Cowen Inc (COWN) 2018 Q3 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 third 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 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 the 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 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 M. Solomon, Chief Executive Officer.

Thank you, operator. Good morning, and welcome to our third Quarter 2018 earnings call. This is Jeffrey Solomon, and joining me today on our call is our CFO, Steve Lasota.

The third quarter was another strong quarter continuing the positive momentum that we had in the first half of 2018. Our economic income rose 175% over the third quarter of 2017 to $22.7 million and was driven primarily by the continued performance of our investment banking and brokerage businesses. Similar to the prior 2 quarters, our investment banking business continued to capitalize on the robust investor demand for IPOs and follow-ons while building a strong pipeline of future transactions. Supporting this heightened financing activity was the continued healthy organic growth of our strategic advisory business.

In addition, our institutional brokerage and institutional services businesses continued to flourish. Furthermore, noncompensation expenses increased only 1% compared to the prior year quarter, while revenue grew 24% during the same period, which demonstrates the operating leverage in our platform as our businesses scale.

We also continued to execute on our strategic initiative to simplify the business and generate higher, more consistent returns.

As I will outline later in the call, this is something we've been actively working on, which is optimizing our structure since I became CEO at the beginning of the year, and I'm encouraged by the notable strides we've made towards that objective.

Looking ahead, we will continue to position the Cowen platform around our core competencies in order to drive growth and profitability on a consistent basis. Before doing a deeper dive on the quarter, I want to highlight our financial performance for the quarter and year-to-date in more detail. Economic income, as I mentioned, increased 175% to $22.7 million from $8.3 million in the prior year period. This was on a 24% increase in economic income revenue. Economic operating income, a non-GAAP financial measure that we introduced last quarter and which represents economic income, excluding depreciation and amortization, totaled $25.6 million for the quarter versus $11.3 million in the third quarter of 2017. For the first 9 months of 2018, economic operating income totaled $77.3 million versus $33.6 million for the same period in 2017.

Turning now to our results and progress in each of our specific operating businesses. In banking and capital markets, we continued to capitalize on a strong, healthy capital raising environment. Investment banking grew by 35% on a revenue basis from the third quarter of 2017 to $77.5 million. Healthcare equity raising had another strong quarter following what was already the company's strongest first half for equity issuances since Cowen, Inc.'s formation in 2009. We also demonstrated momentum in our non-healthcare verticals. In fact, in the third quarter, our non-healthcare revenue increased 78% over the third quarter of 2017 to $33 million, marking our highest non-healthcare revenue quarter in a long time. As a percentage of revenue, fees from non-healthcare clients represented 42% of banking revenue compared to 32% in the same quarter last year.

Merger advisory is an area that we have been growing as it is a significantly higher margin business that can help us drive profitability on a more consistent basis. For the quarter, we once again achieved healthy organic growth in our advisory business, with revenue up 66% from the prior year quarter to $22.2 million. Similar to last quarter, the M&A transactions we worked on came from a broad variety of industries, including industrial, technology and information services. Looking ahead, we will aim to continue to bolster our advisory capabilities and scale this higher-margin business both organically, which is how we built the business so far as well as inorganically.

Now turning to our markets businesses. Brokers revenue continued to gain momentum during the quarter, growing 13% compared to the third quarter of 2017 to $101.6 million. Because we acquired Convergex in June of 2017, we now have a complete apples-to-apples comparison for the third quarter of this year versus the third quarter of last year. Total brokerage revenue averaged $1.7 million per trading day compared to $1.5 million per trading day in the year-ago quarter. For purposes of this call, we will broadly describe the individual units within the markets business as institutional brokerage and institutional services, respectively. As a reminder, 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.

Starting with the first component, institutional brokerage. Revenue increased 10% from the prior year quarter. And for our institutional services business, revenue grew 30% from the third quarter of 2017. I've talked on prior calls about how Convergex has helped us to gain scale in brokerage, enabling us to, ultimately, increase our market share and reduce our costs. In fact, even though we pulled out of the bulk of the nonessential costs of the acquisition, we still have a few more areas where we can drive efficiencies in margins through the process improvements we intend to make. With the backdrop of MiFID II, as is the case last quarter, we're continuing to experience a relatively muted impact to our business. Increasingly, we're finding that clients turn to us, when confronted, with a challenge of reengaging their wallet or reaggregating their wallet in this new environment. Cowen is differentiating itself in this regard through its nonconflicted, independent research execution model and a strong emphasis on collaborative value-added research. This stands in contrast to the commentary we're hearing from many of our peers.

In our investment management business, as of October 1, we had $10.9 billion in assets under management, which was a $40 million increase from July 1 of 2018.

I'll spend a couple of minutes talking about each of the strategies before discussing the current state and future direction of the investment management business.

I'll start first with our private healthcare investment strategy, Cowen Healthcare Investments, which, as a reminder, is our first Cowen DNA investment platform. We continue to make high-quality investments at a reasonable pace and expect to be fundraising again at some point in 2019. Our current healthcare royalty fund is now 77% committed in its third commingled fund, continuing its strong performance throughout 2018, with more than $800 million deployed across all active vehicles. Merger arbitrage once again outperformed the HFRX merger arbitrage index, and real estate is in its investment period for all vehicles.

Long/short equity, which focuses mostly on TMT and consumer sectors, reached its 2-year anniversary in October with a double-digit annualized net return.

So with that summary, I'll go a little more in detail under the investment management business as a whole because it's a topic about which I have received many questions, especially as it relates to the changes and strategic decisions we're making to move closer to our target return objectives. First and foremost, we announced Elizabeth Rosman as the head of Cowen Investment Management at the beginning of August. We're continuing to assess each of our strategies to determine how they can help us to achieve our long-term return on equity objectives. And as a reminder, we had 10 capabilities last year, which we've now very deliberately brought down to 6. In doing so, our investment management business has migrated towards being more focused on private equity style funds, which are less dependent on quarterly incentive fees and thus have reduced volatility compared to our traditional hedge fund products. We are also focused on raising external capital prior to committing our own capital, which stands in stark contrast to how we, historically, incubated strategies internally with our own balance sheet from the outset. And finally, we are increasing leveraging the -- increasingly leveraging areas of the firm in which we have the greatest domain expertise. We call those Cowen DNA, and that is exactly what we're trying to do as we scale the business. The successful launch of our private healthcare strategy is a great example of that, and so we intend to look for other opportunities where we can do that in the very near future.

Now that we've spent some time providing an update on the individual operating businesses, I will review the more macro pieces of our strategy. The first is improving capital allocation to drive higher ROE, which you've heard me talk about before. During the quarter, we repurchased $5.9 million of our common stock, leaving approximately $8.2 million available to repurchase under our current program. We get asked the question a lot, why don't you just buy back more of your stock, and I want to stress that while we continue -- we'll continue with the buybacks, we intend to use our capital strategically and sustainably so that we have enough capital not just in the good times, but in the tough times as well should they come, hence the balanced capital allocation message we've been delivering. Similarly, we recognize the importance of moving further along the path of monetizing some of our private investments, which at the end of the quarter totaled $116 million. These legacy investments, as I've mentioned before, are not driving operating performance of the business, though they do periodically contribute to investment income as they did this quarter. For example, this quarter, we recorded an unrealized gain in our investment in Linkem, the Italian wireless company that we own, following the results of a recent spectrum auction held by the Italian government.

We will continue to explore ways to monetize legacy investments over time so that we can continue to align our balance sheet more closely with our operating business. But let's be clear, we will look to do so as the opportunities present themselves.

Finally, I want to talk about other performance outliers this quarter, particularly with investment income, which Steve will talk about more -- in more detail later in his remarks. I note that some of our investments, like our investments in Tilray, are subject to customary underwriters' lockup for a period of time, and we expect to experience some quarter-to-quarter volatility in investment income through the expiration of that lockup period. That's something worth considering as you look at the performance on our investment income for the quarter. Having said that, we tend to look at investment income aggregate returns over the course of the year, not any one quarter, and so we're focused more on making improvements that can, overall, help us to achieve a high-performing investment income number for the course of the year versus picking winners on a single stock basis.

Overall, we've reduced much of the directionality in our balance sheet and are seeing visible signs of progress in our objective of harmonizing our balance sheet activities with our operating businesses.

So with that said, I will turn the call over to Steve Lasota for a brief review of our financials, and then we'll open it up for questions. Steve?

Thank you, Jeff. For the third quarter of 2018, we reported GAAP net income attributable to common shareholders of $13.8 million, or $0.45 per diluted common share, compared to $3 million, or $0.09 per diluted common share, in the prior year period. Note that our GAAP stockholders' equity increased by $60 million to $808 million as of September 30, 2018, from $748 million at December 31, 2017. Our GAAP revenue was up 24% year-over-year to $221 million compared to $178.8 million in the prior year period. The increase, as Jeff had touched upon earlier, was due to another quarter of strong performance across our businesses, namely banking and brokerage. The increase is also due, in part, to the uptick in investment income during the quarter associated with Linkem and Tilray.

Compensation and benefit expenses were $127.3 million. Non-comp expenses were $80.7 million and depreciation and amortization $3.1 million. In addition, other income from gains on investments was $42 million, income tax expense was $5.1 million and noncontrolling interest expense was $5.3 million for the quarter.

As a reminder, we adopted a new revenue recognition standard as of January 1, 2018, which has impacted several components of our GAAP income statement. For one, revenue in our investment banking business segment is now recognized on a gross basis rather than net of any associated underwriting expenses as it had been presented before. This change, however, has no impact on our GAAP net income.

Moving to the investment management business. The majority of our fees from certain funds that we previously presented as incentive fees are still being recognized, but are presented as equity investments in the funds with associated gains or losses in the income statement. Only a portion of our previously recognized incentive fees will be deferred for GAAP to a future period that -- at the point that they're crystallized.

Now turning to our non-GAAP financial measures, which we refer to as economic income. As a reminder, we use economic income to measure our performance and to make certain operating decisions. In general, economic income is a pretax measure that eliminates the impact of consolidation for consolidating funds and excludes goodwill and intangible impairment, certain other transaction-related adjustments or reorganization expenses, certain costs associated with debt and preferred stock dividends. Economic income revenues also include incentive income during the period when incentive fees are not yet crystallized with GAAP reporting. The remainder of my remarks will be based on these non-GAAP financial measures.

We reported economic income of $22.7 million, or $0.74 per diluted share, for the third quarter of 2018 versus $8.3 million, or $0.26 per diluted share, in the prior year quarter. Economic income revenue increased 24% year-over-year to $226.2 million compared to $182.6 million in the prior year quarter. Similar to the increase in GAAP revenue, the increase in economic income revenue was due to strong performance in equity financings as well as a growing contribution from advisory and non-healthcare sectors. Investment banking revenue was up 35% to $77.5 million from $57.4 million in the third quarter of 2017. Quarterly brokerage was up 13% year-over-year to $101.7 million, and for the first time, this comparison includes a full quarter of Convergex in the prior year. Management fees were $12.4 million compared to $13.8 million from the prior year period. Incentive income was $6.9 million compared to $4.6 million. Investment income was $27.7 million compared to $15.9 million in the prior year, up mostly because of the mark-to-market adjustment of Tilray and the fair value adjustment of Linkem. Tilray was up $23 million in the quarter, and Linkem was marked up $6 million in this quarter.

Turning now to our expenses. Comp and benefit expense for the quarter was 56% of economic income revenue compared to 55.6% in the prior-year period. Fixed non-comp expenses totaled $35.1 million in the third quarter compared to $33 million in the prior year period. And variable non-comp expenses in the third quarter of 2018 were $30.7 million compared to $32 million in the prior year. We continued to make progress eliminating expense due to Convergex synergies. Our total fixed and variable costs for the current quarter as compared to Q2 of 2018 were down over $6 million. Depreciation and amortization expenses were $2.9 million compared to $3.1 million in the third quarter of 2017.

Economic operating income, which is economic income before depreciation and amortization, was $25.6 million for the third quarter compared to $11.3 million in the prior year quarter. GAAP stockholders' equity increased by $60 million to $808 million as of September 30th from $748 million at 12/31/17. This increase is related to our year-to-date 2018 earnings as well as the reclassification to equity of the embedded conversion option associated with the convertible debt.

Common equity, which is stockholders' equity less preferred equity, was $707 million compared to $647 million at the end of 2017. Book value per share, which is common equity divided by total shares outstanding, increased to $24.26 as of September 30, 2018, compared to $21.82 as of December 31, 2017. Intangible book value per share, which is common equity less goodwill and intangible assets, grew to $21.28 as of September 30, 2018 compared to $18.77 as of 12/31/2017.

And lastly, invested capital was $777 million as of September 30, 2018 compared to $695 million as of 12/31/2017. This completes my financial summary. I'll now turn the call back over to Jeff for closing remarks.

Thanks, Steve. So as you can see, not just from our results for the quarter, but for the first 9 months of 2018, we are focused on executing our plan. We're on track to becoming a simpler, more consistent, more transparent, more profitable company. I just want to highlight the consistency aspect for a minute. We know the first 3 quarters of this year were exceptional in some regards, but we also need to consistently execute on a few key areas that we've talked about today to make these results and progress more sustainable over the long term and a regular part of our daily activities at Cowen.

So what are some of the things you should be watching for as we close out the year and enter 2019? For one, we're going to continue harmonizing our balance sheet with our operating activities and improving our capital allocation process. On an individual business level, we're going to continue to further our position in healthcare as well as some of the other industries we've highlighted. And at the same time, we'll be looking to diversify our revenue stream so that we're sustainable in all market environments, not just the one that we're currently in. We'll be looking to do these both organically and inorganically by scaling our higher-margin advisory business, expanding deeper into our other sectors and growing contributions from our spread businesses where we can.

On the investment management side, it's going to be about furthering our focus in areas where we have deep domain expertise and leveraging Cowen DNA. All of this put together should help us over time achieve higher earnings power, greater consistency results, lower volatility and improve transparency, with the ultimate result being higher return for shareholders.

In closing, despite some of the recent equity market volatility, this year has been an incredible time for Cowen, as we executed well in each of our businesses. We took major steps towards repositioning our capital and provided not only a foundation, but a model of what we believe the future holds if we can consistently execute on our initiatives.

Last month, we were invited to ring the NASDAQ opening bell to commemorate our 100th anniversary. And while, clearly, none of us have been with the organization for the entire century, I was reminded during this event that we could not have been able to achieve what we've achieved if we didn't know who we were or why we excel at what we do. It's also worth noting that the efforts of everybody at Cowen that has made over the last century is remarkable, and we had to be thankful for the opportunity to do what we do today and recognize that it was off the backs of the people who made tremendous efforts over the past 100 years. This is why we spent so much time and energy not just on this call, but throughout the whole year with investors, laying out the blueprint for success and what to look forward to in the coming years, if not the next century. There is still plenty of work to do. But I believe that our performance and progress speak for themselves, and it shows that we're on the right track.

With that, I will open it up to questions to all of you. So thanks. Operator?

(Operator Instructions) And I'm not showing any questions on the phone call, I'd like turn the call back over to Jeffrey Solomon for closing.

Well, it's great. we covered everything that everybody wants to know. I'm sure that a bunch of people will be calling individually. We're happy to answer questions. What? Devin Ryan coming in right at the buzzer. Devin.

Great. Thanks. I guess, first question here on just some of the commentary on growing the M&A advisory business and potentially looking at acquisitions. I know that's been on the radar here for some time. And so maybe just an update on kind of the stage of evaluation that you're in. I'm sure you probably looked at a number of practices. And then obviously, valuations in kind of the public advisory companies have come under a fair amount of pressure in recent weeks, along with this market, and I think some of that's been tied to uncertainty around the backlogs and just the environment more broadly, which is natural when you kind of get these periods of extreme volatility. So I'm just curious kind of how that would play in either to appetite or the valuation. I know you're taking a longer-term view in terms of building the business, but clearly, the market is maybe not quite as frothy as it was even a month ago.

It's a great question. We're definitely taking a longer-term view, no question. So the volatility we're seeing in the marketplace over the past few weeks is, that happens, and it's actually probably long overdue, frankly. But any acquisitions we would do would be -- we would view -- would be core to growing our franchise. Most of the companies we're looking at are way smaller than the publicly traded M&A shops. And frankly, most of those shops focus on a large-cap M&A and big cross-border transactions. And most of what we do is really focused on smaller companies that -- where there's just a tremendous amount of activity. We still think the middle market is tremendously under-banked and under-covered in many sectors. There is an opportunity for us to, really, leverage our core expertise and domain expertise across the entirety of the platform to bring to bear for a lot of these smaller companies that really need great advisers. And so the companies that we're looking at acquiring fall in that category. They are excellent at their domains. They recognize the value of affiliating and associating with a firm like Cowen that produces a tremendous amount of content and insight and feel that if they were able to join in a partnership with us that they would have the opportunity to avail themselves at what we do. And so I think in any of these acquisitions, I view them much more as a partnership. In fact, I don't really like the word acquisition. I sort of prefer the word merger because people are opting into the culture in much the same way they will be opting in to coming to work here as an individual. And so -- and we're looking, obviously, at expanding and making sure that we're culturally aligned and to make sure that we're able to deliver on the promise of what we do for those folks. So I don't really look at this first acquisition that we might make as anything other than a real ability for us to leverage what we already have. And I don't think the market fully appreciates it, honestly. We're going to do north of $60 million this year in M&A, and we know how those franchises trade in the market. And obviously, we don't think that's reflected in the valuation of our own organization. So we'll continue to plug away. If we can get to scale more quickly and organically at right price, we'll do that. If not, we'll continue to do what we've been doing and make sure that we continue to scale inorganically -- I mean, organically, sorry.

Yes. Got it. Appreciate the color, Jeff. And then follow-up. I heard the comment on the gain from Linkem and then we followed kind of that auction in Italy. I guess, the question is, is the mark of where it ended the quarter kind of taking kind of full consideration of the spectrum value and kind of the franchise value as well? Or is there maybe more implied value on a mark-to-market basis? And I'm just trying to think about kind of how that process of coming up with the price there and then how it's kind of mark-to-market on the books?

So I mean, honestly, we don't actually control the mark on our books. That has a lot to do with our third-party marking firm. So it's -- we're marking it consistently with the way we've always marked it. And it is blend 100% of asset value and operating value. I don't want to go into too much detail, but we look at both. And we think there's value to both the franchise that we're building, and the customers that we have are valuable to somebody. And we also think about the fact that the spectrum itself has tremendous value. So is it at its peak value? I mean, we're not marked at where the spectrum traded, right? So the auction for this is meaningfully higher if you were just to take an undiscounted asset value. But I'm not sure that we could justify -- in fact, I think our third-party marking firm, valuation firm couldn't justify marking the value of our spectrum at the value that the spectrum traded at. For a whole host of reasons, they're unique to it. But what I will say is, the auction itself validates the asset. So there just aren't very many opportunities for anybody who wants to do broadband in Italy to gain a nationwide footprint at this particular spectrum. And I will say the ferocity of the auction, the amount of engagement from the 4 major parties who really drove the value here, suggests that we're sitting on a very valuable asset. Now ultimately, how that gets realized and when it gets realized is less in our control, and I caution everybody to think about this investment as well as our other private investments on a separate basis from our operating business. That's the way we think about it. We're under no pressure to monetize the investment, but obviously, we feel that there's some things that have happened over the past few months that validate our position and give us an opportunity to realize that value more assuredly in the not-too-distant future.

Great. And just last one here just on the recent market volatility we've seen and the big step back in kind of equity values. I know it's early into the current quarter and a lot can change and probably will. But can you maybe just help us think about some of the puts and takes in the business? I don't know if there's any early read on kind of how the balance sheet is performing, anything you're seeing kind of in investment banking. I know at some point, things could get affected, but not sure if there's anything that you're seeing there today at this moment and then on the brokerage side how that business is performing with some of this volatility and has that been maybe a good story. I'm just trying to think about some of the moving parts here even though, obviously, we're not too far into kind of the extreme volatility.

Yes. I look at these periods of time in the market and I'm much more reflective about it than, I think, a lot of folks who are in it on a daily basis. Let's be really clear, there's been some serious carnage. I mean, people, on the buy side, have given back their entire year this past week. So I just -- I want to be clear, I have tremendous amount of empathy for our client base. It's really struggling in a market that's, obviously, very volatile. I will tell you that this is something we've been expecting for a while. I just am surprised it took so long for the market to catch up to it. Certainly, ahead of the midterm elections, there's going to be posturing and dialogue and everyone is going to be positioning, what I would call, significant political positioning ahead of the midterms. I mean, I think we certainly see that with the dialogue around. Is the Fed moving too quickly? Are we taking a harder line on tariffs than we should? There's some discussion around drug pricing policy today. I mean, everything sort of seems to come out right ahead of the midterms, and we've been telling our clients that, that's -- we're not surprised by that. So when I look at the components of our businesses, none of this is surprising. We kind of expected it would happen maybe midsummer. And so when you look at the performance of the balance sheet, we've been extremely defensive for the better part of the third quarter and into the fourth quarter, in part, because we had great performance on the balance sheet and investment income during the first 6 months. And as we said over and over again, we tend to look at returns in much the same way the buy side looks at returns. Annual performance actually matters. We just can't tell you is performance going to cluster in a quarter or months or half a year. The market ebbs and flows. There's times when you should press because things look relatively attractive, and there's times when things get fully valued, and you need to play defense. We had great performance in the first half of the year in our balance sheet, so we've been extremely defensive coming into this quarter. Obviously, we -- with Tilray, that's going to -- that's an outlier. We invested in Tilray at a single-digit stock price in March and the volatility and the performance of that stock has been tremendously positive in the first quarter, and everyone can take a look at what's happened in the third -- in the fourth quarter and make their own assessment. I look at that as it's still a very good long-term investment in an industry we feel passionate about. It's actually relatively straightforward for our shareholders to analyze it. It will be some noise in our investment income in the near term, but I do that all day long because it's such a -- we were able to buy that company at such an amazing price relative to its intrinsic value. As far as the rest of the businesses are concerned, certainly, we're having increase in volume, and volatility helps our markets business tremendously and we're capturing that. I mean, I would just say there's been clearly repositioning going on in people's portfolios and our clients' portfolios, and we are at the center of a lot of that flow. I look at the numbers every day, and I see where we are relative to our peers. And I see the people who used to be comp 2, and I'm very happy that we're in a position where we can be helpful to folks as they think about how to reposition their own portfolio. That's absolutely happening. And then when I think about banking, we've actually had a pretty decent October. I think there were a lot of people who felt this was coming. We were out advising clients that they need to do capital raising, they shouldn't really wait. We also gave some clients some advice that they probably should wait. And some chose to do so and some chose to hit the markets and maybe they're rethinking that decision. In the long run, our clients largely will have to raise money at some point. It's sort of -- we said this over and over again. There are so many more biotech companies public today than there used to be. And we are the go-to bank for them to access capital on a consistent basis. So when things like this happen in a market, we're more than happy to give them advice to wait for the dust to settle, let's see where things shake out, let's see what happens in the midterms, there'll be more windows opened between now and the end of the year or the beginning of the year and next year. But the key for us is to give them good, solid advice on when to access the market and when capital is available. And so I look at these periods of time as sort of like -- they happen. They happen probably 2 or 3 times a year to varying degrees of volatility and then the market clears and prices are reestablished and people figure out what's in their best interest, and we'll be there to help them.

(Operator Instructions) Our next question is from Sumeet Mody with Sandler O'Neill.

Just a couple for me real quick. First, could we get maybe an update on the status of the merger arb Ramius and long/short equity Margate strategies? How are they performing? And maybe what are some of the longer-term goals for those two verticals?

So merger arb has performed actually quite well. I think we said here that they've outperformed the HFRX index. I mean, that's the strategy that we like a lot for the balance sheet. I think there's -- in times like this, this is actually a great opportunity to put money to work. As you know, we've taken our exposure down in that strategy largely because it was just too big to begin with, but it certainly doesn't diminish the way we think about it. And so I'm very happy with the way that strategy has performed over the course of this year. And I would expect there's going to be some great opportunity between here and year-end to continue to make great risk-adjusted returns. Margate has been a little bit more volatile, but I will say it's a long/short tech fund, and when we got through the two-year performance period, the track record stacks up pretty well. And so we're going to be looking to see how investors react to that, how potential investors react to that. We do have a backlog of people in the pipeline that we've been talking to for a long time who wanted to see Samantha and team get up over the two-year track record. So we'll see how we do in terms of asset gathering. And -- but as far as our long-range plans, I think we're in a wait-and-see like we are with a lot of our strategies.

Okay, thanks. And then one more here just kind of a cleanup here. With a year into Convergex on the acquisition, it looks like you're still showing some really great non-comp performance. Can you talk about how much room there is to maneuver there on the non-comp side of expenses Convergex played out? Or is there still some opportunities there? Or are you kind of looking outside of Convergex at this point?

We continue to push as much as possible like I -- in my comments. We took about $6 million out. Some of it was reflected in Q3 on a run-rate basis. It's at least $6 million, and we continue to push at that. I wouldn't -- I don't expect any big numbers, but the team is working hard to continue to bring those numbers down.

Just to echo, I mean, we did mention in the numbers, but it's worth repeating. In the quarter, to have $24 million more in revenue across the entirety of the platform and not have an increase in non-comps is a remarkable validation of the strategy we pursued. And there were a bunch of people who couldn't understand why we would ever buy Convergex because they felt it was a low-margin business, and we have a very definitive view about our -- the importance of that execution part of our business in a post-MiFID II world. But we also recognize that scale matters as we drive vendor cost down. And so the fact that we can generate on a quarter-over-quarter basis or year-over-year, third quarter of this year versus third quarter of last year, we can generate that kind of revenue pickup and not have a meaningful increase in non-comps, that's a remarkable validation of the strategy. And I have got to just take two seconds to commend the team that really spearheads that effort. It's literally digging out nuggets of opportunity. It's literally going line-through-line, vendor-by-vendor and driving cost down and canceling contracts and looking for ways that was being spent there and finding little ways to save money. And that aggregates into something meaningful. So I look at it as even though there may not be incremental savings we'll be able to see, the fact that we're in a position that we're in is truly amazing because as we take market share from other players, which we think we'll do over the next few years, our cost structure is right-sized, and it enables us to compete much more effectively than we could two years ago.

Our next question is from Justin Hughes with Philadelphia Financial.

Just a couple of quick questions. On Tilray, assuming you aren't marking at 100% to market, how much of a discount are you using?

It's a Tier 1 asset.

Yes, no discount.

No discount. Okay. Secondly, your stock price is up, your share count actually crept up a little bit despite buying back stock. Do you have any public-stated goals of at least keeping your share count flat?

I mean, we would like to keep our share count flat. We'd like to shrink it over time. I mean, we definitely use stock as a way to incentivize employees, no question about that. So we need to think about that. But we would like to be in a position where we're generating enough cash flow where we can meet the objectives of shrinking the equity base if we can. And I think you've got to think about this long term. If we don't have places to put the capital to work, we will shrink the equity base. We have a stated ROE objective. So either we're going to be able to drive top line returns over the long haul to achieve that objective, or we're going to have to begin shrinking the equity base in order to meet it. So I think this is why we talk about 2020 as a year that we think where we'll get enough pieces on the table to be sustainable, sustainably achieving those targets. And I want to be clear, as we've set it out, the goal for us, coming into 2020, is that, assuming normal functioning markets, we should have a high probability chance of hitting that. And then the markets will do what the markets do, and we'll adjust to them accordingly. But part of that is having the sustainability of the equity bed and making sure that we have enough moves should things sort of take a protracted, sideways, or downward event. So we don't have a specific stated number. It's more of a, "Hey, as we put the pieces on the table to generate the right kind of revenues and profitability, what should the equity bed look like in order to help us achieve that objective?" And over time, if the top line revenues and if the top line net income is at a number that doesn't sustain at mid-teens, then we know what we can do to get to where we need to get to.

Okay. And then I believe you said third quarter your sales in trading was running $1.7 million per day. Obviously, it got very volatile in October. Can you tell us what that's running at in October?

We're not going to give you sort of the daily numbers, I will -- because I just think it's -- it can be -- it can fluctuate. I will say it's higher, but that you would expect that in an environment like this. I mean, you would expect in an environment like this that people are trading and repositioning more. And so we're doing more of it. Then things could get quiet next week as everybody gets quiet heading into the midterms until they see -- as they reposition their books. So we tend to look at these averages because it is important for us over the long haul to be creeping higher and taking market share. And I think the purpose in highlighting that one $1.7 million versus $1.5 million, particularly in the first quarter what we can show you apples-to-apples comparisons. So we were 4 months into the Convergex acquisition last year, and I think there was some concerns that people had that we might be cannibalizing top line revenues, right? Because we were combining two equity commission platforms. And I think the $1.7 million to the $1.5 million tells you that not only are we taking out costs, but we've had meaningfully -- meaningful improvement in the combined platform. So we're doing more with our client base today than both client bases were doing on an independent basis. That is a huge statement about the success of that acquisition, as much, if not more, than the taking out cost story. If you look at some of the market share figures for other players, they're not growing. In fact, they're getting smaller, and that is exactly what we've said would happen. There will be a consolidation. The top players, who are excellent in scale, will garner more market share, and those who are not will get eliminated. And that plays out over time. And so I look at the $1.7 million versus $1.5 million just to give you a contextual sense for the fact that we continue to take market share. Some days, we are way ahead of that. Some days it's slow and we're behind that. That is an average. What's happened in the first two or three weeks in this quarter, I think, is in the long haul sort of not relevant to the validation of the story.

Okay. Yes, I'm just trying to figure out the balance in your business because if you get market like this, you probably are going to do a lot of investment banking. So I'm just trying to figure out how much the trading could offset.

Yes, we haven't seen the slowdown in banking yet. I mean, I think we -- this is something we've anticipated. We -- this volatility we're seeing in the marketplace is not a surprise. It's just a matter of when, not if. And so -- and a lot of our -- a lot of the banking business we have is, again, more M&A than it has ever has been. And so we've been preparing to ensure that when the equity markets slow down or people choose not to access the markets, then we'll be fine.

Thank you. And that does conclude our Q&A session for today. I'd like to turn the call back over to Jeffrey Solomon for final remarks.

Well, thanks, operator. Thanks, everybody, for dialing in. We look forward to spending time with you in a few months to talk about our fourth quarter. Really appreciate all the efforts that everybody here at Cowen makes on a daily basis to help us to get to where we want to get to. And have a safe and healthy few months.

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