Cohen & Company Inc. (NYSE American: COHN), a financial
services firm specializing in fixed income markets, today reported
financial results for its first quarter ended March 31, 2020.
Summary Operating Results
|
|
|
|
|
|
|
|
Three Months Ended |
|
($ in
thousands) |
3/31/20 |
|
12/31/19 |
|
3/31/19 |
|
|
|
|
|
|
|
|
Total revenues |
$ |
17,770 |
|
|
$ |
16,090 |
|
|
$ |
11,140 |
|
|
Compensation
and benefits |
|
14,134 |
|
|
|
6,159 |
|
|
|
6,364 |
|
|
Non-compensation operating expenses, excluding goodwill
impairment |
|
5,198 |
|
|
|
5,897 |
|
|
|
4,844 |
|
|
Goodwill
impairment |
|
7,883 |
|
|
|
- |
|
|
|
- |
|
|
Operating
income |
|
(9,445 |
) |
|
|
4,034 |
|
|
|
(68 |
) |
|
Interest
expense, net |
|
(2,605 |
) |
|
|
(2,255 |
) |
|
|
(1,854 |
) |
|
Income
(loss) from equity method affiliates |
|
(107 |
) |
|
|
(188 |
) |
|
|
(8 |
) |
|
Income
(loss) before income tax expense (benefit) |
|
(12,157 |
) |
|
|
1,591 |
|
|
|
(1,930 |
) |
|
Income tax
expense (benefit) |
|
(372 |
) |
|
|
394 |
|
|
|
(106 |
) |
|
Net income
(loss) |
|
(11,785 |
) |
|
|
1,197 |
|
|
|
(1,824 |
) |
|
Less: Net
income (loss) attributable to the noncontrolling interest |
|
(8,683 |
) |
|
|
423 |
|
|
|
(622 |
) |
|
Net income
(loss) attributable to Cohen & Company Inc. |
$ |
(3,102 |
) |
|
$ |
774 |
|
|
$ |
(1,202 |
) |
|
Fully
diluted net income (loss) per share |
$ |
(2.70 |
) |
|
$ |
0.56 |
|
|
$ |
(1.06 |
) |
|
|
|
|
|
|
|
|
- Revenues during the three months
ended March 31, 2020 increased $1.7 million from the prior quarter
and $6.6 million from the prior year quarter.
- The increase from the prior quarter
was comprised primarily of (i) an increase of $6.3 million in net
trading mostly from higher revenue in the Company’s Corporate and
Mortgage groups, despite over $5 million of negative revenue
recorded from realized and unrealized losses in certain trading
books in the current quarter, partially offset by (ii) a
decrease of $2.9 million in principal transactions revenue related
to mark-to-market losses on the Company’s investment portfolio, and
(iii) a decrease of $1.6 million in new issue and advisory revenue
as a result of no transactions closing during the current quarter.
- The increase from the prior year
quarter was comprised primarily of (i) an increase of $9.8 million
in net trading from higher activity in the Company’s GCF Repo and
Gestation Repo businesses, as well as higher revenue from the
Corporate group, despite over $5 million of negative revenue
recorded from realized and unrealized losses in certain trading
books in the current quarter, partially offset by (ii) a decrease
of $2.9 million in principal transactions related to mark-to-market
losses on the Company’s investment portfolio, and (iii) a decrease
of $0.4 million in asset management revenue due primarily to
one-time performance fees recorded in the prior year quarter in the
Company’s European fund business.
- Compensation and benefits expense
as a percentage of revenue was 80% for the three months ended March
31, 2020, compared to 38% for the three months ended December 31,
2019, and 57% for the three months ended March 31, 2019. During the
quarter ended March 31, 2020, the Company’s variable compensation
structure had an outsized unfavorable impact on results due to the
significant negative revenue recorded from realized and unrealized
losses in certain trading books and from principal transactions
with no meaningful corresponding reduction in variable compensation
to offset the negative revenue. The number of Cohen & Company
employees was 95 as of March 31, 2020, compared to 94 as of
December 31, 2019, and 88 as of March 31, 2019.
- Non-compensation operating expenses
excluding goodwill impairment during the three months ended March
31, 2020 decreased $0.7 million from the prior quarter and
increased $0.4 million from the prior year quarter. The decrease
from the prior quarter was primarily due to lower professional fees
and the absence in the current quarter of any revenue-driven
third-party marketing cost related to European new issue and
origination revenue. The increase from the prior year quarter was
due primarily to higher net trading revenue-driven clearing and
execution costs and professional fees in the current
quarter.
- A non-cash goodwill impairment
charge of $7.9 million was recognized during the three months ended
March 31, 2020, after the Company performed an impairment test of
goodwill attributable to its wholly owned subsidiary, J.V.B.
Financial Group, LLC. The Company has no goodwill attributable to
J.V.B. Financial Group, LLC after this impairment.
- Interest expense during the three
months ended March 31, 2020 increased $0.4 million from the prior
quarter and $0.8 million from the prior year quarter. The changes
in quarterly interest expense are primarily driven by fluctuations
in interest on redeemable financial instruments, which are driven
by certain groups’ revenue or profit.
- As of March 31, 2020, total equity was $36.9 million, compared
to $48.8 million as of December 31, 2019.
Lester Brafman, Chief Executive Officer of Cohen
& Company, said, “The COVID-19 pandemic has created an
environment of uncertainty, market volatility and dislocation in
certain debt and equity markets. These economic conditions have
impacted our business, as positions in our high yield trading books
and principal investing portfolio have decreased in value, and a
reassessment of our JVB goodwill has resulted in an impairment.
Despite some recent downsizing in our book sizes, we are pleased
that our TBA, Gestation Repo, and GCF Repo businesses continued to
show strength in the first quarter. Going forward, we are focused
on continuing to navigate these unprecedented challenges and
ensuring that our employees stay safe and healthy. We are
optimistic that the strategic investments we have made in these
businesses will continue to pay off, and we remain focused on
enhancing stockholder value.”
COVID-19 Impact
The spread of COVID-19 has caused significant
volatility in domestic and international markets. There is on-going
uncertainty around the breadth and duration of business disruptions
related to COVID-19, as well as its impact on the U.S. and
international economies. While the Company cannot fully assess the
impact COVID-19 will have on all of its operations, at this time,
there are certain impacts that the Company has identified:
- The unprecedented volatility of the
financial markets experienced in March 2020, has caused the Company
to operate J.V.B. Financial Group, LLC (“JVB”), the Company’s
wholly owned U.S. broker-dealer subsidiary, at a lower level of
leverage than prior to the pandemic. Specifically, the Company has
reduced the size of its GCF repo operations and the volume of its
TBA trading. The Company determined that at its pre-pandemic levels
in these businesses, it was exposed to a high level of counterparty
credit risk and was experiencing too much volatility in its
available liquidity to meet capital requirements and margin calls
in these businesses. The Company expects to operate at lower
volumes in both these businesses for an indefinite period of time,
which will impact the operating profitability of JVB.
- The financial market volatility, as
well as the reduction in volumes in the GCF repo and TBA
businesses, that resulted from COVID-19 required the Company to
reassess the goodwill it had recorded related to JVB. The Company
determined that the fair value of JVB was less than the carrying
value (including the goodwill). As a result, the Company recorded
an impairment loss of $7.9 million in the three months ended March
31, 2020.
- The Company expects that its asset
management segment will also be adversely impacted by the
pandemic. While it is difficult to determine the extent of
the impact at this time, the Company expects that raising capital
for new funds may become more challenging. In addition, lower
returns earned by funds will adversely impact the Company’s asset
management fees, and investors’ need for liquidity may result in
reductions in assets under management.
- The Company’s mortgage group’s
operations are centered on serving the financial needs of mortgage
originators and institutions that invest in mortgage backed
securities. Prolonged high unemployment will most likely impact
mortgage originations and demand for and supply of mortgage backed
securities, which may have a significant impact on the revenue
earned by JVB’s mortgage group.
- The Company has taken decisive
actions to protect employees and mitigate the impact of COVID-19,
including transitioning employees to remote work and limiting
onsite presence. To date, the Company has been able to avoid
layoffs and furloughs of employees.
As the situation continues to evolve, the
Company will continue to closely monitor market conditions and
respond accordingly.
The Company has applied for and received a $2.2
million loan under the Paycheck Protection Program (PPP) of the
Coronavirus Aid, Relief, and Economic Security (CARES) Act. The
Company has carefully considered the eligibility requirements for
PPP loans as well as supplemental guidance regarding the PPP beyond
the applicable statute issued from time to time by government
agencies and certain government officials. The Company is eligible
to receive a PPP loan because it has fewer than 100 employees.
Further, although the Company is public and listed on the NYSE
American stock exchange, the Company’s market capitalization is
small, and the Company believes that it does not have access to the
public capital markets at this time. In part due to the PPP loan,
the Company does not anticipate any significant workforce reduction
or reductions in compensation levels in the near future. However,
the Company will continue to carefully monitor revenue levels to
assess whether compensatory or other cost-cutting measures might be
necessary.
Conference Call
The Company no longer holds conference calls in
connection with the release of its quarterly and annual financial
results.
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 (Europe) Limited in
Europe. The Asset Management segment manages assets through
collateralized debt obligations, managed accounts, and investment
funds. As of March 31, 2020, the Company managed approximately $2.7
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 March 31, 2020, 79.0% 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 the Company has made for the
purpose of earning an investment return rather than investments
made to support its 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 or effects 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, (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, and (m)
the impacts of the COVID-19 pandemic. 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 |
|
|
|
|
3/31/20 |
|
12/31/19 |
|
3/31/19 |
|
|
|
Revenues |
|
|
|
|
|
|
|
|
Net trading |
$ |
18,561 |
|
|
$ |
12,299 |
|
|
$ |
8,724 |
|
|
|
|
Asset management |
|
1,615 |
|
|
|
1,795 |
|
|
|
2,002 |
|
|
|
|
New issue and advisory |
|
- |
|
|
|
1,580 |
|
|
|
- |
|
|
|
|
Principal transactions |
|
(2,598 |
) |
|
|
276 |
|
|
|
350 |
|
|
|
|
Other revenue |
|
192 |
|
|
|
140 |
|
|
|
64 |
|
|
|
|
Total revenues |
|
17,770 |
|
|
|
16,090 |
|
|
|
11,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
14,134 |
|
|
|
6,159 |
|
|
|
6,364 |
|
|
|
|
Business development, occupancy, equipment |
|
756 |
|
|
|
926 |
|
|
|
811 |
|
|
|
|
Subscriptions, clearing, and execution |
|
2,580 |
|
|
|
2,950 |
|
|
|
2,273 |
|
|
|
|
Professional services and other operating |
|
1,782 |
|
|
|
1,942 |
|
|
|
1,679 |
|
|
|
|
Depreciation and amortization |
|
80 |
|
|
|
79 |
|
|
|
81 |
|
|
|
|
Impairment of goodwill |
|
7,883 |
|
|
|
- |
|
|
|
- |
|
|
|
|
Total operating expenses |
|
27,215 |
|
|
|
12,056 |
|
|
|
11,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
(9,445 |
) |
|
|
4,034 |
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income (expense) |
|
|
|
|
|
|
|
|
Interest expense, net |
|
(2,605 |
) |
|
|
(2,255 |
) |
|
|
(1,854 |
) |
|
|
|
Income (loss) from equity method affiliates |
|
(107 |
) |
|
|
(188 |
) |
|
|
(8 |
) |
|
|
|
Income (loss) before income tax expense (benefit) |
|
(12,157 |
) |
|
|
1,591 |
|
|
|
(1,930 |
) |
|
|
|
Income tax expense (benefit) |
|
(372 |
) |
|
|
394 |
|
|
|
(106 |
) |
|
|
|
Net income (loss) |
|
(11,785 |
) |
|
|
1,197 |
|
|
|
(1,824 |
) |
|
|
|
Less: Net income (loss) attributable to the noncontrolling
interest |
|
(8,683 |
) |
|
|
423 |
|
|
|
(622 |
) |
|
|
|
Net income (loss) attributable to Cohen & Company Inc. |
$ |
(3,102 |
) |
|
$ |
774 |
|
|
$ |
(1,202 |
) |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
Basic |
|
|
|
|
|
|
|
|
Net income
(loss) attributable to Cohen & Company Inc. |
$ |
(3,102 |
) |
|
$ |
774 |
|
|
$ |
(1,202 |
) |
|
|
|
Basic shares
outstanding |
|
1,147 |
|
|
|
1,125 |
|
|
|
1,133 |
|
|
|
|
Net income
(loss) attributable to Cohen & Company Inc. per share |
$ |
(2.70 |
) |
|
$ |
0.69 |
|
|
$ |
(1.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Fully
Diluted |
|
|
|
|
|
|
|
|
Net income
(loss) attributable to Cohen & Company Inc. |
$ |
(3,102 |
) |
|
$ |
774 |
|
|
$ |
(1,202 |
) |
|
|
|
Net income
(loss) attributable to the convertible noncontrolling interest |
|
(8,523 |
) |
|
|
523 |
|
|
|
(622 |
) |
|
|
|
Net interest
attributable to convertible debt |
|
- |
|
|
|
374 |
|
|
|
- |
|
|
|
|
Income tax
and conversion adjustment |
|
966 |
|
|
|
(123 |
) |
|
|
53 |
|
|
|
|
Enterprise
net income (loss) |
$ |
(10,659 |
) |
|
$ |
1,548 |
|
|
$ |
(1,771 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
outstanding |
|
1,147 |
|
|
|
1,125 |
|
|
|
1,133 |
|
|
|
|
Unrestricted
Operating LLC membership units exchangeable into COHN shares |
|
2,794 |
|
|
|
581 |
|
|
|
532 |
|
|
|
|
Additional
dilutive shares |
|
- |
|
|
|
1,051 |
|
|
|
- |
|
|
|
|
Fully
diluted shares outstanding |
|
3,941 |
|
|
|
2,757 |
|
|
|
1,665 |
|
|
|
|
Fully
diluted net income (loss) per share |
$ |
(2.70 |
) |
|
$ |
0.56 |
|
|
$ |
(1.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COHEN & COMPANY INC. |
|
CONSOLIDATED BALANCE SHEETS |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
March 31, 2020 |
|
|
|
|
|
|
(unaudited) |
|
December 31, 2019 |
|
|
|
Assets |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
85,454 |
|
|
$ |
8,304 |
|
|
|
|
Receivables from brokers, dealers, and clearing agencies |
|
77,604 |
|
|
|
96,132 |
|
|
|
|
Due from related parties |
|
411 |
|
|
|
466 |
|
|
|
|
Other receivables |
|
17,007 |
|
|
|
46,625 |
|
|
|
|
Investments - trading |
|
375,745 |
|
|
|
307,852 |
|
|
|
|
Other investments, at fair value |
|
10,057 |
|
|
|
14,864 |
|
|
|
|
Receivables under resale agreements |
|
6,014,438 |
|
|
|
7,500,002 |
|
|
|
|
Investment in equity method affiliate |
|
5,789 |
|
|
|
3,799 |
|
|
|
|
Goodwill |
|
109 |
|
|
|
7,992 |
|
|
|
|
Right-of-use asset - operating leases |
|
6,867 |
|
|
|
7,155 |
|
|
|
|
Other assets |
|
3,059 |
|
|
|
8,433 |
|
|
|
|
Total assets |
$ |
6,596,540 |
|
|
$ |
8,001,624 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Payables to brokers, dealer, and clearing agencies |
$ |
201,242 |
|
|
$ |
241,261 |
|
|
|
|
Accounts payable and other liabilities |
|
81,781 |
|
|
|
20,295 |
|
|
|
|
Accrued compensation |
|
8,360 |
|
|
|
4,046 |
|
|
|
|
Trading securities sold, not yet purchased |
|
114,767 |
|
|
|
77,947 |
|
|
|
|
Securities sold under agreements to repurchase |
|
6,066,372 |
|
|
|
7,534,443 |
|
|
|
|
Deferred income taxes |
|
943 |
|
|
|
1,339 |
|
|
|
|
Lease liability - operating leases |
|
7,391 |
|
|
|
7,693 |
|
|
|
|
Redeemable financial instruments |
|
16,907 |
|
|
|
16,983 |
|
|
|
|
Debt |
|
61,864 |
|
|
|
48,861 |
|
|
|
|
Total liabilities |
|
6,559,627 |
|
|
|
7,952,868 |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Voting nonconvertible preferred stock |
|
27 |
|
|
|
27 |
|
|
|
|
Common stock |
|
12 |
|
|
|
12 |
|
|
|
|
Additional paid-in capital |
|
68,622 |
|
|
|
68,714 |
|
|
|
|
Accumulated other comprehensive loss |
|
(936 |
) |
|
|
(915 |
) |
|
|
|
Accumulated deficit |
|
(37,683 |
) |
|
|
(34,519 |
) |
|
|
|
Total stockholders' equity |
|
30,042 |
|
|
|
33,319 |
|
|
|
|
Noncontrolling interest |
|
6,871 |
|
|
|
15,437 |
|
|
|
|
Total equity |
|
36,913 |
|
|
|
48,756 |
|
|
|
|
Total liabilities and equity |
$ |
6,596,540 |
|
|
$ |
8,001,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contact: |
|
|
|
|
|
Investors - |
|
Media - |
Cohen & Company Inc. |
|
Joele Frank, Wilkinson Brimmer Katcher |
Joseph W. Pooler, Jr. |
|
James Golden or Andrew Squire |
Executive Vice President and |
|
212-355-4449 |
Chief Financial Officer |
|
jgolden@joelefrank.com or asquire@joelefrank.com |
215-701-8952 |
|
|
investorrelations@cohenandcompany.com |
|
|
|
|
|
Cohen & (AMEX:COHN)
Historical Stock Chart
From Aug 2024 to Sep 2024
Cohen & (AMEX:COHN)
Historical Stock Chart
From Sep 2023 to Sep 2024