Earnings Call: Q1 2021

May 6, 2021

Good morning, ladies and gentlemen, and welcome to the Cohen and Company First Quarter 2021 Earnings Call. My name is Stephanie, 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 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 this call, And the company undertakes no obligation to update such forward looking statements to reflect subsequent events or circumstances. Cohen and Company advises you to read the cautionary note regarding forward looking statements and its earnings release and 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 of Cohen and Company. Please go ahead, sir. Thank you, Stephanie, and thank you, everyone, for joining us for our Q1 20 21 earnings call. With me on the call is Joe Pooler, our CFO. To say the least, we are extremely pleased with this quarter's results. This quarter shows the enormous earning potential of this platform, and we continue to build adjacent business lines with expectation of growing consistent revenue streams down the road. In the Q1, our net trading revenue was $19,900,000 thanks to strong performances from our mortgage repo and corporate trading groups And our gestation repo group. Our gestation repo book grew to $4,100,000,000 up from $3,300,000,000 at the end of 2020. Also in the quarter, our 2nd company sponsor, SPAC Insu Acquisition 2, closed its merger agreement with Metro Mile contributing $33,400,000 to adjusted pre tax income. We are excited to announce the hiring of several top investment bankers with broad experience in M and A, advisory, private capital markets, Equity Capital Markets and Pipe Transactions. We expect that this added expertise will create another source of revenue to complement and continue growth of our SPAC franchise And contribute to our overall operating leverage. Looking ahead, we are excited to build on our momentum as we grow our business while remaining committed to executing on our strategic priorities with focused on proactively managing our risk and capital structure as well as 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 $9,400,000 for the quarter or $6.98 per fully diluted share Compared to $14,800,000 for the prior quarter or $7.64 per fully diluted share And net loss of $3,100,000 for the prior year quarter or $2.70 per fully diluted share. Our adjusted pretax income was $37,600,000 for the quarter compared to $23,800,000 for the prior quarter An adjusted pre tax loss of $4,100,000 for the prior year quarter. As Lester mentioned, in the Q1, our second company sponsored SPAC, Insu Acquisition Corp. II closed its merger with Metro Mile contributing $33,400,000 to the quarter's adjusted 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. Net trading revenue came in at $19,200,000 in the 1st quarter, up $1,100,000 from the 4th quarter And up $600,000 from the Q1 of 2020. The increase from both prior quarters Was primarily the result of increased trading from our gestation repo trading group. Our asset management revenue totaled $2,100,000 in the quarter, Down $1,700,000 from the prior quarter and up $500,000 from the year ago quarter. The changes from both Prior quarters were primarily related to the timing of incentive allocations earned by the manager of our SPAC funds In the Q4 of 2020 and to a lesser extent in the Q1 of 2021. Q1 2021 principal transactions and other revenue was $79,600,000 which included 73 point $2,000,000 of revenue related to Metro Mile stock held by our consolidated sponsor entities after Into Acquisition Corp. 2's merger with Metro Mile, which closed on February 9, 'twenty one. It's important to note that approximately 54% of our consolidated Insutu SPAC Sponsor entity assets are owned by non controlling interests. Dollars 26,600,000 of the non Controlling interest reduction to our net income for the Q1 and $13,100,000 of our equity compensation expense, Both relate to the non controlling interest in the consolidated Insutu SPAC sponsor entities. Principal transactions revenue includes all gains and losses and income earned on our $107,000,000 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 $72,900,000 of Metro Mile stock at the end of the quarter, of which $39,800,000 will be distributed Stock at the end of the quarter. Of the $72,900,000 of Metro Mile stock, dollars 51,800,000 is currently restricted from sale In accordance with terms we have disclosed in previous filings, and of the $15,600,000 of Shift's stock, $13,400,000 is currently restricted from sale, again, in accordance with terms we've previously disclosed. Compensation and benefits expense for the Q1 was $26,600,000 which included $13,100,000 of stock compensation related to employee ownership of Founders Shares from Insu Acquisition Corp. 2's merger with Metro Mile. Compensation as a percentage of revenue was 26% in the Q1 compared to 35% in the 4th quarter And 80% in the prior year Q1. The number of Cohen employees has grown to 98 from 87 at year end. Net interest expense for the Q1 was $2,000,000 including $646,000 on our 2 trust preferred debt instruments, $579,000 on our senior notes, dollars 723,000 on our redeemable financial instruments And $65,000 on our credit line. At the end of the Q1, we repaid in full the remaining $4,000,000 redeemable financial instrument that supports our GCF repo business. Loss from Equity Method affiliates during the quarter totaled 835,000 The fluctuation in loss from Equity Method Affiliates was primarily related to pre business combination expenses incurred By the company's 3 sponsored insurance specs, which were at various stages of finding a merger target during the quarters presented. During the Q1, income tax expense was $868,000 compared to income tax benefits Of $8,000,000 in the prior quarter and $372,000 in the prior year quarter. As a reminder, the prior quarter's income tax benefit was Primarily the result of the reduction in valuation allowance applied against the company's net operating loss and net capital loss tax assets. In terms of our balance sheet at the end of the quarter, our total equity was $154,700,000 An increase of $53,200,000 from the prior year end total equity, dollars 45,000,000 of current Quarter end total equity was non convertible non controlling interest, primarily from the non controlling interest in our consolidated Also at the end of the quarter, stockholders' equity was 53,500,000 A $9,600,000 increase from the prior year end stockholders' equity balance. Consolidated corporate indebtedness was carried at 47 $3,000,000 and our redeemable financial instruments were carried at $8,000,000 Additional details regarding The mentioned SPAC transactions are available in the company's filings with the SEC, including our 10 Q, which we With that, I will turn it back to Lester for some closing remarks. Lester? Thanks, Joe. Please direct any offline investor questions to Joe Pooler at 215-701-8952 or via email to investorrelations@conancompany.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, if there are any. At this time, there are no questions in queue. I'll turn it back over to management. Thank you all for joining us today, and we look forward to speaking next quarter. Thank you very much. Thank you. This concludes today's conference call. You may now disconnect.