Cohen & Company Inc.
Q2 2017 Earnings Call Transcript

Published: 5 Aug 2017

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Institutional Financial Markets’ Second 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 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 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 thanks everyone for joining us on our second quarter 2017 earnings call. With me on the call is Joe Pooler, our CFO. We’re pleased with IFMI’s results in the second quarter. Despite a weak environment for domestic capital markets business, we were able to post our sixth consecutive quarter of profitability. We continue to explore various business development opportunities in both our capital markets and asset management segments. We remain committed to enhancing stockholder value, and in the second quarter continue to pay our quarterly dividend. Now I will turn the call over to Joe to walk you through this quarter’s financial highlights in more detail.

[Joe Pooler:]

Thanks, Lester. Starting with our statement of operations. Our operating income was $1.7 million for the quarter ended June 30 of ‘17 compared to $2.6 million for the quarter ended March 31 of ‘17 and $2.2 million for the quarter ended June 30 of ‘16. Our income before income taxes was $600,000 for the current quarter compared to $1 million for the quarter ended March 31 and 1.2 million for the prior year quarter. And our net income was $600,000 or $0.03 per diluted share for the current quarter compared to $1 million or $0.05 per diluted share for the prior quarter and $1.2 million or $0.07 per diluted share for the prior year quarter. In the second quarter of ‘17 our fully diluted shares outstanding increased from the first quarter of ‘17 by approximately 7.9 million shares to 27.9 million primarily due to our March of 2017 issuance of $15 million convertible note. The new conversion shares from that note are dilutive in the fully dilutive net income per share calculation and therefore get included in the fully diluted share count. The first quarter of ‘17 included only a prorate share of the 10.3 million conversion shares based on the 22 days that the new convertible note was outstanding during the first quarter. In the second quarter of ‘17 the entire 10.3 million conversion shares were included in the fully diluted share count. Net trading revenue came in at $6.1 million in the second quarter, down $2 million from the first quarter and down $5.2 million from the second quarter of ‘16. The decrease from the first quarter of ‘17 was primarily due to decreased trading revenue from our corporate group, while the decrease from the prior year quarter occurred across all of our trading groups. Our asset management revenue totaled $1.7 million in the second quarter which was down compared to the prior quarter, but up compared to the year ago quarter. The decrease from prior quarter was primarily due to non-recurring incentive fees in our European separate account business in the first quarter of ‘17. The increase from the year ago quarter was primarily a result of growing management fees in our European fund business which is in the process of ramping up assets under management in two funds. New issue and advisory revenue was $900,000 in the second quarter of ‘17, which was down 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. Second quarter ‘17 principal transactions revenue was $21,000, which was down from both the prior and year ago quarters. In all three of the quarters presented the positive principal transactions revenue was generated by our investments in CLOs, partially offset by losses in our investment in EuroDekania. Other revenue was $2.7 million in the second quarter of ‘17 compared to $2.1 million in the first quarter and $500,000 in the second quarter of the prior year. The higher revenue in the second quarter of ‘17 was primarily due to increased revenue share payments related to our past sale of the Star Asia Group which included a share of incentive fees for the Star Asia Group received during the second quarter of ‘17. Compensation and benefits expense for the second quarter were $5.5 million, down $1.6 million from the first quarter of ‘17, and down $2.8 million from the second quarter of ‘16. The decreases were primarily the result of the variable compensation model we have in place and relate to our decreases in net trading revenue from the comparable periods. Compensation as a percentage of revenue was 49% in the second quarter of ‘17 compared to 50% in the first quarter of ‘17 and 58% in the second quarter of ‘16. The number of IFMI employees was 82 as of the end of the current quarter compared to 80 as of the end of March 31, 2017 and 80 as of June 30 of ‘16. In the quarter, our total non-compensation operating expenses, excluding depreciation and amortization were $4 million, down $600,000 from the prior quarter and up $300,000 from the prior year quarter. The decrease from the prior quarter was primarily the result of lower consulting fees paid to a European consultant related to new issue and advisory revenue earned while the increase from the prior year quarter was primarily the result of higher third-party marketing costs related to our European fund business. We continue to be diligent about managing expenses. Net interest expense for the second quarter of ‘17 was $1.1 million including $800,000 on our two trust preferred debt instruments, $600,000 on our 8% convertible notes, both offset by interest income of $300,000 recorded on the JKD Capital Partners redeemable financing instrument which was interest income in the quarter due to net losses incurred in our institutional corporates group. In terms of our balance sheet at the end of the quarter, our total equity was $48.2 million, an increase of $1.5 million from year end. We had $76.9 million of equity capital invested in our net trading portfolio and $6 million invested in our principal investing portfolio. The other investments at fair value line item represents our principal investing portfolio and includes our 4.8 million of investments in CLO positions. Note that our total assets are up to 699 million from 561 million at the end of the prior year primarily due to our mortgage group’s gestational repo business which has increased the receivables under resale agreements line items in the assets section of the balance sheet to 410 million at June 30, 2017. At the end of the quarter, consolidated corporate indebtedness was carried at 43.6 million, and we had 10.7 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 August 31 to stockholders of record on August 17. 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 questions 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 for joining us today. Operator, you can now end the call.

[Operator:]

This does conclude today’s conference call. You may now disconnect.