COHN - Cohen & Company Inc. (COHN) Q4 2022 Earnings Call Transcript

2023-03-07 13:37:05 ET

Cohen & Company, Inc. (COHN)

Q4 2022 Earnings Conference Call

March 7, 2023 10:00 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 Fourth Quarter 2022 Earnings Call. My name is Christine 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 the 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. 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, Christine and thank you, everyone, for joining us for our fourth quarter 2022 earnings call. With me on the call is Joe Pooler, our CFO. Continued turbulent market conditions impacted our reported financial results in the quarter, particularly from negative mark-to-market adjustments on our principal investing portfolio. Our principal investing segment accounted for substantially all our consolidated adjusted pretax loss for the quarter and for the full year. Despite this challenging market backdrop, our Cohen & Company Capital Markets Investment Banking team continues to grow market share as an advisor and agent with multiple, recently announced, leadership engagements. We remain focused on our strategic objectives and we are confident that past investments will translate into higher revenues in the future, especially from the Cohen & Company Capital Markets team. As we move forward, we are committed to enhancing stockholder value. And in the fourth quarter, we continue 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

Thank you, Lester. We'll start with our statement of operations. Our net loss attributable to Cohen & Company, Inc. was $3 million for the quarter or $2.10 per fully diluted share compared to a net loss of $900,000 for the prior quarter or $0.64 per fully diluted share and net income of $4.2 million for the prior year quarter or $2.43 per fully diluted share. Our adjusted pretax loss was $6.1 million for the quarter compared to adjusted pretax income of $2.2 million for the prior quarter and adjusted pretax income of $6.4 million for the prior year quarter. Note that adjusted pretax income and loss is not a measure recognized under U.S. generally accepted accounting principles. See our disclosures, calculations and reconciliations surrounding adjusted pretax income and loss in our earnings release.

Fourth quarter 2022 principal transactions and other revenue was negative $3.2 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 which has resulted in increased holdings of public equity positions in post-business combination companies. Principal transactions revenue includes all gains and losses and income earned on our $28 million investment portfolio classified as other investments at fair value on our balance sheet.

Net trading revenue came in at $9.6 million in the fourth quarter, up $1.7 million from the third quarter and down $5.6 million from the fourth quarter of '21. The increase from the prior quarter was due primarily to higher trading revenue from our mortgage and municipal bond groups, while the decrease from the prior year quarter was due primarily to lower trading revenue from our mortgage and corporate groups. New issuance advisory revenue was $4.2 million in the fourth quarter, a decrease of $9 million from the third quarter and $13 million from the year ago quarter. During the fourth quarter, our investment banking group, Cohen & Company Capital Markets generated $2.9 million of revenue.

The Europe Insurance Origination [ph] team generated $1.2 million and the commercial real estate origination team generated $100,000. Our asset management revenue totaled $1.8 million in the quarter which was down $1.7 million from the prior quarter and $3.4 million from the prior year quarter. The decrease from the prior quarter was due primarily to the successful auction of Alesco CDO in September of 2022 and the resulting $1.6 million of subordinated management fees and arrears that were recorded in that quarter. The decrease from the prior year quarter was due primarily to an incentive allocation earned by the manager of our SPAC funds in the prior year quarter. Compensation and benefits expense for the fourth quarter of '22 was $9 million which was down from both prior quarters primarily due to fluctuations in revenue and the related variable incentive compensation. The number of company employees was 121 as of December 31 of '22 compared to 122 at the end of September 30, '22 and 118 as of the end of the prior year.

Net interest expense for the fourth quarter of '22 was $1.2 million including $1.1 million on our 2 trust preferred debt instruments, $113,000 on our senior notes, $46,000 on our credit line, all partially offset by a reduction of $89,000 related to our redeemable financial instrument. Loss from equity method affiliates during the quarter totaled $6.4 million which includes a loss of $4.8 million related to the liquidation of our third sponsored SPAC, Insu-Acquisition Corp 3 [ph]. That $4.8 million charge is offset by a $4.2 million credit recorded in the net income loss attributable to the nonconvertible noncontrolling interest line item.

During the fourth quarter, income tax expense was $1.3 million compared to $1.8 million in the prior quarter and income tax benefit of $4.1 million in the prior year quarter. We will continue to evaluate our operations on a quarterly basis and may make adjustments to our valuation allowances applied against our net operating loss and net capital loss tax assets going forward. Future adjustments could be material and could result in additional tax benefit or additional tax expense.

In terms of our balance sheet, as of December 31, '22, total equity was $94 million compared to $151.4 million at the end of the prior year. The nonconvertible noncontrolling interest component of total equity was $17,000 at the end of '22 and $31.9 million at the end of '21. Thus, the total equity, excluding the nonconvertible noncontrolling interest component, was $94 million at the end of '22, a $25.6 million decrease from $119.6 million at the end of '21. At quarter end, the consolidated corporate indebtedness was carried at $29 million and our redeemable financial instruments were carried at $7.9 million.

As Lester mentioned, we have declared a quarterly dividend of $0.25 per share payable on April 5, 2023, to stockholders of record as of March 22 of '23. 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 capital needs.

With that, I will turn it back to Lester for closing remarks.

Lester Brafman

Thanks, Joe. Please direct any off-line investor questions to Joe Pooler at 215-701-8952 or via e-mail to investorrelations@cohenandcompany.com. The contact information can also be found at the bottom of our earnings release.

Operator, you can now open the call lines for questions. And thanks everyone for joining us today.

Question-and-Answer Session

Operator

Lester Brafman

All right. Thank you, everyone and we look forward to speaking to you next quarter.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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