Earnings Call: Q2 2021

Jul 29, 2021

Morning, ladies and gentlemen, and welcome to the Cohen and Company Second Quarter 2021 Earnings Call. My name is Leo, and I will be your operator for today. Before we begin, Coin and Company would like to remind everyone that some of the statements the company may assume that this call may contain forward looking statements under the 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 the call, and the company undertakes no obligation to update such forward looking statements to reflect subsequent events or circumstances. Coin Company advises you to read a cautionary note regarding forward looking statements and its earnings release and in the most recent annual report on Form 10 ks filed with the SEC. I would now like to turn the call over to Mr. Lester Brafman, Chief Executive Officer, Cohen and Company. Thank you, Leo. Thanks, everybody, for joining us for our Q2 2020 1 earnings call. With me on the call is Joe Pooler, our CFO. Our strategic initiatives and management facts and decision regulatory continue to favorably impact our results. Although our Q2 revenue was impacted by a negative mark to market adjustments on the company's Two sponsors in which we have equity method investments closed the related business combinations generating $5,500,000 of income for the company during the quarter. Our investment banking pipeline is picking up, and we recently hired a group of experienced professionals to launch a commercial real estate origination and securitization business. In In addition, we are pleased to announce the reinstatement of a quarterly cash dividend, which will allow us to return capital to our shareholders, while continuing to invest in the company's growth initiatives. We continue to believe that the initiatives underway will generate long term value for our shareholders and remain focused on enhancing stockholder value. Now I will turn the call over to Joe to walk through this quarter's financial highlights in more detail. Thank you, Lester. We'll start with our statement of operations. Our net income attributable to Cohen and Company Inc. Shareholders was $1,700,000 for the quarter or $1.21 per fully diluted share compared to $9,400,000 for the prior quarter or $6.98 per fully diluted share And $900,000 for the prior year quarter or $0.69 per diluted share. Our adjusted pretax income Was $3,700,000 for the quarter compared to $37,600,000 for the prior quarter $4,400,000 for the prior year quarter. Note that adjusted pretax income is not a measure recognized under U. S. Generally accepted accounting principles. See our disclosures, calculations and reconciliations surrounding adjusted pretax income in our earnings release. The changes in our Q2 2021 earnings measurements and revenues compared to Q1 2021 We're significantly impacted by the closing of our 2nd sponsored SPACs business combination in the Q1. The Metro Mile Insurance Spec 2 merger, which closed in February of 'twenty one. Net trading revenue came in at $18,400,000 in the 2nd quarter, down $800,000 from the 1st quarter And down $1,600,000 from the Q2 of 'twenty. The decreases were primarily the result of decreased trading from our wholesale, Corporate and GCF Repo Trading Groups. On a favorable note, our gestation repo revenue continued to grow with Quarterly revenue of $11,800,000 on quarter ending repo balances of 3,800,000,000 2nd quarter 2021 principal transactions and other revenue was negative 11,000,000 Which included $12,800,000 of negative revenue related to mark to market principal transaction losses on Metro Mile stock. Note that this $12,800,000 of negative principal transactions revenue in the current quarter is offset by a $9,000,000 credit Recorded in the net loss attributable to the non convertible non controlling interest line item. As the consolidated subsidiary where the unfavorable mark to market losses were recorded had non controlling interest, Which have been allocated approximately 70% of the negative mark to market. By the end of the quarter, the related consolidated had become wholly owned and the non controlling interests have received via distribution their allocated shares of Metro Mile. As a reminder, the merger between Metro Mile and the company's 2nd sponsored insurance back closed in February 'twenty one And generated $73,200,000 of principal transactions revenue in the Q1. Principal transactions Revenue includes all gains and losses and income earned on our $66,700,000 investment portfolio Classified as other investments at fair value on our balance sheet. This investment portfolio has increased recently due to our SPAC portfolio growing as our SPAC franchise expands. The investment portfolio includes $22,200,000 of Metro Mile stock at June 30, and the portfolio also includes $16,000,000 of Shift stock at June 30. Of the $22,200,000 of Metro Mile stock, all $22,200,000 is currently restricted from sale in accordance with the terms we've disclosed in previous filings and of the $16,000,000 of Shift's stock, dollars 13,800,000 Currently restricted from sale in accordance with terms we've previously disclosed. Compensation and benefits Expense for the Q2 of 'twenty one was $14,200,000 Compensation as a percentage of revenue was 141% in the quarter. This high percentage was substantially impacted by the $12,800,000 in negative mark to market adjustments related to Metro Mile. Again, a reminder, 70% of the total debt was down in the net loss attributable to the non convertible non controlling interest. The number of Kona employees at the end of June was 109 compared to 98 at the end of March And 94 at the end of the prior year June. Net interest expense for the quarter was $1,800,000 including $652,000 on our two Trust preferred debt instruments, dollars 588,000 on our senior notes, dollars 476,000 on our redeemable financial instruments And $66,000 on our credit line. In the Q1 of 2021, we repaid in full the remaining $4,000,000 redeemable financial Supporting our GCF repo business. In the Q2 of 2021, other non operating income was $2,100,000 which represents the forgiveness of 98% of our Paycheck Protection Program loan that was funded in May of 'twenty and forgiven by the SBA in June of 2021. Income from Equity Method Affiliates during the quarter totaled $5,500,000 Which was primarily driven by income from our equity method investments in the sponsors of 2 SPACs, Which closed their business combinations during the Q2 of 'twenty one. The increased value of the Founder's shares held by the sponsors of these 2 SPACs, Of which we are entitled to an allocation from the sponsors generated $5,500,000 of income from equity method investments in the second In summary, despite a quarterly revenue of only $10,100,000 which was driven down by the $12,800,000 gross negative mark to market on our consolidated SPAC sponsors' Metro Mile position. Below the line income and credit From three items in particular allowed us to generate positive earnings, namely the non controlling interest of $9,000,000 share of the negative 12 $8,000,000 of revenue, the $5,500,000 of income on equity method investments related to the Founder Shares And our $2,100,000 PPP loan forgiveness other income line item. So these items collectively helped us to generate positive net income attributable to Cohen and Company, Inc. Shareholders And positive adjusted pretax income, dollars 1,700,000 $3,700,000 respectively. In terms of our balance sheet at the end of the quarter, Total equity was $126,400,000 compared to $101,400,000 at the end of the year. The non convertible non controlling interest component of total equity was $7,700,000 at the end of the quarter And $27,800,000 at the end of the year. Thus, the total equity, excluding the non convertible non controlling interest, Was $118,800,000 at the end of the quarter, a $45,100,000 increase from $73,600,000 at the end of the year. Consolidated corporate indebtedness was carried at $45,400,000 and our redeemable financial instruments were carried at 8,000,000 We've declared a dividend of $0.25 per share, which will be payable on August 27, 'twenty one to stockholders of record On August 13, 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 capital needs. With that, I will turn it back over to Lester. Thank you, Joe, and thank you all for joining our call today. Please direct any offline investor questions Mr. Joe Pooler at 215-701-8952 or via email at investorrelationsconancompany.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. And thank you all for joining us And it appears, gentlemen, that there are no further questions at this time. Okay, great. Thanks guys for joining the call today, and we look forward to speaking to you next quarter. Have a good day. This does conclude today's conference. You may now disconnect your lines.