Transcript
Good morning, ladies and gentlemen. Welcome to Cohen & Company's Third Quarter 2025 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 securities 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 in its most recent annual report on Form 10-K filed with the SEC. Earlier today, Cohen & Company issued a press release announcing third quarter 2025 financial results. Today's discussion is complementary to that press release, which is available on the company's website at cohenandcompany.com. This conference call is being recorded, and a replay of it will be available for 3 days beginning shortly after the conclusion of this call. The company's remarks also include certain non-GAAP financial measures that management believes are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in the company's earnings release. After the prepared remarks, the call will be opened up for questions. I would now like to turn the call over to Mr. Daniel Cohen, Executive Chairman of Cohen & Company.
Thank you, Alicia. And everybody, welcome to our third quarter's earnings call. The results which Lester, our CEO, and Joe, our CFO, will go over speak for themselves. We are super excited about our present, our future, and what we have really been able to build. We're still in the middle of that build-out of Cohen & Company securities into the Premier Frontier Technology Investment Bank. But the results over the past few quarters show the potential. Year to September 30, we have IPO-ed with sponsors 18 new SPAC vehicles in a market that only has started to recover, we believe. Companies like Vertiv, MP Materials, DraftKings, and SoFi are among the companies, I can remind you, that have gone public with SPACs. Alone, those comprise well above $100 billion of market cap. We have maintained our position as the leading adviser for de-SPAC transactions, and we have built strong franchises in rare earth and quantum computing now as well as continued our leadership in the digital asset transaction space. With the tokenization of financial assets just beginning, we expect to extend our experience in taking blockchain assets to traditional stock market vehicles to what we see as the future of traditional assets moving to the blockchain. We are excited to continue building the future, and we will share our expectations going forward. Let me turn it over to Lester to make remarks on our year-to-date, our company, and our future.
Thank you, Daniel. We had a strong performance in the third quarter as we executed our strategy and created sustainable value for our stockholders. Our total revenue for the third quarter was $84.2 million, with adjusted pretax income of $16.4 million, accounting for 19.4% of total revenue. Year-to-date through September 30, our total revenue was $172.8 million, and our adjusted pretax income was $23.2 million, representing 13.4% of total revenue. We aim to capitalize on innovative opportunities in the capital markets to add value for our clients across various business cycles. Our boutique investment bank, Cohen & Company Capital Markets, focused on SPACs during the peak of the SPAC market and continued to support our SPAC clients through challenging periods in 2022 and 2023. This consistent client commitment has resulted in CCM being at the top of the league table, ranking #1 in SPAC IPO underwritings with the most left book run deals year-to-date, and #1 in SPAC advisory by a significant margin, holding a lead share in de-SPAC pipes. To further strengthen our SPAC division, we have introduced an equity trading team to offer our investors an additional source of liquidity. We have taken a similar approach in the digital asset sector, where we focused on client outreach during a downturn in capital markets activity. As a result, we have established ourselves as a leader in the crypto capital markets, having raised over $12 billion with crypto clients and closed 26 transactions across digital asset treasury strategies, mergers and acquisitions, IPOs, and de-SPACs during 2025 to date, placing CCM among the top three firms on Wall Street in this area. Since launching in 2021, CCM has become an increasingly vital part of our overall company, generating $133 million in the first nine months of 2025, an increase from $22.7 million in the entire year of 2021. The contribution of CCM to our total company revenue has risen to 77% for the first nine months of 2025, up from 15% in the full year of 2021. Moving forward, we will continue to focus on being the advisor of choice for growth in the frontier technology sector, including blockchain, fintech, rare earth metals, and related areas of stable tokenization and AI. In the quarter, CCM generated $68.6 million in net revenue across 18 clients. Supported by a solid pipeline of transactions, CCM is well-positioned for continued growth and exceptional performance through the end of the year. Over the nine months ending September 30, 2025, CCM has underwritten 18 SPAC IPOs, four of which have announced transactions, with 14 actively searching for de-SPAC target companies. There is significant potential for de-SPAC fees to be earned in the next 12 to 18 months as part of CCM's $300 million gross pipeline of potential transactions. To provide context, this time last year, CCM had only a $145 million gross pipeline of possible transactions. While the CCM business can fluctuate from quarter to quarter, we are optimistic about our ability to continue growing our CCM revenue and are looking forward to 2026, just as we celebrate our achievements in 2025. Additionally, we are confident in our capability to attract more talent to our innovative investment banking operation. Furthermore, the declining interest rate environment has positively impacted our trading revenue, which rose 26% in the third quarter compared to the previous quarter, with increased revenue across all our trading desks. Our gross gestation repo book has grown to over $3.3 billion, and we expect these trends to continue providing more opportunities for enhancing net trading revenue. We are hopeful that our sponsor SPAC, Columbus Circle Capital Corp., will finalize its business combination with ProCap BTC in the fourth quarter of 2025 or the first quarter of 2026. We are at a pivotal moment in our long-term strategy. Based on our current trading revenue and CCM pipeline, we are confident in generating over $50 million in revenue in the fourth quarter and more than $220 million for the full year 2025. We anticipate our compensation and benefits expenses will represent approximately 68% to 72% of revenue for the full year, with adjusted pretax income projected to be 10% to 15% of revenue. At this level of annualized revenue, total revenue per employee will be around $1.8 million, up from $700,000 in 2024. We are pleased with our results and grateful for the contributions of all our employees. We remain optimistic about our future earnings potential and are committed to delivering long-term sustainable value for our stockholders, including through quarterly dividends. Now I will hand the call back to Joe for a detailed overview of this quarter's financial highlights.
Thank you, Lester. I'll begin with a discussion of our operating results for the quarter. Our net income attributable to Cohen & Company Inc. shareholders was $4.6 million for the quarter or $2.58 per fully diluted share, compared to net income of $1.4 million for the prior quarter or $0.81 per fully diluted share, and net income of $2.2 million for the prior year quarter or $1.31 per fully diluted share. Our adjusted pretax income was $16.4 million for the third quarter compared to adjusted pretax income of $5.5 million for the prior quarter and adjusted pretax income of $7.7 million for the prior year quarter. As a reminder, adjusted pretax income is a key earnings measurement for us, as it incorporates enterprise earnings attributable to our convertible noncontrolling interest, which is substantially held by our Founder and Chairman, Daniel Cohen. Daniel holds his interest in the enterprise through the primary operating subsidiary, Cohen & Company LLC, which is a consolidated subsidiary of Cohen & Company Inc. New issue on advisory revenue for the quarter was $228 million compared to $37.4 million from the prior quarter and $22.5 million from the year-ago quarter. All of our new issue and advisory revenue came from our CCM business and was primarily driven by SPAC M&A activity and SPAC IPO transactions. CCM's new issue revenue was partially offset by $159 million of negative principal transactions revenue from investment assets received at CCM client consideration. As a reminder, we have received financial instruments as consideration for advisory services provided by CCM instead of cash at times, which are included in other investments at fair value on our balance sheet. Any realized or unrealized gains or losses on these instruments after the day of closing are recorded in our principal transactions revenue line item. One CCM deal in particular was material to our results during the quarter. In August of '25, Nakamoto emerged with Kindly MD to launch a Bitcoin treasury strategy with CCM acting as financial adviser and placement agent for the transaction's $540 million pipe and $200 million convertible note. CCM earned $179 million of new issuance advisory revenue from this transaction, which included $20 million of cash revenue and $159 million of noncash revenue in the form of NAKA shares. And the $159 million is calculated using $11.6 million in NAKA shares at the post transaction closing share price of $13.60. The September 30 quarter-end closing price on NAKA shares was only $1.07, resulting in $146 million principal transaction losses in our P&L. In total, the Nakamoto Kindly MD transaction accounted for the net $32.5 million of CCM revenue during the quarter. We were not able to sell the NAKA shares during the third quarter pending registration; the NAKA shares are now freely tradable. Net trading revenue came in at $13.6 million in the quarter, up $2.8 million from the prior quarter and up $4.7 million from the third quarter of '24. The increase from both the prior quarters was due primarily to higher trading revenue across all of our trading groups. Asset Management revenue totaled $1.9 million in the quarter, down from both prior quarters. The decrease was related primarily to the sale of all of the company's legacy Alesco CDO management contracts in '25; we will not record any additional asset management revenue from the Alesco CDO contracts going forward. Third quarter principal transactions and other revenue was negative $159 million, due to the investment assets related to consideration received by CCM, including the previously mentioned NAKA shares. Principal transactions revenue includes all the gains and losses and income earned on our $64 million investment portfolio. Compensation and benefits expense for the third quarter was $53.7 million, which was up from both prior quarters primarily due to fluctuations in revenue, income from equity method affiliates, and the related variable incentive compensation that goes along with those increases. In the third quarter, compensation and benefits expense as a percentage of revenue was 64%. The number of company employees was 124 as of September 30 of '25 compared to 118 at the prior quarter end and 113 at the prior year quarter end. Net interest expense for the quarter was $1.5 million, including $1.2 million on our two trust preferred debt instruments, $214,000 on our senior promissory notes, and $41,000 on our credit line. The gain on sale of management contracts for the three months was $1.9 million, which resulted from the closing of the sale of three of our legacy Alesco CDO management contracts. At this point, we've completed the sale of all of our legacy Alesco CDO management contracts, and as noted, there will be no future asset management revenue from them. Loss from equity method affiliates totaled $12.7 million, primarily due to mark-to-market losses on one of our SPAC series fund investments, which was partially offset by a $6.9 million credit recorded in the net income attributable to the nonconvertible noncontrolling interest line item. In terms of our balance sheet, at the end of the quarter, total equity was $101.1 million compared to $90.3 million at the end of the year. The nonconvertible noncontrolling interest component of total equity was $3.9 million at the end of the quarter and $11.5 million at the end of the year. Thus, the total enterprise equity, excluding the nonconvertible noncontrolling interest, was $97.1 million at the end of the quarter, an $18.3 million increase from $78.8 million at the end of the year. At quarter end, consolidated indebtedness was carried at $32.7 million, and as Lester mentioned, we declared a quarterly dividend of $0.25 per share, payable on December 3, 2025, to stockholders of record as of November 19. The Board of Directors will continue to evaluate the dividend policy each quarter, and future decisions regarding dividends may be impacted by quarterly results and the company's capital needs. With that, I'll turn it back over to Lester for closing remarks.
Thanks, Joe. We remain confident in our ability to navigate the current environment, execute on our strategic priorities, and continue driving progress as we enhance long-term value for our stockholders. 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 can now open the line for questions. And thank you all for joining us today.
There are no further questions at this time. I would like to turn the floor back over to management for any additional closing remarks.
Thanks, Alicia, and thanks, everyone, for listening today. We look forward to reconvening at our call next quarter.
Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines.