Q3 2021 Cohen & Company Inc Earnings Call

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Good morning, ladies and gentlemen, and welcome to Cohen <unk> company's third quarter 2021 earnings call.

My name is Leo and I will be your operator for today.

Before we begin Cohen <unk> company would like to remind everyone that some of the statements. The company makes during this call may contain forward looking statements under the applicable securities laws. These statements may involve risks and uncertainties that could cause the company's actual results to differ materially from the results discussed in such forward looking statements.

The forward looking statements made during this call are made only as of the date of this call and the company undertakes no obligation to update such statements to reflect subsequent events or circumstances.

Cohen <unk> company advises you to read the cautionary note regarding forward looking statements in its earnings release and in its most recent annual report on Form 10-K filed with the S. E C.

I would now like to turn the call over to Mr. Lester Brafman, Chief Executive Officer of Cowen and company.

Thank you Leo and thank you everyone for joining us for our third quarter 2021 earnings call with me on the call is Joe Pooler, our CFO.

So our financial results in the third quarter were impacted by significant unrealized negative mark to market adjustments in our principal investing portfolio.

It is important to note that these investments were created at a de minimus cost.

I have restrictions on sales. So we'll continue to see so much volatility going forward.

Absent these negative mark to market adjustments, our underlying business remains strong new issue and advisory revenue was $8 8 million in the quarter, including $7 2 million related to the investment banking revenue generated by our new Cowen and company capital markets platform, and 1.6 million related to U S and European insurance origination.

Gestation repo book remained stable at $3 9 billion with related gestational repo trading revenue approaching a $45 million annual run rate. In addition, during the quarter, we entered into a joint venture agreement with an institutional investor to invest in CRE loans in B pieces of new issue CRE CLO transactions to that end, we have hired a team of it professionals.

Nate and underwrite, mostly multifamily commercial real estate loans, we expect to begin accumulating assets into the joint venture during the fourth quarter.

Going forward our involvement in the spec market as a sponsor asset manager Investor will result in an increased holdings of public equity positions and post business combination companies as part of our principal investment portfolio, which will be subject to mark to market adjustments, both up and down while market fluctuations may create volatility in our reported results, we continue to execute well against our strategic objectives and bill.

Lee the initiatives underway in asset management specs CRE loans to just stay for repo trading will generate long term value for our shareholders. We remain committed to enhancing shareholder value and third quarter continue to pay our recently reinstated quarterly dividend.

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

Thanks Lester.

We'll start with our statement of operations, our net loss attributable to Cohen <unk> Company, Inc. Shareholders was $3 4 million for the quarter were $3.46 per fully diluted share compared to net income of $1 7 million for the prior quarter or $1.21 per fully diluted share.

And net income up $1 7 million for the prior year quarter or $1 19 per fully diluted share. Our adjusted pre tax loss was $14 9 million for the quarter compared to adjusted pre tax income of $3 7 million for the prior quarter and adjusted pre tax income up three.

6 million for the prior year quarter.

Note that adjusted pretax income is not a measure recognized under U S. GAAP see our disclosures calculations and reconciliations surrounding adjusted pre tax income in our earnings release.

Third quarter of 'twenty, one principal transactions and other revenue was negative 27 million, which included negative revenue related to mark to market principal transaction losses of $14 3 million on Metro miles stock $3 1 million on shift technology stocks.

$5 6 million on various pipe investments in other spec business combinations.

Note that the $27 million of negative principal transactions revenue in the current quarter.

Is offset by a $2 8 million dollar credit recorded in the net income attributable to the non convertible noncontrolling interest line item towards the bottom of our P&L.

The Western noted our involvement in the spec market.

Has it resulted in increased holdings of public equity positions and post business combination companies, often restricted which are subject to market adjustments up and down.

Principal transactions revenue includes all gains and losses and income earned on our $51 9 million investment portfolio classified as other investments at fair value on our balance sheet.

The investment Port Folio has increased recently due doors back portfolio growing.

Our spec franchise expands at the end of the quarter. The investment portfolio included $7 9 million of Metro miles stock.

And $12 9 million of shifts stock of the $7 9 million of Metro miles stock all of it is currently restricted from sale.

The $12 9 million of shift stock $11 1 million is currently restricted from sale.

Net trading revenue came in at $16 6 million in the third quarter down $1 8 million from the second quarter and down 358000 from the third quarter of 2020.

Our asset management revenue totaled $1 9 million in the quarter, which was comparable to the prior quarter and up 225000 from the year ago quarter.

The increase from the year ago quarter was due to higher revenue from our investment funds, which was partially offset by lower revenue from our managed Cdos. This reflects the changing mix of the company's assets under management with our spec funds U S insurance funds and European insurance funds growing as our managed.

CDO portfolio shrinks comp.

Compensation and benefits expense for the third quarter of 'twenty, one was $20 6 million, which was up from both the prior quarters.

The increases were primarily related to accrued compensation related to the new issue and advisory revenue in the current quarter as well as new hires in the investment banking and commercial real estate groups.

Compensation and benefits expense as a percentage of revenue was 51% for the nine months ended September $30 21, compared to 57% for the nine months ended September 32020.

The number of company employees was 115 at the end of the quarter compared to 109 at the end of June 32021, and 87 as of September 30 of the prior year.

Net interest expense for the third quarter of 'twenty, one was $1 7 million, including 652000 on our two trust preferred debt instruments 592000 on our senior notes 421000 on our remaining redeemable financial instrument and 67000 on our credit line.

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In the third quarter of 'twenty, one we did repay $2 4 million of our outstanding senior notes.

Income from equity method affiliates during the third quarter totaled $2 9 million, which was primarily driven by income from our equity method investments in the sponsors have two specs, which closed their business combinations during the third quarter of 21 the.

The increased value of the founder shares held by the sponsors of the two specs of which we are entitled to an allocation of from the sponsors generated $4 1 million of income from equity method investments for us in the third quarter of 'twenty one.

In terms of our balance sheet at the end of the quarter total equity was $117 2 million compared to 101 4 million at the end of the year.

The nonconvertible non controlling interest component of total equity was seven 4 million at the end of the quarter compared to $27 8 million at the end of the year.

Thus the total equity excluding the nonconvertible non controlling interest component was $109 8 million at the end of the quarter.

A $36 2 million dollar increase from the $73 6 million at the end of the year.

Consulted consolidated corporate indebtedness was carried at $43 2 million and our redeemable financial instrument was carried at $8 million.

We have declared a dividend of 25 cents per share, which will be payable on November 30 of 'twenty one to stockholders of record as of November 16 of 21.

The board of directors will continue to evaluate the dividend policy each quarter and future decisions regarding dividends may be impacted by quarterly operating results and the company's ongoing capital needs.

With that I will turn it back over to Lester.

Thank you Joe please direct any offline investor questions to Joe Pooler at 215, 701 895 two.

Disney or via E mail 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.

At this time, if you would like to ask a question press Star one now on your telephone keypad again that is star one on your telephone keypad.

One moment, while we queue.

And once again that is star one on your Touchtone phone.

And it appears that we have no questions at this time.

Alright.

Thank you all for joining us today, and we look forward to speaking to you in our next quarterly call.

Operator, you can end the call.

Thank you. This does conclude today's conference you may now disconnect your lines and everyone have a great day.

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