Cohen & Company Inc (COHN) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Institutional Financial Markets fourth-quarter and year-end 2014 earnings call. My name is Kristin, and I will be your conference operator today.

Before we begin, IFMI 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. IFMI 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. Please note also that in the Company's earnings release for the fourth-quarter and year-end 2014, the non-GAAP measures of performance have been reconciled to their corresponding GAAP measures of performance. (Operator Instructions)

I would now like to turn the call over to Mr. Lester Brafman, Chief Executive Officer of IFMI.

Thank you, Kristin, and thank everybody for joining us for our fourth-quarter and year-end 2014 earnings call. With me on the call is Joe Pooler, our CFO.

We are pleased that the execution of our strategic initiatives is starting to positively impact our operating results, as IFMI reported its best quarterly adjusted operating income in over four years. Fourth-quarter adjusted operating income was $4.7 million, or $0.23 per diluted share. Additionally, the previously disclosed pending sale of our European operations is on track to close in the first half of 2015.

We have made significant progress in lowering our expenses -- our expense base, thereby increasing the operating leverage of the firm. The year-over-year decline in total operating expenses was $23.2 million, or 29%, in 2014 as compared to 2013. Non-compensation costs excluding DNA and goodwill impairment charges were down $8.6 million, or 29%, with significant decreases occurring across all line items.

Regarding our principal investing portfolio, IFMI's unrealized mark-to-market loss in CLOs was due to the price depreciation of the underlying collateral. The December weakness of the leverage loan market was driven by the dramatic decrease in oil prices. While we did experience some price volatility, it is important note that the underlying portfolios are stable, and we have seen stronger cash flow generated from these investments than anticipated.

Also in the first quarter, we are seeing a snap back in the leverage loan market, and we hope this will follow through with our investments for next quarter.

Today, IFMI is beginning to realize the benefits of our team's hard work, and we remain focused on positioning the Company for future success and value creation. Importantly, our Board continues to return value to our stockholders through a $0.02 dividend for the quarter. As always, and especially in the context of these challenging market conditions, we will carefully review our dividend policy in a quarterly basis.

Now Joe will walk through some of the period's financial highlights in more detail.

Thank you, Lester. Our reported adjusted operating income was $4.7 million for the quarter ended December 31 of 2014 compared to adjusted operating loss of $100,000 for the quarter ended September 30, 2014, an adjusted operating loss of $6.4 million for the quarter ended December 31 of 2013.

Our net trading revenue came in at $8.2 million in the current quarter, up $1.9 million from the third quarter of 2014 and up $2.2 million from the fourth quarter of 2013. The increase from prior quarter was primarily due to more trading revenue from our corporate groups, while the increase from the prior-year quarter was primarily due to more trading revenue from our corporate, SBA, and TBA groups.

New issuant advisory revenue was $2.2 million in the fourth quarter 2014, which was up from both the prior and year-ago quarters. The increase was primarily due to European advisory fees received in the fourth quarter of 2014.

Fourth-quarter 2014 principal transactions revenue was negative $300,000, which compared unfavorably to the prior quarter but favorably to the year-ago quarter. The current-quarter negative $300,000 consisted primarily of negative mark-to-mark adjustments on the Company's CLO investments, which were partially offset by a realized gain on the sale of the legacy real estate asset. The decrease from the prior quarter was primarily the result of the negative mark-to-market adjustments on the Company's CLO investments as well as lower revenue recognized from the Company's investment in Euro Dekania in the fourth quarter of 2014.

The increase from the prior-year quarter was primarily the result of the sale of Star Asia entities in the first quarter of 2014, which eliminated a significant source of volatility in our path to financial results. In the fourth quarter, the negative mark-to-market adjustments on our CLO investments was substantially market-driven and not based on indications of unfavorable or unexpected cash flow trends or weaknesses in the underlying assets of the CLOs.

Our asset management revenue was up $1.8 million to $4.5 million in the fourth quarter of 2014 from the third quarter of 2014 and was down $1.6 million compared to the year-ago quarter. The prior quarter increase was primarily the result of incentive fees in our European separate account business in the fourth quarter of 2014. The decrease from the prior-year quarter was primarily due to the successful auction and redemption of two of our managed CDOs and the transfer of several collateral management agreements from our legacy ABS CDOs during 2014, which reduced CDO asset management fees in the fourth quarter. In addition, the decrease from the prior-year quarter was also due to the sale of Star Asia in the first quarter of 2014, which included Star Asia management.

Our other revenue was $3.2 million in the fourth quarter of 2014, which was up $2.7 million from the prior quarter and up $2.1 million from the year-ago quarter. The increase from both periods was primarily the result of higher revenue shares recorded in the fourth quarter of 2014, particularly the revenue share related to the sale of the Star Asia group.

Compensation and benefits expense for the fourth quarter of 2014 of $7.6 million increased $1 million from the third quarter of 2014 and decreased $2 million from the fourth quarter of 2013. Compensation as a percentage of revenue was 43% in the fourth quarter compared to 63% in the third quarter and 82% in the prior-year quarter. The compensation ratio in the fourth quarter of 2014 benefited from the increase in other revenue during the period. The number of IFMI employees was 111 as of the end of the year compared to 118 as of the end of the third quarter and 148 at the end of the prior year.

Our total non-comp operating expenses, excluding depreciation and amortization of $5.7 million, increased by $1.4 million in the fourth quarter of 2014 from the third quarter, and decreased by $3 million from the prior-year quarter. The increase from the prior quarter was primarily the result of one-time charges related to litigation with a former employee as well as third-party marketing costs related to certain incentive fees in our European separate accounts business.

We continue to be diligent about managing expenses. Based on our current level of operating activity, we think $4.5 million per quarter is a reasonable target for our non-comp operating expenses, which should drop to about $3.5 million per quarter once the sale of our European operations is completed. This target is subject to some volatility depending on the level of net trading revenue and the associated clearing and execution costs that go with the trading revenue.

As Lester mentioned, our annual total operating costs were down by $23.2 million, or 29%, in 2014 from the prior year. Compensation as a percentage of revenue for the full year was 53% in 2014 compared to 82% in 2013. Non-compensation costs, excluding D&A and goodwill impairment charges for the full year, were down $8.6 million, or 29%, with significant decreases occurring across all line items.

On revenue that was relatively flat year over year, operating income was a positive $200,000 in 2014 compared to an operating loss of $21.1 million in 2013.

In terms of our balance sheet as of the end of the year, our total equity was $56.5 million, a decrease of $4.7 million from the prior year end. The decrease included $2.2 million of dividends and stock purchases, with the remaining decrease coming from operating losses including the $3.1 million goodwill impairment. We had $31.5 million of capital invested in our net trading portfolio and $28.4 million invested in our principal investing portfolio at the end of the year.

The other investments at fair value line item on our balance sheet represents our principal investing portfolio and includes our recent investments in CLO's positions. The $28.4 million fair value in this line item includes $21.5 million of CLO investments.

At the end of the year, our consolidated corporate indebtedness was carried at $27.9 million on the balance sheet, and we had $12.3 million of unrestricted cash balances. We believe the unrestricted cash balances combined with the capital invested in our net trading and principal investing portfolios is sufficient to fund our near-term business model.

As Lester noted, we announced a $0.02 dividend for the quarter, and we will continue to review the dividend policy on a quarterly basis. The dividend is payable on April 2, to stockholders of record on March 19. We expect to file our 10-K next week.

With that, I'll turn it back over to Lester for closing remarks before we take any questions.

Thanks Joe. I'm proud of what we've accomplished but recognize there is more to be done. I want to thank our team of dedicated employees who remain focused on our priorities as we position IFMI for future success and value creation. With that, I'll open up the call for questions.

(Operator Instructions)

I don't believe there any questions, so with that, we will close the call.

This concludes today's conference call. You may now disconnect your lines.