Cowen Inc (COWN) 2018 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for joining Cowen's conference call to discuss the financial results for the 2018 first quarter. By now, you should have received a copy of the company's earnings release, which can be accessed at Cowen's 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 has no obligation to update the information presented on this call. A more complete description of these and other 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 the 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. Jeffrey Solomon, Chief Executive Officer.

Thank you, operator. Good morning, and welcome to Cowen's First Quarter 2018 Earnings Call. This is Jeff Solomon, and joining me today on the call is our CFO, Steve Lasota.

As you can see from our earnings release, we reported record economic income of $24.1 million on revenue of $241.5 million for the quarter -- first quarter of 2018. This compares to the first quarter of last year where we reported economic income of $5.5 million and revenue of $128.6 million. This quarter's strong performance, which is the best operating results since the formation of Cowen Inc. in 2009, is emblematic of the many steps we have taken over the past few years to position our organization for success in any market environment.

Before I review the specific results in each of our businesses, I would like to highlight that the performance occurred during one of the most volatile equity markets we have been witnessed in the past 6 years. At the beginning of 2018, the VIX was 9.77, and at the end of the quarter, it was 19.97, having peaked at 37.32 on February 5. More specifically, the S&P 500 had intraday moves of greater than 1% on 46 out of 61 trading days or about 75%. This compares to 41% of the trading days over the past 5 years combined. In 2017, only 27% of the trading days experienced that kind of market volatility on a daily basis. This kind of market generally benefited equity volumes, which increased 20% year-over-year, and we participated meaningfully from that environment. Interestingly, the increase in volatility did little to impact our equity financing business as fundamental buyers in the most active sectors remained fully engaged in new issue, which performed well overall.

Now I will review each of our businesses as well as some of the things we've accomplished since our fourth quarter call. In banking and capital markets, we had a solid performance as investors continue to show consistent interest in IPOs and follow ons. Health care was once again a tremendous driver of our growth, but the diversity of our banking revenues is also noteworthy as I will discuss. While health care equity issuance has been a long-standing strength of the firm, this quarter was particularly noteworthy because of our market share relative to the health care equity issuance across the sector as a whole.

For the performance of the market, in the first quarter of 2018, it was the highest quarter in terms of fees, since the first quarter of 2015, which was the last day health care new issuance quarter. But the total fees from health care new issue in the first quarter for the entire industry in 2018 were actually 26% lower than in the first quarter of 2015. However, for Cowen, the first quarter of 2018 was our best quarter for health care equity capital markets. In fact, our health care equity capital market fees were 12% higher than they were in the first quarter of 2015. It was an amazing performance that first and foremost speaks to the strength of our health care franchise, and second to our growing impact within the health care market.

Our performance in banking was also punctuated by continued growth in M&A advisory and in non-health care sectors such as consumer, which had its best quarterly contribution to date. In fact, the fees generated by the consumer team this quarter exceeded the sector's annual contribution in each of the last several years. In aggregate, our non-health care banking and non-ECM revenue was $23 million, which is one of the highest levels since the formation of Cowen in 2009. Much of the success we saw on our non-health care sectors and in M&A was the result of an organic multiyear investment in new hires, many of which we made during the downturn in 2016. This put us in a position to deliver higher revenue and improve revenue diversity. As we have said before, diversifying our business mix towards higher margin activities is a multiyear process. We demonstrated tangible evidence of the effects beginning to take place in 2017, and you're seeing that a bit into 2018 as well. That's why we continued to invest in our advisory capabilities in order to drive long-term margin growth.

Now turning to brokerage. Brokerage recorded revenue and year-over-year growth of 118%. As a reminder, the prior year quarter did not include Convergex. Total brokerage revenue averaged $1.9 million per trading day compared to approximately $918,000 per trading day in the year ago period. For purposes of the call, we will broadly describe the individual units within the brokerage business as institutional brokerage and institutional services. Institutional brokerage includes cash equities, special situations, electronic trading, options, convertibles and credit. Institutional services includes prime services, global clearing, securities finance and commission management services.

Our institutional brokerage rose 72% year-over-year. While much of the increase was due to the inclusion of Convergex, our growth was also the result of market volatility and continued market share gains. We have seen our equities platform perform well during times of market volatility as clients seek to reposition their portfolios. However, with our larger platform, our ability to efficiently move stock has been amplified, especially during those periods of volatility like the ones we saw in the first quarter. Our institutional services business rose 220% year-over-year with much of the growth reflecting the diversification in the business following the conversion of the acquisition of Convergex.

With regards to MiFID II. Although it is early in its implementation, the regulations seem to have had a muted impact on Cowen thus far. This is the result of the path we took in recent years, which is to focus on high-quality sophisticated research product coupled with the best execution capabilities, particularly post the Convergex acquisition. We chose to make significant long-term investments in research and trading because we saw the industry trend coming long before MiFID II became a part of our daily vernacular. Clients have increasingly focused their order flow with partners who provide real value add in both research and trade execution. We believe this has positioned us well in the eyes of our global customers.

Moving to the investment management business. As of April 1, we had $10.8 billion of assets under management, which was down $200 million from the start of the year. The decline primarily relates to the elimination of the global macro strategy from our platform. As we mentioned on our last call, we have been exiting strategies that we did not think would show an ability to scale on our platform.

Now for a brief update on our current strategies. Our new private health care strategy had its second and final close in January raising more than $200 million in aggregate commitments. The solid investor interest we've seen thus far speaks to the Cowen brand as well as our track record in that strategy. The health care royalty business completed its largest investment in its history. Its third fund is about 68% committed and the pipeline for royalty transactions continues to be robust. Real estate successfully raised its third equity vehicle. And merger arbitrage delivered slightly positive performance in the quarter, and we've seen modest inflows into the use of this product. Our long/short equity strategy, which invest primarily in indications, technology, media and consumer sectors have positive performance during a negative quarter for the S&P.

Finally, on our last call, I discussed the concept of simpler, fewer, deeper, as we look to create shareholder value through driving return on equity. I'd like to give you an update on our activities on that front.

Simpler. Improving our capital allocation process is essential to driving our long-term return on equity. More specifically, we are in the process of harmonizing our balance sheet activities in pursuit of more accretive returns that are tied more closely to our operating businesses as well as buying back stock opportunistically. Late last year, we formed a capital allocation committee so that the decisions can be considered more holistically across the entire firm. Capital allocation is more than simply driving revenue mix and returns on the balance sheet. It is now more closely aligned, serving the mission of driving pretax ROE. That includes assessing whether we think that the long-term ROE of certain businesses are accessible. It is this kind of rigor that is leading us to make better decisions of our capital deployment.

Since 2017, we have closed 6 balance sheet strategies including the 3 that were exited this year, as we did not believe that those could be developed in a manner that would benefit the operating businesses more broadly. The steps taken in the first quarter of 2018 reduced the cost of managing the balance sheet by about $2.1 million on an annualized basis. Over time, we will be deploying capital and strategies where we can see a multiplier effect from our balance sheet investments based on our operating businesses.

In addition, during the quarter, we took steps to reduce the quarterly investment volatility by meaningfully de-risking the balance sheet from both an allocation and leverage standpoint. As a result, invested capital returns during February and March drawdowns were substantially reduced relative to prior periods, while still producing $14 million in investment income for the quarter. We are continuing to reduce market directionality and idiosyncratic risk in order to manage moves closer to an acceptable level. Simplifying our balance sheet and reshaping it to create more predictability in our earnings through investments and historically experience in time -- than we historically experienced will take some time. At the end of day, balance sheets are meant to be seen, not heard.

Fewer. Today the investment management platform consists of 6 capabilities down from 9 at the beginning of 2017. Paring strategies that do not show an ability to scale enables us to focus our efforts on profitability, while growing investment management platforms for products we think have longer-term success on our platform. We are actively exploring several possibilities to take advantage of the internal expertise and DNA of Cowen with products and strategies that are both saleable and scalable much like our private health care fund. Our philosophy is that investment funds need to have a unique offering in order to attract assets, a dynamic that has become more and more apparent as the investment management industry matures. Because of our great brand and deep domain experience in a variety of areas, we have the ability to create investment products that leverage our expertise in a way that will be difficult to be replicated by others. But we will only look to add one new strategy at a time for the foreseeable future.

Deeper. As we have discussed on our call -- last call, we intend to deepen our footprint in investment banking, particularly in areas that will drive margin, such as M&A and leverage finance. These are key initiatives for us this year, just like committing to go deeper in research and trade execution was for us over the past several years.

With that, I will turn the call over to Steve Lasota for a brief review of our financials. Steve?

Thank you, Jeff. In the first quarter of 2018, we reported GAAP net income attributable to common shareholders of $15.2 million or $0.50 per diluted common share compared to $1.3 million or $0.05 per diluted common share in the prior year period. First quarter of 2018 GAAP revenue was $251.4 million, compensation and benefit expenses was $135.1 million, non-comp expenses, excluding interest expense, depreciation and amortization, was $85 million. Other income from gains on investments was $33.8 million, income tax expense was $6.9 million and income attributable to noncontrolling interest was $11.2 million.

We adopted new revenue recognition guidance as of January 1, 2018. I will highlight the areas of our GAAP income statement that have been affected. For the investment banking business segment, revenue is now recognized on a gross basis rather than previously being shown net of associated underwriting expenses. This has no impact on net income. In the investment management business, incentive fees were affected by the change in presentation and timing of recognition. GAAP incentive fees recognized only those that have been crystallized at the reporting period. Uncrystallized incentive fees are deferred to a future period when they are crystallized. Under the former revenue recognition guidelines, we would have been able to accrue those fees. Additionally, fees from certain funds that we previously reported as incentive fees will now be shown as equity investments in the funds with associated gain or losses in the income statement.

In addition to our GAAP results, management utilizes non-GAAP financial measures, which we refer to as economic income. Management uses economic income to measure our performance and to make certain operating decisions. In general, economic income is a pre-income tax measure that excludes the impact of accounting rules that require us to consolidate certain of our funds, certain other acquisition-related expenses and reorganization expenses, certain costs associated with debt, goodwill and intangible impairment in preferred stock dividends, economic income revenues also include incentive income during periods when incentive fees are not yet crystallized with GAAP reporting. The remainder of my comments will be based on these non-GAAP financial measures.

In the first quarter of 2018, the company reported economic income of $24.1 million or $0.79 per diluted share. This compares to $5.5 million or $0.19 per diluted share in the prior year period. First quarter 2018 economic income revenue was $241.5 million compared to $128.6 million in the prior year period. Investment banking revenue was $93.9 million compared to $36.6 million in the first quarter of 2017. Quarterly brokerage revenue increased 118% year-over-year to $114.1 million. Management fees were $13.1 million compared to $13.9 million from the prior year period. Incentive income was $5.2 million compared to $3.1 million. Investment income was $14.3 million compared to $21.6 million in the prior year. And other revenue was $888,000 compared to $1.1 million.

Comp and benefit expense for the quarter was 56% of economic income revenue compared to 58% in the prior year period. As a result of the acquisition of Convergex, our compensation to economic income revenue was lower than prior year levels. Variable non-comp expenses in the first quarter of 2018 were $38 million compared to $16.4 million in the prior year. The increase was primarily related to higher floor brokerage and trade execution costs related to the acquisition of Convergex. Fixed non-comp expenses, excluding depreciation and amortization, totaled $34.7 million in the first quarter compared to $23.8 million in the prior year period. We continue to be focused on the integration of Convergex in realizing synergies in areas such as technology, operations and corporate.

Depreciation and amortization expenses were $3 million in the quarter compared to $2.6 million in the first quarter of 2017. And again, the increase is related to an increase in the amortization of intangible assets related to Convergex.

GAAP stockholders equity increased by $11 million to $759 million at March 31, 2018 from $748 million at 12/31/2017. Common equity, which is stockholders equity less the preferred stock, was $657 million compared to $647 million at year-end. Book value per share, which is common equity divided by shares outstanding, was $22.27 per share compared to $21.82 at 12/31/2017. Tangible book value per share, which is common equity less goodwill and intangible assets was $19.25 per share compared to $18.77 at 12/31/2017. Invested capital was $678 million as of March 31 versus $695 million at 12/31/2017.

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

Thanks, Steve. Well, this is an exciting time to be at Cowen as we're making solid progress and differentiating ourselves in the marketplace. Our progress evidenced by this quarter's operating performance is the product of strategic decisions we made over the last 6 years. By that, I mean our decision to invest in our research platform because we believed the differentiated research would be what sets us apart with clients. Our decision to scale the cash and electronic brokerage business in order to great -- achieve greater consistency and improved profitability as fixed cost becomes shared over our larger revenue base. In banking, our decision to press on our health care expertise while organically building other products and sectors has given us more scale and diversity. And while we still have more work to do in a number of areas to improve our ability to produce results like this more consistently, we are encouraged that our long-range strategic thinking has positioned us such that we can deliver stronger results like this when the markets will allow. Indeed, this quarter demonstrates the power of the margin lift from having accomplished scale and excellence, all at the same time.

While we have seen continued strong momentum -- a month into the second quarter, our internal business plan does not anticipate annualizing or extrapolating the first quarter results. But we are pleased to demonstrate that as our business evolves and we expand market share, we are able to drive higher highs and higher lows.

We will continue to be methodical in our decisions that will bring greater consistency and transparency in our businesses and ultimately, sustained profitability for shareholders and employees alike.

Finally, thank you to all of our partners and teammates at Cowen for making this place the best firm on the Street.

Operator, we'd now like to now open up the call for questions.

(Operator Instructions) Our first question comes from Devin Ryan from JMP Securities.

So I guess, first question here, appreciate some of the commentary on kind of the balance sheet and kind of thought process there, and it sounds like investible assets are down about $15 million from the end of the year. So if you're trying to think about as you are still kind of executing on that part of the strategy to simplify, how much further could that come down? And then also, I'm sure some of that might be influenced by monetization opportunities within some of the private investments as well, like Linkem. So if you're trying to think about that piece as well, are there opportunities for monetizations? And then how should we think about that cash being freed up and potentially return to investors?

All right. So let me give you a little bit of sort of the -- obviously this is a -- we invest the balance sheet all year long, but in the first quarter we pay bonuses. So there is a sort of natural reduction in risk that occurs during the first quarter anyway, as we generate cash to pay bonuses. I think this is a much more deliberate thought process about how we deliver consistent results. So we pivoted some of the capital away from some of the investment management strategies and more towards what I would consider to be spread businesses, like securities lending. And you can see that the growth in the matchbook on the balance sheet indicates that we're moving towards more spread-oriented businesses. Certainly, as we scale a bit more in prime services and in clearing, there's going to be opportunities for us to finance portions of that book on a selective basis, again, to drive interest income, which will be in excess of our cost of funding. So this is really a longer range, how do we pivot away from the market directionality and idiosyncratic performance we've seen in investment income largely driven by hedge fund strategies that were the core of what we did for the past decade more to dealer-oriented businesses where the spread income and net interest margin can really drive consistency. So we also spent, by the way, $7.6 million on a stock buyback. Obviously, when we do that we could generate cash off of the balance sheet to do that. And I think we said that we would -- we're in this some sort of rethink of how we're doing all of the capital optimization and it includes both generating more consistent returns on the balance sheet where we can and also, obviously, buying back stock if we have an opportunity do so and to give a good discount to book value.

Got it. Okay, terrific. And then just, I guess, maybe to be specific, I mean, anything on Linkem and timing of monetization opportunities, and obviously, that's a big specifics position?

Yeah, I mean, I -- we continue to work at it. Business is going well. I think there is -- we continue to work at that and it's our stated objective to create liquidity in that position when we can. Optimally, we're not going to give up on value. I think value continues to accrete. So I think we feel very good about that operating business. It is fully funded, it's an operating business that continues to scale, and so we feel very good about it. We're partners with other people on that, so we don't have the unilateral ability to create liquidity. But it is absolutely our stated objective to take a look at the private portion of that -- of our balance sheet and work super hard to monetize it as quickly as we can at prices that we think are attractive. So long-term, that's not going to be a core part of what we do. And as we sort of cycle out of those investments we'll be looking to redeploy that capital in operating businesses or returning that capital to shareholders, if that's the right thing to do.

Okay, great. Thanks Jeff. And then -- and maybe one here just on the brokerage results. I mean, obviously, a great start to the year for Cowen. I think that's going to look a lot better than what we see from some of the other non-bulge investment banks. And I understand you have a more robust platform there. But it was a clearly more volatile environment. I suspect that help kind of the low-touch business. But can you just talk about what's going well for you and the kind of capabilities that you've put together here which I think it will be an outlier. And then just maybe more broadly the outlook, and then any kind of early reactions to MiFID II from clients now that we're a few months in?

So yes, I think we've been saying for a long time that if you -- you cannot be casual about the equities business. It's sort of -- I think there is still a lot of firms in the Street that think, "Hey, if I have just have an analyst in a particular sector, I'm going to pick up a vote here or there." I just -- I think that increasingly we're hearing and seeing from about buy-side clients that they are going to be selective against people that can't provide them really deep insight. Our readership for our big thought pieces which are Ahead of the Curve pieces - that's our marquee collaborative research effort - is off the charts relative to just about any other firm on the Street. The engagement level that our clients have with our products is unparalleled. I mean, these are operating metrics that I look at, we look at internally to give us an indication as to whether or not our go-to-market strategy is resonating. And I just say, there is a perception in the marketplace, I think from some of the shareholders and other people I talk to that sell side research is what it always was. And the reality is if you can pivot the way we have to providing real, actionable, thought-leading, insightful research around market-moving events, that's actually what the consumer of that research wants. And they don't get it from a lot of places, and so when they see it, they tend to cluster their votes and their commission dollars where they can to the places that deliver on a consistent basis. That's what we've done in research. And certainly in the post MiFID II world, we're seeing clients that are -- we have a very small percentage of our clients are actually subject to MiFID II, like in the aggregate. We don't really have a huge European equities business. But where we are -- where we do look at those clients, we actually made meaningful improvements in our revenue dollars from those clients because they had to make rational -- rationing decisions on where they're going to spend their dollars. And we have been, as you can see for a long time, we think there will be a divide, there will be those who get it and those who don't. And what we're seeing is, we seem to be at least in the first few months on the receiving end of those dollars, that shift. On the trading side, again, I think this is a multiyear investment we've made. And we said on a few calls in the past, that we aim to be the leading nonconflicted agency execution broker on the Street. And I just think that there is a lot of people that don't actually understand what that means. And that means no dark pools, that means objective routing, that means that we -- when we go to market with clients, we're actually allowing them to engage with our flow or not. It means having a much more insightful advisory capacity on how to route order flow and a deep understanding of market structure, which is highly complex. So I view the service we're providing there is really aimed towards helping the buy side trading desks to be better at what they do, just like in research we're angling our content and knowledge to portfolio managers and buy side research analysts. Everybody on -- in the active management part of the world is under huge pressure to outperform and to do so at -- compared to their passive brethren. And so we have to be excellent in those 2 areas, and that's really I think what's been at the center philosophically. We've also seen significant growth in options, as we -- our options business is highly integrated into our cash and electronic business. There -- the increase in volatility certainly helps, right? options businesses always do better when there is more volatility in the market. And so there we've seen a significant pickup, we've seen a significant pickup in special situations, which we acquired and have now integrated as part of the CRT acquisition. That's been a really a big grower for us as has our prime services where, again, our clients -- we continue to scale with those clients. So I think it's across the board. Again, I think a lot of people say this, very few people deliver on it. You have to aspire to be excellent and you have to be excellent. And it's an every day thing. And I just -- I feel like -- we've been saying this for a long time, and certainly, this quarter, we're finally starting to see the results of those efforts in our numbers.

Yeah. Appreciate all the color, Jeff. And yeah, congratulations on the start here. Great start to the year. I guess, maybe one more, and then I'll hop back into the queue. Just on investment banking, so -- also a great start to the year there as well and completely understand the lumpiness of the business and can never annualize 1 quarter. But you've also added a lot of resources to the platform and new capabilities and new people. And so I guess just trying to think about the -- I guess the backlog for business there coming off of what was, obviously, a very good quarter. And then just more broadly kind of the outlook based on the fact that you have added new capabilities and new people and how they're performing and ramping and just trying to think about kind of those 2 things?

So what I would say there is, first of all, we haven't added that many new people. I mean, I think, we said -- the -- wonderful thing about adding people is you issue press releases when you add people, but you don't issue press releases when you remove people, right? So I think one of the things, where it's kind of like, oh, the size of your investment bank must be significantly bigger than it was when you started this journey in 2010. The reality is that it isn't. And again, it's one of those things where you've got to bring people on to the platform that work really well for you. And where the franchises they have, the clients that are calling, lineup and overlap really well with what we do best. And so this strategy, which is -- has been to bring in individual bankers organically in sectors where we think there is white space, where we already had some excellence somewhere in the organization that we can leverage to do more than we could otherwise do without these bankers and where they can do more on our platform than they can otherwise do in the other places where they are. That's really been at the center of it. I will tell you, I think it takes 18 to 24, sometimes 36 months for you to start to see the return on investment when you hire bankers organically. It's just -- they got to get into the rhythm, the organization has to learn them, you have to be in a position where you are calling consistently on the clients and the client seem to understand the value proposition of their primary relationship being on this new platform. And then you have to actually have a proof point where the organization delivers for the clients with the banker. And these are just -- they are multiyear things where you are absolutely laying out investment dollars before you're getting returns. But I would say like I'm thrilled about the performance across the board because it says when clients are doing business with us in many of these, particularly, in health care, are repeat clients. Right? We look at things like how many book run roles did we get, again, with the client? How many banks get replaced on the cover versus us where we aspire to never be replaced on the cover? These are the things we do in those areas. And then beyond in sort of I would say consumer and technology and other areas, we are absolutely pressing on different products because the ECM wallet isn't there in those sectors, at least not for Cowen in a meaningful way. And maybe not for anybody. And so there, it's about being able to scale in merger advisory and build out the platform to basically make sure that we can deliver that kind of high-quality strategic advice and execution. And that just takes time. So I would say, we will still -- we still have more investments to make there. And I want to be clear, like we're not done. We're looking at buy versus build. We will make good investments, but it is with some of the management changes that we've had over the course of the past year and the management architecture we have, we're in a better position to execute on those than in any other time. And it certainly helps the people that are here and our partners are successful, because success begets success and when you have momentum in the marketplace, other people who are on other platforms that are not experiencing that kind of success, they know who's winning. And so I would say the inbound calls to us from people who want to figure out if it works here has increased significantly.

(Operator Instructions) Our next question comes from Steven Chubak from Nomura Securities.

Hey guys, this is actually Julian Craitar filling in for Steven. First off, congrats on the strong quarter. Momentum is good. And Jeff, your messaging was quite positive. However, we were surprised to see you not buy back as much stock as we expected. Apologies, if I might have missed this, but was there anything that drove this? And then how should -- and should we expect you to be more aggressive buyers of stock going forward relative to this quarter's results?

Julian we did buyback $7.6 million in the open market, and we also net settled for, with employees with stock that vested. And in the first quarter, the window isn't open that long. The window is only open as long as when -- we have to file our K and then a couple of weeks before the close of the month, the window is shut again. So -- and we paid bonuses and things like that. So as Jeff says all the time, we're going to be opportunistic about it, and we will continue to do so.

I also think the way to think about stock buyback is really a way to return capital to shareholders out of cash flow. And so one of the things we're always looking at is, again, we have new businesses we're scaling that are a little more capital-intensive. So we -- once we execute on stock buyback, you can't go back and reissue that stock, if you have capital needs or if you want to scale on a particular business. So we're just going to be -- we're going to be judicious about it. We, obviously, recognize that, that's an immediate gratification. And so returning capital out of earnings is a really good thing to be able do. Obviously, we had a window into -- or some insight into how we were going to do during the quarter and the cash flow from the quarter after we pay bonuses allows us to return capital to shareholders. We have, I think, some potential capital opportunities to scale in businesses, some of which I identified on the call. I don't want to be in a position where we can't execute on that and create meaningful scale in margins because we don't have the capital base to do it. So I just think it's one of those things we'll continue to look at it. Obviously, when the stock trades at a discount of book value, we can do the math like everybody can, and we've recognized that closing the gap between here and book value is a stated objective, and so if we can do that, intelligently, we certainly well.

Very helpful color. Thank you. Switching over to your outlook. I know you guys provided a -- your thoughts on more like the longer-term perspective. I just was wondering if we could focus on momentum into 2Q? I know you said that it has been strong, but was wondering if you can dig a little bit deeper and talk about how IB and brokerage activity, specifically, have been tracking so far in 2Q?

I think things continue to go well. I mean we had a $90 million plus quarter in banking, I just be candid, like I'm not annualizing that number. I think the good news is we look at annual budget, Obviously, we're way ahead of our annual budget. But we continue to see activity at reasonable levels, like good levels, in the quarter. Certainly, both in equities and in banking. And again, it's one of the things I look at it is did we sign a bunch of new deals in M&A in the first quarter that will close later in the year? And the answer is, we did. So the backlog, even we executed on a bunch and we moved them out of backlog, we replenished backlog. And so, you know again, there is a big difference between signing and closing. But I like the momentum that we've had. Again, particularly in areas outside of health care, which is a big objective for us. I mean, if you look at what we did outside of health care in this quarter, at annualized at $100 million, I think that's pretty good for the investments that we made and for the size of the business. And there, I feel confident that we'll continue to be able to execute just based on the backlog and our ability to continue to increase our pitch counts.

Understood. And...

And equity -- in equities, things are good. I mean, I just -- you know again, I don't -- one of the things you're going to hear from us is in the great quarters, we're not going to be overly ebullient. In the bad quarters, we're not going to be overly negative. This is a business -- what I said in the call is we're really looking to elevate to a different plateau in terms of revenue and profitability. I can't -- we can't mitigate completely the quarter-over-quarter swings that we might see. But we can certainly make sure that our next trough is higher than our last peak. That's a big statement. And I think we're in a much better position today given the breadth and the size of the organization and the market share that we're taking across to make sure that happens. And so as we look at the beginning of the second quarter, things continue to chug along here, and we couldn't be happier.

Thank you. Very, very helpful color, Jeff. one last one for me. This is more on results from 1Q, and apologies, if I might have missed this, but what drove the strength in investment income despite the pretty choppy market that we saw in the quarter?

So I think this is a -- listen, a bunch of the strategies we have, they're not correlative. I -- we definitely have equity directionality risk. I mean, we took a bunch of risk down, but we had an amazing run to the beginning of the first month. And so we took opportunities to cash those checks. But it's not -- I would say, it's not an exceptional quarter in that sense. Like, I think we had a couple of things break our way. We cashed some checks. We did the right thing in terms of mitigating risk and volatility. But it's not like the -- this quarter the investment income was, like, that exceptional. I just think we need to take it when we can. And continue to pivot more towards net interest margin and interest income and financing businesses that I like to think -- I'd like to say, they go to work for you 7 days a week. So when you're out playing with your kids on Saturday, we're making money. I love that. And obviously, I think we just didn't have a lot of ability to do that prior to the Convergex acquisition and our organic growth in certain areas, like prime services and in securities finance and in clearing. And so we're going to take it-- we're going to take it methodically. I don't expect there to be -- when you're talking about scaling and net interest margin businesses, this isn't one where you're going to see like a hockey stick in terms of 1 quarter, you're going to wake up and have some huge contribution. But over time, we're going to be pivoting away from things that exhibit market directionality, where we can, and into things that have a more consistent spread-oriented businesses and characteristics that's our stated objective. So first quarter was a good quarter on the balance sheet. We're happy with the performance, especially given that equity directionality and volatility that we saw. But it's not like it was something exceptional that happened that got us there.

Ladies and gentlemen, that concludes the question-and-answer session portion of today's call. I would now like to turn the call back over to management for any closing remarks.

Well, thanks, operator. Thanks everybody for listening in. I just want to say, it's a pleasure to be able to address you. But right now, we have a more pressing audience. And that would be, 'it's bring your child to work day.' And so my next stop will be in a room full of all of the children who came to work today, to try and explain to them what I was doing during the first 45 minutes of the day. We always look forward. It's my -- one of my favorite days at Cowen. So I appreciate everybody dialing in. And I'm off to talk to the kids. I'll see you guys in the next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect, and have a wonderful day.