Cohen & Firm Inc. (NYSE:COHN) Q1 2024 Earnings Convention Name Might 6, 2024 10:00 AM ET
Firm Members
Lester Brafman – Chief Govt Officer
Joe Pooler – Chief Monetary Officer
Convention Name Members
Operator
Good morning, girls and gents, and welcome to the Cohen & Firm’s First Quarter 2024 Earnings Name. My identify is Maria and I might be your operator for immediately.
Earlier than we start, Cohen & Firm wish to remind everybody that a few of the statements the corporate makes throughout this name might include forward-looking statements below relevant safety legal guidelines. These statements might contain dangers and uncertainties that might trigger the corporate’s precise outcomes to vary materially from the outcomes mentioned in such forward-looking statements. The forward-looking statements made throughout this name are made solely as of the date of this name, and the corporate undertakes no obligation to replace such statements to replicate subsequent occasions or circumstances. Cohen & Firm advises you to learn the cautionary word relating to forward-looking statements in its earnings launch and in its most up-to-date annual report on Type 10-Ok filed with SEC.
Earlier immediately, Cohen & Firm issued a press launch asserting first quarter 2024 monetary outcomes. As we speak’s dialogue is complimentary to that press launch, which is on the market on the corporate’s web site at cohenandcompany.com. This convention name is being recorded and a replay of IT might be obtainable for 3 days starting shortly on the conclusion of this name.
The corporate’s comment additionally consists of sure non-GAAP monetary measures that administration believes are significant when evaluating the corporate’s efficiency. A reconciliation of those non-GAAP monetary measures to the comparable GAAP measures is supplied within the firm’s earnings launch. After the ready remarks, the decision might be open for questions.
I might now like to show the decision over to Mr. Lester Brafman, Chief Govt Officer of Cohen & Firm. Please go forward.
Lester Brafman
Thanks, Maria, and thanks, everybody, for becoming a member of us on our first quarter 2024 earnings name. With me on the decision is Joe Pooler, our CFO.
We’re happy to report that our second consecutive quarter of robust earnings with 1 / 4 adjusted pre-tax earnings of $7.7 million and earnings per share of $1.28. 2024 is de facto off to an incredible begin. Coupled with our robust fourth quarter, we now have now generated over $24 million of adjusted pre-tax earnings and $4.25 of earnings per share within the final six months, which is definitely 65% of our present share buying and selling worth.
Regardless of the difficult market surroundings, we proceed to put money into our full-service boutique funding banking operation, Cohen & Firm, which we name CC or discuss with as CCM. Through the previous two years, we now have repositioned the agency with a concentrate on CCM and are starting to see our sturdy pipeline delivering via the earnings assertion. We’re notably pleased with the truth that over the past 12 months CCM has been the main advisor for all of those SPACs. The CCM crew has grown to 23 professionals and has developed a status for creating strong — creatively fixing capital market issues with all shoppers.
Though deal execution and shutting timeliness stay prolonged, we now have robust momentum shifting ahead in 2024, which you’ll see IT in our outcomes. CCM has generated over $24 million of advisory income within the first quarter. Along with the robust CCM efficiency, we acknowledge substantial earnings from our fairness methodology investments and the sponsors of six SPACs that closed their enterprise mixtures in the course of the quarter. This earnings from fairness methodology associates was offset by costs which might be non-convertible, non-controlling curiosity line merchandise. Nonetheless, the web of the 2 objects remained optimistic for the quarter.
So look, we now have put plenty of effort into the SPAC house over the previous couple of years, and I am actually happy that each one this effort is beginning to repay and we’re seeing some monetization of that effort. What we do not anticipate is the SPAC market to growth like IT was in 2020 and 2021. We do really feel that IT is right here to remain as a viable different for firms to entry the general public markets. The hassle that we now have put in is de facto in transits in that house, and we consider we’ll proceed to take care of our management place going ahead.
So along with our funding banking enterprise and capital markets, we have additionally sort of re-changed — we additionally revisit our buying and selling companies. In order that can be off to a robust begin of 26% from the primary — from fourth quarter 2023. So within the technique of transitioning this enterprise from a wholesale enterprise, which can be a dealer-to-dealer enterprise, to a middle-markets enterprise the place we serve sort of smaller establishments which might be underserved by giant accounts. We really feel this, you understand, there’s plenty of alternative on this house given how bigger companies are trying up in direction of bigger accounts and plenty of the smaller boutiques are reducing again when it comes to headcount, leaving a big swath of shoppers which might be actually searching for service on knowledgeable foundation.
To that finish, in January, we employed George Holstead because the Head of our Center Markets Group, and we now have since employed 4 further merchants and two salespeople into that space. We have additionally employed — that’s on the finish of the quarter. We have additionally employed one other one this weekend to make IT three salespeople. As we proceed to construct our gifted crew, we anticipate that the Center Markets Group will contribute to profitability within the coming quarters.
On the asset administration aspect, the fourth quarter was somewhat bit quiet, and we’re hoping to have a pair initiatives that we are able to speak about within the following quarters to come back. Though our total outcomes had been robust, we proceed to expertise unfavorable volatility and adverse market-to-market changes in our principal investing portfolio. In sure instances, we acquired funding banking consideration, funding property, and people property have subsequently fallen in worth.
This has contributed to adverse volatility in principal transactions. Fairness worth of post-business mixture SPACs has continued to say no, main lots of the founder shares we acquired and representing our earnings from the fairness methodology associates to lower in worth, negatively impacting the fairness methodology and the principal transaction line objects.
Look, we anticipate this. There’s a few issues on this. We anticipate this going ahead. We’ll proceed till this type of brings us out via the system and our pipeline sort of will get again to somewhat bit more money heavy. And in addition IT‘s not like, you understand, plenty of this was finished, plenty of these investments had been finished for providers rendered, so IT‘s not as if we have invested the capital and are dropping capital on the aspect of those investments, which is somewhat bit, sort of, deceptive in our principal transaction line.
So actually, after I take a look at our enterprise, I look, sort of, trying previous the volatility of our principal funding phase and searching extra in direction of the long-term worth we’re creating in each the capital markets space of our enterprise in funding banking and in buying and selling, in addition to our asset administration enterprise, which once more, we’ll speak in regards to the subsequent quarter, too.
So look we’re excited in regards to the total momentum we’re constructing and the alternatives we now have to develop our prime line income profitability. We are going to proceed to take a position prudently in income producing expertise and extra diversification of our choices. Transferring ahead, we have made concentrate on enhancing stockholder worth and continued to pay our quarterly dividend.
Now I’ll flip IT over to Joe to stroll via this quarter’s monetary highlights.
Joe Pooler
Thanks, Lester. I’ll start with a dialogue of our working outcomes for the quarter. Our first quarter earnings comply with a robust fourth quarter and signify a superb begin to fiscal ‘24. Our internet earnings attributable to Cohen & Firm, Inc., was $2 million for the quarter or $1.28 per absolutely diluted share, in comparison with internet earnings of $4.5 million for the prior quarter or $2.97 per absolutely diluted share, and in comparison with internet lack of $2.6 million for the prior yr quarter or $1.77 per absolutely diluted share.
Our adjusted pre-tax earnings was $7.7 million for the quarter, in comparison with adjusted pre-tax earnings of $16 million for the prior quarter and adjusted pre-tax lack of $9.6 million for the prior yr quarter.
As a reminder, adjusted pre-tax earnings is a key earnings measurement for us as IT incorporates enterprise earnings attributable to our convertible, non-controlling pursuits, which is considerably held by our Founder and Chairman, Daniel Coen. Daniel holds his curiosity within the enterprise via our major working subsidiary, Cohen & Firm LLC, which is a consolidated subsidiary of Cohen & Firm, Inc.
As Lester talked about, we now have generated in extra of $23 million of adjusted pre-tax earnings and $4.25 of earnings per share over the past six months. New situation in advisory income was $24.4 million within the first quarter, a rise of $5.7 from the fourth quarter and $23.5 million from the year-ago quarter. CCM closed 13 offers and generated the entire new situation and advisory income within the quarter.
Web buying and selling income got here in at $9.8 million within the first quarter, up $2 million from the fourth quarter and $1.6 million from the primary quarter of ‘23. The rise from each of the prior quarters was due primarily to increased buying and selling income from our company and mortgage teams.
Our asset administration income totaled $2.7 million within the quarter, which was up $800,000 from the prior quarter and $700,000 from the prior yr quarter. The rise from the prior quarters was due primarily to a deferred efficiency price in certainly one of our pleasure funds that was recorded within the present quarter.
First quarter principal transactions and different income was adverse $18.4 million, primarily resulting from mark-to-market changes on our principal investments associated to our involvement within the SPAC market as a sponsor, asset supervisor, investor, and advisor, which has resulted in elevated holdings of public fairness positions in post-business mixture firms. Fairness worth of post-business mixture SPACs has continued to say no, main lots of the founder shares we obtain to lower in worth, negatively impacting the principal transactions line.
As well as, in sure instances, we obtain funding banking consideration from the SPAC shoppers within the type of funding property, and people funding property have subsequently fallen in worth. We anticipate that there’ll proceed to be some volatility in our principal portfolio and our working outcomes going ahead on account of that volatility.
Precept transactions consists of all features and losses and earnings earned on our $39.3 million internet funding portfolio on the steadiness sheet. Compensation and advantages expense for the quarter was $14.8 million, which was down from the prior quarter and up from the prior yr quarter, primarily because of the fluctuations in income, earnings from fairness methodology associates, internet of our non-convertible, non-controlling curiosity, and the associated impression on variable incentive compensation.
The variety of firm workers was 116 on the finish of the primary quarter, in comparison with 118 on the finish of the yr. Web curiosity expense for the quarter was $1.7 million, together with $1.2 million on our two belief most popular debt devices, $127,000 on our senior notes; $19,000 on our credit score line and $359,000 on our redeemable monetary instrument.
Earnings from fairness methodology associates in the course of the first quarter totaled $29 million. This quantity included $32.7 million of earnings from our fairness methodology investments within the sponsors of six SPACs that closed their enterprise mixtures in the course of the quarter, which resulted in a rise within the worth of the founder’s shares to which we’re entitled to an allocation from these sponsors.
Through the quarter, there was additionally an offsetting cost of $16.7 million associated to those six SPAC closings recorded within the internet earnings loss attributable to the non-convertible, non-controlling curiosity. These non-convertible, non-controlling pursuits signify possession in sure of our consolidated subsidiaries by the portfolio managers of our present SPAC sequence funds. The cost is mostly an offset to the quantities we report in our internet earnings from fairness methodology associates.
By way of our steadiness sheet, on the finish of the quarter, whole fairness was $113.3 million, in comparison with $91.8 million as of December 31. The non-convertible, non-controlling curiosity part of whole fairness was $25.9 million on the finish of the quarter and $9.6 million on the finish of the yr. Thus, the whole enterprise fairness excluding this non-convertible, non-controlling curiosity part was $87.4 million on the finish of the quarter, a $5.2 million enhance from the $82 million on the finish of the quarter.
At quarter-end consolidated indebtedness was carried at $29.7 million, and our redeemable monetary devices had been carried at $7.9 million. As Lester talked about, we now have declared a quarterly dividend of $0.25 per share payable on June 5 to stockholders of report as of Might 20. The Board of Administrators will proceed to judge the dividend coverage every quarter and future selections relating to dividends could also be impacted by quarterly working outcomes and the corporate’s different capital wants.
With that, I am going to flip IT again over to Lester.
Lester Brafman
Thanks, Joe. Please direct any offline investor inquiries to Joe Pooler at 215-701-8952 or by way of electronic mail to investorrelations@cohenandcompany.com. The contact Information will also be discovered on the backside of our earnings launch.
Operator, now you can open the decision strains for questions, and thanks all for becoming a member of us immediately.
Query-and-Reply Session
Operator
Thanks. We are going to now be conducting a question-and-answer session. [Operator Instructions] IT seems that there aren’t any questions at the moment.
I might now like to show the ground again over to Lester Brafman for closing feedback.
Lester Brafman
Thanks, Maria. I’m pleased with our ends in the primary quarter and I need to thank all our members and crew members for the dedication, particularly as we proceed to face a difficult market surroundings. With robust efficiency over the past two quarters, we now have nice momentum throughout the enterprise and are effectively positioned for the yr forward.
Thanks once more for having fun with the decision and have a great day.
Operator
This concludes immediately’s teleconference. Chances are you’ll disconnect your strains at the moment. Thanks to your participation.