U.S. Markets closed

Edited Transcript of IFMI earnings conference call or presentation 2-Aug-19 2:00pm GMT

Q2 2019 Cohen & Company Inc Earnings Call

PHILADELPHIA Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Cohen & Company Inc earnings conference call or presentation Friday, August 2, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Joseph W. Pooler

Cohen & Company Inc. - Executive VP, Treasurer & CFO

* Lester Raymond Brafman

Cohen & Company Inc. - CEO

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and welcome to Cohen & Company's Second Quarter 2019 Earnings Call. My name is Nicole, 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 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 Raymond Brafman, Cohen & Company Inc. - CEO [2]

--------------------------------------------------------------------------------

Thank you, Nicole, and thank you, everybody for joining us for our second quarter 2019 earnings call. With me on the call is Joe Pooler, our CFO.

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 business. 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.

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

--------------------------------------------------------------------------------

Joseph W. Pooler, Cohen & Company Inc. - Executive VP, Treasurer & CFO [3]

--------------------------------------------------------------------------------

Thank you, Lester. We will begin with our statement of operations. Our operating income was $518,000 for the quarter compared to an operating loss of $63,000 for the prior quarter and operating income of $1.4 million for the prior year quarter. Our loss before income taxes was $1.7 million for the current quarter compared to $1.9 million for the prior quarter and $826,000 for the prior year quarter. And our net loss attributable to Cohen & Company shareholders was $410,000 or $0.36 per diluted share for the current quarter compared to net loss of $1.2 million or $1.06 per diluted share for the prior quarter and net income of $80,000 or $0.07 per diluted share for the prior year quarter.

Net trading revenue came in at $8.7 million in the second quarter, down $59,000 from the first quarter and up $1.5 million from the second quarter of '18. The increase from the year ago quarter was primarily the result of increased trading from mortgages, GCF Repo, SBA and Munis. Our asset management revenue totaled $1.7 million in the quarter, down $257,000 from the prior quarter and down $1.5 million from the year ago quarter. The decrease from the prior quarter was primarily a result of onetime incentive fees in our European managed accounts reported during the prior quarter.

The decrease from the prior year quarter was primarily a result of the successful auction of one of our managed European CDOs in the prior year quarter, which resulted in the payment of accrued but unpaid subordinated management fees as well as onetime incentive fees in our European managed accounts reported during the prior year quarter.

Second quarter of '19 principal transactions revenue was $585,000, up from the prior quarter and down from the year ago quarter. The increase from the prior quarter was primarily due to favorable marks on our legacy investments in residential mortgage loans, while the decrease from the prior year quarter was due to less revenue from our CLO equity and EuroDekania investments.

Compensation and benefits expense for the second quarter of '19 was $6.4 million, up $68,000 from the prior quarter and down $157,000 from the prior year quarter. The quarterly changes are primarily the result of the variable compensation model we have in place and relate to our variations in net trading, new issue and advisory and asset management revenues from the comparable periods as well as headcount changes. Compensation as a percentage of revenue was 58% in the second quarter of '19 compared to 57% in the first quarter of '19 and 54% in the second quarter of '18.

The number of Cohen & Company employees was 91 at the end of June '19 compared to 88 as of March 31, '19, and 87 as of the year ago quarter. Net interest expense for the second quarter of '19 was $1.9 million, including $885,000 on our 2 trust preferred debt instruments, $501,000 on our 8% convertible notes, $463,000 on our redeemable financial instruments and $90,000 on our other credit lines.

In terms of our balance sheet, at the end of the quarter, our total equity was $41.6 million, a decrease of $859,000 from December 31, '18. Consolidated corporate indebtedness was carried at $45 million. Our redeemable financial instruments were carried at $18.6 million, and we have $13.1 million of unrestricted cash on the balance sheet.

As Lester mentioned, the Board has elected to suspend the quarterly dividend. The Board will continue to review the dividend policy on a quarterly basis. Future decisions regarding our dividend will be impacted by our quarterly operating results and our ongoing capital needs. Finally, we expect to file our 10-Q early next week.

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

--------------------------------------------------------------------------------

Lester Raymond Brafman, Cohen & Company Inc. - CEO [4]

--------------------------------------------------------------------------------

Thanks, Joe. Please direct any investor questions to Joe Pooler at (215) 701-8952. His contact information is at the bottom of our earnings release or via e-mail to investorrelations@cohenandcompany.com. Thank you for joining us today. Operator, you can now end the call.

--------------------------------------------------------------------------------

Operator [5]

--------------------------------------------------------------------------------

This does conclude today's conference call. We thank you for your participation and ask that you please disconnect your lines.