Cohen & Company Inc. Q3 2024 Earnings Call Transcript

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November 4, 2024

There are 3 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Cohen and Company's Third Quarter 2024 Earnings Call. My name is Daryl, and I will be your operator for today. Before we begin, Cohen and 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. 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.

Operator

Cohen and Company advises you to read the cautionary note regarding forward statements in its earnings release and in its most recent annual report on Form 10 ks filed with the SEC. Earlier today, Cohen and Company issued a press release announcing Q3 2024 financial results. Today's discussion is complementary to that press release, which is available on the company's website at cohenandcompany.com. This conference call is being recorded and a replay of it will be available for 3 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.

Operator

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 for questions. I would now like to hand the call over to Mr. Lester Brafman, Chief Executive Officer of Cowen and Company.

Speaker 1

Thank you, Daryl, and thank you, everyone, for joining us for our Q3 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 Q3 with a strong execution and continued momentum from Kona and Company Capital Markets, CCCM, our full service boutique investment banking operation. We are proud to report that CCCM generated $21,400,000 of advisory revenue and acted as lead book runner on 1 stack IPO. CCM's pipeline remains robust and we expect consistent production from CCM throughout the end of the year.

Speaker 1

The company's performance at the adjusted pre tax line has improved by $26,500,000 year to date versus 2023 despite the impact of ongoing unfavorable mark to market adjustments in our principal investing portfolio. 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. Now I will return the call over to Joe to walk through this quarter's financial highlights in more detail.

Speaker 2

Thank you, Lester. I'll begin with a discussion of our operating results for the quarter. Our net income attributable to Cohen and Company Inc. Was $2,200,000 for the quarter or $1.31 per fully diluted share compared to net loss of $2,300,000 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 pretax income was $7,700,000 for the quarter compared to adjusted pre tax loss of $8,600,000 for the prior quarter and adjusted pre tax loss of $8,400,000 for the prior year quarter.

Speaker 2

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, which is substantially held by our Founder and Chairman, Daniel Cohen. Daniel holds his interest in the enterprise through the primary operating subsidiary, Cohen and Company LLC, which is a consolidated subsidiary of Cohen and Company Inc. New issue and advisory revenue was 22 point $5,000,000 in the Q3, an increase of $16,000,000 from the 2nd quarter and an increase of $15,200,000 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.

Speaker 2

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 recognition. 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 in equity method affiliates in our consolidated balance sheets. Net trading revenue came in at $8,800,000 in the 3rd quarter, which was comparable to the 2nd quarter and up $1,300,000 from the Q3 of 'twenty 3. 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 wholesale group.

Speaker 2

Our asset management revenue totaled $2,100,000 in the quarter, which was comparable to the prior quarter and up $400,000 from the prior year quarter. The change from the prior year quarter was related primarily to deferred performance fees in one of our European funds. 3rd quarter principal transactions and other revenue was negative $1,700,000 primarily due to mark to market adjustments on our principal investments related to our involvement in the SPAC market as a sponsor asset management asset manager, investor and advisor, which has resulted in increased holdings of public equity positions in post business combination companies. 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 line items. We anticipate that there will continue to be volatility in our principal portfolio and therefore our operating results.

Speaker 2

In addition, in certain cases, we receive investment banking consideration from De SPAC 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 $37,000,000 net investment portfolio. Compensation and benefits expense for the quarter was $17,900,000 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 compensation. 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, 'twenty 3. Net interest expense for the Q3 of 'twenty 4 was $1,300,000 including $1,200,000 on our 2 trust preferred debt instruments, dollars 187,000 on our senior notes, dollars 19,000 on our credit line and negative $139,000 on our redeemable financial instrument.

Speaker 2

During September of 'twenty four, we restructured 2 thirds or 5,100,000 of the redeemable financial instrument into a promissory note and repaid 1 third or 2,600,000 in cash. Loss from Equity Method affiliates during the quarter totaled 700,000. During the quarter, there was also an offsetting 2,500,000 dollars 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 funds. 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.

Speaker 2

In terms of our balance sheet at the end of the quarter, total equity was $100,600,000 compared to $91,800,000 at the end of the year. The non convertible non controlling interest component of total equity was $14,500,000 at the end of the quarter and $9,600,000 at the end of the year. Thus, the total enterprise equity, excluding the non convertible non controlling interest component was $86,100,000 as of September 30, 2024, a $3,950,000 increase from $82,200,000 at the end of the year. At quarter end, consolidated corporate indebtedness was carried at $34,900,000 reflecting the increase from refinancing $5,100,000 of the redeemable financial instrument into a promissory note. As Lester mentioned, we have declared a quarterly dividend of $0.25 per share payable on December 5, 'twenty four to stockholders of record as of November 20, 'twenty four.

Speaker 2

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 needs. With that, I'll turn it back over to Lester.

Speaker 1

Thanks, Joe. Please direct any offline investor questions to Joe Pooler at 215-701-8952 or via email to investorrelationscohnandcompany.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

Thank you. We'll now be conducting a question and answer I'm not seeing any questions at this time. I'd like to hand the call back over to management for any closing comments.

Speaker 1

Well, thank you all for joining us today and we look forward to speaking to you in our next quarterly release.

Operator

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.

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Earnings Conference Call
Cohen & Company Inc. Q3 2024
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