Cowen Inc (COWN) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for joining the Cohen Group, Inc. conference call to discuss financial results for 2013 first-quarter results. By now, you should have received a copy of the Company's earning release, which can be accessed at the Cowen Group, Inc. website at www.cowen.com.

Before we begin, the Company has asked me to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties described in the Company's earnings release and other filings with the SEC. Cowen Group, Inc. has no obligation to update the information presented on the call. A more complete description of these risks and uncertainties and assumptions is included in the Company's filings with the SEC, which are available on the Company's website and on the SEC website at www.SEC.gov.

Also, on today's call, our speakers will reference certain non-GAAP financial measures, which the Company believes will provide useful information for investors. Reconciliation of those measures to GAAP is consistent with the Company's reconciliation as presented in today's earnings release.

Now I would like to turn the call over to Mr. Peter Cohen, Chairman and Chief Executive Officer.

Thank you, operator. Good morning, everyone. Welcome to our first-quarter earnings call. With me today are Michael Singer, CEO of Ramius; Jeff Solomon, CEO of Cowen & Company; and Steve Lasota, the CFO of Cowen Group.

We all know that during the quarter, we saw the equity and credit markets hit all-time highs despite the macro events at home and abroad, and the VIX trading at -- had multi-year lows. And with that, investors have continued -- even accelerated -- their allocations to alternative investments, which bodes well for our activities at Ramius, which Michael will talk about.

During the quarter, we saw meaningful net inflows into mutual funds in the market for the first time in two years. While that did not correspond to increased equity volumes, it's provided for generally favorable environment for the capital market's financing activities, which we are so involved in and for our institutional equity business, which Jeff will talk about.

Against this backdrop, our operating business continued to make progress, despite the fact that we generated a very slight loss in the quarter. During first quarter of 2013, we reported economic revenues of $75 million. That was down 5% from year-ago. The economic loss for the first quarter of 2013 was $1.2 million, which is a decrease from the $5.9 million of economic income from the year-ago period, but a very good improvement versus the fourth quarter of 2012.

The principal reason for the year-over-year decline first-quarter '12 to '13 was the decline in economic income because of the decline in investment income -- which, as you know, varies from quarter to quarter. Last year, we had a very, very strong first quarter in investment income on the balance sheet. And this year, was about half as much. And that pretty much accounts for the entire swing year-over-year.

In the quarter, we laid the groundwork for what we intend to accomplish over the balance of the year. First and foremost, we continue to improve our operating results on both the top and bottom line with a view to achieving consistent profitability. And while I am very encouraged to see how far we have come along on these metrics from two years ago, we still have a lot of work to do. There's always work to do.

At Ramius, we are seeing the fruits of our efforts to rebuild the asset management business. And in the quarter, assets increased by $860 million to $8.9 billion, which is the biggest quarterly increase we have had in a very, very long time. And, as Michael will describe, we're really sort of on the forward progress path there.

A number of our products saw solid inflows, which Michael will talk about. At Cowen & Company, our improvement is evidenced by the continued increases in revenues, despite the difficult markets in equity trading volumes. Jeff will talk more about this later on the call. But our brokerage revenue increased [to] $28 million, the highest quarterly revenue achieved since the second quarter of 2010. The increase was primarily attributable to improvements in our cash equities business, as well as the contribution from our electronic trading business, which is gaining traction. Also, we expect to move up in the research vote over the next few cycles, as we are credited for the acquisition of Dahlman Rose and other new analyst hires we have made. And we are making terrific progress there.

The acquisition of Dahlman Rose was closed on March 11 -- means that we had 14 trading days of Dahlman's business in our numbers for the quarter. Though we did have expenses related to that, we are beginning to see now the full effect of Dahlman in the second part of the -- second quarter. We had a very strong April, which Jeff will talk about. And we're really thrilled with the impact of Dahlman on the overall effort. There is a lot of operating leverage from this transaction. And we expect to see -- just continued contribution as the year progresses, assuming the markets maintain some level of stability.

We are keeping a close eye on expenses. Our numbers were generally in line with our expectations for the quarter, with increases coming from integrating the three businesses we acquired at Cowen and Company during the past year. And that's with respect to the comparison of a year ago. And increase variable costs associated with higher trading volumes, which -- like we're not happy to have variable costs go up; but if they go up because more revenue is going up, that's okay.

Total noncomp expenses were flat versus the fourth quarter of last year. That's the most important thing. And fixed noncomp, we are down $1.9 million in the first quarter of '13 versus the fourth quarter, so we are continuing to push down on operating expenses. Still, we continue to look for ways to streamline the business without inhibiting our identifiable growth opportunities.

As you know, the current environment has remained challenging for financial services companies, both small and large, who effectively compete with that scale in a competitive edge. At Ramius and Cowen, we are building intelligently, even as we are taking great steps to bring our cost structure in line with market realities.

We have a clear mission to leverage our operating expense structure through both organic growth as well as strategic acquisition. We are taking advantage of the shakeout that is occurring in both our businesses, as smaller and weaker competitors just find themselves more challenged than the environment they're in, Dahlman being a very good example of that. This trend is how I was able to build a sustainable franchise with Sandy Weill in the 1970's. And while things are never exactly the same, there are a lot of similarities in the markets between then and now.

And maintaining a strong balance sheet is at the core of our ability to execute on this plan. Despite our year-over-year quarterly decline in investment income, we continue to deliver solid investment results without significant market risk or leverage. I am very, very proud of the efforts our team and colleagues have made. We are in a great position to benefit from the ongoing consolidation with the industry, but we need to stay focused and execute, which we are.

And I will now turn the call over to Michael, who will talk about the asset management business.

Thank you, Peter. During my first full quarter, we made significant strides in implementing our strategic plans to improve profitability at Ramius. Simply put, this can be achieved by meaningfully increasing AUM and revenues within our existing investment capabilities, as well as maintaining a keen focus on identifying expenses for savings.

In terms of potential AUM and revenue growth, each of our investment capabilities -- deep value equity activism, healthcare royalties, real estate, event-driven, long/short credit, managed futures, and alternative solutions have capacity for capital inflows, great track records, and importantly, solid interest coming from a range of clients worldwide, including institutions, high net worth, some affluent investors. In fact, the proof is in the asset flows. We have raised $860 million since the beginning of this year.

I mentioned on our last call the most difficult thing to do in our business generally is to repair investment teams and track records. Part of the reason that I came to Ramius is that the records and teams at Ramius do not have these kinds of challenges. For us, the opportunity lies in identifying the right distribution channels for each product and aligning the resources we have to capture allocations from those investors. As I shared, client interest has already resulted in AUM growth over the first quarter.

Total AUM totaled $8.9 billion as of April 1 of this year, which is an 11% increase from just the beginning of the year. The key drivers of this growth have been through our capabilities in alternative solutions, activism and real estate. In order to officially deliver our capabilities across various investor channels, we are moving forward with reorganizing our sales and distribution efforts. Specifically, we are realigning the sales team to meet the needs of the various channels by creating a specialist generalist sales team structure, and enhancing the breadth of coverage by recruiting talented sales professionals.

We redesigned the comp plans to effectively incentivize our salespeople, yet still foster a team-oriented culture. To support the business development effort, we are expanding the client service team to increase the breadth of resources within IR and marketing, investor intelligence, and sales support.

Lastly, we have enhanced the technology infrastructure by implementing a salesforce CRM using a front-end developed by Mavatar. We are very excited with announcing early this week that our alternative solutions team in Conning, a leading global provider of asset management services to the insurance industry, have entered into a strategic alliance to jointly develop a variety of alternative investment strategies to meet the specific needs of insurance companies. Our solutions business solves the challenging issues insurance companies face trying to get exposure to alternative investments without the draconian capital charges that come with it. We expect this investor channels to be very important to the growth of our solutions business.

In addition, we are making good progress in realigning our expense base. Many of these changes have already been implemented, but we expect to see further efficiencies throughout the year. I should also mention that while reducing expenses is an important element in the overall plan, the true value of the business will come from increased AUM and revenues.

It has been a productive first few months here, but we are still in the early innings of the game. We believe there is much opportunity for us to unlock the true scale of our business. I can tell you that with the talented professionals that we have here on both the investments and non-investment teams, I believe we should be able to meaningfully grow assets for our existing capabilities, as well as selectively attract new teams to expand those capabilities.

Our new product pipeline is robust. We are launching three new funds in Q2, and expect additional product launches in the second half of the year. I look forward to providing more color on our progress across the Ramius business during the next quarterly call.

I will now turn the call over to Jeff, who will provide an update on our broker-dealer, Cowen and Company.

Thank you, Michael. The first quarter was an important one for Cowen and Company. We continued to demonstrate consistency in our banking business by putting up year-over-year increases in our revenues, even as the market for capital markets transactions in our areas was mixed.

As Peter mentioned, we also showed material improvement in our equity sales and trading business. These results were primarily the result of the disciplines we put in place last year, combined with last year's acquisitions of the electronics and securities lending businesses.

We closed on the acquisition of Dahlman Rose on March 11, so our numbers include 14 trading days of both Dahlman revenue and expenses. We literally hit the ground running in terms of integration and leveraging our revenue opportunities with our new colleagues from Dahlman. Our equities businesses were combined in the first day, and our interface with institutional clientele is going smoothly.

We have also received FINRA approval to transfer the remaining assets and personnel of Cowen Securities, which comprises the research and banking, to Cowen and Company. This will fully integrate the firm's research and banking efforts into one platform. We are working to combine these businesses as quickly as possible.

I'm extremely proud of our team and what we have accomplished over the past three months. Despite the potential for distractions from the Dahlman integration, we did not take our eye off the ball, and continued to win business organically by driving the execution plan we laid out last year during the quarter. This is a testament to the team we have in place.

Let me give you some additional highlights. Banking revenue we $17.2 million for the quarter. This is the fifth quarter in a row where banking revenue has exceeded $15 million. During the quarter, we closed on 16 deals across all of our product lines compared to 20 a year ago. We completed 12 equity underwritings, two debt capital market transactions, and two advisory assignments.

Our healthcare franchise remains one of our strongest industry areas, and was an important contributor to revenue in the quarter, but I was also pleased to see the other sectors contributing as well. Of note, it is encouraging that our debt capital markets activities also showed a level of consistency in terms of revenue contribution.

Last year, we averaged $3.6 million per quarter in DCM. And our first quarter performance was in line with this average. However, there is much more that we can achieve in banking. We have identified some incremental market opportunities in the legacy Cowen sectors, and initiated new processes to take advantage of them. And, of course, we're just beginning the process of ramping up our pitch effort in the new sectors acquired in the Dahlman transaction. In fact, our pipeline of mandated deals stands at the highest level ever during the past two-plus years, even as we continue to execute on transactions. But not only are we seeing an increase, we are beginning to see a path to diversity in revenue and product, and more importantly, a path to reaching critical mass.

On the sales and trading side of our business, we are seeing evidence of our plan beginning to bear fruit. Last year, we added an electronics business and a securities lending business. We implemented a new client mapping tool. We installed new leadership in sales and trading and research. Several of our new analyst hires launched coverage in the quarter, and a myriad of additional initiatives and management tools have been incorporated into both sales and trading, and in research. Collectively, these changes have created a new energy in our organization.

For the first quarter this year, revenue was $28 million, up 17% versus a year ago, and that's against a 9% decline in US equity volumes in general. This is the second-highest quarterly revenue for our sales and trading business since the second quarter of 2010. Having said this, across the industry, high-touch equities remain challenged with the continued decline in equity volumes there.

And though we believe we have taken the right steps to better position ourselves, we're not standing still. The impact of the new analysts we hired in recent months, as well as the impact of the acquisition, is not yet reflected in the current research mode. But we would expect to move up in the next few cycles. In fact, we have already begun to receive tangible feedback from key accounts regarding our newly combined position in the research votes. And the early results indicate what we believed would be the case -- people are looking at Cowen and Dahlman on a combined basis.

With a combined research platform that's now consisted of 40 senior analyst covering over 700 stocks, we have the opportunity to establish ourselves as a premier institutional research platform with clear market leadership in our chosen areas of industry focus. We are committed to providing quality research while pressing our advantage to drive our banking and equities businesses.

To summarize, we see meaningful opportunity to monetize our focus sectors. Our businesses are all pointed in the right direction, and we are working very hard on execution. Despite all the progress we have made in the last [two] years, when I see the opportunity ahead of us, we are only beginning -- we are only at the beginning of what we can achieve. So you can have a window into why I am so excited.

Finally, I want to thank our colleagues at Cowen for their efforts to get us to this point. And with that, I will pass the call off to Steve Lasota, who will give you an update on our financial performance.

Thank you, Jeff. During the first quarter of 2013, we recorded a GAAP net loss of $2.6 million or $0.02 per share compared to GAAP net income of $4 million or $0.03 per share in the prior-year period. In addition to our GAAP results, management utilizes non-GAAP measures, what we term as economic income, to analyze our core operating segments performance. We believe economic income provides a more accurate view of the operating businesses by excluding the impact of expenses associated with one-time equity awards made in connection with the November 2009 Ramius/Cowen transaction; certain other acquisition-related expenses and other reorganization charges; goodwill impairment; economic income also excludes the impact of accounting rules that require us to consolidate certain of our funds.

For the three months ended March 31, 2013, the Company reported an economic loss of $1.3 million or $0.01 per share compared to an economic income of $5.9 million or $0.05 per share in the first quarter of last year. First quarter economic income revenues were $74.9 million, a decrease of $4.3 million compared to $79.2 million in the first quarter of last year. The decrease in revenue was primarily attributable to a decrease in investment income, partially offset by an increase in investment banking, brokerage, and incentive income.

We generated $10.9 million in investment income during the first quarter. We ended the quarter with $404 million in invested capital. On the alternative investment side of our business, we recorded management fees of $14.1 million during the first quarter, which is up slightly from $14 million in the first quarter of 2012. Overall, these remain generally constant from the prior year.

Incentive income increased to $5.1 million in the first quarter from incentive fees of $4 million in the comparable prior-year period. This increase was primarily related to an increase in performance fees from our credit fund.

In our Broker-Dealer segment, first-quarter investment banking revenues were $17.2 million, an increase of 10% compared to $15.6 million in the prior-year period. We completed a total of 16 transactions across all products in the most recent quarter compared to 20 transactions in the first quarter of 2012. Brokerage revenue was $28 million in the first quarter of 2013, an increase of 17% or $4 million over the prior-year period. The increase in the current quarter was primarily due to an increase in fees earned, related to Cowen's electronic trading and cash equities business.

In the first quarter, we reported compensation and benefits expense of $44.5 million, a 3% decrease compared to $45.9 million in the first quarter of 2012. The quarterly compensation and benefits accrual was higher as a percentage of revenue as compared to the prior year's quarter, but a lower revenue total resulted in expense decrease.

For the quarter, we reported an aggregate compensation to revenue ratio of 59.5% compared to 58% in the first quarter of 2012. In the quarter, we incurred $1.4 million in compensation expense for activities in which the Company gets reimbursed.

Moving to our non-compensation expenses. Fixed noncomp expenses in the current quarter increased by 12% to $23.9 million as compared to $21.3 million in the comparable prior-year period. This increase was primarily due to increased communication and market data services from the ATM and KDC acquisitions completed during the second and fourth quarter of 2012, respectively, and the Dahlman Rose acquisition completed this quarter.

The variable noncomp expenses were $7.4 million in the first quarter of 2013, up 7% compared to $6.9 million in the first quarter of 2012. This is due to an increase in floor brokerage and trade execution costs, a result of an increase in brokerage revenue, which generated increased trading costs.

While economic income is a pretax measure, I'd like to briefly touch on our tax situation. After the acquisition of LaBranche, Cowen had significant net operating losses in the US to carry forward into the future of $361 million. The associated gross deferred tax asset currently amounts to $145 million. There was 100% valuation allowance against that asset, but at a significant value to the firm.

IRS rules associated with the acquisitions of Cowen and Company in 2009 and LaBranche in 2011 partially limit the amount of NOL that the Company will be able to utilize annually, but significant amounts of future earnings will be shielded from taxes by this asset.

Turning to our balance sheet. The stockholders equity amounted to $503 million at March 31, and our book value per share was $4.35 per share. Tangible book value per share, which is a non-GAAP measure, was $3.91 per share compared to $4.04 per share at the end of 2012.

Finally, moving to our share repurchase program. In the first quarter, we repurchased approximately 236,000 shares in the open market and approximately 177,000 shares, a result of net share settlement related to the vesting of equity awards. The total cost of the program in the quarter was $1.1 million or $2.66 per share. Since we announced our original repurchase program in July of 2011, we have repurchased 8.2 million shares on the open market, an additional 3 million shares as a result of net share settlement related to the vesting of equity awards.

Total cost of the program through the first quarter of 2013 was $30.9 million, which represents an average price of $2.66 per share. As of March 31, we have approximately $12.2 million remaining under the current program.

I will now turn the call back over to Peter for closing remarks.

Thanks, Steve, Michael and Jeff. Ladies and gentlemen, that's it. I mean, we're very enthusiastic, in spite of the fact we had a slight loss in the quarter. We have a lot of good things that we think are going on and making a lot of forward progress. And, again, market conditions aside, we would hope that we will be reporting better and better prognostication of our future as the year goes on, as we raise assets, as we build our backlog in banking, execute against it, and we see the fruits of the Dahlman Rose merger start to flow through the revenue stream here.

I think the place is -- our place is more upbeat now than it's been any time in the last three years. So we're pretty excited. And with that, we'll take questions.

(Operator Instructions). Joel Jeffrey, KBW.

Just starting with the brokerage revenue for the quarter. Can you give us a sense for how much of that -- the growth in that was driven by the electronic trading?

We don't break it out, Joel. But -- and actually what we have done is we've integrated electronic program and cash, so it's a seamless product interface to clients. I don't really much care if they pay us electronically or they pay us in high-touch business, as long as they pay us.

It is significantly higher than it was last year. First of all, we didn't have it in the first quarter of last year. But even if you take a look at the three quarters of electronic execution last year, it's significantly higher in the first quarter this year. So I am happy with the run rate. It actually -- it makes a lot of sense to me. I think we will see that continue, because I just think clients are going to be able to pay us more freely.

I also know that we have three accounts that were not three significant accounts, that couldn't trade with us last year, because they only do electronic. And that has been a pretty meaningful uptick, because these are folks who are now becoming significant consumers of our research products and they have a way to pay us. And they didn't have a way to pay us before.

So I don't really look at electronics on a broken-out basis. I just think it is going to be an ever increasing part of our revenue mix. And I don't see it cannibalizing our cash equities business yet, because I can see the cash side of the business has actually increased as well.

Okay, great. And then sort of thinking about the cash side of the business, in terms of where you're going to see the most immediate -- or where you have seen the most immediate impact from the Dahlman Rose deal, is this going to be mostly on the brokerage side or is this an investment banking potential there?

So, I think, initially, because the integration occurred really only on the equity side, just to clarify a little bit, we have a backend merger that we have to complete once we got regulatory approval, which we got yesterday. So the research and banking side of the business continued to operate under Cowen Securities, which is the successor corporation to Dahlman Rose. So nothing has changed as it relates to those processes.

So immediately, the progress that we have seen has been on the equity side where we migrated everybody over, literally, day of -- I mean, at eight o'clock, we announced the merger; at eight-o-one, we did our first combined morning meeting on March 11. What I've seen from clients -- and we have gotten a few early votes back -- some of the significant institutional accounts that we have, have actually aggregated, are two votes. They took the Cohen wrote and the Dahlman vote, added them together, and we moved up significantly.

That's a pretty good sign. Because I can tell you, I know the people rationalize votes all the time, but for us to be actually seeing significant accounts, aggregating votes is a very good indication that people recognize the value in both the research franchise at Cowen, legacy Cowen, and at Dahlman. And we are seeing that shine through in our numbers in April.

Okay, great. And then thinking about the investment income line this quarter, it was a little bit lower than what we were looking for. I'm just trying -- I know it can be volatile, but just trying to get a sense for how we should be thinking about it maybe from a run rate perspective going forward?

Well, you know, I mean, I would like -- we don't really like to give guidance, and that number is going to move around. But we have a history, a pretty consistent history, of what we have earned on invested capital on the balance sheet going back a long, long time. And we would like to think that we will, over the course of the year, achieve that result, which is kind of a mid-teens result on our liquid capital.

Some of the less liquid stuff is choppy. It comes when it comes. And we would expect on the liquid portion of the balance sheet that we would continue to do that.

Okay, great. And then just lastly for me, in terms of thinking about the decline and the tangible book value per share, it looks like that was just driven by an increase in the shares outstanding. Is that primarily tied to the Dahlman Rose deal or was that equity issuance?

Yes.

Yes.

Okay, great. Thanks for taking my questions.

That gives you some idea what we actually paid for Dahlman.

(Operator Instructions). Mark Lane, William Blair.

You talk about making a lot of progress, but as you also mentioned, you weren't profitable in the quarter. Tangible book value is down 3% quarter-over-quarter. Last year, you provided some goals for the Broker-Dealer segment. You gave a revenue level where you thought you would be cash breakeven. So given the way that you see the business right now, can you give us some sort of idea where you see the Broker-Dealer segment break even on an economic basis, not a cash basis? And maybe what sort of mix that would imply for the business in terms of banking versus investment income, that sort of thing?

So, what I would say is, first of all, we haven't given public guidance on that breakeven number. What I would say is that obviously with the acquisition of Dahlman Rose, that number is higher, because we did add some fixed expenses and, obviously, compensation. I think what you're seeing in the first quarter, Mark, though, is a really good indication of where we want to be in terms of our comp to revenue ratios. And we are continuing to ring out cost structure, if we can, as a part of the merger.

So looking at the two of those gives you a pretty good indication as to what the cost base is going to be. And so it should give you a pretty good indication of where we need to be to breakeven. I think those are two -- the two primary components.

(multiple speakers) Just a couple of other things, Mark, in the first quarter, on noncoms. At our conferences, two of our major conferences are in the first quarter, so our noncomp expenses are a little bit higher -- our fixed noncomps -- or our variable noncomps are higher in the first quarter because of that as well.

Yes, we had some odds and ends in the first quarter that were chunky, and some which will be nonrecurring; nothing so notable that we should talk about it. But, as Steve said, the accounting is such that we can't accrue -- we cannot accrue ratably over the year for our conference expenses. So we tend to have a very big conference expense in the first quarter. Healthcare is in the first quarter. Tax in the first quarter. (multiple speakers)

And aerospace.

Aerospace is in the first quarter.

But you have to have some sort of goal in terms of when you want to be breakeven for the Broker-Dealer segment.

(multiple speakers) I think we -- sure. I mean, we absolutely have a goal. We are on that path to getting there. I think when I was answering your specific question, in terms of revenue mix, I want to get back to that for a second. So, obviously, we need to make sure that banking and capital markets catches and even eventually exceeds our equities business. So I think that the revenue mix that would be optimal when you're talking about driving profitability, especially on the M&A front, the advisory front.

The two biggest margin businesses we have are M&A advisory and debt capital markets. Those are two businesses that are still in their early stages of being developed and redeveloped here at Cowen. So even within banking, the business mix is still decidedly equity capital market-centric, which is our highest cost of goods sold.

So what we -- the strategic decision we made, though, is first and foremost, to lock down our equity distribution platform, because if there's one thing that we felt we might be at risk at in this environment, would be losing that platform, which would be impossible to replicate. And the Dahlman acquisition basically puts us in a position now inside the large institutions, like yours, where we are no longer in danger of becoming irrelevant.

And we are seeing, on a daily basis, firms that we used to compete with in the equity space either winding down, laying off tons of people, and really exiting the equities business. I think that bodes well for us and for people who are focused on providing solid alpha-generating ideas. So even though, ultimately, in our long-term plan, we have to have banking at or exceeding the revenues we have in the equities business, we felt that the most critical thing we could do initially was to put ourselves in position where our equity franchise was unsalable. And that's really what Dahlman has done for us, at least in the first couple of weeks.

And how about the asset management business, where there's not a -- where you're not integrated in an acquisition? What sort of financial goals do you have in that business over time?

(multiple speakers) Go ahead, Mike.

We think of it bottoms-up product-by-product existing capabilities, new products to add. We understand the capacity of our products and the market demand. So we have a, in our mind, a fairly clear roadmap. I don't think I can lay that out, but we understand where we are going to go between now and the end of 2014, based on the capacity and select products, and the clear market demand for those. So, separately, we focus now on the new products that we expect to either incubate or onboard, so that by the end of 2014, they will be ready for prime time, and can then be collecting capacity when we close out the other ones.

So with Dahlman -- last question -- with Dahlman Rose being completed and pretty big focus on integration, I assume you're more, when you look out the next 12 to 18 months, you're much more internally focused, we wouldn't expect to see any other acquisitions or add-on transactions? Or are you still looking at outside opportunities?

You know, look, you can't -- you can never predict -- you can never say never and you can't predict what might happen down the road. We have looked at a number of acquisitions and we have declined to pursue them. We are being approached on a very consistent basis by firms that are subscale, that are looking to find a way to tuck in. We will continue to look at that or those opportunities. And if they make sense, we might pursue them.

I think your statement that we are going to be inward-looking is really accurate, and that's where our focus is. I mean, there's no active effort to go look for other opportunities. But they come to us, because there are still a number of firms that are subscale, and this industry is going to end up being just a handful of, call them sort of small/medium-size or medium-size firms. You will have Jefferies in their own place and you'll have the bulge, and that's going to be it. There just isn't room, based on the economics, for a lot else. And we're going to take advantage of it if the opportunity arises.

Okay, actually, one last quick one on the stock repurchase. If you're going to be a little bit more inwardly-focused and your stock is still at a pretty meaningful discount to book. You've got over $300 million of excess liquid capital and you feel like the business is going in the right direction. You're on the right path. You're the most optimistic you've been in the last three years, why aren't you buying back more stock?

Well, first of all, the window that we could -- the window was open for all of 15 days for us after we reported the first -- the year-end. And had to shut the window for the first quarter. So, Steve told you what we did.

We will buy stock back pursuant to the Board's authorization, based on how we see the business going. And our great strength is that we have all this liquidity. We have the capital, which is why, when a Dahlman comes along, we are able to do it. Your comment about the diminution of book value is all about -- all driven by the stock we issued in the Dahlman combination, which is de minimis relative to the contribution it can make.

And if cash flow is at a level that we're very comfortable, we will continue -- we will buy more stock back. And if cash flow is less comfortable, we won't buy as much stock back. We're not in this for a quarter or a year; we're in this for a very long -- long-term. All I can tell you is, I did this once in my life. It's a little bit different, but it's following the same track. It took a while to get there, but when we got there, it was very rewarding and we're going to play the same path here. And our Board is totally behind our program, what we're doing.

Thank you.

Thank you, Mark.

With no further questions at this time, I would now like to turn the call back to Mr. Peter Cohen for closing remarks.

Operator, thank you. Thank you all for participating and listening. And feel free -- get in touch with Steve, myself, Jeff, any of us, if you have questions. And we'll be back to you in three months.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.