are pleased with our third quarter results, particularly on the broker dealer side, where we continue to strengthen our gestational repo business with balances now increasing to 2.9 billion by the end of the quarter.

Second quarter in a row, we were able to generate more than $3 million of net income and more than 4 million of just of adjusted net income for the firm firm wide addition.

Additionally, we are excited to announce positive developments our spec business.

Additionally, subsequent to the quarter end, our first company sponsored insurance back insurance acquisition Corp. close this merger will shift technologies Inc. simple SFP and during the third quarter. Our second company sponsored insurance back I can ask you acquisition corp. to raise $230 million in initial public offering of its units were.

We're active in multiple aspects of the spec market, including as a sponsor asset manager and Investor. Our team has a long history in the spec space and we continue to grow we continue growing our spec franchise and capitalizing on opportunities in this space.

We had to do you guys think about our business going forward and we remain committed to.

Executing on our strategic priorities and a continued focus on enhancing stockholder value now.

Now I will turn the call over to Joe to walk through the quarters financial highlights in more detail.

Thank you Lester we'll start with our statement of operations our.

Our net income was $3.3 million for the quarter or $1.19 cents per fully diluted share compared.

Compared to net income of 3.3 million for the prior quarter or 69 cents per diluted share and net loss of $1.9 million for the prior year quarter or a loss of one dollar and six cents per fully diluted share.

Our adjusted net income was $4.2 million for the quarter compared to adjusted net income of $4 million for the prior quarter and adjusted net loss of $1.9 million for the prior year quarter.

Note that adjusted net income is not a measure recognized under US generally accepted accounting principles see our disclosures calculations and reconciliations surrounding adjusted net income in our earnings release.

Net trading revenue came in at 17 million in the third quarter down $3 million from the second quarter and up 8.5 million from the third quarter of 19. The decrease from the second quarter was primarily the result of decreased trading from our GCF repo and corporate trading groups, which was offset by an increase.

The $3.1 million in our gestational repo revenue.

Our gestation repo balances have grown to 2.9 billion as of September 32020.

The increase from the third quarter of 19 was primarily the result of increased trading from our gestation repo and corporate trading groups.

Our asset management revenue totaled $1.6 million in the quarter down 61000 from the prior quarter and down 387000 from the year ago quarter.

Third quarter to 2020 principal transactions revenue was $2.6 million compared to $2.3 million in the prior quarter and 310000 in the year ago quarter.

The principal transactions revenue includes all gains and losses and income earned on R 22.5 million investment portfolio classified as other investments at fair value on our balance sheet.

This investment portfolio has increased recently due to our involvement in various backs as our spec franchise expands. However, this 22.5 million principal investing portfolio as of the end of the quarter does not include the favorable impact of our founder shares from the insurance acquisition Corp. summer.

Roger with shift technology as the merger closed in early fourth quarter.

Compensation and benefits expense for the third quarter of 2020 was 11 million down 359000 from the prior quarter and up $3.9 million for the prior year quarter.

The quarterly changes were primarily the result of the variable compensation model, we have in place and primarily relate to our variations in net trading from the comparable periods.

Compensation as a percentage of revenue was 50% in the third quarter of 2020 compared to 47% in the second quarter and 62% in the third quarter of the prior year. The number of cone employees was 87 as of September 32020, compared to nine before.

June 30, and 90 as of the prior year quarter end net.

Net interest expense for the third quarter of 2020 was $2 million, including 660000 owner to trust preferred debt instruments 589000 on our senior notes 357000 on our redeemable financial instruments and 345000 on our credit line.

Loss from equity method affiliates during the quarter totaled $1.4 million compared to the prior quarter loss of $1.2 million in the prior year quarter loss of 109000, the increase in loss from equity method affiliates was primarily related to pre business.

Combination expenses incurred by the company to sponsored insurance specs.

In terms of the balance sheet at the end of the quarter. Our total equity was $47.8 million a decrease of 973000 from year end.

At the end of the quarter consolidated corporate indebtedness was carried at 64.4 million and are redeemable financial instruments were carried at 14.5 million.

At the end of the quarter, our total unrestricted cash and cash equivalents totaled $129.3 million, including counterparty cash collateral of 125.3 million related to our matchbook repo operations, which was included in both cash and cash equivalents and other liabilities on our balance sheet.

As previously announced the Lester mentioned insurance acquisition Corp. Our first sponsored insurance back closed its merger with shift technologies on October 13th and as of October 15th The merged company began trading on NASDAQ under the symbol F F G and.

Additional details regarding the merger transaction are available in the Companys filings with the Securities and Exchange Commission.

Upon the closing of the merger our consolidated subsidiaries that served as the sponsors of insurance back one collectively retained an aggregate of 375000 shift to class a common stock from placement shares and for approximately $4.5 million shift class eight.

Common stock from founder shares. We currently expect that approximately 252000 of the shift to class a common stock from placements shares and approximately $2.5 million of the shift class a common stock from founder shares will be distributed to the non controlling interests of the consolidated sponsors.

Subsidiaries.

Immediately therefore immediately following the distributions the company expects to retain.

122665 class a common.

Stock from placement shares and another 2.020 million shift class a common stock from the founder shares again additional details regarding the merger transaction will be available in the company's filings.

Including our 10-K, which we expect to file no later than Friday.

Note that the favorable impact on our PNM I'll, specifically on our principal transactions revenue line item from the Mark to market on the Companys retained shift placement and founder shares is not reflected in our third quarter results, but rather will be reflected in our fourth quarter results as the merger close.

Just in October.

And also as Lester mentioned are and as we previously announced our second sponsored insurance back into acquisition Corp. Two completed the sales of 23 million units at $10 per unit on September in the IPO on September Eightth for gross proceeds of.

$230 million.

The consolidated insurance back to sponsor entities currently collectively hold approximately 7.8 million founder shares on insurance back too.

The number of founder shares eventually retained by inch the insurance back to sponsor entities.

We will not be finally determined until the insurance back to business combination.

Is eventually completed the company currently consolidates the insurance back to sponsor entities and treats the insurance back to sponsor entities investment in insurance back to as an equity method investment.

And finally, we expect to file our 10-Q no later than this Friday November six with that I'll turn it back over to Lester for closing remarks.

Thanks, Joe.

Please direct any offline investor questions to Joe Pooler at 2157, or 1895 to <unk> or via email to Investor Relations at Cowen and company Dot Com. The contact information can also be found at the bottom of our earnings release.

Operator, you can now open the call lines for questions. Thank you all for joining us today.

At this time, if you would like to ask an audio question you may do so by pressing star and the number one on your telephone keypad again that is star one well pause for just a moment.

And we actually know audio question.

Okay, then think again, thanks, everybody for joining today and we will.

I look forward to speaking with you next quarter.

This does conclude today's conference call. We thank you for your participation you announced that you. Please disconnect your line.