Cohen & Company Inc (COHN) 2020 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Cohen & Company Fourth Quarter and Full Year 2020 Earnings Call. My name is Erica, 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 the 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 the call, and the company undertakes no obligation to update such forward-looking statements to reflect subsequent events or circumstances.

Cohen & Company advises you to read the cautionary note regarding forward-looking statements and its earnings release and the 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.

Thanks, Erica, and thank you, everyone, for joining us for our fourth quarter 2020 earnings call. With me on this call is Joe Pooler, our CFO. We are pleased with our fourth quarter and annual results, and we're excited for the year ahead as we continue to execute on our strategic goals, including growing our mortgage and repo business, expanding our asset management revenue streams and position the company to track new business opportunities and capital partners.

Net trading revenue was $73.6 million for the full year 2020, up $35.4 million or 93% from 2019. This is due primarily from our mortgage repo and corporate trading groups. At the end of the year, our Gestation book had grown to $3.3 billion, up from $1.3 billion at the end of 2019.

And our non CDO assets under management increased 27% to $712 million, including growth in our European project funds and our SPAC funds. We also continue to make great strides in the development of our SPAC franchise. And we remain very active in the SPAC market as a sponsor, asset manager and investor.

In the fourth quarter, our first company sponsored SPAC, Insurance Acquisition Corp., closed its merger with the Shift Technologies contributing $18.3 million to the fourth quarter's adjusted pretax income. More recently, our second company sponsored SPAC, INSU Acquisition Corp. II, closed its merger agreement with Metromile, a digital insurance platform and pay-by-mile auto insurer.

And our third company sponsored SPAC, INSU Acquisition Corp. III, completed it's $250 million IPO and it's currently seeking a business combination. Our team has substantial experience in the SPAC space, and we are excited to build on our momentum and continue growing our SPAC franchise.

Looking ahead, we remain committed to executing on the strategic priorities with continued focus on proactively managing our risk and our capital structure as well as enhancing stockholder value. With that, I will return the call over to Joe Pooler, and he can walk you through the quarter's financial highlights in more detail.

Thanks, Lester. We'll start with our statement of operations. Our net income attributable to Cohen & Company Inc. stockholders was $14.8 million for the quarter or $7.64 per fully diluted share compared to $1.7 million for the prior quarter or $1.19 per diluted share and $800,000 for the prior year quarter or $0.56 per diluted share.

Our adjusted pretax income was $23.8 million for the quarter compared to $3.6 million for the prior quarter and $1.7 million for the prior year quarter. As Lester mentioned, in the fourth quarter, our first company-sponsored SPAC closed its merger with Shift Technologies, contributing $18.3 million to the quarter's adjusted pretax income. Adjusting for the impact of the Shift merger, our fourth quarter adjusted pretax income still increased $1.9 million from the third quarter, continuing our solid performance away from the SPAC franchise as well.

Note that adjusted pretax income is not a measure recognized under U.S. generally accepted accounting principles. See our disclosures, calculations and reconciliations surrounding adjusted pretax income in our earnings release. Net trading revenue came in at $18.1 million in the quarter, up $1.1 million from the third quarter and up $5.8 million from the fourth quarter of '19.

The increase from both quarters was primarily the result of increased trading from our Gestation Repo book and our corporate trading groups. Our Gestation Repo balances have grown to $3.3 billion as of December 31 of '20. Our asset management revenue totaled $3.8 million in the quarter, up $2.2 million from the prior quarter and up $2 million from the year ago quarter.

The increase from both prior quarters was primarily related to an incentive allocation earned by the manager of our SPAC funds. Fourth quarter principal transactions revenue was $42.4 million, which included $40.7 million of revenue related to Shift securities held by our consolidated sponsor entities after Insurance Acquisition Corp's merger with Shift, which closed on October 13 in the fourth quarter.

It's important to note that approximately 46% of our consolidated Insurance SPAC sponsor entity assets are owned by noncontrolling interests. $10.6 million of the noncontrolling interest reduction to our net income in the fourth quarter relates to the noncontrolling interest in the consolidated insurance SPAC sponsor entities.

The total principal transactions revenue includes all gains and losses and income earned on our $58 million investment portfolio classified as other investments at fair value on our balance sheet.

This investment portfolio has increased recently due to our involvement in various SPACs as our SPAC portfolio is growing as the SPAC franchise grows. The investment portfolio includes $36.4 million of Shift stock at December 31 of '20, of which $16.6 million will be distributed to the noncontrolling interest investors in the sponsor entities.

Of the $36.4 million of Shift stock, $29.6 million is currently restricted from sale in accordance with the terms we have disclosed in our previous filings. Compensation and benefits expense for the quarter was $23.5 million, which included $11.7 million of equity stock compensation expense related to employee ownership of founder shares after Insurance Acquisition Corp's merger with Shift Technologies. Compensation as a percentage of revenue was 35% in the quarter compared to 50% in the third quarter and 38% in the year ago quarter.

For the full year, compensation as a percentage of revenue was 46% compared to 52% in 2019. The number of Cohen & Company employees at the end of the year was 87 compared to 94 as of the end of the year 2019.

Net interest expense for the quarter was $2 million, including $648,000 on our 2 trust preferred debt instruments, $590,000 on our senior notes, $470,000 on our redeemable financial instruments and $243,000 on our credit line. Loss from equity method affiliates during the fourth quarter totaled $244,000 compared to the prior quarter loss of $1.4 million and the prior year quarter loss of $188,000.

The fluctuation in loss from equity method affiliates is primarily related to pre business combination expenses incurred by the company's 3 sponsored insurance SPACs, which were at various stages of finding a merger target during the quarter.

During the quarter, we recognized an $8 million net income tax benefit due to the reduction in the valuation allowance applied against our net operating loss and net capital loss tax assets. We will continue to evaluate our operations on a quarterly basis and may make further adjustments to our valuation allowances going forward.

Future adjustments could be material and could result in additional tax benefit or tax expense. In terms of our balance sheet at the end of the year, our total equity was $101.4 million, an increase of $52.7 million from prior year-end total equity.

$27.8 million of the current year-end total equity was nonconvertible noncontrolling interest, primarily from the noncontrolling interests in our consolidated SPAC sponsor entities. Consolidated corporate indebtedness was carried at $47 million and our redeemable financial instruments were carried at $12 million.

In addition to the first insurance SPAC merger with Shift Technologies, our second sponsored insurance SPAC completed its merger with Metromile on February 9 of 2021. And as of February 11, the merged company began trading on NASDAQ under the symbol M-I-L-E, MILE. The favorable impact on our P&L, specifically our principal transactions revenue line item from the mark-to-market on the company's retained placement and founder shares for our second sponsored insurance SPAC, is not reflected in our fourth quarter results, but rather will be reflected in our first quarter of '21 results as the merger closed in February.

And finally, our third sponsored insurance SPAC completed the sale of 25 million units at $10 per unit in its IPO on December 22 of '20 for gross proceeds of $250 million. Additional details regarding the SPAC mergers and the SPAC IPO transaction are available in previous company filings with the Securities and Exchange Commission as well as in our 10-K, which we expect to file this Friday or next Monday, our 2020 10-K. With that, I'll turn it back over to Lester for closing comments.

Thanks, Joe. Please direct any offline investor questions to Joe Pooler at (215) 701-8952 or via e-mail to investorrelations@cohencompany.com. The contact information can be also found at the bottom of our earnings release. Operator, you can now open the call lines for questions.

(Operator Instructions)

And there are no audio questions in queue at this time.

Okay. Thanks, operator, and thanks to all of you for joining us today. And we look forward to our first quarter call move on. Thank you very much. Bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.