Cowen Announces Record Financial Results for Second Quarter 2020

  • Reports Record 2Q20 US GAAP Net Income of $112.1 million or $3.83 per share
  • Record Economic Operating Income of $166.9 million, or $5.69 per share
  • The Nikola investment contributed $64.9 million to Economic Operating Income, or $2.21 per share
  • Strong Book Value Growth, up $5.82 per share to $28.96, Tangible Book Value up $5.86 to $22.94 per share

NEW YORK, July 28, 2020 (GLOBE NEWSWIRE) — Cowen Inc. (NASDAQ: COWN) (“Cowen” or “the Company”) today announced its operating results for the second quarter ended June 30, 2020.

Jeffrey M. Solomon, Chair and Chief Executive Officer of Cowen, said, “We outperformed across the entire organization in the second quarter. With record revenues in our banking and markets businesses as well as a strong contribution from our investment management operations, we generated record profitability, even before factoring in the unrealized investment gains from Nikola. In an environment of heightened volatility and macroeconomic uncertainty, we remain dedicated to helping our clients navigate with our strategic advice, capital raising expertise, advanced execution capabilities and world-class research and differentiated investment products.”

Second Quarter 2020 Financial Summary

  US GAAP   Economic Operating Income
  Three Months Ended
June 30,
  Three Months Ended
June 30,
($ in millions, except per share information) 2020   2019   Δ %   2020   2019   Δ %
                       
                       
Revenue $ 418.8     $ 292.2     43 %   $ 558.7     $ 244.4     129 %
Net income (loss) attributable to common stockholders $ 112.1     $ 4.1     N/A   $ 166.9     $ 20.4     718 %
Earnings (loss) per common share (diluted) $ 3.83     $ 0.13     N/A   $ 5.69     $ 0.65     775 %
                       
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).”


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

Second quarter 2020 US GAAP revenue was $418.8 million compared to $292.2 million in the second quarter of 2019.

Second quarter 2020 US GAAP employee compensation and benefits expenses was $305.3 million, an increase of $168.9 million from the prior-year period.

Second quarter 2020 US GAAP income tax expense was $44.9 million compared to $5.1 million in the prior-year quarter.

Second quarter 2020 US GAAP total expenses totaled $411.5 million, an increase of $164.0 million from the prior-year period.

Second quarter 2020 US GAAP net income attributable to common stockholders was $112.1 million compared to net income attributable to common stockholders of $4.1 million in the second quarter of 2019.

Second Quarter 2020 Operating Financial Highlights (Non-GAAP)

  • Record Investment Banking performance:
    –  Strongest quarter on record driven by capital markets activity in biotech and healthcare tools & diagnostics. Revenues for the month of June alone surpassed any quarter on record.
    –  M&A revenue strong despite difficult economic backdrop, including record single fee from Nikola engagement. 
     
  • Record markets revenues with continuing share gains:
    –  Markets revenue, which includes brokerage, financing and other revenue, was a record $169.2 million ($2.69 million/day).
    –  Posted strong performances in electronic trading, European trading, derivatives and prime brokerage.
    –  Securities finance and special situations, including SPAC trading, rebounded sharply after a difficult 1Q20.
     
  • Strong momentum in investment management:
    –  Record incentive income accrual driven by IPOs in the healthcare investment strategy portfolio and strong performance in the activist strategy. Management fee revenue run-rate at highest level since 2016.
     
  • Invested capital – Strong returns with reduced risk:
    –  Record investment income driven by valuation of Nikola investment ($129.8 million) and rebound in other balance sheet investments.
    –  Reduced investment risk in portfolio in March/April and increased hedging to reflect a more volatile trading environment due to economic uncertainty.

Capital Optimization Update

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

In the second quarter of 2020, the Company repurchased $6.6 million of its common stock, or 446,800 shares, at an average price of $14.67 under the Company’s existing share repurchase program.

Outside the share repurchase program, in the second quarter of 2020 the Company acquired approximately $3.2 million of shares as a result of net share settlements relating to the vesting of equity awards, or 262,160 shares, at an average price of $12.22.

For the first half of 2020, the Company repurchased 1,830,457 shares for $24.6 million, or an average price of $13.42 under the Company’s existing share repurchase program. Outside the share repurchase program, in the first half of 2020 the Company acquired approximately $6 million of shares as a result of net share settlements relating to the vesting of equity awards, or 490,717 shares at an average price of $12.29.

Quarterly Cash Dividend

The Company maintained its quarterly cash dividend payable on its common stock. On July 21, 2020, the Board of Directors declared a cash dividend of $0.04 per common share, payable on September 15, 2020, to stockholders of record on September 1, 2020.

Select Balance Sheet Data

(Amounts in millions, except per share information)      
  June 30, 2020   December 31, 2019
Cowen Inc. stockholders’ equity $ 901.7   $ 809.9
Common equity (CE) $ 800.4   $ 708.5
Tangible common equity (TCE) $ 634.1   $ 535.6
       
Book value per share (CE/CSO) $ 28.96   $ 24.77
Tangible book value per share (TCE/CSO) $ 22.94   $ 18.72
       
Common shares outstanding (CSO)   27.6     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   Six Months Ended
  June 30,   June 30,
  2020   2019   2020   2019
Revenue              
Investment banking $ 203,982     $ 114,705     $ 309,010     $ 194,811  
Brokerage 147,224     111,382     286,586     208,845  
Management fees 11,653     7,039     23,257     14,180  
Incentive income     8         23  
Interest and dividends 47,918     40,047     89,995     69,139  
Reimbursement from affiliates 247     254     508     542  
Reinsurance premiums 5,967     14,331     16,438     20,922  
Other 1,490     930     3,340     1,991  
Consolidated Funds revenues 359     3,468     3,515     5,808  
Total revenue 418,840     292,164     732,649     516,261  
Interest and dividends expense 49,304     39,528     88,096     68,612  
Total net revenue 369,536     252,636     644,553     447,649  
Expenses              
Employee compensation and benefits 305,282     136,409     429,710     268,291  
Reinsurance claims, commissions and amortization of deferred acquisition costs 6,434     10,782     16,864     16,944  
Operating, general, administrative and other expenses 92,027     89,063     180,166     167,064  
Depreciation and amortization expense 6,200     4,952     11,642     9,908  
Goodwill impairment     4,100         4,100  
Consolidated Funds expenses 1,585     2,231     4,299     3,713  
Total expenses 411,528     247,537     642,681     470,020  
Other income (loss)              
Net (losses) gains on securities, derivatives and other investments 196,502     3,910     152,519     42,994  
Consolidated Funds net (losses) gains 37,370     5,782     (35,795 )   7,640  
Total other income (loss) 233,872     9,692     116,724     50,634  
               
Income (loss) before income taxes 191,880     14,791     118,596     28,263  
Income tax expense/(benefit) 44,932     5,073     43,759     8,250  
Net income (loss) 146,948     9,718     74,837     20,013  
Net income (loss) attributable to non-controlling interests in consolidated subsidiaries and funds 33,113     3,906     (29,075 )   4,418  
Net income (loss) attributable to Cowen Inc. 113,835     5,812     103,912     15,595  
Less: Preferred stock dividends 1,698     1,698     3,396     3,396  
Net income (loss) attributable to Cowen Inc. common stockholders $ 112,137     $ 4,114     $ 100,516     $ 12,199  
               
Earnings (loss) per share:              
Basic $ 4.01     $ 0.14     $ 3.55     $ 0.41  
Diluted $ 3.83     $ 0.13     $ 3.39     $ 0.39  
               
Weighted average shares used in per share data:              
Basic 27,983     29,769     28,289     29,766  
Diluted 29,316     31,522     29,644     31,572  



Second Quarter 2020 Economic Income Financial Review

  Three Months Ended   Six Months Ended
  June 30, 2020   June 30, 2019   June 30, 2020   June 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 $ 190,430     $     $ 190,430     $ 104,216     $     $ 104,216     $ 289,627     $     $ 289,627     $ 187,212     $     $ 187,212  
Brokerage 167,067         167,067     124,044         124,044     299,739         299,739     235,916         235,916  
Management fees 14,234     168     14,402     9,968     500     10,468     27,351     372     27,723     19,695     1,203     20,898  
Incentive income 45,392     983     46,375     2,633     1,596     4,229     43,449     (1,161 )   42,288     19,270     1,706     20,976  
Investment income (loss) 142,379     (1,893 )   140,486     (6,513 )   3,626     (2,887 )   122,931     (13,548 )   109,383     2,914     4,467     7,381  
Other revenues (62 )   2     (60 )   4,304     15     4,319     498     2     500     5,427     51     5,478  
Total revenue 559,440     (740 )   558,700     238,652     5,737     244,389     783,595     (14,335 )   769,260     470,434     7,427     477,861  
Interest Expense / Discount Amortization 6,102     1,469     7,571     5,298     1,408     6,706     12,445     2,904     15,349     10,615     2,655     13,270  
Total net revenues 553,338     (2,209 )   551,129     233,354     4,329     237,683     771,150     (17,239 )   753,911     459,819     4,772     464,591  
                                               
Compensation & Benefits 304,644     438     305,082     134,454     1,955     136,409     429,650     1,136     430,786     264,703     3,652     268,355  
Fixed non-compensation expense 34,755     105     34,860     37,171     1,244     38,415     72,094     251     72,345     71,428     1,862     73,290  
Variable non-compensation expense 40,817     5     40,822     39,428     40     39,468     84,109     12     84,121     76,514     85     76,599  
Depreciation & Amortization 5,657     6     5,663     4,945     7     4,952     11,085     12     11,097     9,884     24     9,908  
Non-Controlling Interest 1,739         1,739     1,258         1,258     3,479         3,479     2,283         2,283  
Total expenses 387,612     554     388,166     217,256     3,246     220,502     600,417     1,411     601,828     424,812     5,623     430,435  
                                               
Less: Preferred Dividend 1,387     311     1,698     1,341     357     1,698     2,745     651     3,396     2,717     679     3,396  
Economic Income (Loss) attributable to Common Shareholders 164,339     (3,074 )   161,265     14,757     726     15,483     167,988     (19,301 )   148,687     32,290     (1,530 )   30,760  
                                               
Add: Depreciation & Amortization 5,657     6     5,663     4,945     7     4,952     11,085     12     11,097     9,884     24     9,908  
Economic Operating Income (Loss) attributable to Common Shareholders $ 169,996     $ (3,068 )   $ 166,928     $ 19,702     $ 733     $ 20,435     $ 179,073     $ (19,289 )   $ 159,784     $ 42,174     $ (1,506 )   $ 40,668  
                                               
Economic Income per common share $ 5.61     $ (0.10 )   $ 5.50     $ 0.47     $ 0.02     $ 0.49     $ 5.67     $ (0.65 )   $ 5.02     $ 1.02     $ (0.05 )   $ 0.97  
Economic Operating Income per common share $ 5.80     $ (0.10 )   $ 5.69     $ 0.63     $ 0.02     $ 0.65     $ 6.04     $ (0.65 )   $ 5.39     $ 1.34     $ (0.05 )   $ 1.29  

Revenues included in Economic Income were a record $558.7 million versus $244.4 million in the second quarter of 2019, an increase of 129%. Op Co revenue included in economic income was $559.4 million while Asset Co revenue included in economic income was a loss of $0.7 million.

Investment Banking revenues were a record $190.4 million, up 83% versus the prior-year period, driven by stronger ECM activity as well as higher-fee M&A transactions.

Brokerage revenues of $167.1 million were up 35% versus the prior-year period, driven by strength in derivatives, electronic trading and non-US trading.

Management Fees rose 38% year-over-year to $14.4 million in the second quarter, driven by the launch of the sustainability strategy and growth in assets in the private healthcare strategy and the healthcare royalties strategy. Management fees included a gain of $0.2 million in Asset Co.

Incentive Income posted record revenues of $46.4 million in the second quarter of 2020, up from $4.2 million in the prior-year period. Second quarter 2020 incentive income reflects stronger investment performance in the healthcare strategy and the activist strategy, as well as a gain of $1.0 million in Asset Co.

Investment Income posted record revenues of $140.5 million, versus a loss of $2.9 million in the prior-year period. The second quarter 2020 revenues include a $129.8 million unrealized gain on the investment in Nikola and improved performance in the event driven strategy, the healthcare strategy and the activist strategy. Investment income includes markdowns in Asset Co investments of $1.9 million.

Compensation and benefits expense was $305.1 million compared to $136.4 million in the second quarter of 2019. The increase was due to higher revenues, and includes a 50% compensation-to-revenue accrual for the unrealized gains from the Nikola investment. Despite the increase in the compensation accrual amount, the second quarter 2020 compensation-to-revenue ratio fell to 54.6%, down from 59.6% in 1Q20 and down from 55.8% in 2Q19.

Fixed non-compensation expenses decreased $3.6 million from the prior-year period to $34.9 million. The decrease was due in part to lower professional fees and consulting costs.

Variable non-compensation expenses were $40.8 million, up from $39.5 million in the second quarter of 2019. The increase is related in part to higher brokerage and trade execution costs due to increased volumes, 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 $166.9 million for the second quarter of 2020, up from $20.4 million in the prior-year period. Second quarter 2020 Economic Operating Income for Op Co was $170.0 million, while Asset Co Economic Operating loss was $3.1 million.

Assets Under Management As of June 30, 2020, the Company had assets under management of $11.5 billion, up $0.7 billion from March 31, 2020 and a decrease of $0.6 billion from June 30, 2019, respectively.

Invested Capital As of June 30, 2020, the Company had invested capital in Op Co totaling $711.8 million, up from $539.9 million as of March 31, 2020. The biggest increase was the stake in Nikola Corporation ($129.8 million).

As of July 1, 2020, the Company had invested capital in Asset Co totaling $124.4 million, a reduction of $2.3 million from the invested capital invested as of March 31, 2020.

The largest Asset Co investments were the stake in Italian wireless broadband provider Linkem ($73.6 million), private equity funds Formation8/Eclipse ($38.9 million) and other private investments ($5.1 million).

Earnings Conference Call

Management will hold a conference call today, July 28, 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: 5580959

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:
http://edge.media-server.com/mmc/p/bohrvhbk

A replay of the call will be available for one week beginning at 12:00 pm ET on July 28, 2020 on the Company’s website at investor.cowen.com/events/ or via the following numbers:

U.S. replay dial-in: (855) 859-2056
International replay dial-in: (404) 537-3406
Replay ID: 5580959

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 operating income, 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   Six Months Ended
  June 30,   June 30,
(Dollar amounts in thousands) 2020   2019   2020   2019
               
US GAAP Net income (loss) attributable to Cowen Inc. common stockholders $ 112,137     $ 4,114     $ 100,516     $ 12,199  
Adjustments:              
Income tax expense (benefit) 44,837     5,039     43,554     8,281  
Uncrystallized incentive fees     150         606  
Amortization of discount on convertible debt 1,131     1,071     2,242     2,117  
Retainer fees revenue deferred for US GAAP     836         2,272  
Contingent liability adjustments 2,596         1,758      
Goodwill & intangible impairment 545     4,100     545     4,100  
Transaction-related and other costs 19     173     72     1,185  
Economic Income (Loss) $ 161,265     $ 15,483     $ 148,687     $ 30,760  
Add back: Depreciation and amortization expense 5,663     4,952     11,097     9,908  
Economic Operating Income (Loss) $ 166,928     $ 20,435     $ 159,784     $ 40,668  
               



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

  Three Months Ended   Six Months Ended
  June 30,   June 30,
(Dollars per share) 2020   2019   2020   2019
               
Earnings (loss) per common share (diluted): $ 3.83     $ 0.13     $ 3.39     $ 0.39  
Adjustments:              
Income tax expense (benefit) 1.53     0.16     1.47     0.26  
Uncrystallized incentive fees             0.02  
Amortization of discount on convertible debt 0.04     0.03     0.08     0.07  
Retainer fees revenue deferred for US GAAP     0.03         0.07  
Fund start-up costs recognized for US GAAP              
Contingent liability adjustments 0.09         0.06      
Goodwill & intangible impairment 0.01     0.13     0.02     0.12  
Transaction-related and other costs     0.01         0.04  
Economic income (Loss) per common share (diluted) $ 5.50     $ 0.49     $ 5.02     $ 0.97  
Add back: Depreciation and amortization expense 0.19     0.16     0.37     0.32  
Economic Operating Income (Loss) per common share (diluted) $ 5.69     $ 0.65     $ 5.39     $ 1.29  
 

  Three Months Ended June 30, 2020
  US GAAP   Reclassifications and Adjustments   Economic Income
(Dollars amounts in thousands) Net income (loss)   Management Reclassifications   Fund Consolidation Reclassifications (j)   Income Statement Adjustments   Total Economic Income/(Loss)   Operating Company   Asset Company
Revenues                          
Investment banking $ 203,982     $ (13,552 ) a, b $     $     $ 190,430     $ 190,430     $  
Brokerage 147,224     19,843   c, h         167,067     167,067      
Management fees 11,653     2,114   d, e 635         14,402     14,234     168  
Incentive income (loss)     46,375   e         46,375     45,392     983  
Investment income (loss)     140,486   f         140,486     142,379     (1,893 )
Interest and dividends 47,918     (47,918 ) c                  
Reimbursement from affiliates 247     (272 ) b 25                  
Reinsurance premiums 5,967     (5,967 ) g                  
Other revenue 1,490     (1,532 ) g (18 )       (60 )   (62 )   2  
Consolidated Funds revenues 359         (359 )                
Total revenues 418,840     139,577     283         558,700     559,440     (740 )
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP) 49,304     (40,602 ) c     (1,131 ) l 7,571     6,102     1,469  
Total net revenues 369,536     180,179     283     1,131     551,129     553,338     (2,209 )
Expenses                          
Compensation & Benefits 305,282     (200 ) i         305,082     304,644     438  
Fixed non-compensation expense     37,475   e, j     (2,615 ) m 34,860     34,755     105  
Variable non-compensation expense     40,822   j         40,822     40,817     5  
Other non-compensation US GAAP expense 98,461     (98,461 ) a, b, d, g, i                  
Depreciation & Amortization 6,200     8         (545 ) p 5,663     5,657     6  
Non-Controlling Interest     1,739   j         1,739     1,739      
Consolidated Funds expenses 1,585         (1,585 )                
Total expenses 411,528     (18,617 )   (1,585 )   (3,160 )   388,166     387,612     554  
Other income (loss) 233,872     (201,994 ) e, f, h (31,878 )                
Income taxes expense / (benefit) 44,932     (95 )       44,837   n          
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds 33,113     (3,103 ) j (30,010 )                
Income (loss) attributable to Cowen Inc. 113,835             (40,546 )   162,963     165,726     (2,763 )
Less: Preferred stock dividends 1,698                 1,698     1,387     311  
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders 112,137             (40,546 )   161,265     164,339     (3,074 )
Add back: Depreciation and amortization expense                 5,663     5,657     6  
Economic Operating Income (Loss)                 $ 166,928     $ 169,996     $ (3,068 )

                           
  Three Months Ended June 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 $ 114,705     $ (11,325 ) a, b $     $ 836   o $ 104,216     $ 104,216     $  
Brokerage 111,382     12,662   c, h         124,044     124,044      
Management fees 7,039     2,864   d, e 565         10,468     9,968     500  
Incentive income (loss) 8     4,071   e     150   o 4,229     2,633     1,596  
Investment income (loss)     (2,887 ) f         (2,887 )   (6,513 )   3,626  
Interest and dividends 40,047     (40,047 ) c                  
Reimbursement from affiliates 254     (287 ) b 33                  
Reinsurance premiums 14,331     (14,331 ) g                  
Other revenue 930     3,401   g (12 )       4,319     4,304     15  
Consolidated Funds revenues 3,468         (3,468 )                
Total revenues 292,164     (45,879 )   (2,882 )   986     244,389     238,652     5,737  
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP) 39,528     (31,751 ) c     (1,071 ) l 6,706     5,298     1,408  
Total net revenues 252,636     (14,128 )   (2,882 )   2,057     237,683     233,354     4,329  
Expenses                          
Compensation & Benefits 136,409       i         136,409     134,454     1,955  
Fixed non-compensation expense     38,588   e, j     (173 ) m 38,415     37,171     1,244  
Variable non-compensation expense     39,468   j         39,468     39,428     40  
Other non-compensation US GAAP expense 99,845     (99,845 ) a, b, d, g, i                  
Depreciation & Amortization 4,952                 4,952     4,945     7  
Non-Controlling Interest     1,258   j         1,258     1,258      
Goodwill impairments 4,100             (4,100 ) p          
Consolidated Funds expenses 2,231         (2,231 )                
Total expenses 247,537     (20,531 )   (2,231 )   (4,273 )   220,502     217,256     3,246  
Other income (loss) 9,692     (6,865 ) e, f, h (2,827 )                
Income taxes expense / (benefit) 5,073     (34 )       (5,039 ) o          
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds 3,906     (428 ) j (3,478 )                
Income (loss) attributable to Cowen Inc. 5,812             11,369     17,181     16,098     1,083  
Less: Preferred stock dividends 1,698                 1,698     1,341     357  
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders 4,114             11,369     15,483     14,757     726  
Add back: Depreciation and amortization expense                 4,952     4,945     7  
Economic Operating Income (Loss)                 $ 20,435     $ 19,702     $ 733  

  Six Months Ended June 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 $ 309,010     $ (19,383 ) a, b $     $     $ 289,627     $ 289,627     $  
Brokerage 286,586     13,153   c, h         299,739     299,739      
Management fees 23,257     3,154   d, e 1,312         27,723     27,351     372  
Incentive income (loss)     42,288   e         42,288     43,449     (1,161 )
Investment income (loss)     109,383   f         109,383     122,931     (13,548 )
Interest and dividends 89,995     (89,995 ) c                  
Reimbursement from affiliates 508     (558 ) b 50                  
Reinsurance premiums 16,438     (16,438 ) g                  
Other revenue 3,340     (2,822 ) g (18 )       500     498     2  
Consolidated Funds revenues 3,515         (3,515 )                
Total revenues 732,649     38,782     (2,171 )       769,260     783,595     (14,335 )
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP) 88,096     (70,505 ) c     (2,242 ) l 15,349     12,445     2,904  
Total net revenues 644,553     109,287     (2,171 )   2,242     753,911     771,150     (17,239 )
Expenses                          
Compensation & Benefits 429,710     1,076   i         430,786     429,650     1,136  
Fixed non-compensation expense     74,175   e, j     (1,830 ) m 72,345     72,094     251  
Variable non-compensation expense     84,121   j         84,121     84,109     12  
Other non-compensation US GAAP expense 197,030     (197,030 ) a, b, d, g, i                  
Depreciation & Amortization 11,642             (545 ) p 11,097     11,085     12  
Non-Controlling Interest     3,479   j         3,479     3,479      
Consolidated Funds expenses 4,299         (4,299 )                
Total expenses 642,681     (34,179 )   (4,299 )   (2,375 )   601,828     600,417     1,411  
Other income (loss) 116,724     (146,902 ) e, f, h 30,178                  
Income taxes expense / (benefit) 43,759     (205 )       (43,554 )            
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds (29,075 )   (3,231 ) j 32,306                  
Income (loss) attributable to Cowen Inc. $ 103,912             48,171   n 152,083     170,733     (18,650 )
Less: Preferred stock dividends 3,396                 3,396     2,745     651  
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders $ 100,516     $     $     $ 48,171     148,687     167,988     (19,301 )
Add back: Depreciation and amortization expense                 11,097     11,085     12  
Economic Operating Income (Loss)                 $ 159,784     $ 179,073     $ (19,289 )

  Six Months Ended June 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 $ 194,811     $ (9,871 ) a, b $     $ 2,272   o $ 187,212     $ 187,212     $  
Brokerage 208,845     27,071   c, h         235,916     235,916      
Management fees 14,180     5,651   d, e 1,067         20,898     19,695     1,203  
Incentive income (loss) 23     19,804   e 543     606   o 20,976     19,270     1,706  
Investment income (loss)     7,381   f         7,381     2,914     4,467  
Interest and dividends 69,139     (69,139 ) c                  
Reimbursement from affiliates 542     (609 ) b 67                  
Reinsurance premiums 20,922     (20,922 ) g                  
Other revenue 1,991     3,499   g (12 )       5,478     5,427     51  
Consolidated Funds revenues 5,808         (5,808 )                
Total revenues 516,261     (37,135 )   (4,143 )   2,878     477,861     470,434     7,427  
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP) 68,612     (53,225 ) c     (2,117 ) l 13,270     10,615     2,655  
Total net revenues 447,649     16,090     (4,143 )   4,995     464,591     459,819     4,772  
Expenses                          
Compensation & Benefits 268,291     64   i         268,355     264,703     3,652  
Fixed non-compensation expense     74,475   e, j     (1,185 ) m 73,290     71,428     1,862  
Variable non-compensation expense     76,599   j         76,599     76,514     85  
Other non-compensation US GAAP expense 184,008     (184,008 ) a, b, d, g, i                  
Depreciation & Amortization 9,908                 9,908     9,884     24  
Non-Controlling Interest     2,283   j         2,283     2,283      
Goodwill impairment 4,100             (4,100 ) p          
Consolidated Funds expenses 3,713         (3,713 )                
Total expenses 470,020     (30,587 )   (3,713 )   (5,285 )   430,435     424,812     5,623  
Other income (loss) 50,634     (47,186 ) e, f, h (3,448 )                
Income taxes expense / (benefit) 8,250     31         (8,281 ) n          
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds 4,418     (540 ) j (3,878 )                
Income (loss) attributable to Cowen Inc. $ 15,595             18,561     34,156     35,007     (851 )
Less: Preferred stock dividends 3,396                 3,396     2,717     679  
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders $ 12,199     $     $     $ 18,561     30,760     32,290     (1,530 )
Add back: Depreciation and amortization expense                 9,908     9,884     24  
Economic Operating Income (Loss)                 $ 40,668     $ 42,174     $ (1,506 )



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) recognizes 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 income taxes.
o For periods prior to the first quarter of 2020, Economic Income (Loss) records a) income from uncrystallized incentive fees and b) retainer fees, relating to investment banking activities, earned during the period that would otherwise be deferred until closing for US GAAP reporting. Similar amounts are not adjusted subsequently. 
p Economic Income (Loss) excludes goodwill and intangible impairment.

 

Cowen_Logo_rgb_k.jpg

Source: Cowen Inc.

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