Cowen

Cowen Announces Second Quarter 2018 Financial Results

Strong Q2 Execution Builds on Record Q1 Results to Represent the Company's Best First Half Performance Since Inception

NEW YORK, July 26, 2018 (GLOBE NEWSWIRE) -- Cowen Inc. (NASDAQ:COWN) (“Cowen” or “the Company”) today announced its operating results for the second quarter ended June 30, 2018.

Second Quarter Financial Highlights

GAAP

  • Revenue rose 46% year over year to $234.6 million compared to $160.5 million in the prior year period.
     
  • Net income attributable to common stockholders was $3.7 million or $0.12 per diluted common share compared to $5.7 million or $0.19 per diluted common share in the prior year period.

Economic Income (Non-GAAP)

  • Revenue increased 36% year over year to $234.3 million compared to $171.9 million in the prior year period.
     
  • The Company also generated Economic Income of $21.7 million or $0.71 per diluted share compared to Economic Income of $11.5 million or $0.39 per diluted share in the prior year period.

Operating Highlights

  • On a GAAP and Economic Income basis, investment banking revenue increased 32% and 25% from the second quarter 2017 to $84.8 million and $80.0 million, respectively.  The quarter was again led by strong performance in equity financings as well as a growing contribution from advisory and non-healthcare sectors.
     
  • Brokerage revenue rose 62% and 69% from the second quarter 2017 to $103.3 million and $113.2 million on a GAAP and Economic Income basis, respectively.   The increase was primarily attributable to the acquisition of Convergex in June 2017.
     
  • As of July 1, 2018, assets under management were $10.9 billion, a $40 million increase from April 1, 2018.
     
  • On a GAAP basis, the compensation to revenue ratio was 47%, unchanged versus the prior year period.  On an Economic Income basis, the compensation to revenue ratio declined to 56% from 58% due to a shift in business mix as a result of the Convergex acquisition.
     
  • Book value per share increased to $23.37 as of June 30, 2018, compared to $21.82 as of December 31, 2017.  Tangible book value per share grew to $20.40 as of June 30, 2018, compared to $18.77 as of December 31, 2017.
 
Summary Financial Highlights
(Dollar amounts in millions, except per share information) Three Months Ended   Six Months Ended
June 30,       March 31,       June 30,    
  2018   2017   %   2018   %   2018   2017   %
                               
GAAP:                              
Revenue $ 234.6     $ 160.5     46 %   $ 251.4     (7 )%   $ 486.0     $ 275.5     76 %
Net income (loss) attributable to Cowen common stockholders $ 3.7     $ 5.7     (36 )%   $ 15.2     (76 )%   $ 18.9     $ 7.0     168 %
Earnings (loss) per share (diluted) $ 0.12     $ 0.19     (38 )%   $ 0.50     (76 )%   $ 0.62     $ 0.24     154 %
                               
Economic Income (non-GAAP):                              
Economic income revenue $ 234.3     $ 171.9     36 %   $ 241.5     (3 )%   $ 475.8     $ 300.5     58 %
Economic income (loss) attributable to Cowen $ 21.7     $ 11.5     88 %   $ 24.1     (10 )%   $ 45.8     $ 17.0     169 %
Economic income per share (diluted) $ 0.71     $ 0.39     81 %   $ 0.79     (10 )%   $ 1.50     $ 0.59     155 %
                               
Note: Amounts may not add due to rounding.  A reconciliation of Economic Income (Loss) to net income appears under the section, "Summary Economic Income (Loss) to GAAP Reconciliation."
 

Jeffrey M. Solomon, Chief Executive Officer of Cowen, said, "Our second quarter was a continuation of favorable trends we experienced in our record first quarter where our businesses benefited from a robust capital raising environment, elevated trading volumes, and strong performance in our investment management products.  In addition, we continued to gain momentum in scaling our businesses, driving margin, diversifying revenue streams and harmonizing our balance sheet activities with our operating businesses to generate more accretive returns for shareholders.  Altogether, our results and progress for the first and second quarter of 2018 culminated in Cowen’s strongest six month performance since the Company’s formation in 2009."

GAAP Financial Review

Summary GAAP Financial Information

(Dollar amounts in millions, except per share information) Three Months Ended   Six Months Ended
June 30,       March 31,       June 30,    
    2018     2017   %    2018   %   2018   2017   %
                               
Revenue $ 234.6     $ 160.5     46 %   $ 251.4     (7 )%   $ 486.0     $ 275.5     76 %
Net income (loss) attributable to Cowen $ 5.4     $ 7.4     (27 )%   $ 16.9     (68 )%   $ 22.3     $ 10.4     113 %
  Preferred stock dividends $ 1.7     $ 1.7     %   $ 1.7     %   $ 3.4     $ 3.4     %
Net income (loss) attributable to Cowen common stockholders $ 3.7     $ 5.7     (36 )%   $ 15.2     (76 )%   $ 18.9     $ 7.0     168 %
                               
Earnings (loss) per share (diluted) $ 0.12   $ 0.19   (38 )%   $ 0.50   (76 )%   $ 0.62     $ 0.24     154 %
                               
Note: Amounts may not add due to rounding.
 

Revenue was $234.6 million compared to $160.5 million in the second quarter of 2017.  The increase was primarily due to the acquisition of Convergex in June 2017 and strong performance in investment banking as well as an increase in interest and dividends attributable to securities financing activities.

Interest and dividend expense was $24.3 million compared to $12.2 million in the prior year period.  This was primarily attributable to securities finance activities related to the June 2017 acquisition of Convergex.

Employee compensation and benefits expense increased $29.7 million from the prior year period to $131.8 million.  The increase was primarily due to $74.0 million in higher revenue, which resulted in a higher compensation and benefits accrual.

Reinsurance-related expense of $9.9 million increased $2.6 million from the year ago period.  This increase was due to additional reinsurance policies in force.

Operating, general, administrative and other expenses increased $21.3 million year over year to $75.3 million. The increase was primarily related to higher floor brokerage and trade execution costs, due to higher brokerage revenue, as well as increased marketing and business development expenses, legal and other professional fees, depreciation and amortization, and increased occupancy costs, which are mostly related to the acquisition of Convergex in June 2017.

Depreciation and amortization expense of $3.2 million increased $0.1 million from the prior year period.  The increase was primarily related to an increase in amortization of intangible assets and depreciable assets related to the acquisition of Convergex in June 2017.

Other income was $47.1 million compared to $57.3 million in the prior year period.  The decrease was primarily related to a decrease in performance of the Company's own invested capital offset partially by the bargain purchase gain related to the acquisition of Convergex during June 2017.

Income tax expense was $4.0 million compared to an income tax benefit of $0.8 million in the prior year quarter.  This change was primarily attributable to the Company’s increased pre-tax book income, partially offset by the impact of the new reduced statutory Federal tax rate enacted as part of the Tax Cuts and Jobs Act of 2017.

Net income attributable to redeemable non-controlling interests increased by $3.5 million to $24.6 million from the prior year period.  The increase was primarily the result of an increase in income earned by the event driven and private healthcare consolidated funds in the current year period.

Capital

Select Balance Sheet Data

(Amounts in millions, except per share information) June 30,   Dec. 31,   June 30,
   2018    2017    2017
           
Cowen Inc. stockholders' equity $ 793.2   $ 748.0   $ 833.9
Common equity (CE) $ 691.9   $ 646.7   $ 732.6
Tangible common equity (TCE) $ 604.0   $ 556.1   $ 638.5
           
Book value per share (CE/CSO) $ 23.37   $ 21.82   $ 23.58
Tangible book value per share (TCE/CSO) $ 20.40   $ 18.77   $ 20.55
           
Common shares outstanding (CSO)   29.6      29.6      31.1 
           
Reconciliation of GAAP Cowen Inc. stockholders' equity to tangible common equity:    
           
Cowen Inc. stockholders' equity $ 793.2   $ 748.0   $ 833.9
Less:          
  Preferred stock   101.3      101.3      101.3 
Common equity (CE) $ 691.9   $ 646.7   $ 732.6
           
Less:          
  Goodwill & intangibles   87.9      90.6      94.1 
Tangible common equity (TCE) $ 604.0   $ 556.1   $ 638.5
           
Note: Amounts may not add due to rounding.          
           

Stockholders' equity decreased to $793.2 million as of June 30, 2018 from $833.9 million as of June 30, 2017.   The decrease was primarily due to the re-measurement of the Company's deferred tax assets based on the lower corporate Federal rate under The Tax Cuts and Jobs Act, enacted on December 22, 2017 of $47 million which was partially offset with 2018 earnings and a reclassification to equity of an embedded conversion option associated with convertible debt (upon shareholder approval of share settlement on June 26, 2018).

Share Repurchase Program

In the second quarter 2018, the Company repurchased $3.3 million of its common stock, or 218,088 shares, under the Company's existing share repurchase program.  Approximately $14.1 million remains available for repurchase under the existing program.

Outside the share repurchase program, in the second quarter 2018, the Company acquired approximately $3.5 million of shares as a result of a net share settlement relating to the vesting of equity awards, or 223,803 shares.

Economic Income (Loss)

Throughout the remainder of this press release the Company presents Economic Income financial measures that are not prepared in accordance with Generally Accepted Accounting Principles (“GAAP”). In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for consolidated funds and excludes (ii) goodwill and intangible impairment (iii) certain other transaction-related adjustments and/or reorganization expenses (iv) certain costs associated with debt and (v) preferred stock dividends. In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income (Loss) revenues also include management fees, incentive income and investment income earned through the Company's investment as a general partner in certain real estate entities and the Company's investment in the activist business and certain funds. For US GAAP purposes, all of these items, are recorded in other income (loss). Economic Income (Loss) recognizes incentive fees during periods when the fees are not yet crystallized for US GAAP reporting. In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue.

For a more complete description of Economic Income (Loss) and a reconciliation of GAAP net income (loss) to Economic Income (Loss) for the periods presented and additional information regarding the reconciling adjustments, please see the “Non-GAAP Financial Measures” section of this press release.

Economic Income (Non-GAAP) Financial Review

Summary Economic Income (Loss) Financial Information

(Dollar amounts in millions, except per share information) Three Months Ended   Six Months Ended
June 30,       March 31,       June 30,    
2018   2017   %   2018   %   2018   2017   %
                               
Revenue $ 234.3     $ 171.9     36 %   $ 241.5     (3 )%   $ 475.8     $ 300.5     58 %
Economic Income (Loss) $ 21.7     $ 11.5     88 %   $ 24.1     (10 )%   $ 45.8     $ 17.0     169 %
                               
Economic Income (Loss) per share (diluted) $ 0.71     $ 0.39     81 %   $ 0.79     (10 )%   $ 1.50     $ 0.59     155 %
                               
Note: Amounts may not add due to rounding.  NM indicates not meaningful.
 

Summary Economic Income (Loss) to GAAP Reconciliation

  Three Months Ended   Six Months Ended
  June 30,   March 31,   June 30,
(Per share information) 2018   2017   2018   2018   2017
                   
Economic Income (Loss) per share (diluted) $ 0.71     $ 0.39     $ 0.79     $ 1.50     $ 0.59  
Adjustments:                  
  Preferred dividends (0.06 )   (0.06 )   (0.06 )   (0.11 )   (0.12 )
  Income Taxes (0.14 )   0.03     (0.22 )   (0.36 )   (0.04 )
  Uncrystallized incentive fees (0.05 )       (0.01 )   (0.07 )    
  Amortization of discount on convertible debt (0.06 )           (0.06 )    
  Debt extinguishment costs (0.02 )           (0.02 )    
  Unrealized gain (loss) on conversion option (a) (0.26 )       0.01     (0.25 )    
  Restructuring     (0.29 )           (0.29 )
  Bargain purchase gain     0.26             0.27  
  Transaction-related and other costs     (0.14 )   (0.01 )   (0.01 )   (0.17 )
GAAP earnings (loss) per share (diluted) $ 0.12     $ 0.19     $ 0.50     $ 0.62     $ 0.24  
                   
Note: Amounts may not add due to rounding.
 

(a) Prior to our June 26, 2018 shareholder meeting, the embedded conversion option feature associated with our convertible notes (due 2022) was recognized at fair value in accordance with GAAP as a derivative liability.  The profit and loss movement related to that liability was associated with the movement of our stock price.  Subsequent to receiving shareholder approval for share settlement the embedded conversion option was reclassified to equity and will no longer result in profit and loss movements.

Total Economic Income revenue was $234.3 million compared to $171.9 million in the second quarter of 2017, an increase of 36%.  The increase in Economic Income revenue was primarily attributable to an increase in investment banking and brokerage activity.

Interest expense decreased $0.2 million to $4.1 million compared with $4.3 million in the prior year period.  Interest expense relates to debt issued.

Net of interest expense, Economic Income revenue was $230.2 million versus $167.6 million in the prior year quarter.

Economic Income Revenue

  Three Months Ended   Six Months Ended
  June 30,       March 31,       June 30,    
(Dollar amounts in millions) 2018   2017   %   2018   %   2018   2017   %
                               
Investment banking $ 80.0     $ 64.1     25 %   $ 93.9     (15 )%   $ 174.0     100.7     73 %
Brokerage 113.2     67.0     69 %   114.1     (1 )%   227.3     119.3     90 %
Management fees 12.5     14.4     (13 )%   13.1     (5 )%   25.6     28.3     (10 )%
Incentive income 9.4     11.0     (15 )%   5.2     80 %   14.6     14.0     4 %
Investment income (loss) 20.0     14.2     41 %   14.3     40 %   34.3     35.8     (4 )%
Other revenues (0.7 )   1.3     (157 )%   0.9     (181 )%   0.2     2.4     (93 )%
Total Revenue $ 234.3     $ 171.9     36 %   $ 241.5     (3 )%   $ 475.8     $ 300.5     58 %
                               
Note: Amounts may not add due to rounding.

 

Total expenses were $205.5 million compared to $153.4 million in the prior year period.  Items included are discussed below.

  • Compensation and benefits expense was $131.3 million compared to $100.4 million in the second quarter 2017. The increase was due to higher revenue during the 2018 period as compared to 2017, which resulted in a higher compensation and benefits accrual. The compensation to revenue ratio was 56% compared to 58% for the prior year period. The lower compensation to Economic Income revenue ratio was due to a shift in the Company's overall business mix as a result of the acquisition of Convergex in June 2017.
     
  • Fixed non-compensation expenses increased 17% year over year to $34.9 million from $29.8 million. The increase was attributable to the acquisition of Convergex in June 2017.
     
  • Variable non-compensation expenses were $37.2 million compared to $21.9 million in the second quarter 2017. The increase was primarily related to higher floor brokerage and trade execution costs related to the acquisition of Convergex in June 2017, which included a mix of higher variable cost businesses (as a percentage of revenue).
     
  • Reimbursements from affiliates, which relate to the investment management segment, decreased $0.2 million to $0.4 million for the three months ended June 30, 2018, compared to $0.6 million in the prior year period.
     
  • Net income attributable to redeemable non-controlling interests increased by $0.5 million to $2.5 million for the three months ended June 30, 2018 compared with $2.0 million in the prior year period. Non-controlling interest represents the portion of net income or loss attributable to certain non-wholly owned subsidiaries that is allocated to the Company's partners in those subsidiaries.

Economic Operating Income, which represents Economic Income before depreciation and amortization, was $24.7 million, a 74% increase from the prior year period of $14.2 million.

Depreciation expense was $1.7 million compared to $1.3 million in the prior year period.  The increase was due to an increase in depreciable assets acquired during the Convergex acquisition in June 2017.

Amortization expense was $1.3 million, which was unchanged versus the prior year period.

Investment Management Segment

Assets Under Management

As of July 1, 2018, the Company had assets under management of $10.9 billion, a $40 million increase from April 1, 2018.

Management fees were $11.8 million compared to $13.6 million in the prior year quarter.  The decrease was primarily related to a decrease in management fees from the healthcare royalty business and one of the Company's other funds.

Incentive income was $9.4 million compared to $11.0 million in the prior year quarter.  This decrease was primarily related to a decrease in performance fees from the multi-strategy business partially offset by the private healthcare business.

Investment income for the segment was $16.9 million, compared to $9.3 million in the second quarter 2017.  The increase was primarily related to an increase in performance of the Company's own invested capital.

Investment Bank Segment

Brokerage revenue increased $46.2 million to $113.2 million in the second quarter 2018 compared to $67.0 million in the second quarter 2017.  This was primarily attributable to the acquisition of Convergex in June 2017.

Investment banking revenue was $80.0 million, a 25% increase over the prior year period.  The increase was primarily due to higher equity underwriting and advisory activity.

Investment Banking Revenue Summary

  Three Months Ended   Six Months Ended
  June 30,   June 30,
(Dollar amounts in millions)  2018    2017    2018    2017
Equity Underwriting $ 64.5   $ 56.1   $ 143.8   $ 88.2
Debt Underwriting   1.0      —      1.3      (0.1)
Advisory   14.5      8.0      28.9      12.5 
  Total $ 80.0   $ 64.1   $ 174.0   $ 100.7
                       

Investment Banking Transaction Count

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2018   2017   2018   2017
Equity Underwriting 30   31   66   54
  Of which bookrun: 22   18   50   32
Debt Underwriting 1     2  
Advisory 10   2   15   4
Total 41   33   83   58
               

Investment income for the segment was $3.1 million versus $4.9 million in the second quarter 2017.

Earnings Conference Call with Management

The Company will host a conference call to discuss its 2018 second quarter results on Thursday, July 26, 2018, at 9:00 am ET.  The call can be accessed by dialing 1-(855) 760-0961 domestic or 1-(631) 485-4850 international.  The passcode for the call is 1074406.  A replay of the call will be available beginning at 12:00 pm ET July 26, 2018 through 12:00 pm ETAugust 2, 2018.  To listen to the replay of this call, please dial 1-(855) 859-2056 domestic or 1-(404) 537-3406 international and enter passcode 1074406.  The call can also be accessed through live audio webcast or by delayed replay on the Company’s website at www.cowen.com.

About Cowen Inc.

Cowen Inc. is a diversified financial services firm and, together with its consolidated subsidiaries, provides investment management, investment banking, research, sales and trading, prime brokerage, global clearing and commission management through its two business segments: Cowen Investment Management and its affiliates make up the Company’s investment management segment, while Cowen and Company, a member of FINRA and SIPC, and its affiliates make up the Company’s investment bank segment. Cowen Investment Management provides investment management solutions to a global client base and manages a significant portion of Cowen’s proprietary capital. Cowen and its affiliates offer industry focused investment banking for growth-oriented companies, domain knowledge-driven research, a sales and trading platform for institutional investors, global clearing and commission management services and also a comprehensive suite of prime brokerage services.  Founded in 1918, the firm is headquartered in New York and has offices worldwide.  To download Cowen’s investor relations app, which offers access to SEC filings, news releases, webcasts and presentations, please visit the App Store for iPhone and iPad or Google Play for Android mobile devices.

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.  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.

Investor Relations Contacts

Cowen Inc.
Stephen Lasota, Chief Financial Officer, (212) 845-7919
Nancy Wu, (646) 562-1259

Liolios Group, Inc.
Matt Glover, Cody Slach, Najim Mostamand, CFA
949-574-3860
COWN@liolios.com

Source:  Cowen Inc.

 
Cowen Inc.
GAAP Preliminary Unaudited Condensed Consolidated Statements of Operations
(Dollar amounts in thousands, except per share data)
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2018   2017   2018   2017
Revenue              
Investment banking $ 84,826     $ 64,146     $ 182,814     $ 100,699  
Brokerage 103,285     63,845     209,018     114,379  
Management fees 7,373     8,656     14,790     17,364  
Incentive income 48     3,726     64     4,272  
Interest and dividends 25,109     7,917     51,063     13,006  
Reimbursement from affiliates 336     495     713     2,147  
Aircraft lease revenue 419     1,043     1,134     2,102  
Reinsurance premiums 9,226     7,682     17,873     14,771  
Other 876     1,345     2,212     2,745  
Consolidated Funds revenues 3,075     1,675     6,276     4,016  
Total revenue 234,573     160,530     485,957     275,501  
Interest and dividends 24,306     12,211     48,846     22,141  
Total net revenue 210,267     148,319     437,111     253,360  
Expenses              
Employee compensation and benefits 131,845     102,111     266,985     178,784  
Reinsurance claims, commissions and amortization of deferred acquisition costs 9,924     7,275     18,655     13,453  
Operating, general, administrative and other expenses 75,304     53,990     151,523     93,591  
Depreciation and amortization expense 3,194     3,132     6,419     6,160  
Restructuring costs     8,541         8,541  
Consolidated Funds expenses 3,149     2,748     5,580     7,711  
Total expenses 223,416     177,797     449,162     308,240  
Other income (loss)              
Net (losses) gains on securities, derivatives and other investments 16,719     18,719     32,688     44,775  
Bargain purchase gain     7,946         7,946  
Gain/(loss) on debt extinguishment (556 )       (556 )    
Consolidated Funds net (losses) gains 30,985     30,613     48,850     43,959  
Total other income (loss) 47,148     57,278     80,982     96,680  
               
Income (loss) before income taxes 33,999     27,800     68,931     41,800  
Income tax expense/(benefit) 3,993     (785 )   10,916     1,126  
Net income (loss) 30,006     28,585     58,015     40,674  
Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds 24,607     21,145     35,763     30,250  
Net income (loss) attributable to Cowen Inc. 5,399     7,440     22,252     10,424  
Preferred stock dividends 1,698     1,698     3,396     3,396  
Net income (loss) attributable to Cowen Inc. common stockholders $ 3,701     $ 5,742     $ 18,856     $ 7,028  
               
Earnings (loss) per share:              
Basic $ 0.12     $ 0.20     $ 0.64     $ 0.25  
Diluted $ 0.12     $ 0.19     $ 0.62     $ 0.24  
               
Weighted average shares used in per share data:              
Basic 29,769     28,634     29,688     27,852  
Diluted 30,720     29,474     30,460     28,860  
                       

 Appendix:  Non-GAAP Financial Measures

In addition to the results presented above in accordance with generally accepted accounting principles, or GAAP, the Company presents financial measures that are non-GAAP measures, such as Economic Income (Loss) and Economic Income (Loss) excluding certain non-cash items.  The Company believes that these non-GAAP measures, viewed in addition to, and not in lieu of, the Company’s reported GAAP results, provide useful information to investors regarding its performance and overall results of operations.  These metrics are an integral part of the Company’s internal reporting to measure the performance of its businesses and the overall effectiveness of senior management.  Reconciliations to comparable 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)

Economic Income (Loss) may not be comparable to similarly titled measures used by other public companies. Cowen uses Economic Income (Loss) as a measure of its operating performance, not as a measure of liquidity. 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 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 GAAP, including its consolidated funds. Economic Income (Loss) is considered by management as a supplemental measure to the GAAP results to provide a more complete understanding of its performance as management measures it.

In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for consolidated funds and excludes (ii) goodwill and intangible impairment (iii) certain other transaction-related adjustments and/or reorganization expenses (iv) certain costs associated with debt and (v) preferred stock dividends. In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income (Loss) revenues also include management fees, incentive income and investment income earned through the Company's investment as a general partner in certain real estate entities and the Company's investment in the activist business and certain funds. For US GAAP purposes, all of these items, are recorded in other income (loss). Economic Income (Loss) recognizes incentive fees during periods when the fees are not yet crystallized for US GAAP reporting.  In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue.

 
Cowen Inc.
Unaudited Reconciliation of GAAP and Economic Revenue for the Three Months Ended June 30, 2018
(Dollar amounts in thousands)
               
      Adjustments    
      Other   Funds   Economic
  GAAP   Adjustments (1)   Consolidation (2)   Income
Revenue              
Investment banking $ 84,826    $ (4,784) (g) $ —    $ 80,042 
Brokerage 103,285    9,901  (b) —    113,186 
Management fees 7,373    4,500  (a) 613    12,486 
Incentive income 48    9,306  (a)(g)   9,363 
Investment income —    19,954  (c)(f) —    19,954 
Interest and dividends 25,109    (25,109) (c) —    — 
Reimbursement from affiliates 336    (401) (e) 65    — 
Aircraft lease revenue 419    (419) (f) —    — 
Reinsurance premiums 9,226    (9,226) (d) —    — 
Other revenues 876    (1,596) (d) —    (721)
Consolidated Funds 3,075    —    (3,075)   — 
Total revenue $ 234,573    $ 2,126    $ (2,389)   $ 234,310 
               
Note: The following is a summary of the adjustments made to US GAAP revenue  to Economic Income revenue:
               
(1)  Other adjustments include reclassifications between other income (loss),  redeemable non-controlling interests and interest and non-interest expenses based on the nature of the respective line item
(2) Fund consolidation includes the impact of consolidation.  The related elimination entries of the Consolidated Funds are not included in Economic Income.  Adjustments include elimination of incentive income and management fees earned from the Consolidated Funds.
               
Other Adjustments:              
(a) Economic Income (Loss) recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share of management and incentive fees of certain real estate operating entities and the activist business.
(b) Economic Income (Loss) brokerage revenues included net securities borrowed and securities loaned activities.
(c) Economic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends).
(d) Economic Income (Loss) recognizes underwriting income from the Company's insurance related activities, net of expenses, within other revenue.
(e) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.
(f) Aircraft lease revenue is shown net of expenses in other revenue for Economic Income (Loss).
(g) Economic Income (Loss) presents underwriting expenses net of investment banking revenues and records income from uncrystallized incentive fees.
 

 

 
Cowen Inc.
Unaudited Reconciliation of GAAP and Economic Revenue for the Three Months Ended June 30, 2017
(Dollar amounts in thousands)
               
      Adjustments    
      Other   Funds   Economic
  GAAP   Adjustments (1)   Consolidation (2)   Income
Revenue              
Investment banking $ 64,146    $ —    $ —    $ 64,146 
Brokerage 63,845    3,148  (b) —    66,993 
Management fees 8,656    5,094  (a) 605    14,355 
Incentive income 3,726    4,464  (a) 2,779    10,969 
Investment income —    14,192  (c)(f) —    14,192 
Interest and dividends 7,917    (7,917) (c)     — 
Reimbursement from affiliates 495    (570) (e) 75    — 
Aircraft lease revenue 1,043    (1,043) (f) —    — 
Reinsurance premiums 7,682    (7,682) (d) —    — 
Other revenues 1,345    (72) (d) —    1,273 
Consolidated Funds 1,675        (1,675)   — 
Total revenue $ 160,530    $ 9,614    $ 1,784    $ 171,928 
               
Note: The following is a summary of the adjustments made to US GAAP revenue  to Economic Income revenue:
 
               
(1)  Other adjustments include reclassifications between other income (loss),  redeemable non-controlling interests and interest and non-interest expenses based on the nature of the respective line item
(2) Fund consolidation includes the impact of consolidation.  The related elimination entries of the Consolidated Funds are not included in Economic Income.  Adjustments include elimination of incentive income and management fees earned from the Consolidated Funds.
               
Other Adjustments:              
(a) Economic Income (Loss) recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share of management and incentive fees of certain real estate operating entities and the activist business.
(b) Economic Income (Loss) brokerage revenues included net securities borrowed and securities loaned activities.
(c) Economic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends).
(d) Economic Income (Loss) recognizes underwriting income from the Company's insurance related activities, net of expenses, within other revenue.
(e) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.
(f) Aircraft lease revenue is shown net of expenses in other revenue for Economic Income (Loss).
 

 

 
Cowen Inc.
Unaudited Reconciliation of GAAP and Economic Revenue for the Six Months Ended June 30, 2018
(Dollar amounts in thousands)
               
      Adjustments    
      Other   Funds   Economic
  GAAP   Adjustments (1)   Consolidation (2)   Income
Revenue              
Investment banking $ 182,814    $ (8,848) (g) $ —    $ 173,966 
Brokerage 209,018    18,239  (b) —    227,257 
Management fees 14,790    9,006  (a) 1,816    25,613 
Incentive income 64    14,478  (a)(g) 17    14,559 
Investment income —    34,255  (c)(f) —    34,256 
Interest and dividends 51,063    (51,063) (c) —    — 
Reimbursement from affiliates 713    (846) (e) 133    — 
Aircraft lease revenue 1,134    (1,134) (f) —    — 
Reinsurance premiums 17,873    (17,873) (d) —    — 
Other revenues 2,212    (2,045) (d)   166 
Consolidated Funds 6,276    —    (6,276)   — 
Total revenue $ 485,957    $ (5,831)   $ (4,310)   $ 475,817 
               
Note: The following is a summary of the adjustments made to US GAAP revenue  to Economic Income revenue:
               
(1)  Other adjustments include reclassifications between other income (loss),  redeemable non-controlling interests and interest and non-interest expenses based on the nature of the respective line item
(2) Fund consolidation includes the impact of consolidation.  The related elimination entries of the Consolidated Funds are not included in Economic Income.  Adjustments include elimination of incentive income and management fees earned from the Consolidated Funds.
               
Other Adjustments:              
(a) Economic Income (Loss) recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share of management and incentive fees of certain real estate operating entities and the activist business.
(b) Economic Income (Loss) brokerage revenues included net securities borrowed and securities loaned activities.
(c) Economic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends).
(d) Economic Income (Loss) recognizes underwriting income from the Company's insurance related activities, net of expenses, within other revenue.
(e) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.
(f) Aircraft lease revenue is shown net of expenses in other revenue for Economic Income (Loss).
(g) Economic Income (Loss) presents underwriting expenses net of investment banking revenues and records income from uncrystallized incentive fees.
 

 

 
Cowen Inc.
Unaudited Reconciliation of GAAP and Economic Revenue for the Six Months Ended June 30, 2017
(Dollar amounts in thousands)
               
      Adjustments    
      Other   Funds   Economic
  GAAP   Adjustments (1)   Consolidation (2)   Income
Revenue              
Investment banking $ 100,699    $ —    $ —    $ 100,699 
Brokerage 114,379    4,927  (b) —    119,306 
Management fees 17,364    9,805  (a) 1,133    28,302 
Incentive income 4,272    6,490  (a) 3,267    14,029 
Investment income —    35,816  (c)(f) —    35,816 
Interest and dividends 13,006    (13,006) (c) —    — 
Reimbursement from affiliates 2,147    (2,300) (e) 153    — 
Aircraft lease revenue 2,102    (2,102) (f) —    — 
Reinsurance premiums 14,771    (14,771) (d) —    — 
Other revenues 2,745    (367) (d) —    2,378 
Consolidated Funds 4,016    —    (4,016)   — 
Total revenue $ 275,501    $ 24,492    $ 537    $ 300,530 
               
Note: The following is a summary of the adjustments made to US GAAP revenue  to Economic Income revenue:
               
(1)  Other adjustments include reclassifications between other income (loss),  redeemable non-controlling interests and interest and non-interest expenses based on the nature of the respective line item
(2) Fund consolidation includes the impact of consolidation.  The related elimination entries of the Consolidated Funds are not included in Economic Income.  Adjustments include elimination of incentive income and management fees earned from the Consolidated Funds.
               
Other Adjustments:              
(a) Economic Income (Loss) recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share of management and incentive fees of certain real estate operating entities and the activist business.
(b) Economic Income (Loss) brokerage revenues included net securities borrowed and securities loaned activities.
(c) Economic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends).
(d) Economic Income (Loss) recognizes underwriting income from the Company's insurance related activities, net of expenses, within other revenue.
(e) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.
(f) Aircraft lease revenue is shown net of expenses in other revenue for Economic Income (Loss).
 

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Source: Cowen Inc.