Q4 2020 Cohen & Company Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the Cohen and company fourth quarter and full year of 2020 earnings call. My name of Erica and I will be you're on.

For today before we began the Cowen and company.

And everyone that some of the statements of the company makes during this call may contain forward looking statements.

The securities laws.

Statements may involve risks and uncertainties that could cause the company's actual results to differ materially from the results discussed and such forward looking statements.

The forward looking statements made during this call are made only as of the date of the call and.

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Undertakes no obligation to update such forward looking statements to reflect subsequent events or circumstances Cohen and company advises you to read the cautionary note regarding forward looking statements and its earnings release and the most recent annual report on form 10-K filed with the SEC.

And now wants to turn the call over to Mr. Lester Brafman, Chief Executive Officer of Cohen and company.

Thank you Erica and thank you everyone for joining us for our fourth quarter 2020 earnings call with me on this call is Joe Pooler, our CFO.

We are pleased with our fourth quarter and annual results and excited for the year ahead, as we continue to execute on our strategic goals, including growing our mortgage and repo business expanding our asset management revenue streams and positioned the company would attract new business opportunities and capital partners.

Net trading revenue was $73 6 million for the full year 2020 up 35 4 million of 93% from 2019. This was due primarily from a mortgage repo and corporate training groups and.

At the end of the year of gestation book had grown to $3 3 billion up from $1 3 billion at the end of 2019 and.

Now the C D O assets under management increased 27% to $712 million, including growth and our European private funds and our spec lunch.

We also continue to make great strides and the development of our stack franchise and remain very active and the stock market as the sponsor asset manager and an investor and the fourth quarter of our first company sponsored back of insurance acquisition Corp closest merger with the shift technologies contributing $18 3 million from the fourth quarter's adjusted pre tax income more of.

Recently, our second company sponsors back and Sue acquisition quote to close this merger agreement with Metro mile. The digital insurance platform and and pay by my auto insurer.

And our third company sponsors back into acquisition Corp. Three completed its 215 million of IPO and its currently shaping the business combination and.

Our team has substantial experience and the spec space, we're excited to build on our momentum and continue growing our spec franchise.

Looking ahead, we remain committed to executing on our strategic priorities and the continued focus on proactively managing our risks and our capital structure as well as enhancing stockholder value.

With that I'll turn the call over to Joe Pooler, and he can walk you through the quarter's financial highlights in more detail.

Yeah.

Thanks, Lester will start with our statement of operations, our net income attributable to Cohen and company, Inc. Stockholders was $14 8 million for the quarter or $7.64 per fully diluted share compared the 1.7 million for the prior quarter.

We're $1 19 per diluted share and 800000 and for the prior year quarter or 56 cents per diluted share.

Our adjusted pretax income was $23 8 million for the quarter compared to $3 6 million from the prior quarter and $1 7 million from the prior year quarter as the.

Lester mentioned in the fourth quarter, our first company sponsored spak closed its merger with shift technologies contributing $18 3 million for the quarters adjusted pre tax income.

Adjusting for the impact of the shift merger, our fourth quarter adjusted pre tax income still increased $1 9 million from the third quarter, continuing our solid performance away from the spec franchise as well.

Note that adjusted pretax income is not a measure of recognized under the U S generally accepted accounting principles.

The our disclosures calculations and reconciliations surrounding adjusted pretax income and our earnings release.

Net trading revenue came in at $18 1 million and the quarter up $1 1 million from the third quarter and up $5 8 million from the fourth quarter of 19.

The increase from both quarters was primarily the result of increased trading from our gestation repo book and our corporate trading groups are gestation and repo balances have grown to three 3 billion as of December 31 of 'twenty.

Our asset management revenue totaled $3 8 million and the quarter up $2 2 million from the prior quarter and up $2 million from the year ago quarter. The increase from both prior quarters was primarily related to and incentive allocation earned by the manager of our spec funds.

Fourth quarter principal transactions revenue was $42 4 million, which included $47 million of revenue related to shifts securities held by our consolidated sponsored entities. After insurance acquisition Corp, 's merger with shift.

Which closed on October 13th and the fourth quarter.

It is important to note that approximately 46% of our consolidated insurance backed sponsor entity assets are owned by non controlling interests.

$10 6 million of the Noncontrolling interest reduction to our net income in the fourth quarter relates to the Noncontrolling interest and the consolidated insurance backed sponsor entities.

The total principal transactions revenue includes all gains and losses and income earned on our 58 million dollar of investment portfolio classified as other investments at fair value on our balance sheet.

This investment portfolio has increased recently due to our involvement and various backs.

As our spec portfolio is growing as the spec franchise grows.

The investment portfolio includes $36 4 million of ship stock at December 31 of 20 of which $16 6 million will be distributed to the noncontrolling interest investors and the sponsor entities.

Of the $36 4 million of shifts stock $29 6 million is currently restricted from sale and accordance with the terms we have disclosed in our previous filings.

Compensation and benefits expense for the quarter was $23 5 million, which included $11 7 million of equity stock compensation expense related to employee ownership of founder shares after insurance acquisition Corp, 's merger with chip technology.

Yes.

Compensation as a percentage of revenue was 35% and the quarter compared the 50% and the third quarter and 38% in the year ago quarter for the full year compensation as a percentage of revenue was 46% compared to 52% and 2019.

The number of Cohen and company employees at the end of the year was 87.

Compared to 94 as of the end of the year 2019.

Net interest expense for the quarter was $2 million, including 648000 on our two trust preferred debt instruments 590000 on our senior notes 470000, and on our redeemable financial instruments and 243000 on our credit line.

Loss from equity method affiliates during the fourth quarter totaled 244000 compared to the prior quarter loss of one 4 million and the prior year quarter loss of 188000.

The fluctuation and loss from equity method affiliates, primarily related to pre business combination expenses incurred by the company's three sponsored insurance backs, which we're at various stages of finding of merger target during the quarter.

During the quarter, we recognized in the $8 million net income tax benefit due to the reduction and the valuation allowance applied against our net operating loss and net net capital loss tax assets.

We will continue to evaluate our operations on a quarterly basis and may make further adjustments to our valuation allowance is going forward.

The adjustments could be material and could result in additional tax benefit or tax expense.

In terms of our balance sheet at the end of the year. Our total equity was 101 4 million and increase of $52 7 million from prior year and total equity.

$27 8 million of the current year and total equity was nonconvertible non controlling interest primarily from the Noncontrolling interest and our consolidated spec sponsor entities.

Consolidated corporate indebtedness was carried at $47 million and our redeemable financial instruments were carried at 12 months.

In addition to the first insurance back merger with shift technologies, our second sponsored insurance back completed its merger with metro mile on February nine of 2021 and.

And as of that as of February 11th the merged company began trading on NASDAQ under the symbol and I L E mile.

The favorable impact on our P&L, specifically, our principal transactions revenue line item from the Mark to market on the company's retained placement and founder shares for our second sponsored insurance back is not reflected in our fourth quarter results, but rather will be reflected and our first quarter of.

'twenty one results as the merger closed in February.

And finally, our third sponsored and insurance back completed the sale of 25 million units at $10 per unit and its IPO on December 22nd of 'twenty for gross proceeds of $250 million.

Additional details regarding the spec mergers and the spec IPO transaction are available and previous company filings with the Securities and Exchange Commission as well as in our 10-K, which we expect the file this Friday or next Monday.

Our 2020 10-K.

With that I'll turn it back over to Lester for closing comments.

Thanks, Joe.

Please direct any offline investor questions to Joe Pooler at 215, 701, 895, two or via email to Investor Relations at Cowen and company Dot Com and.

Contact information can be also found that the bundle of the earnings release.

Operator, you can now open the call lines for questions.

You ask a question you will need of press star one on your telephone to withdraw your question press the pound key.

Dan.

The Q and day roster.

Again, ladies and gentlemen that of Star one if you would like to ask a question at this time.

Yeah.

And there are no audio questions in queue at this time.

Okay. Thanks, operator, and thanks, all of you for joining us today, and we look forward to our first quarter call.

The number one.

Thank you very much.

Okay.

Yes.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.

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