Cohen & Company Inc.
Q1 2019 Earnings Call Transcript

Published: 6 May 2019

[Operator:]

Good morning, ladies and gentlemen and welcome to Cohen & Company’s First Quarter 2019 Earnings Call. My name is Maria and I will be your operator for today. 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 could cause the company’s actual results to differ materially from the results discussed in such forward-looking statements. These 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. 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. I would now like to turn the call over to Mr. Lester Brafman, Chief Executive Officer of Cohen & Company.

[Lester Brafman:]

Thank you, Maria and thank you everybody for joining us for our first quarter 2019 earnings call. With me on the call is Joe Pooler, our CFO. Although, we continue to make progress executing on our strategic priorities, including the GCF repo business, U.S. insurance asset management and residential transition loan trading businesses. We were disappointed with our overall revenue generation during the first quarter. We continue to believe that these new businesses will help diversify our company and eventually increase revenue across business segments. We were pleased to announce during the quarter that our sponsors’ special-purpose acquisition company, Insurance Acquisition Corp, NASDAQ ticker INSUU, raised over $150 million in its initial public offering. Insurance Acquisition Corp. will pursue a business combination over 18 months from the date of initial public offering. Now I will turn the call over to Joe to walk through this quarter’s financial highlights in more detail.

[Joe Pooler:]

Thanks, Lester. I will start with our statement of operations. Our operating loss was $63,000 for the quarter compared to operating income of $2.3 million for the prior quarter and operating loss of $360,000 for the prior year quarter. Our loss before income taxes was $1.9 million for the current quarter compared to income of $6,000 for the prior quarter, and loss of $2.2 million for the prior year quarter. The net loss attributable to Cohen & Company shareholders was $1.2 million or $1.06 per diluted share for the current quarter compared to net loss of $418,000 or $0.37 per diluted share for the prior quarter, and net loss of $1.5 million or $1.26 per diluted share for the prior year quarter. Net trading revenue came in at $8.7 million in the first quarter, down $377,000 from the fourth quarter of ‘18 and up $2.5 million from the first quarter of ‘18. Our asset management revenue totaled $2 million in the quarter, down $2.7 million from the prior quarter and up $198,000 from the year ago quarter. The fourth quarter of ‘18 included $3 million of subordinated management fees in arrears, recorded and received due to the successful auction and liquidation of the Alesco 2 CDO in October of ‘18. The increase from the prior year quarter was primarily a result of one-time incentive fees in our European-managed accounts, recorded during the current quarter. First quarter 2019 principal transactions revenue was $350,000, up from the prior quarter and down slightly from the year ago quarter. Compensation and benefits expense for the first quarter was $6.4 million, down $61,000 from the prior quarter and up $1.2 million from the prior year quarter. Compensation as a percentage of revenue was 57% in the first quarter of ‘19 compared to 41% in the fourth quarter of ‘18 and 56% in the first quarter of ‘18. The number of Cohen employees was 88 as of March 31 of ‘19 and 88 as of year end 2018 compared to 92 as of March 31 of ‘18. Professional services and other operating expenses were $1.7 million during the quarter, a decrease of $2.2 million from the prior quarter and comparable to the year ago quarter. The decrease from the prior quarter was the result of a $1.2 million finders fee paid, related to the origination of U.S. insurance assets that led to new issue revenue during the fourth quarter of ‘18, and a $1 million sub-advisory fee paid related to the receipt of the $3 million of sub fees in arrears from the successful auction of Alesco 2, also in the prior quarter. Net interest expense for the first quarter of ‘19 was $1.9 million including $880,000 on our 2 trust preferred debt instruments, $494,000 on our 8% convertible notes, $389,000 on our redeemable financial instruments and $96,000 on our other credit lines. In terms of our balance sheet, at the end of the quarter, our total equity was $42.7 million, an increase of $298,000 from December 31 of ‘18. Included as a component of our equity increase is a non-controlling interest investment of $2.6 million in the consolidated sponsor entity for the insurance acquisition, Corp’s back. As of March 31, consolidated corporate indebtedness was carried at $43.7 million. Our redeemable financial instruments were carried at $18.7 million, and we had $9.3 million of unrestricted cash on the balance sheet. We have announced the $0.20 dividend for the quarter and we will continue to review the dividend policy on a quarterly basis. Future decisions regarding our dividend will be impacted by quarterly operating results and our ongoing capital needs. The dividend is payable on June 5 of ‘19 to stockholders of record on May 22. Finally, we expect to file our 10-Q this Friday, May 3. With that, I will turn it back to Lester.

[Lester Brafman:]

Thanks, Joe. Please direct any investor questions to Joe Pooler at 215-701-8952. His contact information is at the bottom of our earnings release or via e-mail to Investor Relations at cohencompany.com. Thank you for joining us today. Operator, you can now end the call.

[Operator:]

Thank you for joining, ladies and gentlemen. You may now disconnect. [No Q&A session for this event]