Q2 2024 Cohen & Company Inc Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to Cohen & Company's second quarter 2024 earnings call. My name is Diego, and I will be your operator for today.

Operator: Good morning, ladies and gentlemen, and welcome to Cohen & Company's second quarter 2024 earnings call.

Operator: My name is Diego, and I will be your operator for today.

Operator: Before we begin, Cohen & Company would like to remind everyone that some of the statements the company makes during this call may contain forward-looking statements under 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. It 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 SEC.

Operator: Before we begin, Cohen & Company would like to remind everyone that some of the statements that the company makes during this call may contain forward-looking statements under 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. Before 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 that reflect subsequent events or circumstances.

Operator: Cohen & 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 SEC.

Operator: Earlier today, Cohen & Company issued a press release announcing second quarter 2024 financial results. Today's discussion is complementary to that press release, which is available on the company's website at www.cohenandcompany.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. The company's remarks 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 the prepared remarks, the call will be opened up for questions. I would now like to turn the call over to Mr. Lester Brafman, Chief Executive Officer of Cohen & Company.

Operator: Earlier today, Cohen & Company issued a press release announcing second quarter 2024 financial results. Today's discussion is complementary to that press release, which is available on the company's website at Cohen & Company.com.

Operator: 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. The company's remarks also includes 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.

Operator: After the prepared remarks, the call will be opened up for questions.

Lester Brafman: I would now like to turn the call over to Mr. Lester Brothman, Chief Executive Officer of Cohen & Company.

Lester Brafman: Thank you, Diego, and thank you, everyone, for joining us for our second quarter 2024 earnings call. With me on the call is Joe Pooler, our CFO.

Lester Brafman: Thank you, Diego, and thank you, everyone, for joining us for our second quarter 2024 earnings call. With me on the call is Joe Pula, our CFO. We are pleased with the performance of our full-service investment banking operation. Cohen & Company Capital Markets, CCCM, has generated 6.4 million of advisory revenues and acted as a lead book runner for two spec IPOs. CCM has grown to 24 professionals, and we tend to continue to optically add investment bank talent towards CCM team. We are optimistic about CCM's pipeline and look forward to consistent CCM production through the end of the year.

Lester Brafman: We are pleased with the performance of our full-service investment banking operation. Cohen & Company Capital Markets, CCCM, has generated $6.4 million in advisory revenues and acted as a lead book runner for two SPAC IPOs. CCM has grown to 24 professionals, and we intend to continue to opportunistically add investment bank talent to our CCM team. We are optimistic about our pipeline and look forward to consistent CCM production through the end of the year.

Lester Brafman: Well, our second quarter results were weakened by the impact of ongoing unfavorable mark-to-market adjustments on our principal investing portfolio. However, we are pleased to have improved the company's performance as the adjusted pre-tax loss line by $10.4 million year-to-date versus 2023. We remain confident about our future earnings potential and are focused on enhancing long-term sustainable value for our stockholders, including through continued payment of our quarterly dividends. Now I will turn the call over to Joe to walk through these course financial highlights in more detail.

Lester Brafman: While our second quarter results were weakened by the impact of ongoing unfavorable market adjustments on our principal investment portfolio, we are pleased to have improved the company's performance as you just have pre-tox tax lost line by 10.4 million year-to-date versus 2023.

Lester Brafman: We remain confident about our future earnings potential on our focus on enhancing long-term sustainability for our stockholders, including to continue payment of our quarterly dividend.

Joseph Pooler: Now we'll turn the call over to Joe to walk through this course for national highlights and more detail.

Joseph Pooler: Thank you, Lester. I'll begin with a discussion of our operating results for the quarter. Our net loss attributable to Cohen & Company Inc. was 2.3 million for the quarter or $1.47 per fully diluted share, compared to net income of 2 million for the prior quarter or $1.28 per fully diluted share. And that loss of 6.6 million for the prior year quarter, or $4.34 per fully diluted share. Our adjusted pre-tox loss was 8.6 million for the quarter, compared to adjusted pre-tox income of 7.7 million for the prior quarter, and adjusted pre-tox loss of 1.6 million for the prior year.

Joseph Pooler: Thank you, Lester. I'll begin with a discussion of our operating results for the quarter. Our net loss attributable to Cohen & Company, Inc. was $2.3 million for the quarter, or $1.47 per fully diluted share, compared to net income of $2 million for the prior quarter, or $1.28 per fully diluted share, and net loss of $6.6 million for the prior year quarter, or $4.34 per fully diluted share. Our adjusted pre-tax loss was $8.6 million for the quarter, compared to adjusted pre-tax As a reminder, Adjusted Pre-Tax Income is a key earnings measurement for us as it incorporates enterprise earnings attributable to our convertible non-controlling interest, which is substantially held by our founder and chairman, Daniel Cohen.

Joseph Pooler: As a reminder, adjusted pre-text income is a key earnings measurement for us as it incorporates enterprise earnings attributable to our convertible non-controlling interest, which is substantially held by our founder and chairman, Daniel Cohen. Daniel holds his interest in the enterprise through the primary operating subsidiary, Cohen & Company LLC, which is a consolidated subsidiary of Cohen & Company Inc. New issue in advisory revenue was 6.5 million in the second quarter, a decrease of 17.9 million from the first quarter and an increase of 5.1 million from the year-ago quarter. Our revenue earned from new issue and advisory revenue has been and we expect will continue to be volatile.

Joseph Pooler: Daniel holds his interest in the enterprise through the primary operating subsidiary Cohen & Company, LLC, which is a consolidated subsidiary of Cohen & Company, Inc. New issue in advisory revenue was $6.5 million in the second quarter, a decrease of $17.9 million from the first quarter and an increase of $5.1 million from the year-ago quarter. Our revenue earned from new issue and advisory revenue has been, and we expect will continue to be, volatile.

Joseph Pooler: We earn revenue from a limited number of engagements; a small change in the number of engagements can result in quarter-to-quarter fluctuations in the revenue recognized. The average revenue per engagement can also fluctuate, and our revenue is generally earned when an underlying transaction closes; thus, the timing of underlying transactions increases the volatility as well. Net trading revenue came in at 8.8 million in the second quarter, down 1.1 million from the first quarter and up 1.4 million from the second quarter of 23. Our asset management revenue total 2.1 million in the quarter, which was down 600,000 from the prior quarter and up 500,000 from the prior year quarter.

Joseph Pooler: We earn revenue from a limited number of engagements. A small change in the number of engagements can result in quarterly fluctuations in the revenue recognized. The average revenue per engagement can also fluctuate, and our revenue is generally earned when an underlying transaction closes. Thus, the timing of underlying transactions increases the volatility as well.

Joseph Pooler: Net trading revenue came in at $8.8M in the second quarter, down $1.1M from the first quarter and up $1.4M from the second quarter of 2023. Our asset management revenue totaled $2.1 million in the quarter, which was down $600,000 from the prior quarter and up $500,000 from the prior year quarter. Second quarter principal transactions and other revenue was negative $6.6 million, primarily due to market adjustments on our principal investments related to our involvement in the SPAC market as a sponsor, asset manager, investor, and advisor, which has resulted in increased holdings of public equity positions in post-business combination companies.

Joseph Pooler: Second quarter principal transactions and other revenue was negative 6.6 million, primarily due to market to market adjustments when our principal investments related to our involvement in the SPAC market as a sponsor, asset management investor, and advisor, which has resulted in increased holdings of public equity positions, imposed business combination companies, equity value of post business combinations. SPACs has continued to decline, leading many of the founder shares we received to decrease in value, negatively impacting both the principal transaction line item and the equity method line item on our P&L. In addition, in certain cases we receive investment banking consideration from these clients in the form of investment assets, and some of those investment assets have subsequently fallen in value.

Joseph Pooler: Equity value of post-business combination SPACs has continued to decline, leading many of the founder shares we receive to decrease in value, negatively impacting both the principal transaction line item and the equity method line item on our P&L. In addition, in certain cases, we receive investment banking consideration from DSPAC clients in the form of investment assets, and some of those investment assets have subsequently fallen in value.

Joseph Pooler: Principal transactions revenue includes all gains in losses and income earned on our $32.7 million net investment portfolio. Compensation and benefits expense for the second quarter was 10.7 million, which was down from the prior quarter and up from the prior year quarter. Primarily due to fluctuations in revenue, income from equity method affiliates, net of our non-convertible non-controlling interest, and the related variable incentive compensation. The number of company employees was 121 as the end of the quarter compared to 116 at the end of March and 117 at the end of June of '23. Net interest expense for the quarter was 1.4 million, including 1.2 million on our two trust preferred debt instruments, 135,000 on our senior notes, 19,000 on our credit line, and 100,000 on our redeemable financial.

Joseph Pooler: Principal transactions revenue includes all gains and losses and income earned on our $32.7 million net investment portfolio. Compensation and benefits expense for the second quarter was $10.7 million, which was down from the prior quarter and up from the prior year quarter, primarily due to fluctuations in revenue, income from equity method affiliates, net of our non-convertible, non-controlling interest, and the related variable incentive compensation. The number of company employees was 121 as of the end of the quarter, compared to 116 at the end of March and 117 at the end of June of 2003.

Joseph Pooler: Net interest expense for the quarter was $1.4 million, including $1.2 million on our two trust-preferred debt instruments. $135,000 on our senior notes, $19,000 on our credit line, and $100,000 on our redeemable financial income. Loss from equity method affiliates during the quarter totaled $6 million. During the quarter, there was also an offsetting $5.2 million credit recorded in the net income loss attributable to the non-convertible, non-controlling interest lines. These non-convertible, non-controlling interests represent ownership in certain consolidated subsidiaries by the portfolio managers of our former SPAC fund and of our current SPAC series fund. The credit or charge is generally an offset to the amounts we record in our Net Income Loss from Equity Method Affiliates line.

Joseph Pooler: Laws from equity method affiliates during the quarter totaled $6 million. During the quarter, there was also an offsetting $5.2 million credit recorded in the net income loss attributable to the non-convertible non-controlling interest line item. These non-convertible non-controlling interests represent ownership in certain consolidated subsidiaries by the portfolio managers of our former spec fund and of our current spec series funds. The credit or charge is generally an offset to the amounts we record in our net income loss from equity method affiliates line item. In terms of our balance sheet at the end of the quarter, total equity was 95.6 million compared to 91.8 million as the end of 2023.

Joseph Pooler: In terms of our balance sheet, at the end of the quarter, total equity was $95.6 million compared to $91.8 million as of the end of 2023. The non-convertible, non-controlling interest component of total equity was $17.1 million at the end of the quarter and $9.6 million at the end of 2023. Thus, the total enterprise equity excluding the non-convertible, non-controlling interest was $78.5 million as of June 30, a $3.7 million decrease from $82.2 million at December 31 of 2020.

Joseph Pooler: The non-convertible non-controlling interest component of total equity was 17.1 million at the end of the quarter and 9.6 million at the end of 23. Thus, the total enterprise equity excluding the non-convertible non-controlling interest was 78.5 million as of June 30, a $3.7 million decrease from 82.2 million at December 31 of 2030. At the end of the quarter, consolidated in deadness was carried at 29.7 million, and our redeemable financial instrument was carried at 7.9 million.

Joseph Pooler: At the end of the quarter, Consolidated Indebtedness was carried at $29.7 million, and our Redeemable Financial Instrument was carried at $7.9. As Lester mentioned, we have declared a quarterly dividend of 25 cents per share, payable on September 5th, 2024, to stockholders of record as of August 22nd, 2024. Our board 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 capital needs. With that, I'll turn it back over to Lester.

Joseph Pooler: As Leicester mentioned, we have declared a quarterly dividend of 25 cents per share, payable on September 5th of '24 to stockholders of record as of August 22nd of '24. Our board will continue to evaluate the dividend policy each quarter, and future decisions regarding dividends may be impacted by quarterly operating results in the company's capital needs.

Lester Brafman: That I'll turn it back over to Leicester.

Lester Brafman: Thanks, Joe. Please direct any offline investor questions to Joe Pooler at 215-701-8952 or via email to investorrelations at cohenandcompany.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. Thank you.

Lester Brafman: Thanks, Joe. Please direct any offline investor questions to Joe Pooler at 215-701-8952 or via email to investorrelations@cononcompany.com. The contact information can also be found at the bottom of our earnings release.

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

Operator: Thank you. And we'll now conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we call for questions. And once again, to ask a question, press star 1 on your telephone keypad. Press star 2 to remove yourself from the queue.

Operator: Thank you, and we'll now conduct our question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. And once again, to ask a question, press star 1 on your telephone keypad. Press star 2 to remove yourself from the queue.

Operator: Please stand by as we poll for a couple more moments. Thank you. And ladies and gentlemen, there appear to be no questions at this time. I'll hand the floor back to Lester Brafman for closing comments. Thank you.

Operator: Please stand by as we pull for a couple more moments.

Operator: Thank you.

Operator: And ladies and gentlemen, there appears to be no questions at this time.

Operator: I'll hand the floor back to you for closing comments. Thank you. Well, thanks everyone for joining us today, and we look forward to speaking with you for a third quarter results.

Lester Brafman: Well, thank you everyone for joining us today, and we look forward to speaking with you about our third quarter results. Enjoy the rest of the week.

Operator: Enjoy the rest of the week. Thank you.

Operator: Thank you. This concludes today's conference. All parties may disconnect. Have a good day.

Operator: This concludes today's conference. All parties may disconnect. Have a good day.