Institutional Financial Markets Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 5, 2024

Key Takeaways

  • Cohen and Company Capital Markets generated $6.4 million in advisory revenues as lead book runner on two SPAC IPOs, expanded its team to 24 professionals, and expects consistent pipeline production.
  • Adjusted pretax loss improved by $10.4 million year-to-date versus 2023, demonstrating progress toward profitability.
  • Principal transactions and other revenue was a $6.6 million loss in Q2 due to mark-to-market adjustments on SPAC investments and declining equity values in post-combination companies.
  • New issue and advisory revenue was $6.5 million, down $17.9 million quarter-over-quarter and up $5.1 million year-over-year, highlighting continued volatility from deal timing and engagement volume.
  • The Board declared a $0.25 per share quarterly dividend, maintaining its commitment to returning capital to shareholders.
AI Generated. May Contain Errors.
Earnings Conference Call
Institutional Financial Markets Q2 2024
00:00 / 00:00

There are 3 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Cohen and Company's Second Quarter 2024 Earnings Call. My name is Diego 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 could cause the company's actual results to differ materially from the results discussed in such forward looking statements. 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.

Operator

Cohen and 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 ks filed with the SEC. Earlier today, Cohen and 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 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 up for questions. I would now like to turn the call over to Mr. Lester Brafman, Chief Executive Officer of Cowen and Company.

Speaker 1

Thank you, Diego, and thank you, everyone, for joining us for our Q2 2024 earnings call. With me on the call is Joe Pooler, our CFO. We are pleased with the performance of our full service investment banking operation. Kona Company Capital Markets, CCCM, has generated $6,400,000 of advisory revenues and acted as a lead book runner for 2 SPAC IPOs. CCM has grown to 24 professionals and we intend to continue to add investment bank talent to our CCM team.

Speaker 1

We are optimistic about CCM's pipeline and look forward to consistent CCM production through the end of the year. While our 2nd quarter results were weakened by the impact of ongoing unfavorable mark to market adjustments on our principal investing portfolio, we are pleased to have improved the company's performance as the adjusted pretax loss line by $10,400,000 year to date versus 2023. 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 turn 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 loss attributable to Cohen and Company Inc. Was $2,300,000 for the quarter or $1.47 per fully diluted share compared to net income of $2,000,000 for the prior quarter or $1.28 per fully diluted share and net loss of $6,600,000 for the prior year quarter or $4.34 per fully diluted share. Our adjusted pretax loss was $8,600,000 for the quarter compared to adjusted pretax income of $7,700,000 for the prior quarter and adjusted pretax loss of $1,600,000 for the prior year quarter.

Speaker 2

As a reminder, adjusted pretax income is a key earnings measurement for us as it incorporates enterprise earnings attributable to our convertible non controlling interest, which 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 $6,500,000 in the 2nd quarter, a decrease of $17,900,000 from the 1st quarter and an increase of $5,100,000 from the year ago quarter. Our revenue earned from 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 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 $8,800,000 in the second quarter, down $1,100,000 from the 1st quarter and up $1,400,000 from the Q2 of 'twenty 3. Our asset management revenue totaled $2,100,000 in the quarter, which was down $600,000 from the prior quarter and up $500,000 from the prior year quarter. 2nd quarter principal transactions and other revenue was negative $6,600,000 primarily due to mark to market adjustments on our principal investments related to our involvement in the SPAC market as a sponsor asset management 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 principal transaction line item and the equity method line item on our P and L.

Speaker 2

In addition, in certain cases, we received investment banking consideration from these bank clients in the form of investment assets and some of those investment assets have subsequently fallen in value. Principal transactions revenue includes all gains and losses and income earned on our $32,700,000 net investment portfolio. Compensation and benefits expense for the 2nd quarter was $10,700,000 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 2023. Net interest expense for the quarter was $1,400,000 including $1,200,000 on our 2 trust preferred debt instruments, $135,000 on our senior notes, dollars 19,000 on our credit line and $100,000 on our redeemable financial instrument.

Speaker 2

Loss from Equity Method Affiliates during the quarter totaled $6,000,000 During the quarter, there was also an offsetting $5,200,000 credit recorded in the net income loss attributable to the non convertible non controlling interest line item. These non convertible non controlling interest represent ownership in certain consolidated subsidiaries by the portfolio managers of our former SPAC fund and of our current SPAC 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 $95,600,000 compared to $91,800,000 as of the end of 2023. The non convertible non controlling interest component of total equity was $17,100,000 at the end of the quarter and $9,600,000 at the end of 'twenty three.

Speaker 2

Thus the total enterprise equity excluding the non convertible non controlling interest was $78,500,000 as of June 30, a $3,700,000 decrease from $82,200,000 at December 31, 'twenty 3. At the end of the quarter, consolidated indebtedness was carried at $29,700,000 and our redeemable financial instrument was carried at $7,900,000 As Lester mentioned, we have declared a quarterly dividend of $0.25 per share payable on September 5, 'twenty four to stockholders of record as of August 22, 'twenty four. 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.

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. Thank you all for joining us today.

Operator

Thank you. And we'll now conduct our question and answer session. And ladies and gentlemen, there appears to be no questions at this time. I'll hand the floor back to Lester Brofman for closing comments.

Speaker 1

Well, thanks everyone for joining us today and we look forward to speaking with you for our 3rd quarter results. Enjoy the rest of the week. Thank you.

Operator

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

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