COHN Cohen & Company Inc

Cohen & Company Inc. (NYSE American: COHN), a financial services firm specializing in fixed income markets, today reported financial results for its second quarter ended June 30, 2019. 

Summary Operating Results

	Three Months Ended												Six Months Ended
($ in thousands)	6/30/19				3/31/19				6/30/18				6/30/19				6/30/18
Total revenues	$	11,169			$	11,145			$	12,190			$	22,309			$	21,528
Compensation and benefits		6,432				6,364				6,589				12,796				11,783
Non-compensation operating expenses		4,219				4,844				4,226				9,063				8,730
Operating income		518				(63	)			1,375				450				1,015
Interest expense, net		(1,939	)			(1,859	)			(2,201	)			(3,793	)			(4,020	)
Income (loss) from equity method affiliates		(248	)			(8	)			-				(256	)			-
Income (loss) before income tax expense (benefit)		(1,669	)			(1,930	)			(826	)			(3,599	)			(3,005	)
Income tax expense (benefit)		(641	)			(106	)			(636	)			(747	)			(664	)
Net income (loss)		(1,028	)			(1,824	)			(190	)			(2,852	)			(2,341	)
Less: Net income (loss) attributable to the noncontrolling interest		(618	)			(622	)			(270	)			(1,240	)			(947	)
Net income (loss) attributable to Cohen & Company Inc.	$	(410	)		$	(1,202	)		$	80			$	(1,612	)		$	(1,394	)
Fully diluted net income (loss) per share	$	(0.36	)		$	(1.06	)		$	0.07			$	(1.42	)		$	(1.19	)

• Revenues during the three months ended June 30, 2019 increased $24 thousand from the prior quarter and decreased $1.0 million from the prior year quarter. - The decrease from the prior year quarter was comprised primarily of (i) a decrease of $1.5 million in asset management revenue due primarily to the successful auction and liquidation of one of the Company’s European CDOs in June 2018 as well as one-time incentive fees received from our European accounts in the prior-year quarter, and (ii) a decrease of $0.9 million in principal transactions due to less revenue from the Company’s CLO equity and EuroDekania investments; partially offset by (iii) an increase of $1.5 million in net trading from higher trading activity primarily in municipals, mortgages, and GCF matched book repo. 
• Compensation and benefits expense as a percentage of revenue was 58% for the three months ended June 30, 2019, compared to 57% for the three months ended March 31, 2019, and 54% for the three months ended June 30, 2018. The number of Cohen & Company employees was 91 as of June 30, 2019, compared to 88 as of March 31, 2019, and 87 as of June 30, 2018. 
• Non-compensation operating expenses during the three months ended June 30, 2019 decreased $625 thousand from the prior quarter and were comparable to the prior year quarter. The decrease from the prior quarter was primarily due to higher professional fees in the prior quarter. 
• Interest expense during the three months ended June 30, 2019 increased $80 thousand from the prior quarter and decreased $262 thousand from the prior year quarter. The changes in both periods were due to interest on redeemable financial instruments, which is driven by certain groups’ revenue or profit. 
• Income (loss) from equity method investments relates to the Company-sponsored insurance SPAC, which completed its initial public offering in March 2019, and has eighteen months from its initial public offering to consummate a business combination.

Total Equity and Dividend Suspension

• As of June 30, 2019, total equity was $41.6 million, compared to $42.4 million as of December 31, 2018. 
• The Company’s Board of Directors has suspended the quarterly dividend. The Board of Directors will continue to evaluate the dividend policy each quarter, and future decisions as to whether to pay a dividend will be impacted by quarterly operating results and the Company’s capital needs.

Lester Brafman, Chief Executive Officer of Cohen & Company, said, “Although our overall results during the second quarter fell short of our expectations, we are pleased with the growth of our TBA, Gestational Repo, and GCF Repo businesses. The Board’s decision to suspend the quarterly dividend will allow the Company to focus on preserving its cash and deploying its capital on new business initiatives, which we believe will generate long-term value for our shareholders.” 

Conference Call

Management will hold a conference call this morning at 10:00 a.m. Eastern Time to discuss these results. The conference call will also be available via webcast. Interested parties can access the webcast by clicking the webcast link on the Company’s website at www.cohenandcompany.com. Those wishing to listen to the conference call with operator assistance can dial (877) 686-9573 (domestic) or (706) 643-6983 (international), participant pass code 1399022, or request the Cohen & Company earnings call. A replay of the call will be available for two weeks following the call by dialing (800) 585-8367 (domestic) or (404) 537-3406 (international), participant pass code 1399022.

About Cohen & Company

Cohen & Company is a financial services company specializing in fixed income markets. It was founded in 1999 as an investment firm focused on small-cap banking institutions but has grown to provide an expanding range of capital markets and asset management services. Cohen & Company’s operating segments are Capital Markets, Asset Management, and Principal Investing. The Capital Markets segment consists of fixed income sales, trading, and matched book repo financing as well as new issue placements in corporate and securitized products, and advisory services, operating primarily through Cohen & Company’s subsidiaries, J.V.B. Financial Group, LLC in the United States and Cohen & Company Financial Limited in Europe. The Asset Management segment manages assets through collateralized debt obligations, managed accounts, and investment funds. As of June 30, 2019, the Company managed approximately $2.8 billion in fixed income assets in a variety of asset classes including US and European trust preferred securities, subordinated debt, and corporate loans. As of June 30, 2019, 82.7% of the Company’s assets under management were in collateralized debt obligations that Cohen & Company manages, which were all securitized prior to 2008. The Principal Investing segment is comprised primarily of investments that we have made for the purpose of earning an investment return rather than investments made to support our trading, matched book repo, or other capital markets business activity. For more information, please visit www.cohenandcompany.com.

Forward-looking Statements

This communication contains certain statements, estimates, and forecasts with respect to future performance and events. These statements, estimates, and forecasts are “forward-looking statements.” In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “seek,” or “continue” or the negatives thereof or variations thereon or similar terminology. All statements other than statements of historical fact included in this communication are forward-looking statements and are based on various underlying assumptions and expectations and are subject to known and unknown risks, uncertainties, and assumptions, and may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance, or achievements to differ materially from the results, level of activity, performance, or achievements expressed or implied in the forward-looking statements including, but not limited to, those discussed under the heading “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition” in our filings with the Securities and Exchange Commission (“SEC”), which are available at the SEC’s website at www.sec.gov and our website at www.cohenandcompany.com/investor-relations/sec-filings. Such risk factors include the following: (a) a decline in general economic conditions or the global financial markets, (b) losses caused by financial or other problems experienced by third parties, (c) losses due to unidentified or unanticipated risks, (d) a lack of liquidity, i.e., ready access to funds for use in our businesses, (e) the ability to attract and retain personnel, (f) litigation and regulatory issues, (g) competitive pressure, (h) an inability to generate incremental income from new or expanded businesses, (i) unanticipated market closures due to inclement weather or other disasters, (j) losses (whether realized or unrealized) on our principal investments, including on our CLO investments, (k) the possibility that payments to the Company of subordinated management fees from its European CLO will continue to be deferred or will be discontinued, and (l) the possibility that the stockholder rights plan may fail to preserve the value of the Company’s deferred tax assets, whether as a result of the acquisition by a person of 5% of the Company’s common stock or otherwise. As a result, there can be no assurance that the forward-looking statements included in this communication will prove to be accurate or correct. In light of these risks, uncertainties, and assumptions, the future performance or events described in the forward-looking statements in this communication might not occur. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and we do not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Cautionary Note Regarding Quarterly Financial Results

Due to the nature of our business, our revenue and operating results may fluctuate materially from quarter to quarter.  Accordingly, revenue and net income in any particular quarter may not be indicative of future results. Further, our employee compensation arrangements are in large part incentive-based and, therefore, will fluctuate with revenue. The amount of compensation expense recognized in any one quarter may not be indicative of such expense in future periods.  As a result, we suggest that annual results may be the most meaningful gauge for investors in evaluating our business performance.

COHEN & COMPANY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
		Three Months Ended												Six Months Ended
		6/30/19				3/31/19				6/30/18				6/30/19				6/30/18
	Revenues
	Net trading	$	8,670			$	8,729			$	7,186			$	17,394			$	13,377
	Asset management		1,745				2,002				3,205				3,747				5,009
	New issue and advisory		-				-				177				-				873
	Principal transactions		585				350				1,443				935				1,892
	Other revenue		169				64				179				233				377
	Total revenues		11,169				11,145				12,190				22,309				21,528
	Operating expenses
	Compensation and benefits		6,432				6,364				6,589				12,796				11,783
	Business development, occupancy, equipment		895				811				644				1,706				1,511
	Subscriptions, clearing, and execution		2,056				2,273				2,151				4,329				3,985
	Professional services and other operating		1,190				1,679				1,379				2,869				3,121
	Depreciation and amortization		78				81				52				159				113
	Total operating expenses		10,651				11,208				10,815				21,859				20,513
	Operating income (loss)		518				(63	)			1,375				450				1,015
	Non-operating income (expense)
	Interest expense, net		(1,939	)			(1,859	)			(2,201	)			(3,793	)			(4,020	)
	Income (loss) from equity method affiliates		(248	)			(8	)			-				(256	)			-
	Income (loss) before income tax expense (benefit)		(1,669	)			(1,930	)			(826	)			(3,599	)			(3,005	)
	Income tax expense (benefit)		(641	)			(106	)			(636	)			(747	)			(664	)
	Net income (loss)		(1,028	)			(1,824	)			(190	)			(2,852	)			(2,341	)
	Less: Net income (loss) attributable to the noncontrolling interest		(618	)			(622	)			(270	)			(1,240	)			(947	)
	Net income (loss) attributable to Cohen & Company Inc.	$	(410	)		$	(1,202	)		$	80			$	(1,612	)		$	(1,394	)
Earnings per share
	Basic
	Net income (loss) attributable to Cohen & Company Inc.	$	(410	)		$	(1,202	)		$	80			$	(1,612	)		$	(1,394	)
	Basic shares outstanding		1,144				1,133				1,173				1,139				1,173
	Net income (loss) attributable to Cohen & Company Inc. per share	$	(0.36	)		$	(1.06	)		$	0.07			$	(1.42	)		$	(1.19	)
	Fully Diluted
	Net income (loss) attributable to Cohen & Company Inc.	$	(410	)		$	(1,202	)		$	80			$	(1,612	)		$	(1,394	)
	Net income (loss) attributable to the convertible noncontrolling interest		(491	)			(618	)			(270	)			(1,109	)			(947	)
	Income tax and conversion adjustment		298				53				306				351				313
	Enterprise net income (loss)	$	(603	)		$	(1,767	)		$	116			$	(2,370	)		$	(2,028	)
	Basic shares outstanding		1,144				1,133				1,173				1,139				1,173
	Unrestricted Operating LLC membership units exchangeable into COHN shares		532				532				532				532				532
	Additional dilutive shares		-				-				14				-				-
	Fully diluted shares outstanding		1,676				1,665				1,719				1,671				1,705
	Fully diluted net income (loss) per share	$	(0.36	)		$	(1.06	)		$	0.07			$	(1.42	)		$	(1.19	)

 

COHEN & COMPANY INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
		June 30, 2019
		(unaudited)				December 31, 2018
	Assets
	Cash and cash equivalents	$	13,077			$	14,106
	Receivables from brokers, dealers, and clearing agencies		123,865				129,812
	Due from related parties		495				793
	Other receivables		7,271				12,072
	Investments - trading		237,950				301,235
	Other investments, at fair value		7,402				13,768
	Receivables under resale agreements		6,054,821				7,632,230
	Investment in equity method affiliate		3,519				-
	Goodwill		7,992				7,992
	Right-of-use asset - operating leases		7,773				-
	Other assets		4,916				3,621
	Total assets	$	6,469,081			$	8,115,629
	Liabilities
	Payables to brokers, dealer, and clearing agencies	$	126,433			$	201,598
	Accounts payable and other liabilities		12,663				11,452
	Accrued compensation		2,755				5,254
	Trading securities sold, not yet purchased		107,636				120,122
	Securities sold under agreements to repurchase		6,104,767				7,671,764
	Deferred income taxes		1,270				2,017
	Lease liability - operating leases		8,338				-
	Redeemable financial instruments		18,638				17,448
	Debt		45,002				43,536
	Total liabilities		6,427,502				8,073,191
	Equity
	Voting nonconvertible preferred stock		5				5
	Common stock		12				12
	Additional paid-in capital		68,819				68,591
	Accumulated other comprehensive loss		(904	)			(908	)
	Accumulated deficit		(34,077	)			(31,926	)
	Total stockholders' equity		33,855				35,774
	Noncontrolling interest		7,724				6,664
	Total equity		41,579				42,438
	Total liabilities and equity	$	6,469,081			$	8,115,629

Contact:
Investors -	Media -
Cohen & Company Inc.	Joele Frank, Wilkinson Brimmer Katcher
Joseph W. Pooler, Jr.	James Golden or Andrew Squire
Executive Vice President and Chief Financial Officer	212-355-4449
215-701-8952	jgolden@joelefrank.com or asquire@joelefrank.com
investorrelations@cohenandcompany.com