Q1 2024 Cohen & Company Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Cohen <unk> company's first quarter 'twenty 'twenty four earnings call. My name is Maria 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 applicable security 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.
Cowen and company advises you to read the cautionary note regarding forward looking statements in its earning release and its most recent annual report on Form 10-K filed with S&P.
Earlier today Cowen and company issued a press release announcing first quarter 'twenty 'twenty four financial results. Today's discussion is complementary to that press release, which is available on the company's website at Cowen and company Dot Com. This conference call is being recorded and a replay of it will be available for three days beginning shortly after the conclusion of this call.
Bodies remark also include certain non-GAAP financial measures that management believes are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in the company's earnings release. After their prepared remarks, the call will be opened for questions I would now like to turn the call over to Mr. Lester.
Lester: Chief Executive Officer of Colony and company. Please go ahead.
Lester: Thank you Maria and thank you everyone for joining us on our first quarter 2024 earnings call with me on the call is Joe Pooler, our CFO, but we are pleased to report that our second quarter, our second consecutive quarter of strong earnings for the quarter adjusted pretax income of $7 7 million and earnings per share of $1 28 2024.
Lester: It was really off to a great start coupled with our strong fourth quarter, we have now Germany generated over $24 million of adjusted pre tax income and 425 of earnings per share in the last six months, which is actually 65% of our current share trading price.
Despite the challenging market environment, we continue to invest in our full service boutique investment banking operation Cowen and company, which we call C. C are referred to as C. C. C L.
Lester: During the past two years, we have repositioned a firm with a focus on CCM and are beginning to see a robust pipeline delivering through the income statement, we're particularly proud of the fact that over the last 12 months CCM has been the leading advisor for all of these facts.
The CCM team has grown to 23 professionals and has developed a reputation for creating salt creatively solve these capital market problems with all clients, although deal execution and closing time lines remain extended we have strong momentum moving forward in 2024, which you can see it in our results CCM has generated over $24 million of advisory revenue in the first quarter.
Lester: <unk> in addition to the strong CCM performance, we recognize substantial income from our equity method investments and the sponsors of six packs. They closed their business combinations. During the quarter. This income from equity method affiliates was offset by charges in our nonconvertible non controlling interest line item. Nevertheless, none of the two items remained positive for the quarter.
Speaker Change: So look we have put a lot of effort into this back space over the last few years and I'm really pleased that all of this effort is starting to pay off and we're seeing mom. Some monetization of that effort. We don't expect to the spec market boom like it was in 2020 in 2021, we do feel that it is here to stay as a viable alternative for companies to access the public markets.
Speaker Change: And after that we have put in is really interested in that space and we believe we will continue to maintain our leadership position going forward.
Speaker Change: So in addition to our investment banking business and capital markets. We've also re changed we also revisit our our trading businesses. So that is also off to a strong start up 26% from first from fourth quarter of 2023.
Speaker Change: So it was a process of transitioning this business from a wholesale business. So it's just really a dealer to dealer business to a middle market business, where where he served kind of smaller institutions that are underserved by large accounts. We feel this there's a lot of opportunity in this space given how large the larger firms are looking up towards larger accounts and a lot of the smaller boutiques are cutting back in terms of heck.
Speaker Change: Leaving a large swath of our clients that are really looking for service them on a professional basis.
Speaker Change: And in January we hired toward hosted as the head of our new Middle markets Group and we have since our affordable traders in two salespeople into that into that area. We've also heard of those at the end of the quarter. We also hired another one this weekend to make it three salespeople and it.
Speaker Change: We continue to build our talented team, we anticipate that the middle market group will contribute to profitability in the coming quarters.
Speaker Change: On the asset management side, the fourth quarter was a was a little bit quiet and we're hoping to have a couple of projects that we can talk about in the following quarters to come.
Speaker Change: Although our overall our results were strong.
Speaker Change: We continue to experience unfavorable volatility and negative mark to market adjustments in our principal investing portfolio in certain cases, we received investment back in consideration of investment assets and those assets have subsequently fallen in value.
Speaker Change: This has contributed a negative volatility in principle transactions equity value of post business combination stacks, that's going to decline.
Speaker Change: Many of the founder shares we received and represent in representing our income from equity method affiliates did your accretion value negatively impacting the equity method and the principal transactions line items.
Speaker Change: We anticipate there's a couple of things on this we anticipate this going forward. We will continue until this kind of brings yourself with them through the system and our pipeline kind of gets back to a little bit more cash heavy.
Speaker Change: And also was that like.
Speaker Change: A lot of this work was done in a lot of these investors were done for services rendered so it's not as if we've invested the capital or losing capital all of a sudden these investments which is a little bit kind of misleading in our principal transactions line.
Speaker Change:
Speaker Change: So.
Speaker Change: So really when I look at our business I would kind of put.
Speaker Change: Looking past the volatility of our principal investments segment and looking more towards long term value, we're training and both the capital markets area for business investment banking and trading as well as our asset management business, which we'll talk about the next quarter or two so look we're excited about the overall momentum we are building and the opportune.
Speaker Change: We have to grow our top line revenue and profitability, we will continue to invest prudently in revenue generating talent and additional diversification of our offerings before we made focus on enhancing stockholder value and continue to pay our quarterly dividend.
Speaker Change: Now I will turn it over to Joe to walk through this quarters financial highlights.
Yeah.
Joe Pooler: Thank you Lester I will begin with a discussion of our operating results for the quarter. Our first quarter earnings followed a strong fourth quarter and represent an excellent start to fiscal 'twenty four.
Joe Pooler: Net income attributable to Cowen and company, Inc was $2 million for the quarter were $1 28 per fully diluted share compared to net income of $4 5 million for the prior quarter or $2 97 per fully diluted share.
Joe Pooler: And compared to net loss of $2 6 million for the prior year quarter or $1.77 per fully diluted share. Our adjusted pre tax income was $7 7 million for the quarter compared to adjusted pretax income of 16 million for the prior quarter and adjusted pre tax loss of <unk>.
Joe Pooler: $9 6 million for the prior year quarter.
Joe Pooler: As a reminder, adjusted pretax income is a key earnings measurement for us as it incorporates enterprise earnings attributable to our convertible noncontrolling interests, which is substantially held by our founder and chairman Daniel Cohen.
Daniel holds who's interested in the enterprise through our primary operating subsidiary at Cowen and company LLC, which is a consolidated subsidiary of Cowen <unk> Company, Inc.
Joe Pooler: As Lester mentioned, we have generated in excess of $23 million of adjusted pre tax income.
Joe Pooler: $4.25 of earnings per share over the last six months.
Joe Pooler: New issue and advisory revenue was $24 4 million in the first quarter, an increase of $5 seven from the fourth quarter and $23 5 million from the year ago quarter.
Joe Pooler: CCM closed 13 deals and generated all of the new issue and advisory revenue in the quarter.
Joe Pooler: Net trading revenue came in at $9 8 million in the first quarter of $2 million from the fourth quarter and $1 6 million from the first quarter of 'twenty three the increase from both of the prior quarters was due primarily to higher trading revenue from our corporate and mortgage groups.
<unk> management revenue totaled $2 7 million in the quarter, which was up 800000 from the prior quarter and 700000 from the prior year quarter. The increase from the prior quarters was due primarily to a deferred performance fee in one of our private funds that was recorded in the current quarter.
Joe Pooler: First quarter principal transactions and other revenue was negative $18 4 million, primarily due to mark to market adjustments on our principal investments related to our involvement in the spec market as a sponsor asset manager Investor and adviser, which has resulted in increased holdings of public equity.
Joe Pooler: <unk> post business combination companies.
Equity value post business combination Spacs has continued to decline leading many of the founder shares we receive to decrease of bad negatively impacting that.
Joe Pooler: The principal transactions line item.
Joe Pooler: In addition in certain cases, we receive investment banking consideration from <unk> clients in the form of investment assets and those investment assets have subsequently fallen in value.
Joe Pooler: We anticipate that there will continue to be some volatility in our principal portfolio and our operating results going forward as a result of that volatility.
Joe Pooler: Principal transactions includes all gains and losses and income earned on our 39.3 million net investment portfolio on the balance sheet.
Joe Pooler: Compensation and benefits expense for the quarter was $14 8 million, which was down from the prior quarter and up from the prior year quarter, primarily due to the fluctuations in revenue income from equity method affiliates net of our non convertible non controlling interests and the related impact on variable ones.
Joe Pooler: Kind of compensation.
Joe Pooler: The number of company employees was 116 at the end of the first quarter compared to 118 at the end of the year net.
Net interest expense for the quarter was $1 7 million, including $1 2 million on our two trust preferred debt instruments of 127000 on our senior notes 19000 on our credit line and 359000 on our redeemable financial instruments.
Joe Pooler: Income from equity method affiliates during the first quarter totaled $29 million. This amount included $32 7 million of income from our equity method investments in the sponsors up six specs that closed their business combinations during the quarter, which resulted in an increase in the value of the founder shares too.
Joe Pooler: Which we are entitled to an allocation from those sponsors.
Joe Pooler: During the quarter. There was also an offsetting charge of $16 7 million related to the six spec closings recorded in net income loss attributable to the non convertible non controlling interest.
These nonconvertible noncontrolling interests represent ownership in certain of our consolidated Consol.
Joe Pooler: Consolidated subsidiaries by the portfolio managers of our current spec series funds.
Joe Pooler: The charges generally an offset to the amounts we record in our net income from equity method affiliates.
Joe Pooler: In terms of our balance sheet at the end of the quarter total equity was $113 3 million compared to $91 8 million as of December 31.
Joe Pooler: The non convertible non controlling interest component of total equity was $25 9 million at the end of the quarter.
Joe Pooler: And $9 6 million at the end of the year.
Joe Pooler: The total enterprise equity excluding this non convertible non controlling interest component was $87 4 million at the end of the quarter.
$5 2 million increase from the 82 million at the end of the year.
Joe Pooler: At quarter end consolidated indebtedness was carried at $29 7 million and our redeem of redeemable financial instruments were carried at seven 9 million.
Joe Pooler: As Lester mentioned, we have declared a quarterly dividend of 25 cents per share payable on June 5th to stockholders of record as of May 20th.
Joe Pooler: 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 other capital needs.
Joe Pooler: With that I'll turn it back over to Lester.
Lester: Thanks, Joe Please direct any offline investor questions to Joe Pooler at 2157018, 95, two 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.
Speaker Change: Operator, you can now open the call lines for questions and thank you all for joining us today.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: I would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from Kim.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment. Please I'll we poll for questions.
Speaker Change: Yeah.
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Leslie Bachmann: It appears that there are no questions at this time I would now like to turn the floor back over to a lesser bachmann for closing comments.
Leslie Bachmann: Thanks, Maria I am proud of our results in the first quarter and I want to thank all our members and team members for their dedication, especially as we continue to see challenging market environment with strong performance over the last two quarters, we have great momentum across the business and are well positioned for the year ahead.
Speaker Change: Thanks, and thanks again for joining the call and have a good day.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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