Cohen & Company Inc.
Q1 2017 Earnings Call Transcript

Published: 6 May 2017

[Operator:]

Good morning, ladies and gentlemen, and welcome to Institutional Financial Markets’ First Quarter 2017 Earnings Conference Call. My name is Krystal and I’ll be your operator for today. Before we begin, IFMI would like to remind everyone that some of the statements that 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 those 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 to reflect subsequent events or circumstances. IFMI advises you to read the cautionary notes 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 conference call over to Mr. Lester Brafman, Chief Executive Officer of IFMI.

[Lester Brafman:]

Thank you, Krystal, and thank you, everybody, for joining us on our first quarter 2017 earnings call. With me on the call is Joe Pooler, our CFO. We are pleased with IFMI’s continued strong performance in the first quarter delivering our fifth consecutive quarter of profitability as we continue to execute our strategy. During the quarter, we raised an additional $15 million of capital and deployed it in our registered broker‐dealer, J.V.B. Financial Group. We will continue to have discussions with other potential capital partners, as we are confident that we can deploy additional capital, strategically and opportunistically, in both our capital markets and asset management segments. We remain committed to enhancing stockholder value, and during the first quarter continued to pay our quarterly dividend and resumed our share repurchase program. Now I will turn the call over to Joe to walk through this quarter’s financial highlights in more detail.

[Joe Pooler:]

Thank you, Lester. Starting with our statement of operations, our operating income was $2.6 million for the quarter ended March 31, 2017, compared to $2.5 million for the quarter ended December 31, 2016 and $1.3 million for the prior year quarter ended March 31, 2016. Our net income was $1 million or $0.05 per diluted share for the current quarter, compared to $400,000 or $0.02 per diluted share for the prior year and $300,000 or $0.01 per diluted share for the prior year quarter. Net trading revenue came in at $8.1 million in the first quarter, up $900,000 from the fourth quarter of 2016 and down $2.1 million from the first quarter of 2016. The increase from the fourth quarter was primarily due to increased trading revenue from our wholesale and mortgage, while the decrease from the prior year quarter was primarily due to decreased trading revenue from our wholesale and corporate groups. Our asset management revenue totaled $2.7 million in the first quarter, which was down compared to the prior quarter, but up compared to the year ago quarter. The decrease from the prior quarter was primarily due to higher CDO asset management fees in the fourth quarter of 2016 as a result of our European CLO resuming subordinated management fee payments, partially offset by one-time incentive fees in our Europe separate account business in the first quarter of 2017. The increase from the year ago quarter was primarily a result of the one-time incentive fees in the European separate account business in the first quarter partially offset by lower CDO asset management revenue from our European CLO due to the curtailment of subordinated management fees in the first quarter of 2017. We expect subordinated management fee payments for the European CLO to be somewhat volatile going forward. New issue and advisory revenue was $1.1 million in the fourth quarter of 2017, which was up compared to both the prior and year ago quarters. Our new issue and advisory revenue has been volatile and we expect that trend to continue as we earn revenue from a limited number of engagements. A small change in the number of engagements can result in meaningful fluctuations in the new issue revenue recognized. First quarter 2017 principal transactions revenue was $500,000, which was down from the prior and up from the year ago quarter. In both the first quarters of 2016 and 2017, the positive principal transactions revenue was generated by our investments in CLOs partially offset by mark-to-market losses in our investment in EuroDekania. In the fourth quarter of 2016, the positive principal transactions revenue was generated by the investment in CLOs and EuroDekania. Other revenue was $2.1 million in the first quarter of 2017 compared to $1.4 million in the fourth quarter of 2016 and $700,000 in the first quarter of 2016. The higher revenue in the current quarter was primarily due to the final earn out payment from the past sale of the Alesco X-XVII management contracts and included the 25% holdback amount of approximately $1.6 million. This agreement ended in February of 2017 and there will be no more revenue related to this earn out in the future. In addition, a significant portion of the variation of cross quarters is the result of the revenue share payments related to our past sale of the Star Asia Group, which fluctuate due to the amount of incentive fees the Star Asia Group receives during each period. Compensation and benefits expense for the first quarter of 2017 was $7.2 million, up $400,000 from the fourth quarter of 2016, and down $1.4 million from the first quarter of 2016. Compensation as a percentage of revenue was 50% in the first quarter of 2017, compared to 51% in the fourth quarter of 2016 and 62% in the first quarter of 2016. The number of IFMI employees was 80 at the end of the first quarter compared to 79 at the end of the year and 86 as of the year ago quarter end. In the quarter, our total non-compensation operating expenses, excluding depreciation and amortization, were $4.7 million, up $800,000 from both the prior year and year ago quarters. The increase was primarily the result of consulting fees paid to a European consultant related to the new issue and advisory revenue earned in the first quarter of 2017. We continue to be diligent about managing expenses. Interest expense for the first quarter of 2017 was $1.6 million, down $200,000 from the fourth quarter of 2016 and up $600,000 from the first quarter of 2016. The decrease from the prior quarter was primarily the result of lower interest incurred due to our October 16 investment agreement with JKD Capital Partners partially offset by interest on the $15 million of convertible debt that was issued in the first quarter of 2017. In terms of our balance sheet at the end of the first quarter, our total equity was $47.8 million, an increase of $1 million from the end of the year. As of March 31, we had $75.5 million of equity capital invested in our net trading portfolio and $8.1 million invested in our principal investing portfolio. As of March 31, consolidated corporate indebtedness was carried at $43.5 million, and we had $11.2 million of unrestricted cash balances on the balance sheet. We’ve announced a $0.02 dividend for the quarter and we’ll continue to review the dividend policy on a quarterly basis. The dividend is payable on June 01 to stockholders of record on May 18. Finally, we expect to file our 10-Q no later than Friday of this week. With that, I will turn it back over to Lester for closing remarks.

[Lester Brafman:]

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