Cowen Announces Financial Results for Third Quarter 2020

  • Reports 3Q20 US GAAP Net Income of $18.6 million or $0.62 per share
  • Economic Operating Income of $37.4 million, or $1.25 per share, second highest on record
  • Second-strongest quarter for Investment Banking and Brokerage, Record M&A revenues
  • Solid results despite impact of mark-to-market on unrealized Nikola investment, which reduced Economic Operating Income by $48.3 million, or $1.62 per share
  • Book Value increased to $30.48 per share and Tangible Book Value increased to $24.32 per share
  • Doubled quarterly cash dividend, to $0.08 per common share

NEW YORK, Oct. 27, 2020 (GLOBE NEWSWIRE) — Cowen Inc. (NASDAQ: COWN) (“Cowen” or “the Company”) today announced its operating results for the third quarter ended September 30, 2020.

Jeffrey M. Solomon, Chair and Chief Executive Officer of Cowen, said, “Our results for the third quarter demonstrate the strength and sustainability of our operating business. It was the second-best quarter on record for markets and investment banking, we set a new record for M&A revenues and management fees are at multi-year highs. We also took advantage of the opportunity to repurchase shares at attractive valuations, with the largest quarterly buyback in five years. We continue to embrace our core values of vision, empathy, sustainability and tenacious teamwork as we help our clients, our colleagues and our communities to tackle their biggest challenges and navigate through these uncertain times.”

Third Quarter 2020 Financial Summary

  US GAAP   Economic Operating Income
  Three Months Ended
September 30,
  Three Months Ended
September 30,
($ in millions, except per share information) 2020   2019   Δ %   2020   2019   Δ %
                       
                       
Revenue $ 387.7   $ 252.0   54 %   $ 274.3     $ 216.5     27 %
Net income (loss) attributable to common stockholders $ 18.6   $ 2.1   786 %   $ 37.4     $ 10.1     270 %
Earnings (loss) per common share (diluted) $ 0.62   $ 0.07   786 %   $ 1.25     $ 0.32     291 %
                       
Note: Throughout this press release the Company presents non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). A reconciliation of these non-GAAP measures appears under the section, “Reconciliation of US GAAP (Unaudited) to Economic Operating Income (Loss).”


Third Quarter 2020 Operating Financial Highlights (US GAAP) (unaudited)

Third quarter 2020 US GAAP revenue was $387.7 million compared to $252.0 million in the third quarter of 2019.

Third quarter 2020 US GAAP employee compensation and benefits expenses was $153.4 million, an increase of $33.1 million from the prior-year period.

Third quarter 2020 US GAAP income tax expense was $8.8 million compared to $1.4 million in the prior-year quarter.

Third quarter 2020 US GAAP total expenses totaled $249.2 million, an increase of $29.3 million from the prior-year period.

Third quarter 2020 US GAAP net income attributable to common stockholders was $18.6 million compared to net income attributable to common stockholders of $2.1 million in the third quarter of 2019.

Third Quarter 2020 Operating Financial Highlights (Non-GAAP)

Strong Investment Banking performance:
    Second-strongest quarter on record driven by capital markets activity in biotech and healthcare tools & diagnostics
    Record M&A revenues driven by several high-fee engagements. Deal pipeline now at record high level

Markets revenues near record levels, continuing share gains:
    Markets revenue, which includes brokerage, financing and other revenue, was $167.4 million ($2.62 million/day), just below the record highs of 2Q’20
    Posted strong performances in prime services, outsourced trading, securities finance, special situations and non-US execution

Strong momentum in investment management:
    Management fee run-rate at highest annual level since 2016, AUM increased year-over-year

Invested capital: Nikola position creates quarterly volatility
    Mark-to-market unrealized loss of $96.6 million on Nikola investment partially offset by gains in balance sheet investments including Cowen Healthcare Investments and SPAC trading

 

Capital Optimization Update

As of September 30, 2020, Cowen had book value of $30.48 per common share and tangible book value per common share of $24.32, up from book value of $28.96 and tangible book value of $22.94 at June 30, 2020, and up from book value of $24.77 and tangible book value of $18.72 at December 31, 2019.

In the third quarter of 2020, the Company repurchased $18.9 million of its common stock, or 1,144,254 shares, at an average price of $16.49 under the Company’s existing share repurchase program, representing the largest quarterly share repurchase since the third quarter of 2015.

Outside the share repurchase program, in the third quarter of 2020 the Company acquired approximately $267 thousand of shares as a result of net share settlements relating to the vesting of equity awards, or 14,985 shares, at an average price of $17.80.

For the first nine months of 2020, the Company repurchased 2,974,711 shares for $43.4 million, or an average price of $14.60 under the Company’s existing share repurchase program. Outside the share repurchase program, in the first nine months of 2020 the Company acquired approximately $6.3 million of shares as a result of net share settlements relating to the vesting of equity awards, or 505,702 shares at an average price of $12.45.

Increased Quarterly Cash Dividend

The Company increased its quarterly cash dividend payable on its common stock from $0.04 to $0.08 per common share. On October 21, 2020, the Board of Directors declared a cash dividend of $0.08 per common share. The dividend will be payable on December 15, 2020, to stockholders of record on December 1, 2020.

Select Balance Sheet Data

(Amounts in millions, except per share information)      
  September 30, 2020   December 31, 2019
Cowen Inc. stockholders’ equity $911.2   $809.9
Common equity (CE) $809.9   $708.5
Tangible common equity (TCE) $646.1   $535.6
       
Book value per share (CE/CSO) $30.48   $24.77
Tangible book value per share (TCE/CSO) $24.32   $18.72
       
Common shares outstanding (CSO) 26.6   28.6
       
Note: Common Equity (CE) is calculated as Cowen Inc, stockholders’ equity less our preferred stock issuance.
Tangible common equity (TCE) is calculated as common equity (CE) less goodwill and net intangible assets.

Cowen Inc.
US GAAP Preliminary Unaudited Condensed Consolidated Statements of Operations
(Dollar and share amounts in thousands, except per share data)
               
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2020   2019   2020   2019
Revenue              
Investment banking $ 194,341     $ 77,292   $ 503,351     $ 272,103
Brokerage 138,483     93,995   425,069     302,840
Management fees 11,954     7,300   35,211     21,480
Incentive income 127     701   127     724
Interest and dividends 37,552     60,707   127,547     129,846
Reimbursement from affiliates 269     238   777     780
Reinsurance premiums 2,505     8,146   18,943     29,068
Other 1,369     1,237   4,709     3,228
Consolidated Funds revenues 1,135     2,431   4,650     8,239
Total revenue 387,735     252,047   1,120,384     768,308
Interest and dividends expense 37,754     56,477   125,850     125,089
Total net revenue 349,981     195,570   994,534     643,219
Expenses              
Employee compensation and benefits 153,427     120,320   583,137     388,611
Reinsurance claims, commissions and amortization of deferred acquisition costs 4,852     8,195   21,716     25,139
Operating, general, administrative and other expenses 84,784     83,851   264,950     250,915
Depreciation and amortization expense 5,682     5,082   17,324     14,990
Goodwill impairment           4,100
Consolidated Funds expenses 494     2,516   4,793     6,229
Total expenses 249,239     219,964   891,920     689,984
Other income (loss)              
Net (losses) gains on securities, derivatives and other investments (68,781 )   18,446   83,738     61,440
Consolidated Funds net (losses) gains 6,385     13,896   (29,410 )   21,536
Total other income (loss) (62,396 )   32,342   54,328     82,976
               
Income (loss) before income taxes 38,346     7,948   156,942     36,211
Income tax expense/(benefit) 8,830     1,365   52,589     9,615
Net income (loss) 29,516     6,583   104,353     26,596
Net income (loss) attributable to non-controlling interests in consolidated subsidiaries and funds 9,232     2,770   (19,843 )   7,188
Net income (loss) attributable to Cowen Inc. 20,284     3,813   124,196     19,408
Less: Preferred stock dividends 1,698     1,698   5,094     5,094
Net income (loss) attributable to Cowen Inc. common stockholders $ 18,586     $ 2,115   $ 119,102     $ 14,314
               
Earnings (loss) per share:              
Basic $ 0.67     $ 0.07   $ 4.24     $ 0.48
Diluted $ 0.62     $ 0.07   $ 4.02     $ 0.46
               
Weighted average shares used in per share data:              
Basic 27,663     29,529   28,078     29,687
Diluted 29,970     31,264   29,646     31,381

Third Quarter 2020 Economic Income Financial Review

  Three Months Ended   Nine Months Ended
  September 30, 2020   September 30, 2019   September 30, 2020   September 30, 2019
(Dollar amounts in thousands) Op Co   Asset Co   Total   Op Co   Asset Co   Total   Op Co   Asset Co   Total   Op Co   Asset Co   Total
Investment banking $ 185,151     $     $ 185,151     $ 69,433     $     $ 69,433     $ 474,778     $     $ 474,778     $ 254,374   $     $ 254,374
Brokerage 167,084         167,084     110,178         110,178     466,823         466,823     346,095       346,095
Management fees 14,374     262     14,636     10,321     586     10,907     41,724     634     42,358     30,016   1,788     31,804
Incentive income (2,621 )   1,319     (1,302 )   15,251     (862 )   14,389     40,829     158     40,987     33,998   762     34,760
Investment income (loss) (90,364 )   (124 )   (90,488 )   10,913     822     11,735     32,566     (13,671 )   18,895     13,827   5,289     19,116
Other revenue (796 )   2     (794 )   (132 )   6     (126 )   (298 )   4     (294 )   5,295   56     5,351
Total revenue 272,828     1,459     274,287     215,964     552     216,516     1,056,422     (12,875 )   1,043,547     683,605   7,895     691,500
Interest Expense 6,026     1,109     7,135     5,758     1,389     7,147     18,471     4,014     22,485     16,371   4,046     20,417
Total net revenues 266,802     350     267,152     210,206     (837 )   209,369     1,037,951     (16,889 )   1,021,062     667,234   3,849     671,083
                                               
Compensation & Benefits 152,829     957     153,786     121,890     729     122,619     582,480     2,093     584,573     386,593   4,383     390,976
Fixed non-compensation expense 34,257     127     34,384     36,458     625     37,083     106,350     378     106,728     107,889   2,485     110,374
Variable non-compensation expense 37,736     6     37,742     37,216     40     37,256     121,846     18     121,864     113,728   127     113,855
Depreciation & Amortization 5,670     5     5,675     5,073     9     5,082     16,756     17     16,773     14,957   30     14,987
Non-Controlling Interest 2,105         2,105     661         661     5,584         5,584     2,944       2,944
Total expenses 232,597     1,095     233,692     201,298     1,403     202,701     833,016     2,506     835,522     626,111   7,025     633,136
                                               
Less: Preferred Dividend 1,415     283     1,698     1,341     357     1,698     4,160     934     5,094     4,058   1,036     5,094
Economic Income (Loss) attributable to Common Shareholders 32,790     (1,028 )   31,762     7,567     (2,597 )   4,970     200,775     (20,329 )   180,446     37,065   (4,212 )   32,853
                                               
Add: Depreciation & Amortization 5,670     5     5,675     5,073     9     5,082     16,756     17     16,773     14,957   30     14,987
Economic Operating Income (Loss) attributable to Common Shareholders $ 38,460     $ (1,023 )   $ 37,437     $ 12,640     $ (2,588 )   $ 10,052     $ 217,531     $ (20,312 )   $ 197,219     $ 52,022   $ (4,182 )   $ 47,840
                                               
Economic Income per common share $ 1.09     $ (0.03 )   $ 1.06     $ 0.24     $ (0.08 )   $ 0.16     $ 6.77     $ (0.69 )   $ 6.08     $ 1.17   $ (0.13 )   $ 1.04
Economic Operating Income per common share $ 1.28     $ (0.03 )   $ 1.25     $ 0.40     $ (0.08 )   $ 0.32     $ 7.34     $ (0.69 )   $ 6.65     $ 1.66   $ (0.13 )   $ 1.53


Economic Income total revenues
were $274.3 million versus $216.5 million in the third quarter of 2019, an increase of 27%. Op Co revenue included in economic income was $272.8 million while Asset Co revenue included in economic income was $1.5 million.

Investment Banking revenues were $185.2 million, up 167% versus the prior-year period, driven by stronger equity capital markets activity as well as higher-fee M&A transactions.

Brokerage revenues of $167.1 million were up 52% versus the prior-year period, driven by strength in non-US trading, electronic trading, prime services and securities finance.

Management Fees rose 34% year-over-year to $14.6 million in the third quarter, driven by higher AUM in the sustainability strategy, private healthcare strategy and the healthcare royalties strategy. Management fees in Asset Co. were $0.3 million.

Incentive Income posted a loss of $1.3 million in the third quarter of 2020, down from income of $14.4 million in the prior-year period. Third quarter 2020 incentive income reflects the impact of mark-to-market declines in the value of positions in the private healthcare strategy, partially offset by a gain of $1.3 million in Asset Co.

Investment Income posted a loss of $90.5 million, versus income of $11.7 million in the prior-year period. The third quarter 2020 revenues include a $96.6 million unrealized loss on the investment in Nikola partially offset by positive performance in the event driven strategy, the healthcare strategy and the activist strategy. Investment income includes markdowns in Asset Co investments of $0.1 million.

Compensation and benefits expense was $153.8 million compared to $122.6 million in the third quarter of 2019. The increase was due to higher revenues offset only partially by a lower compensation to revenue ratio, as well as a $48.3 million reversal of a compensation accrual that was booked through 2Q 2020 related to previous gains on the Nikola investment. The third quarter 2020 compensation-to-revenue ratio was 56.1%, up from 54.6% in 2Q20 and down from 56.6% in 3Q19.

Fixed non-compensation expenses decreased $2.7 million from the prior-year period to $34.4 million. The decrease was due in part to lower service fees and reduced office service expenses.

Variable non-compensation expenses were $37.7 million, up from $37.3 million in the third quarter of 2019. The increase is related in part to higher brokerage and trade execution costs due to increased volumes, partially offset by lower travel, entertainment and business development expenses.

Economic Operating Income, which represents Economic Income attributable to common stockholders before depreciation and amortization, was $37.4 million for the third quarter of 2020, up from $10.1 million in the prior-year period. Third quarter 2020 Economic Operating Income for Op Co was $38.5 million, while Asset Co Economic Operating loss was $1.0 million.

Assets Under Management As of September 30, 2020, the Company had assets under management of $11.8 billion, an increase of $0.3 billion from June 30, 2020 and an increase of $1.0 billion from September 30, 2019, respectively.

Invested Capital As of September 30, 2020, the Company had invested capital in Op Co totaling $784.2 million, up from $711.8 million as of June 30, 2020, as an increase in invested broker dealer capital more than offset the impact of the mark-to-market on the Nikola investment.

As of Sept 30, 2020, the Company had invested capital in Asset Co totaling $127.7 million, an increase of $3.3 million from the invested capital invested as of June 30, 2020.

The largest Asset Co investments were the stake in Italian wireless broadband provider Linkem ($77.4 million), private equity funds Formation8/Eclipse ($39.1 million) and other private investments ($9.3 million).

Earnings Conference Call

Management will hold a conference call today, October 27, 2020 at 9:00 am ET to discuss these results and provide an update on business conditions.

Chair and Chief Executive Officer Jeffrey M. Solomon and Chief Financial Officer Stephen A. Lasota will host the presentation, followed by a question and answer period.

U.S. dial in: (855) 760-0961
International dial-in: (631) 485-4850
Passcode: 8591505

Please call the conference telephone number at least 15 minutes prior to the start time.

The call can also be accessed through live audio webcast via this direct link:
https://edge.media-server.com/mmc/p/nazu2fc3

A replay of the call will be available for one week beginning at 12:00 pm ET on October 27, 2020 on the Company’s website at investor.cowen.com/investor-calls or via the following numbers:

U.S. replay dial-in: (855) 859-2056
International replay dial-in: (404) 537-3406
Replay ID: 8591505

About Cowen Inc. 
Cowen Inc. (“Cowen” or the “Company”) is a diversified financial services firm offering investment banking services, research, sales and trading, prime brokerage, global clearing, commission management services and investment management. Cowen focuses on delivering value-added capabilities to our clients in order to help them outperform. Founded in 1918, the Company is headquartered in New York and has offices worldwide. Learn more at Cowen.com

Investor Relations Contact:
JT Farley
(646) 562-1056
james.farley@cowen.com
Source: Cowen Inc.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking statements provide the Company’s current expectations or forecasts of future events. Forward-looking statements include statements about the Company’s expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. As a result of the spread of COVID-19, economic uncertainties have arisen that have the potential in future periods to negatively impact the Company’s business, financial condition, results of operation, cash flows, strategies and prospects. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak and impact on our clients, employees, vendors and the markets in which we operate our businesses, all of which are uncertain and cannot be reasonably estimated at this time. The Company’s actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission. The Annual Report on Form 10-K and Quarterly Reports on Form 10-Q are available at our website at www.cowen.com and at the Securities and Exchange Commission website at www.sec.gov. Unless required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement to reflect circumstances or events after the date of this press release.

 Non-GAAP Financial Measures

In addition to the results presented above in accordance with US GAAP, the Company presents supplemental financial measures that are non-GAAP measures. The Company believes that these non-GAAP measures, viewed in addition to, and not in lieu of, the Company’s reported US GAAP results, provide useful information to investors and analysts regarding its performance and overall results of operations as it presents investors and analysts with a supplemental operating view of the Company’s financials to help better inform their analysis of the Company’s performance. These metrics are an integral part of the Company’s internal reporting to measure the performance of its business segments, allocate capital and other strategic decisions as well as assess the overall effectiveness of senior management. Reconciliations to comparable US GAAP measures are available in the accompanying schedules. The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other public companies, and are not identical to corresponding measures used in our various agreements or public filings.

Economic Income (Loss) may not be comparable to similarly titled measures used by other public companies. Economic Income (Loss) should not be considered in isolation or as a substitute for net income, operating cash flows, investing and financing activities, or other income or cash flow statement data prepared in accordance with US GAAP. As a result of the adjustments made to arrive at Economic Income (Loss) described below, Economic Income (Loss) has limitations in that it does not take into account certain items included or excluded under US GAAP, including its consolidated funds.

In general, Economic Income (Loss) is a pre-tax measure that (i) includes management reclassifications which the Company believes provides additional insight on the performance of the Company’s core businesses and divisions (ii) eliminates the impact of consolidation for Consolidated Funds and excludes (iii) goodwill and intangible impairment (iv) certain other transaction-related adjustments and/or reorganization expenses and (v) certain costs associated with debt. Economic Operating Income (Loss) is a similar measure but before depreciation and amortization expenses.


Reconciliation of Net Income Attributable to Cowen Inc. Common Stockholders to Economic Income and Economic Operating Income

    Three Months Ended   Nine Months Ended
    September 30,   September 30,
(Dollar amounts in thousands) 2020   2019   2020   2019
                 
US GAAP Net income (loss) attributable to Cowen Inc. common stockholders $ 18,586   $ 2,115   $ 119,102   $ 14,314
  Adjustments:              
  Income tax expense (benefit) 8,693   1,287   52,247   9,567
  Amortization of discount on convertible debt 1,152   1,092   3,394   3,208
  Contingent liability adjustments 3,023   300   4,781   298
  Goodwill & intangible impairment     544   4,100
  Transaction-related and other costs 308   176   378   1,366
  Economic Income (Loss) $ 31,762   $ 4,970   $ 180,446   $ 32,853
  Add back: Depreciation and amortization expense 5,675   5,082   16,773   14,987
  Economic Operating Income (Loss) $ 37,437   $ 10,052   $ 197,219   $ 47,840


Earnings Per Common Share (Diluted) to Economic Income Per Common Share (Diluted) and Economic Operating Income Per Common Share (Diluted)

    Three Months Ended   Nine Months Ended
    September 30,   September 30,
(Dollars per share) 2020   2019   2020   2019
                 
Earnings (loss) per common share (diluted): $ 0.62   $ 0.07   $ 4.02   $ 0.46
  Adjustments:              
  Income tax expense (benefit) 0.29   0.04   1.76   0.30
  Amortization of discount on convertible debt 0.04   0.03   0.11   0.10
  Contingent liability adjustments 0.10   0.01   0.16   0.01
  Goodwill & intangible impairment     0.02   0.13
  Transaction-related and other costs 0.01   0.01   0.01   0.04
  Economic income (Loss) per common share (diluted) $ 1.06   $ 0.16   $ 6.08   $ 1.04
  Add back: Depreciation and amortization expense 0.19   0.16   0.57   0.49
  Economic Operating Income (Loss) per common share (diluted) $ 1.25   $ 0.32   $ 6.65   $ 1.53

  Three Months Ended September 30, 2020
  US GAAP   Reclassifications and Adjustments   Economic Income
(Dollars amounts in thousands) Net income (loss)   Management Reclassifications   Fund Consolidation Reclassifications (k)   Income Statement Adjustments   Total Economic Income/(Loss)   Operating Company   Asset Company
Revenues                          
Investment banking $ 194,341     $ (9,190 ) a, b $     $     $ 185,151     $ 185,151     $  
Brokerage 138,483     28,601   c, h         $ 167,084     167,084      
Management fees 11,954     2,519   d, e 163         $ 14,636     14,374     262  
Incentive income (loss) 127     (1,462 ) e 33         $ (1,302 )   (2,621 )   1,319  
Investment income (loss)     (90,488 ) f         $ (90,488 )   (90,364 )   (124 )
Interest and dividends 37,552     (37,552 ) c                  
Reimbursement from affiliates 269     (269 ) b                  
Reinsurance premiums 2,505     (2,505 ) g                  
Other revenue 1,369     (2,160 ) g (3 )       (794 )   (796 )   2  
Consolidated Funds revenues 1,135         (1,135 )                
Total revenues 387,735     (112,506 )   (942 )       274,287     272,828     1,459  
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP) 37,754     (29,467 ) c     (1,152 ) l 7,135     6,026     1,109  
Total net revenues 349,981     (83,039 )   (942 )   1,152     267,152     266,802     350  
Expenses                          
Compensation & benefits 153,427     359   i         153,786     152,829     957  
Fixed non-compensation expense     37,708   e, j     (3,324 ) m 34,384     34,257     127  
Variable non-compensation expense     37,742   j         37,742     37,736     6  
Other non-compensation expense 89,636     (89,636 ) a, b, d, g, i                  
Depreciation & amortization 5,682             (7 ) n 5,675     5,670     5  
Non-controlling interest     2,105   j         2,105     2,105      
Consolidated Funds expenses 494         (494 )                
Total expenses 249,239     (11,722 )   (494 )   (3,331 )   233,692     232,597     1,095  
Other income (loss) (62,396 )   64,896   e, f, h (2,500 )                
Income taxes expense / (benefit) 8,830     (137 )       (8,693 ) o          
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds 9,232     (6,284 ) j (2,948 )                
Income (loss) attributable to Cowen Inc. 20,284             13,176     33,460     34,205     (745 )
Less: Preferred stock dividends 1,698                 1,698     1,415     283  
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders $ 18,586     $     $     $ 13,176     31,762     32,790     (1,028 )
Add back: Depreciation and amortization expense                 5,675     5,670     5  
Economic Operating Income (Loss)                 $ 37,437     $ 38,460     $ (1,023 )

  Three Months Ended September 30, 2019
  US GAAP   Reclassifications and Adjustments   Economic Income
(Dollars amounts in thousands) Net income (loss)   Management Reclassifications   Fund Consolidation Reclassifications (k)   Income Statement Adjustments   Total Economic Income/(Loss)   Operating Company   Asset Company
Revenues                          
Investment banking $ 77,292   $ (7,859 ) a, b $     $     $ 69,433     $ 69,433     $  
Brokerage 93,995   16,183   c, h         110,178     110,178      
Management fees 7,300   3,033   d, e 574         10,907     10,321     586  
Incentive income (loss) 701   13,675   e 13         14,389     15,251     (862 )
Investment income (loss)   11,735   f         11,735     10,913     822  
Interest and dividends 60,707   (60,707 ) c                  
Reimbursement from affiliates 238   (265 ) b 27                  
Reinsurance premiums 8,146   (8,146 ) g                  
Other revenue 1,237   (1,389 ) g 26         (126 )   (132 )   6  
Consolidated Funds revenues 2,431       (2,431 )                
Total revenues 252,047   (33,740 )   (1,791 )       216,516     215,964     552  
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP) 56,477   (48,238 ) c     (1,092 ) l 7,147     5,758     1,389  
Total net revenues 195,570   14,498     (1,791 )   1,092     209,369     210,206     (837 )
Expenses                          
Compensation & benefits 120,320   2,299   i         122,619     121,890     729  
Fixed non-compensation expense   37,559   e, j     (476 ) m 37,083     36,458     625  
Variable non-compensation expense   37,256   j         37,256     37,216     40  
Other non-compensation expense 92,046   (92,046 ) a, b, d, g, i                  
Depreciation & amortization 5,082               5,082     5,073     9  
Non-controlling interest   661   j         661     661      
Consolidated Funds expenses 2,516       (2,516 )                
Total expenses 219,964   (14,271 )   (2,516 )   (476 )   202,701     201,298     1,403  
Other income (loss) 32,342   (26,721 ) e, f, h (5,621 )       —           
Income taxes expense / (benefit) 1,365   (78 )       (1,287 ) o —           
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds 2,770   2,126   j (4,896 )       —           
Income (loss) attributable to Cowen Inc. 3,813           2,855     6,668     8,908     (2,240 )
Less: Preferred stock dividends 1,698               1,698     1,341     357  
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders $ 2,115   $     $     $ 2,855     4,970     7,567     (2,597 )
Add back: Depreciation and amortization expense                 5,082     5,073     9  
Economic Operating Income (Loss)                 $ 10,052     $ 12,640     $ (2,588 )

  Nine Months Ended September 30, 2020
  US GAAP   Reclassifications and Adjustments   Economic Income
(Dollars amounts in thousands) Net income (loss)   Management Reclassifications   Fund Consolidation Reclassifications (k)   Income Statement Adjustments   Total Economic Income/(Loss)   Operating Company   Asset Company
Revenues                          
Investment banking $ 503,351     $ (28,573 ) a, b $     $     $ 474,778     $ 474,778     $  
Brokerage 425,069     41,754   c, h         466,823     466,823      
Management fees 35,211     5,672   d, e 1,475         42,358     41,724     634  
Incentive income (loss) 127     40,827   e 33         40,987     40,829     158  
Investment income (loss)     18,895   f         18,895     32,566     (13,671 )
Interest and dividends 127,547     (127,547 ) c                  
Reimbursement from affiliates 777     (827 ) b 50                  
Reinsurance premiums 18,943     (18,943 ) g                  
Other revenue 4,709     (4,982 ) g (21 )       (294 )   (298 )   4  
Consolidated Funds revenues 4,650         (4,650 )                
Total revenues 1,120,384     (73,724 )   (3,113 )       1,043,547     1,056,422     (12,875 )
Interest and dividend expense 125,850     (99,971 ) c     (3,394 ) l 22,485     18,471     4,014  
Total net revenues 994,534     26,247     (3,113 )   3,394     1,021,062     1,037,951     (16,889 )
Expenses                          
Compensation & benefits 583,137     1,436   i         584,573     582,480     2,093  
Fixed non-compensation expense     111,880   e, j     (5,152 ) m 106,728     106,350     378  
Variable non-compensation expense     121,864   j         121,864     121,846     18  
Other non-compensation expense 286,666     (286,666 ) a, b, d, g, i                  
Depreciation & amortization 17,324             (551 ) n 16,773     16,756     17  
Non-controlling interest     5,584   j         5,584     5,584      
Consolidated Funds expenses 4,793         (4,793 )                
Total expenses 891,920     (45,902 )   (4,793 )   (5,703 )   835,522     833,016     2,506  
Other income (loss) 54,328     (82,006 ) e, f, h 27,678                  
Income taxes expense / (benefit) 52,589     (342 )       (52,247 ) o          
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds (19,843 )   (9,515 ) j 29,358         —           
Income (loss) attributable to Cowen Inc. $ 124,196             61,344     185,540     204,935     (19,395 )
Less: Preferred stock dividends 5,094                 5,094     4,160     934  
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders $ 119,102     $     $     $ 61,344     180,446     200,775     (20,329 )
Add back: Depreciation and amortization expense                 16,773     16,756     17  
Economic Operating Income (Loss)                 $ 197,219     $ 217,531     $ (20,312 )

  Nine Months Ended September 30, 2019
  US GAAP   Reclassifications and Adjustments   Economic Income
(Dollars amounts in thousands) Net income (loss)   Management Reclassifications   Fund Consolidation Reclassifications (k)   Income Statement Adjustments   Total Economic Income/(Loss)   Operating Company   Asset Company
Revenues                          
Investment banking $ 272,103   $ (17,729 ) a, b $     $     $ 254,374   $ 254,374   $  
Brokerage 302,840   43,255   c, h         346,095   346,095    
Management fees 21,480   8,684   d, e 1,640         31,804   30,016   1,788  
Incentive income (loss) 724   33,479   e 557         34,760   33,998   762  
Investment income (loss)   19,116   f         19,116   13,827   5,289  
Interest and dividends 129,846   (129,846 ) c              
Reimbursement from affiliates 780   (874 ) b 94              
Reinsurance premiums 29,068   (29,068 ) g              
Other revenue 3,228   2,109   g 14         5,351   5,295   56  
Consolidated Funds revenues 8,239       (8,239 )            
Total revenues 768,308   (70,874 )   (5,934 )   —      691,500   683,605   7,895  
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP) 125,089   (101,464 ) c     (3,208 ) l 20,417   16,371   4,046  
Total net revenues 643,219   30,590     (5,934 )   3,208     671,083   667,234   3,849  
Expenses                          
Compensation & benefits 388,611   2,365   i         390,976   386,593   4,383  
Fixed non-compensation expense   112,038   e, j     (1,664 ) m 110,374   107,889   2,485  
Variable non-compensation expense   113,855   j         113,855   113,728   127  
Other non-compensation expense 276,054   (276,054 ) a, b, d, g, i              
Depreciation & amortization 14,990   (3 )           14,987   14,957   30  
Non-controlling interest   2,944   j         2,944   2,944    
Goodwill impairment 4,100           (4,100 ) n      
Consolidated Funds expenses 6,229       (6,229 )            
Total expenses 689,984   (44,855 )   (6,229 )   (5,764 )   633,136   626,111   7,025  
Other income (loss) 82,976   (73,907 ) e, f, h (9,069 )            
Income taxes expense / (benefit) 9,615   (48 )       (9,567 ) o      
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds 7,188   1,586   j (8,774 )            
Income (loss) attributable to Cowen Inc. 19,408           18,539     37,947   41,123   (3,176 )
Less: Preferred stock dividends 5,094               5,094   4,058   1,036  
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders $ 14,314   $     $     $ 18,539     32,853   37,065   (4,212 )
Add back: Depreciation and amortization expense                 14,987   14,957   30  
Economic Operating Income (Loss)                 $ 47,840   $ 52,022   $ (4,182 )


Adjustments made to US GAAP Net Income (Loss) to arrive at Economic Operating Income (Loss)


Management Reclassifications
  Management reclassification adjustments and fund consolidation reclassification adjustments have no effect on economic income. These adjustments are reclassifications to change the location of certain line items.
a Economic Income (Loss) presents underwriting expenses net of investment banking revenues.
b Economic Income (Loss) presents expenses reimbursed from clients and affiliates within their respective expense category but is included as a part of revenues under US GAAP.
c Economic Income (Loss) brokerage revenues included net securities borrowed and securities loaned activities which are shown gross in interest income and interest expense for US GAAP.
d Economic Income (Loss) presents revenues net of fund start-up costs and distribution fees paid to agents.
e Economic Income (Loss) recognizes the Company’s proportionate share of management and incentive fees and associated share of expenses on a gross basis for certain real estate operating entities, the healthcare royalty business and the activist business. Additionally, carried interest, which the Company applies an equity ownership model to, is recorded in other income (loss) for US GAAP and is shown as incentive income for Economic Income (Loss).
f Economic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends) for which the majority of this activity is shown in other income (loss) for US GAAP reporting.
g Economic Income (Loss) recognizes underwriting income from the Company’s insurance related activities, net of expenses, within other revenue. The costs are recorded within expenses for US GAAP reporting.
h Economic Income (Loss) recognizes gains and losses on investments held as part of the Company’s facilitation and trading business within brokerage revenues as these investments are directly related to the markets business activities.
i Economic Income (Loss) presents certain payments to associated banking partners as compensation rather than non-compensation expenses.
j Economic Income (Loss) presents US GAAP expenses as either Fixed non-compensation or Variable non-compensation expenses. The Company also presents US GAAP Income (loss) attributable to non-controlling interests within total other expenses for Economic Income (Loss).
Fund Consolidation Reclassifications
k The impacts of consolidation and the related elimination entries of the Consolidated Funds are not included in Economic Income (Loss). Adjustments to reconcile to US GAAP net income (loss) included elimination of incentive income and management fees earned from the Consolidated Funds and addition of investment fund expenses excluding management fees paid, investment fund revenues and investment income (loss).
Income Statement Adjustments
l Economic Income (Loss) excludes the amortization of discount on convertible debt.
m Economic Income (Loss) excludes acquisition related adjustments as management does not consider these items when evaluating the performance of the Company.
n Economic Income (Loss) excludes goodwill and intangible impairment.
o Economic Income (Loss) excludes income taxes.

Cowen_Logo_rgb_k.jpg

Source: Cowen Inc.

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