Q3 2024 Cohen & Company Inc Earnings Call
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Operator: Good morning, ladies and gentlemen, and welcome to Cohen & Company's third quarter 2024 earnings call.
Good morning, ladies and gentlemen, and welcome to Cohen <unk> Company's third quarter 2024 earnings call. My name is Daryl 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 securities laws.
Operator: My name is Daryl, 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 can cause the company's actual results to differ materially from the results discussed in such forward-looking statements.
These statements may involve risks and uncertainties that could cause the company's actual results to differ materially.
<unk> discussed in such forward looking statements.
Operator: 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 that reflect subsequent events or circumstances.
Statements made during this call are made only after the date of this call and the company undertakes no obligation to update such statements to reflect subsequent events or circumstances.
Operator: Cohen & 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 SEC.
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 SEC.
Operator: Earlier today, Cohen & Company issued a press release announcing third quarter 2024 financial results. Today's discussion is complementary to that press release, which is available on the company's website at cohenandcompany.com.
Earlier today Cowen and company issued a press release announcing third quarter 2024 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.
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 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 provided in the company's earnings release.
This conference call is being recorded and a replay 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 provided in the company's earnings release.
Operator: After the prepared remarks, the call will be opened for questions.
After the prepared remarks, the call will be opened for questions I would now like to hand, the call over to Mr. Lester Brafman, Chief Executive Officer of Cowen and company.
Lester Brafman: I would now like to hand the call over to Mr. Lester Brafman, Chief Executive Officer of Cohen & Company. Thank you, Daryl, and thank you, everyone, for joining us for our third quarter 2024 earnings call. With me on the call is Joe Pooler, our CFO. The positive trends for the first half of the year extended into the third quarter with a strong execution and continued momentum from Cohen & Company Capital Markets, CCCM, our full-service boutique investment banking operation. We are proud to report that CCCM generated $21.4 million of advisory revenue and acted as lead book runner on one SPAC IPO.
Okay.
Lester Brafman: Thank you Daryl and thank you everyone for joining us for our third quarter 2024 earnings call with me on the call is Joe Pooler, our CFO.
Lester Brafman: The positive trends for the first half of the year extended into the third quarter with strong execution and continued momentum from Cowen and company capital markets.
Lester Brafman: Our full service boutique investment banking operation, we are proud to report that CCM CCM, Germany $21.4 million of advisory revenue and acting as lead book runner on one stack IPO Ccm's pipeline remains robust and we expect consistent production from CCR throughout the end of the year.
Lester Brafman: CCCM's pipeline remains robust and we expect consistent production from CCCM throughout the end of the year. The company's performance at the adjusted pre-tax line has improved by $26.5 million year-to-date versus 2023, despite the impact of ongoing unfavorable market-to-market adjustments in our principal investing portfolio.
The company's performance at the adjusted pretax loss has improved by $26 5 million year to date versus 2023, despite the impact of ongoing unfavorable mark to market adjustments in our principal investing portfolio.
Lester Brafman: We remain confident about our future earnings potential and are focused on enhancing long-term sustained value for our stockholders, including through continued payment of our quarterly dividend.
Lester Brafman: We remain confident about our future earnings potential and are focused on enhancing long term sustained value for our stockholders, including for continued payment of a quarterly dividend now.
Joseph Pooler: Now I will return the call over to Joe to walk through this quarter's financial highlights in more detail. Thank you, Lester. I'll begin with a discussion of our operating results for the quarter. Our net income attributable to Cohen & Company, Inc.
Speaker Change: Now I'll return the call over to Joe to walk through this quarters financial highlights in more detail.
Joe: Thank you Lester I'll begin with a discussion of our operating results for the quarter. Our net income attributable to Cowen <unk> Company, Inc. Was $2 2 million for the quarter or $1.31 per fully diluted share compared to net loss of $2 3 million for the prior quarter.
Joseph Pooler: was $2.2 million for the quarter, or $1.31 per fully diluted share, compared to net loss of $2.3 million for the prior quarter, or $1.47 per fully diluted share, and net loss of $400,000 for the prior year quarter, or $0.28 per fully diluted share. Our adjusted pre-tax income was $7.7 million for the quarter, compared to adjusted pre-tax loss of $8.6 million for the prior quarter, and adjusted pre-tax loss of $8.4 million for the prior year quarter. As a reminder, adjusted pre-tax income and loss is a key earnings measurement for us, as it incorporates enterprise earnings attributable to our convertible non-controlling interest.
Joe: <unk> or $1 47 per fully diluted share and net loss of 400000 for the prior year quarter or 28 cents per fully diluted share. Our adjusted pre tax income was $7 7 million for the quarter compared to adjusted pre tax loss of $8 6 million for the prior quarter.
Joe: And adjusted pre tax loss of $8 4 million for the prior year quarter. As a reminder, adjusted pre tax income and loss is a key earnings measurement for us as it incorporates enterprise earnings attributable to our convertible noncontrolling interest.
Joseph Pooler: 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 and advisory revenue was $22.5 million in the third quarter, an increase of $16 million from the second quarter, and an increase of $15.2 million from the year-ago quarter. Our revenue earned from the new issue and advisory revenue has been, and we expect will continue to be, volatile. We earned 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.
Joe: Which is substantially held by our founder and Chairman Daniel Cohen.
Joe: Daniel holds.
Joe: Interest in the enterprise through the primary operating subsidiary Cowen and company LLC, which is a consolidated subsidiary of Cowen <unk> Company, Inc.
Joe: New issue and advisory revenue was $22 5 million in the third quarter, an increase of $16 million from the second quarter and an increase of $15 2 million from the year ago quarter. Our revenue earned from the new issue and advisory revenue has been and we expect we will continue to be volatile. We earned revenue from a limited number of engagements.
Joe: <unk> a small change in the number of engagements can result in quarter to quarter fluctuations and the revenue recognized the average revenue per engagement can fluctuate as well.
Joseph Pooler: The average revenue per engagement can fluctuate as well. and our revenue is generally earned when an underlying transaction closes, thus the timing of underlying transactions increases the volatility of our revenue. In addition, we have received financial instruments as consideration for advisory services provided by CCM, instead of cash, in some cases, which are included in other investments of fair value, other investments sold not yet purchased, and investments in equity method affiliates in our consolidated balance. Net trading revenue came in at $8.8 million in the third quarter, which was comparable to the second quarter, and up $1.3 million from the third quarter of 2023.
Joe: And our revenue is generally earned when an underlying transaction closes.
Joe: Timing of underlying transactions increases the volatility of our revenue recognition.
Lester Brafman: In addition, we have received financial instruments as consideration for advisory services provided by CCM instead of cash in some cases, which are included in other investments at fair value other investments sold not yet purchased and investments and equity method affiliates in our consolidated balance sheets.
Lester Brafman: Net trading revenue came in at $8 8 million in the third quarter, which was comparable to the second quarter and up $1 3 million from the third quarter of 23, the increase from the prior year quarter was due primarily to higher trading revenue from our agency group mortgage group and the new Middle markets Group, which is a component of.
Joseph Pooler: The increase from the prior year quarter was due primarily to higher trading revenue from our agency group, mortgage group, and the new middle markets group, which is a component of our whole strategy. Our asset management revenue totaled $2.1 million in the quarter, which was comparable to the prior quarter and up $400,000 from the prior year quarter.
Lester Brafman: Our wholesale group.
Lester Brafman: Asset management revenue totaled $2 1 million in the quarter, which was comparable to the prior quarter and up 400000 from the prior year quarter.
Joseph Pooler: The change from the prior year quarter was related primarily to deferred performance fees and one of our European... Third quarter principal transactions and other revenue was negative $1.7 million, primarily due to mark-to-market adjustments on our principal investments related to our involvement in the SPAC market as a sponsor asset management. an asset manager, investor, and advisor, which has resulted in increased holdings of public equity positions in post-business combination. equity value of post-business combination SPACs has continued to decline, leading many of the founder shares we received to decrease in value, negatively impacting both the equity method and the principal transaction.
The change from the prior year quarter was related primarily to deferred performance fees in one of our European funds.
Lester Brafman: Third quarter principal transactions and other revenue was negative $1 7 million, primarily due to mark to market adjustments on our principal investments related to our involvement in the spec market.
Lester Brafman: The sponsor asset management.
Lester Brafman: Asset manager Investor and adviser, which has resulted in increased holdings of public equity positions and post business combination companies.
Lester Brafman: Equity value post business combination specs has continued to decline leading many of the founder shares we receive to the decrease in value negatively impacting both the equity method and the principal transactions line items, we anticipate that there will continue to be volatility in our principal portfolio and therefore are off.
Joseph Pooler: We anticipate that there will continue to be volatility in our principal portfolio and therefore our operating results. In addition, in certain cases we receive investment banking consideration from DSPAC clients in the form of investment assets, and those investment assets have subsequently fallen in value. Principal transactions revenue includes all gains and losses and income earned on our $37 million net investment portfolio. Compensation and benefits expense for the quarter was $17.9 million, which was up from both prior quarters, primarily due to fluctuations in revenue, income from equity method affiliates, net of our non-convertible, non-controlling interest, and the related variable incentive costs.
Lester Brafman: Operating results. In addition in certain cases, we receive an investment banking consideration from <unk> clients in the form of investment assets and those investment assets have subsequently fallen in value.
Lester Brafman: Principal transactions revenue includes all gains and losses and income earned on our $37 million net investment portfolio.
Lester Brafman: Compensation and benefits expense for the quarter was $17 9 million, which was up from both prior quarters, primarily due to fluctuations in revenue income from equity method affiliates net of our nonconvertible non controlling interests and the related variable incentive compensation. The number of company employees was 100.
Joseph Pooler: The number of company employees was 113 at the end of the quarter, compared to 121 at the end of the prior quarter, and 114 as of September 30 of 2023. Net interest expense for the third quarter of 2024 was $1.3 million, including $1.2 million on our two Trust Preferred Debt Instruments, $187,000 on our Senior Notes, $19,000 on our Credit Line, and negative $139,000 on our Redeemable Financial Income. During September of 24, we restructured two-thirds, or $5.1 million, of the redeemable financial instrument into a promissory note and repaid one-third, or $2.6 million in cash. Loss from equity method affiliates during the quarter totaled $700,000.
Lester Brafman: <unk> 13 at the end of the quarter compared to 120.
Lester Brafman: 121 at the end of the prior quarter and 114 as of September 30 of 'twenty three net interest.
Lester Brafman: <unk> expense for the third quarter of 24, with one 3 million, including $1 2 million on our two trust preferred debt instruments of 187000 on our senior notes 19000 on our credit line and no.
Lester Brafman: 139000 on our redeemable financial instruments.
During September of 'twenty, four we restructured two thirds or $5 1 million of the redeemable financial instrument into a promissory note and repaid one third or $2 6 million in cash.
Lester Brafman: Loss from equity method affiliates during the quarter totaled 700000.
Joseph Pooler: During the quarter, there was also an offsetting $2.5 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 SPAC fund and of our current SPAC series. The charge is generally an offset to certain amounts that we record in our net income loss from equity method affiliates line item and in our principal transactions and other revenues. In terms of our balance sheet at the end of the quarter, total equity was $100.6 million compared to $91.8 million at the end of the year.
Lester Brafman: During the quarter. There was also an offsetting $2 5 million credit recorded in the net income loss attributable to the nonconvertible non controlling interest line item. These nonconvertible noncontrolling interests represent ownership in certain consolidated subsidiaries.
Lester Brafman: The portfolio managers of our former spec fund and of our current spec series funds.
Lester Brafman: The charge is generally an offset to certain amounts that we record in our net income loss from equity method affiliates line item and in our principal transactions and other revenue line item.
Lester Brafman: In terms of our balance sheet at the end of the quarter total equity was $106 million compared to $91 8 million at the end of the year. The nonconvertible Noncontrolling interest component of total equity was $14 5 million at the end of the quarter and $9 6 million at the end of the.
Joseph Pooler: The non-convertible, non-controlling interest component of total equity was $14.5 million at the end of the quarter and $9.6 million at the end of the year. Thus, the total enterprise equity, excluding the non-convertible, non-controlling interest component of total equity was $10.6 million at the end of the year. was $86.1 million as of September 30, 2024, a $3.95 million increase from $82.2 million at the end of the year. A quarter-end consolidated corporate indebtedness was carried at $34.9 million, reflecting the increase from refinancing $5.1 million of the Redeemable Financial Instrument into a good place.
Lester Brafman: A year, thus the total enterprise equity excluding the nonconvertible non controlling interest component was $86 1 million as of September 30, 24, or $3 95 million increase from $82 2 million at the end of the year.
Lester Brafman: At quarter end consolidated corporate indebtedness was carried at $34 9 million, reflecting the increase from refinancing $5 1 million of the redeemable financial instrument into a promissory note.
Joseph Pooler: As Lester mentioned, we have declared a quarterly dividend of $0.25 per share, payable on December 5th of 2024 to stockholders of record as of November 20th of 2024. The 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.
Speaker Change: As Lester mentioned, we have declared a quarterly dividend of <unk> 25 per share payable on December 5th of 24 to stockholders of record as of November 20th of 24.
Speaker Change: The board will continue to evaluate the dividend policy each quarter and future decisions regarding dividends may be impacted by quarterly operating results and the companys capital needs with that I'll turn it back over to Lester.
Lester Brafman: With that, I'll turn it back over to Lester. Thanks, Joe.
Lester Brafman: 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. The contact information can also be found at the bottom of our earnings release, operator, you can now open the call lines for questions.
Operator: 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: Operator, you can now open the call lines for questions. Thank you. We will now be conducting a question and answer session.
Speaker Change: Thank you well now be conducting a question and answer session. We would like to ask a question. Please press star one on your telephone keypad.
Operator: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the start One moment, please, while we poll for your questions.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
Speaker Change: Press Star two 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 poll for your questions.
Lester Brafman: Okay.
Lester Brafman: Yeah.
Lester Brafman: Okay.
Operator: I'm not seeing any questions at this time.
Speaker Change: I'm not seeing any questions at this time I'd like to hand, the call back over to management for any closing comments.
Operator: I'd like to hand the call back over to management for any closing comments. Well, thank you all for joining us today and we look forward to speaking to you in our next quarterly release. Thank you.
Speaker Change: Alright, well. Thank you all for joining us today, and we look forward to speaking to you.
Lester Brafman: Next quarterly release.
Speaker Change: Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.
Operator: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Lester Brafman: Hum.
Lester Brafman: [music].