COHN - Cohen & Company Inc. (COHN) CEO Lester Brafman on Q2 2022 Results - Earnings Call Transcript

Cohen & Company, Inc. (COHN)

Q2 2022 Earnings Conference Call

August 03, 2022 10:00 AM ET

Company Participants

Lester Brafman - Chief Executive Officer

Joe Pooler - Chief Financial Officer

Conference Call Participants

Presentation

Operator

Good morning, ladies and gentlemen and welcome to Cohen & Company's Second Quarter 2022 Earnings Call. My name is John, 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.

The forward-looking statements made during this call are made only as of the date of the 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. Please, go ahead, sir.

Lester Brafman

Thank you, John. And thank you everyone for joining us for our second quarter 2022 earnings call. With me on the call is Joe Pooler, our CFO. Amid challenging market conditions, our financial results continue to be impacted by unrealized negative mark-to-market adjustments and equity method losses from our principal investing portfolio. Reduced capital markets activity in general has also impacted our ability to generate net trading and investment banking revenues.

We remain focused on our strategic objectives and we are pleased that our Gestation repo business continues to perform well. Furthermore, we are confident that our robust investment banking pipeline will translate into growing new issue and advisory revenues in the future. As we move forward, we are committed to enhancing stockholder value. And in the second quarter, we continued to pay our quarterly dividend.

Now I will turn the call over to Joe to walk through this quarter's financial highlights in more detail.

Joe Pooler

Thanks, Lester. We will start with our statement of operations. Our net loss attributable to Cohen & Company Inc. was $1.9 million for the quarter or $1.53 per fully diluted share, compared to a net loss of $7.6 million for the prior quarter or $5.46 per fully diluted share and net income of $1.7 million for the prior year quarter or $1.21 per fully diluted share.

Our adjusted pre-tax loss was $8.1 million for the quarter compared to adjusted pre-tax loss of $18.6 million for the prior quarter and adjusted pre-tax income of $3.7 million for the prior year quarter. Note that adjusted pre-tax income or loss is not a measure recognized under US Generally Accepted Accounting Principles. See our disclosures, calculations and reconciliations surrounding adjusted pre-tax income or loss in our earnings release.

Second quarter 2022 principal transactions and other revenue was negative $6.6 million. The negative principal transactions and other revenue was primarily due to mark-to-market adjustments on our principal investments related to our involvement in the SPAC market as a sponsor asset manager and investor, which has resulted in increased holdings of public equity positions in post-business combination companies.

Note that the $6.6 million of negative principal transactions and other revenue in the current quarter is offset by a $4 million credit recorded in the net income loss attributable to the non-convertible, non-controlling interest line item. Principal transactions revenue includes all gains and losses and income earned on our $37.6 million investment portfolio classified as other investments at fair value on our balance sheet.

Net trading revenue came in at $10.4 million in the second quarter, down $1.6 million from the first quarter and down $8 million from the second quarter of 2021. New issue and advisory revenue was $3.5 million in the second quarter, a decrease of $300,000 from the first quarter and an increase of $2.6 million from the year-ago quarter.

During the second quarter, our investment banking group Cohen & Company Capital Markets generated $2 million in advisory fees. Our Commercial Real Estate Opportunities Group generated $700,000 of origination revenue and our US insurance team generated $800,000 of origination revenue.

Our asset management revenue, totaled $1.9 million in the quarter, which was comparable to both prior quarters. Compensation and benefits expense for the second quarter of 2022 was $12.2 million, which was down from both of the prior quarters, primarily due to revenue decreases and corresponding declines in variable incentive compensation. The number of company employees was 121, as of June 30 of 2022, compared to 115 million as of March 31, of 2022 and 108 as of the prior year quarter.

Net interest expense for the second quarter of 2022 was $1.1 million, including $755,000 on our two trust preferred debt instruments, $112,000 on our senior notes, $177,000 on our redeemable financial instrument and $62,000 on our credit line.

Loss from equity method affiliates during the quarter, totaled $3 million. Income and loss from equity method affiliates, fluctuates primarily depending on the timing of the closing of the business combinations, by our equity method investees that are sponsors of SPACs, which typically result in increased value of founder shares allocable to us by the sponsors upon closing.

However, during the quarter ended June 30, a reduction in the value of the founder shares held by our equity method affiliates and allocable to us resulted, in a corresponding loss on those investments. Note that the loss in the current quarter is offset by a $200,000 credit recorded in the net income and loss attributable, to the nonconvertible non-controlling interest line item.

In terms of our balance sheet, at the end of the quarter total equity was $106 million compared to $151.4 million, as of 12/31 of 2021. The non-convertible non-controlling interest component of total equity was $4.7 million at the end of second quarter, and $31.8 million at the end of the year. Thus, the total equity excluding the non-convertible non-controlling interest component was $101.3 million at June 30, an $18.2 million decrease from the $119.5 million at the end of the year.

At quarter end consolidated corporate indebtedness was carried at $28.7 million, and our redeemable financial instruments were carried at $8 million. As Lester mentioned, we've declared a quarterly dividend of $0.25 per share, payable on September 1st to stockholders of record as of August 18. The Board of Directors will continue to evaluate the dividend policy each quarter, and future decisions regarding dividends may be impacted by quarterly operating results and the company's ongoing capital needs.

With that, I will turn it back over to Lester.

Lester Brafman

Thanks, Joe. Please direct any off-line investor questions to Joe Pooler at 215-701-8952 or via e-mail to investorrelations@cohen&company.com. The contact information can also be found at the bottom of our earnings release. Operator, you can now open the lines for questions. Thank you, for joining us today.

Question-and-Answer Session

Operator

Lester Brafman

Thanks, everyone for joining us and hope to hear from you in the next quarter. Thank you very much.

Operator

Thank you, everyone. This concludes today's conference. You may disconnect your lines at this time. Thank you, for your participation and have a great day.

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