Cowen Group, Inc. (NASDAQ:COWN) Q3 2018 Earnings Conference Call Transcript

Oct 25, 2018 • 09:00 am ET


Cowen Group, Inc. (NASDAQ:COWN) Q3 2018 Earnings Conference Call Transcript


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Good morning, ladies and gentlemen, and thank you for joining Cowen's Conference Call to discuss the Financial Results for the 2018 Third Quarter. By now, you should have received a copy of the company's earnings release, which can be accessed at Cowen's website at

(Forward-looking Cautionary Statements)

Also on today's call, our speakers will reference certain non-GAAP financial measures, which the company believes will provide useful information for investors. Reconciliation of those measures to GAAP is consistent with the company's reconciliation as presented in today's earnings release.

Now, I would like to turn the call over to Mr. Jeffrey M. Solomon, CEO.

Jeffrey Marc Solomon

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

The third quarter was another strong quarter continuing the positive momentum that we had in the first half of 2018. Our economic income rose 175% over the third quarter of 2017 to $22.7 million and was driven primarily by the continued performance of our investment banking and brokerage businesses.

Similar to the prior two quarters, our investment banking business continued to capitalize on the robust investor demand for IPOs and follow-ons while building a strong pipeline of future transactions. Supporting this heightened financing activity was the continued healthy organic growth of our strategic advisory business.

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

We also continued to execute on our strategic initiative to simplify the business and generate higher, more consistent returns. As I will outline later in the call, this is something we've been actively working on, which is optimizing our structure since I became CEO at the beginning of the year, and I'm encouraged by the notable strides we've made towards that objective.

Looking ahead, we will continue to position the Cowen platform around our core competencies in order to drive growth and profitability on a consistent basis. Before doing a deeper dive on the quarter, I want to highlight our financial performance for the quarter and year-to-date in more detail. Economic income, as I mentioned, increased 175% to $22.7 million from $8.3 million in the prior year period. This was on a 24% increase in economic income revenue.

Economic operating income, a non-GAAP financial measure that we introduced last quarter and which represents economic income, excluding depreciation and amortization, totaled $25.6 million for the quarter versus $11.3 million in the third quarter of 2017. For the first nine months of 2018, economic operating income totaled $77.3 million versus $33.6 million for the same period in 2017.

Turning now to our results and progress in each of our specific operating businesses. In banking and capital markets, we continue to capitalize on a strong, healthy capital raising environment. Investment banking grew