Transcript
Good morning, ladies and gentlemen. Welcome to the Cohen & Company's First Quarter 2023 Earnings Call. My name is Alicia, and I'll be your operator for today. Before we begin, Cohen & Company would like to remind everyone that some of the statements the company makes during this call may contain forward-looking statements under applicable security laws. These statements may involve risks and uncertainties that could cause the company's actual results to differ materially from the results discussed in such forward-looking statements. The forward-looking statements made during this call are made only as of the date of this call, and the company undertakes no obligation to update such statements to reflect subsequent events or circumstances. Cohen & Company advises you to read the cautionary note regarding forward-looking statements in its earnings release and its most recent annual report on Form 10-K filed with the SEC. I would like now to turn the call over to Mr. Lester Brafman, Chief Executive Officer of Cohen & Company.
Thank you, Alicia, and thank you, everyone, for joining us for our first quarter 2023 earnings call. With me on the call is Joe Pooler, our CFO. Our investment portfolio continues to impact our results as our combined negative principal transaction revenue and loss from equity method affiliates amounted to $3 million for the quarter. The prolonged slump in investment banking and origination resulted in less-than-expected new issue and advisory revenues during the quarter. We strongly believe in our team of bankers and originators as we continue to build our pipeline and look forward to more favorable capital markets. As we move forward, we remain focused on enhancing stockholder value. In the first quarter, we continued to pay our quarterly dividend. Now I will turn the call over to Joe to walk through the quarter's financial highlights in more detail.
Thank you, Lester. We'll begin with our statement of operations. Our net loss attributable to Cohen & Company Inc. was $2.6 million for the quarter, or $1.77 per fully diluted share, compared to a net loss of $3 million for the previous quarter, or $2.10 per fully diluted share, and a net loss of $7.6 million for the same quarter last year, or $5.46 per fully diluted share. Our adjusted pretax loss was $9.6 million for the quarter, compared to an adjusted pretax loss of $6.1 million for the previous quarter and an adjusted pretax loss of $18.6 million for the quarter a year ago. Please note that adjusted pretax loss is not recognized under U.S. GAAP. Refer to our earnings release for disclosures, calculations, and reconciliations related to adjusted pretax loss. In the first quarter of 2023, our principal transactions and other revenue amounted to negative $2.3 million. This negative revenue was mainly due to mark-to-market adjustments on our principal investments associated with our role in the SPAC market as a sponsor, asset manager, and investor, which led to increased holdings in public equity positions in companies that have completed business combinations. Principal transactions revenue encompasses all gains, losses, and income generated from our $22.4 million investment portfolio, classified as other investments at fair value on our balance sheet. Net trading revenue reached $8.2 million in the first quarter, down $1.4 million from the fourth quarter and $3.8 million from the first quarter of 2022. The decline from the prior quarters was primarily attributed to lower trading revenue from our mortgage group. New issue and advisory revenue totaled $0.9 million in the first quarter, a drop of $3.3 million from the fourth quarter and $2.9 million from the same quarter last year. Our asset management revenue was $2 million for the quarter, showing an increase of $0.3 million from the prior quarter and $0.1 million from the prior year quarter. Compensation and benefits expense for the quarter stood at $10.5 million, up from the previous quarter but down from the same quarter last year, mainly due to variations in revenue and variable incentive compensation. The total number of company employees was 121 at the end of March 2023, unchanged from December 2022 and up from 115 a year ago. Net interest expense for the first quarter of 2023 was $1.6 million, which included $1.2 million for our two trust preferred debt instruments, $111,000 on our senior notes, $65,000 on our credit line, and $207,000 on our redeemable financial instrument. Loss from equity method affiliates for the quarter amounted to $400,000. Income tax expense for the first quarter was $600,000, compared to $1.3 million in the previous quarter and $1.8 million in the same quarter last year. We will continue to assess our operations quarterly and may adjust our valuation allowances against our net operating loss and net capital loss tax assets in the future. Regarding our balance sheet, at the end of the quarter, total equity was $82.4 million, down from $94 million at the end of 2022. The nonconvertible noncontrolling interest component of total equity was $153,000 at the end of the quarter compared to $17,000 at the end of December 2022. Therefore, total equity excluding the nonconvertible noncontrolling interest component was $82.2 million at the end of the quarter, reflecting an $11.8 million decrease from $94 million at the end of 2022. By the end of the quarter, consolidated corporate indebtedness was reported at $29.2 million, and our redeemable financial instruments stood at $7.9 million. As Lester mentioned, we have declared a quarterly dividend of $0.25 per share, which will be paid on June 2, 2023, to stockholders of record as of May 18, 2023. The Board of Directors will keep evaluating the dividend policy each quarter, and future dividend decisions may be influenced by our quarterly operating results and the company's capital condition. With that, I'll turn the call back to Lester or to Alicia to open the floor for questions.
Thanks, Joe. Please direct any offline investor questions to Joe Pooler at (215) 701-8952 or via e-mail to [email protected]. The contact information can also be found at the bottom of our earnings release. Operator, you may now open the call line for questions, and thank you all for joining us today.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.