Cowen Inc.
Q1 2018 Earnings Call Transcript

Published: 26 Apr 2018

[Operator:]

Good morning, ladies and gentlemen and thank you for joining Cowen’s Conference Call to discuss the Financial Results for the 2018 First Quarter. By now, you should have received a copy of the company’s earnings release, which can be accessed at Cowen’s website at www.cowen.com. Before we begin, the company has asked me to remind you that some of the comments made on today’s call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties described in the Company’s earnings release, and other filings with the SEC. Cowen has no obligation to update the information presented on the call. A more complete description of these and other risks and uncertainties and assumptions is included in the company’s filings with the SEC, which are available on the Company’s website and on the SEC website at www.sec.gov. Also, on today’s call, our speakers will reference certain non-GAAP financial measures, which the Company believes will provide useful information for investors. Reconciliation of those measures to GAAP is consistent with the Company’s reconciliation as presented in today’s earnings release. Now, I would like to turn the call over to Mr. Jeffrey Solomon, Chief Executive Officer.

[Jeffrey Solomon:]

Thank you, operator. Good morning and welcome to Cowen’s first quarter 2018 earnings call. This is Jeff Solomon and joining me today on the call is our CFO, Steve Lasota. As you can see from our earnings release we have reported economic income of 24.1 million on revenue of 241.5 m for the quarter, first quarter of 2018. This compares to the first quarter of last year where we reported economic income of 5.5 million and revenue of 128.6 million. This quarter’s strong performance which is the best operating results since the formation of Coven. Inc in 2009 is emblematic of the many steps we have taken over the past few years to position our organization for success in any market environment. Before I review the specific results in each of our business, I would like to highlight that the performance occurred during one of the most volatile equity markets we have witnessed in the past this year. At the beginning of 2018, the [VICS] was 9.77 and at the end of the quarter it was 19.97, having peaked at 37.32 on February 5th, more specifically the S&P 500 had intraday moves of greater than 1% on 46 out of 61 trading days or about 75%. This compares to 41% of the trading days over the past five years to mind. In 2017, only 27% of the trading days experienced that kind of market volatility on a daily basis. This kind of market generally benefited equity volumes, which increased 20% year-over-year and we participated meaningfully from that environment. Interestingly, the increase in volatility did little to impact our equity financing business as fundamental buyers in the most active sectors remained fully engaged in new issue, which performed well overall. Now I will review each of our businesses as well as some of the changes we have accomplished since our fourth quarter call. In banking and capital markets, we had a solid performance as investors continue to show consistent interest in IPOs and follow on. Healthcare was once again a tremendous driver of our growth, but the diversity of our banking revenue is also noteworthy as I will discuss. While healthcare equity issuance has been a long-standing strength of the firm this quarter was particularly noteworthy because of our market share relative to the healthcare equity issuance across the sector as a whole. For the performance of the market in the first quarter of 2018 it was the highest quarter in terms of fees since the first quarter of 2015 which was the last day to healthcare new issuance quarter. But the total fees from healthcare new issue in the first quarter for the entire industry in 2018 were actually 26% lower than in the first quarter of 2015. However, for calendar first quarter of 2018 was our perfect quarter for healthcare equity capital markets. In fact our healthcare equity market fees were 12% higher than they were in the first quarter of 2015, it was an amazing performance that first and foremost speaks to the strength of our healthcare franchise and second to our growing impact within the healthcare market. Our performance in banking was also punctuated by continued growth in M&A advisory and in non-healthcare sectors such as consumer which had its best quarterly contribution to date, in fact the fees generated by the consumer team this quarter exceeded the sector's annual contribution in each of the last several years. In aggregate, our non-healthcare banking and non-ECM revenue was 23 million, which is one of the highest levels since the formation of Cowen in 2009. Much of the success we saw on our non-healthcare sectors and in M&A was the result of an organic multiyear investment in new hires, many of which we made during the downturn of 2016. This put us in a position to deliver higher revenue and improve revenue diversity. As we have said before diversifying our business mix towards higher margin activities is a multiyear process. We demonstrated tangible evidence of the effects begin to take place in 2017 and you are seeing that a bit into 2018 as well. The Fed continues to invest in our advisory capability in order to drive long-term margin growth. Now turning to brokerage, brokerage reported record revenue and year-over-year growth of 118% as a reminder, the prior year quarter did not include Convergex. Total brokerage revenue averaged $1.9 million per trading day compared to approximately $918,000 per trading day in the year ago period. For purposes of the call, we will probably describe the individual units within the brokerage business as institutional brokerage and institutional services. Institutional brokerage includes cash equity, special situation, electronic trading, options, convertible and credit. Institutional services includes prime services, global clearing, security finance and commission management services. Our institutional brokerage rose 72% year-over-year, while much of the increase was due to the inclusion of Convergex our growth was also the result of market volatility and continued market share gains. We have seen our equity platform perform well during constant market volatility as client seek to position their portfolio. However, with our larger platform our ability to efficiently move stock has been amplified especially during those periods of volatility like the one we saw in the first quarter. Our institutional services business rose 220% year-over-year, with much of the growth, reflecting the diversification the business following the conversion of the acquisition of Convergex. With regard to MiFID II, although it is early in its implementation regulations seem to have muted impact on Cowen thus far. This is the result of the path we took in recent which is to focus on high-quality sophisticated research product coupled with the best execution capabilities, particularly post the Convergex acquisition. We chose to make significant long-term investment in research and trading because we saw the industry trend coming long before MiFID II became a part of our daily [binocular] (Ph). Clients have increasingly focused their order flow with partners who provide real value add in both research and trade execution. We believe this has positioned us well in the eyes of our global customers. Moving to the investment management business. As of April 1, we had 10.8 billion of assets under management, which was down 200 million from the start of the year. The decline primarily relates to the elimination of the global macro strategy from our platform as we mentioned on our last call with an existing strategies that we do not think would show ability to scale our platform. Now for a brief update on our current strategies. Our new private healthcare strategy held at second and final close in January rating more than 200 million in aggregate commitment. The solid investor interest we have seen thus far speak to Cowen brands as well as our track record in that strategy. The healthcare royalty business completed its largest investment its history, its third fund is about 58% committed in the pipeline for royalty transactions continues to be robust. Real estate successfully raised its third equity vehicle and merger arbitrage delivered slightly positive performance in the quarter and we seen modest inflows into the use of product. Our long set equity strategy which invests primarily in indications, technology, media and consumer sectors have positive performance during a negative quarter for the S&P. Finally, on our last call I discussed the concept of simpler, fewer, deeper as we look to create shareholder value through driving return on equity. I would like to give you an update on our activities on the front. Simpler, improving our capital allocation process is essential to driving our long-term return on equity. More specifically, we are in the process of harmonizing our balance sheet activities in pursuit more creative, returns that are tied more closely to our operating businesses as well as buying back stock opportunistically. Late last year we formed an capital allocation committee's so that decision can be considered more holistically across the entire firm. Capital allocation is more than simply driving revenue mix in returns on the balance sheet it is no more closely aligned conserving the mission of driving pre-tax ROE. That includes assessing whether we think that the long-term ROE of certain businesses are susceptible. It is this kind of rigor that is leading us to make better decisions about capital deployment. Since 2017, we have closed six balance sheet strategies, including the three that were exited this year. As we do not believe that those could be developed in a manner that would benefit the operating businesses more broadly. The steps taken in the first quarter of 2018 reduce the cost of managing the balance sheet by about $2.1 million on an annualized basis. Over time we will be deploying capital and strategies, where we can see a multiplier effect from her balance sheet investments based on our operating businesses. In addition, during the quarter we took steps to reduce the quarterly investment volatility by meaningfully derisking balance sheet from both an allocation and leverage standpoint. As a result, invested capital returns during February and March draw downs were substantially reduced relative to prior periods while still producing 14 million in investment income for the quarter. We are continuing to reduce market directionality and idiosyncratic risk in order to manage our moves more closer to an acceptable level. Simplifying our balance sheet and reshaping it to create more predictability and our earnings through investments and historically experience in time that we have historically experience will take some time, at the end of the day balance sheets are meant to be seen, not heard. Fewer, today the investment management platforms consists of six capabilities down from nine at the beginning of 2017. Paring strategy that do not show an ability to scale enables us to focus our efforts on profitability, while growing investment management platform for products we think have longer terms success on our platform. We are actively exploring several possibilities to take advantage of the internal expertise and DNA of Cowen with products and strategies that are both saleable and scalable much like our private healthcare fund. Our philosophy is that investments funds need to have a unique offering in order to attract assets a dynamic that has become more and more apparent as the investment management industry matures. Because of our great brand and deep domain experience in a variety of areas, we have the ability to create investment products that leverage our expertise in a way that will be difficult to be replicated by others. But we will only look to add one new strategy at a time for the foreseeable future. Deeper, as we have discussed on our last call, we intend to deepen our footprint in investment banking particularly in areas that will drive margin such as M&A and leverage finance. These are key initiatives for us this year, just like the many to go deeper in research and trade execution work for us over the past several years. With that, I will turn the call over to Steve Lasota for a brief review of our financials. Steve.

[Stephen Lasota:]

Thank you, Jeff. In the first quarter of 2018 we reported GAAP net income attributable to common shareholders of 15.2 million or $0.50 per diluted common share compared to 1.3 million or $0.05 per diluted common share in the prior year period. First quarter 2018 , GAAP revenue was 251.4 million compensation and benefit expenses was 135.1 million. Non-comp expenses excluding interest expense, depreciation and amortization was 85 million. Other income from gains on investments was 33.8 million, income tax expense was 6.9 million and income attributable to non-controlling interest was 11.2 million. We adopted the new revenue recognition guidance as of January 1, 2018, I will highlight the areas of our GAAP Income statement that have been affected. For the investment banking business segment revenue is now recognized on a gross basis rather than previously being shown net of associated underwriting expenses. This has no impact on net income. In the investment management business incentive fees were affected by the change in presentation and timing of recognition. GAAP incentive fees recognized only those that have been crystallized at the reporting period. Un-crystallized incentive fees are deferred to a future period when they are crystallized. Under the former revenue recognition guidelines, we would have been able to accrue those fees. Additionally, fees from certain funds that we previously reported as incentive fees will now be shown as equity investments in the funds with associated gain and losses in the income statement. In addition to our GAAP results management utilizes non-GAAP financial measures which we refer to as economic income. Management uses economic income to measure our performance and to make certain operating decisions. In general, economic income is a pre-income tax measure that excludes the impact of accounting rules that require us to consolidate certain of our funds, certain other acquisition related expenses and reorganization expenses, certain costs associated with debt, goodwill and intangible impairment in preferred stock dividend, economic income revenue also include incentive income during periods when incentive fees are not yet crystallized with GAAP reporting. The remainder of my comments will be based on these non-GAAP financial measures. In the first quarter of 2018, the Company reported economic income of 24.1 million or $0.79 per diluted share, this compares to 5.5 million or $0.19 per diluted share in the prior year period. First quarter 2018 economic income revenue was 241.5 million compared to 128.6 million in the prior year period. Investment banking revenue was 93.9 million compared to 36.6 million in the first quarter of 2017, quarterly brokerage revenue increased to 118% year-over-year to 114.1 million. Management fees were 13.1 million compared to 13.9 from the prior year period. Incentive income 5.2 million compared to 3.1. Investment income was 14.3 million compared to 21.6 million in the prior year, and other revenue was 888,000 compared to 1.1 million. Cost and benefits expense for the quarter was 56% of economic income revenue compared to 58% in the prior year period. As a result of the acquisition of Convergex our compensation to economic income revenue was lower than prior year levels. Variable non-comp expense in the first quarter of 2018 were 38 million compared to 16.4 million in the prior year. The increase is primarily related to higher floor brokerage and trade execution costs related to the acquisition of Convergex. Fixed non-comp expenses excluding depreciation and amortization totaled 34.7 million in the first quarter compared to 23.8 in the prior year period. We continue to be focused on the integration of Convergex in realizing synergies in areas such as technology, operations and corporate. Depreciation and amortization expenses were 3 million in the quarter compared to 2.6 million in the first quarter of 2017 and again the increase is related to an increase in amortization of intangible assets related to Convergex. GAAP stockholders equity increased by 11 million to 759 million at March 31, 2018 from 748 million at 12, 31, 2017. Common equity, which is stockholders equity less the preferred stock was 657 million compared to 647 million at year-end. Book value per share, which is common equity divided by shares outstanding was 22.27 per share, compared to 21.82 at 12, 31, 2017. Tangible book value per share, which is common equity, less goodwill and intangible assets was $19.25 per share, compared to $18.77 at 12, 31, 2017. Invested capital was 678 million as of March 31 versus 695 million at 12, 31, 2017. I will now turn the call back over to Jeff for closing remarks.

[Jeffrey Solomon:]

Thanks Steve, while this is an exciting time to be at Cowen as we are making solid progress and differentiating ourselves in the marketplace. Our progress evidenced by this quarter's operating performance is the product of strategic decisions we made over the last six years. By that I mean our decision to invest in our research platform because we believe that differentiated research would be what sets us apart with clients. Our decision to scale the cash electronic brokerage business in order to achieve greater consistency and improved profitability as fix cost becomes shared over a large revenue base. In baking, our decision to press, on her healthcare expertise while organically building other products and sectors has given us more scale and diversity. And while we still have more work to do in a number of areas to improve our ability to produce results like this more consistently, we are encouraged that our long-range strategic thinking has positioned us such that we can deliver strong results like this when the market will allow. Indeed this quarter demonstrates the power of the margin left from having accomplished scale and excellence all the same time. While we have seen continued strong momentum a month in to the second quarter, our internal business plan does not anticipate annualizing or extrapolating the first quarter results. We are pleased to demonstrate that as our business evolves and we expand market share, we are able to drive higher highs and higher lows. We will continue to be methodical in our decisions that will bring greater consistency and transparency in our businesses and ultimately sustain profitability for shareholders and employees alike. Finally, thank you to all of our partners and team mates and talents for making this place the best firm on the street. Operator we would like to now open up the call for questions.

[Operator:]

[Operator Instructions] Our first question comes from Devin Ryan with JMP Securities.

[Devin Ryan:]

Great. Good morning guys. So I guess first question here, I appreciate some of the commentary on kind of the balance sheet and kind of thought process there and it sounds like investible assets are down about 15 million from the end of the year. So just trying to think about as you are still kind of executing on that part of the strategy to simplify. How much further could that come down and then also I’m sure some of that might be a point by monetization opportunities within some of the private investments as well like [indiscernible], so just trying to think about that piece as well, are there opportunities for monetization and then how should we think about that cash being freed up and potential return to investors.

[Jeffrey Solomon:]

Alright, let me give a little bit, actually this is - we invest in balance sheet all year long, but in the first we pay bonuses. So there is sort of natural reduction in risk that occurs in the first quarter. Anyway, as we generate cash to pay bonuses, I think this is a much more deliberate thought process about how we deliver consistent results. So we have pivoted capital away from some of the investment management strategies, and more towards what I would consider to be spread businesses like securities lending and you can see that the growth in the matchbook, on the balance sheet indicates that we are moving toward more spread oriented businesses. Certainly as we sales a bit more prime services in clearing the three opportunities for us to finance portions of that book on a selective basis again to drive interest income, which will be in excess of our cost of funding. So this is really a longer range, how do we pivot away from the market directionality in idiosyncratic performance we have seen in investment income, largely driven by hedge fund strategies that were the core of what we did for the past decade more to year oriented businesses where the spread income and net interest margin can really drive consistency. So was also spent by the way $7.6 million on the stock buyback obviously when we do that we can generate cash after the balance sheet to do that and I think we have said that we would - we are in this some sort of rethink of how we are doing all of the capital optimization and it includes both generating more consistent returns on the balance sheet where we can and also obviously buying back stock if we have an opportunity to do so has to give a good discounts to book value.

[Devin Ryan:]

Got it okay terrific. And then just I guess maybe to be specific of anything on [indiscernible] and timing of monetization opportunities then obviously that's big specifics position.

[Jeffrey Solomon:]

Yes. We continue to work that, this is just going well. We continue to work at that and start state objective create liquidity in that position when we can, optimally we are not going to give up on value. I think value continues to accrete. So I think we feel very good about that operating business, it is fully funded, it's an operating business that continues to scale and so we feel very good about it. We are partners with other people on that so we don’t [indiscernible] lateral ability to create liquidity, but it is absolutely our stated objective to take a look at the private portion of our balance sheet and were super hard to monetize it as quickly as we can at prices that we think are attractive. So long-term, that's not going to be a core part of what we do and as we sort of cycle out of those investments, we will be looking to redeploy that capital in operating businesses or returning that capital to shareholders if that's the right thing to do.

[Devin Ryan:]

Okay great thanks Jeff. And maybe one here just on the brokerage results, I mean obviously great start to the y year for Cowen. I think that's going to look a lot better than what we see from some of the other non-board investment banks. I understand you have a more robust platform there. But it was clearly more volatile environment, I suspect that help kind of low touch business. Can you just talk about what is going well for you kind of capabilities that you have put together here which I think it will be an outlier and then just maybe more broadly the outlook and then any kind of early reactions to MiFID II from clients now that we are few months in.

[Jeffrey Solomon:]

So yes, I think we have been saying for a long time that you cannot be casual about the equities business, I think there is still a lot of firms in the street they think hey if I just have an analyst in a particular sector, I'm going to pick-up a board here and there and I think that increasingly we are hearing and seeing from our buy side clients that they are going to be selective against people that can't provide them really deep insight. Our leadership for our state [Indiscernible] thesis which are ahead of the curve thesis that are markie collaborative research efforts is off the charts relative to just about any other firm on the street. The engagement level that our client have with our product is unparalleled, I mean these are operating metrics that I look at, we look at internally to give us an indication as to whether or not our go to market strategy is resonating. And I just say there is a perception in the marketplace, I think from some of the shareholders and other people, I talk to that sell side research is where it always was and the reality is you can pivot the way we have to providing real actionable thought leading insightful research around market moving events. That's actually what the consumer of that research wants and they don’t get it from a lot of places and so when they see it, they tend to cluster their votes and their commission dollars where they can to the places that delivered on a consistent basis that's what we have done in research. And certainly the post MiFID II world, we are seeing clients that are - very small percentage of our clients are actually subject to MiFID II, like in the aggregate. We don't really have a huge European equities business, but where we are, where we do look this client we actually made meaningful improvement in our revenue dollars from those clients. Because they had to make rationing decisions on where they are going to spend their dollars and we had been as you can see for a long time, we think there will be a divide, there will be those who get it, and those who don’t. And what we are seeing is where it seem to be at least in the first two months on the receiving end of those dollars, that shift. On the trading side, again I think this is a multiyear investment we have made and we said on a few calls in the past that we aim to be the leading non-conflicted agency execution broker on the street. And I just think that there is a lot of people that don't actually understand what that means and that means no dark pools, that means objective routing, that mean when we go to market with clients we are actually allowing them to engage with our flow or not, it means having a much more insightful advisory capacity on how to route order flow and a deep understanding of market structure which is highly complex. So the service we are providing there is really aimed toward helping the buy side trading desk to be better at what they do, just like in research, we are angling our content and knowledge to portfolio managers and buy side research analysts. You know everybody in the active management part of the world is under huge pressure to outperform and to do so at you know compared their passive brethren. And so we have to be excellent in those two areas and that's really I think what has been at the center philosophically, we have also seen significant growth in options, our options business is highly integrated into our cash electronics business, their increase in volatility certainly helps, right, options businesses always do better when there is more volatility in the market. And so there we have seen a significant pickup, we have seen a significant pickup in special situations which we acquired and is now integrated and part of the CRT acquisition, that's been a really, a big grower for us as our prime services where again our clients - we continue to scale with those clients. So I think it's across the board, again I think a lot of people say this very few people deliver on it, you have to aspire to the excellence and you have to be excellent and it's an everyday thing, you know and I feel like we have been saying this for a long time and certainly this quarter we are finally starting to see the results of those efforts in our numbers.

[Devin Ryan:]

I appreciate all the color Jeff and yes congratulations on the great, start to the year. I guess maybe one more and then I will hop back in the queue, just on investment banking, so also a great start to the year there as well and you completely understand the lumpiness of the business and you can never annualize one quarter, but you have also added a lot of resources to the platform and new capabilities and new people. And so I guess just trying to think about the, I guess the backlog for business there coming off of what is was obviously a very good quarter and then just more broadly, kind of the outlook based on the fact that you have added new capabilities and new people and how they are performing and ramping and just trying to think about kind of those two things.

[Jeffrey Solomon:]

So, what I would say there is first of all we haven't added that many new people, I mean the wonderful thing about adding people is you issue press releases when you have people that you don’t issue press releases when you remove people. So I think one of the things [indiscernible] investment base much significantly bigger than it was, you started this journey in 2010. The reality is that it isn’t and again I think you got to bring people on the platform that work really well for you. And where the franchise they have the clients are calling on lineup and overlap really well with what we do best. And so this strategy which has been to bringing individual bankers organically in sectors where we think there is white space, where we already had some excellence somewhere in the organization that we can leverage to do more than we could otherwise do without these bankers and where they can do more on our platform and they can otherwise do in the other places where they are. That’s really been at the center of this. I will tell you, I think it takes 18 to 24 to sometime 36 for you start to see the return on investment when you hire bankers organically, they got to get into the within rhythm, the organization has to learn them, like you have to be in a position where you are calling consistently on the clients and the client need to understand the value proposition of their primary relationship being on this new platform and then you actually have that proof point where the organization delivers where the clients with the banker. And these are just their multiyear things where you are absolutely laying out investment dollars before your getting return, but I would just say like I’m thrilled about performance across the board because it says when clients are doing business with us in many of these, particularly in healthcare are repeats client right. We look at things like how many book run roles did we get again with the client, how many banks get replaced on the cover versus us where we aspire to never be replaced on the cover. These are the things we do in those areas and then beyond in sort of I would say consumer and technology and other areas we are absolutely pressing on different products because the ECM wallet isn’t there in those sectors, at least not for Cowen in a meaningful way and maybe not for any way. And so there, it’s about being able to scale and merger advisory and build out the platform to basically make sure that we can deliver that kind of high quality strategic advice and execution. And that should take time. So I would say we will still, we still have more investments to make there. And I want to be clear like we are not done, we are looking at buy versus build. We will make good investment, but [indiscernible] some of the management changes that we have had over the course of the past year and the management architecture we have, we are in a better position to execute on those the other time, and it certainly helps that the people that are here and our partners are successful, because success begets success. And when you when you have momentum in the marketplace other people who are on other platforms that are not experiencing that kind of success, they know who is wining and so I would say the inbound calls to us from people who want to figure out the works here has increased significantly.

[Devin Ryan:]

Alright, great. Thanks a lot Jeff.

[Jeffrey Solomon:]

Okay.

[Operator:]

[Operator Instructions] Our next question comes from Steven Chubak with Nomura Instinet.

[Julian Craitar:]

Hey guys this is actually Julian Craitar filling in for Steven. So first off congrats on the strong quarter, momentum is good and Jeff your messaging was quite positive. However, we were surprised to see you not buyback as much stock as we expected. I apologize if I might have missed this, but was there anything that drove this and then should we expect it to be more aggressive buyers of stock going forward relative to this quarters result.

[Stephen Lasota:]

Julian look we did buyback 7.6 million in the open market and we also net settled for with employees that stock at vested in the first quarter the window wasn’t open not long. The window is only open as long as when we have to file our K and then a couple of weeks before the close of the month, the windows shut again. So and we take bonuses and things like that so you know as Jeff says all the time we are going to be opportunistic about and we will continue to do so.

[Jeffrey Solomon:]

Absolutely the way to think about stock buyback is really a way to return capital to shareholders out of cash flow. And so one of things we are always looking at is again we have new businesses or scaling that are a really little more capital intensive, so once we execute on stock buyback you can’t go back and reissues that stock if you have capital needs or if you want to stay on a particular business. So we are just going to be judicious about it. We obviously recognize that that's an immediate gratification and so returning capital out of earnings is a really good thing to be able to do, obviously we had a window into or some insight into how you are going to do during the quarter and the cash flow from the quarter after we paid bonuses allows us to return capital to shareholders. We have I think some potential capital opportunities to scale on businesses some of which indentified on the call. I don’t want to be in a position where we can't execute on that and create meaningful scale and margin, because we don’t have the capital base to do it. So I just think it’s one of those things we will continue to look at it, obviously when the stock trades at a discount to book value we can do the math like everybody can and we recognize that they are closing the gap between here and book value is a stated objective and so if we can do that it's ultimately we certainly will.

[Julian Craitar:]

Very helpful color, thank you. Switching over to on your outlook, I know you guys provided your thoughts on more like the longer term perspective. I just was wondering if we could focused on momentum into 2Q, I know you said that it has been strong, but just wondering if you can dig a little bit deeper and talk about how IB and brokerage activities specifically have been tracking so far in 2Q?

[Jeffrey Solomon:]

I think it continue to go well. I mean we have a $90 million plus quarter in banking, I just be candid like I'm not annualizing that number. I think as the good news is we look at annual budgets, obviously we are way ahead of our annual budget, but we continue to see activity at regional levels like good levels in the quarter, certainly both in equities and in banking. And again, one other things I look at is did we sign a bunch of new deals in M&A in the first quarter that will close later in the year and the answer is we did. So the backlog you know we executed on a bunch and we have moved the amount of backlog we have replenished backlog. And so again, there is a big difference between signing and closing, but I like the momentum that we have had again particularly in areas outside of healthcare which is a big objective for us. I mean , if you look at what we did outside of the healthcare in this quarter at annualized at a $100 million, I think that's pretty good for the investments that we have made for the size of the business and there at the old confidence that we will continue to be able to execute this based on the backlog and our ability to continue to increase our pit counts. In equity, things are good, I mean I just - you know one of the things you are going to hear from us is you know in the great quarters we are not going to be overly ebullient and in the bad quarters we are not going to be overly you know negative. You know this is a business what I said in the call is we are really looking to elevate to a different plateau in terms of revenue and profitability. So we can't mitigate completely the quarter-over-quarter swings that we might see, but we can certainly make sure that you know our next trough is higher than our last peak. That's a big statement and I think we are in a much better position today because of the breadth and the size of the organization and the market share that we are taking across to make sure that happens. And so as we look at the beginning of the second quarter, things continue to chug along here and you know we couldn’t be happier.

[Julian Craitar:]

Thank you, very, very helpful color Jeff. One last one for me. This is more on results from 1Q and apologies if I might have missed this, but what drove the strength in investment income despite the pretty choppy market that we saw in the quarter?

[Jeffrey Solomon:]

So I think this, once the size that we have they are not correlative, you know definitely equity directionality risk, we took a bunch of risk down, but we had an amazing run to the beginning of the first month and so we took opportunities to cash those checks. You know I would say it's not an exceptional quarter, in that sense. Like I think we had a couple of things break our way, we cashed some checks, we did the right thing in terms of mitigating risk and volatility, but it's not like this quarter the investment income was that exceptional. I just think we need to take it when we can and continue to pivot more towards net interest margin and interest income and financing businesses that I like to think yield. They go to work for you seven days a week. So when you are out playing with your kids on Saturday, we are making money, I love that and we didn't have a lot of ability to do that prior to the Convergex acquisition and our organic growth in certain areas like prime services and in security finance and in clearing. And so on we are going to take it methodically, I don't expect it to be - when you are talking about scaling your net interest margin businesses this is one way you are going to see like a hockey stick in terms of one quarter you are going to wake up and have some huge contribution, but overtime we are going to be pivoting away from things that exhibit market directionality where we can and into things that have a more consistent spread oriented businesses and characteristics that’s a stated objectives. So first quarter was a good quarter on the balance sheet, we are happy with the performance especially given the equity directionality and volatility that we saw, but it's not like it was something exceptional that happened that got us there.

[Julian Craitar:]

Understood, thank you guys and congrats on the strong quarter.

[Jeffrey Solomon:]

Thanks.

[Operator:]

Ladies and gentlemen that concludes the question and answer session portion of today's call. I would now like to turn the call back over to management for any closing remarks.

[Jeffrey Solomon:]

Well thanks operator, thanks everybody for listening in, I actually say it’s a pleasure to be able to address you, but right now we have a more pressing audience and that would be its premier child to work day and so my next stop will be in a room full of all of the children who came to work today to try to explain to them what I was doing during the first 45 minutes to the day. One of my favorite days at Cowen. So I appreciate everybody dialing in and I’m off to talk to the kids. See you guys in the next quarter.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may all disconnect and have a wonderful day.