Cowen Group (COWN) Tops Q4 EPS by 17c, Revenues Beat

Cowen Group (NASDAQ: COWN) reported Q4 EPS of $0.28, $0.17 better than the analyst estimate of $0.11. Revenue for the quarter came in at $207.4 million versus the consensus estimate of $194.32 million.

Total Economic Income revenue was $207.4 million compared to $183.0 million in the fourth quarter of 2017, an increase of 13%. The increase in Economic Income revenue was primarily attributable to an increase in investment banking and brokerage activity.

Interest expense increased $1.1 million to $6.5 million compared with $5.4 million in the prior year period. The increase is primarily related to new debt issued in June of 2018.

Net of interest expense, Economic Income revenue was $200.9 million versus $177.6 million in the prior year quarter.

Total expenses were $193.2 million compared to $187.0 million in the prior year period. Items included are discussed below.

• Compensation and benefits expense was $114.1 million compared to $111.1 million in the fourth 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 55.0% compared to 60.7% in the prior year period.
• Fixed non-compensation expenses increased $1.7 million year over year to $37.2 million. The increase was mostly attributable to increased occupancy costs and costs related to equity method investments.
• Variable non-compensation expenses were $37.7 million compared to $35.5 million in the fourth quarter 2017. The increase is due to increased marketing and business development costs.
• Net income (loss) attributable to non-controlling interests decreased by $0.4 million to $1.5 million for the three months ended December 31, 2018 compared with $1.9 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.

Depreciation expense, during the fourth quarter of 2018, was $1.7 million compared to $1.5 million in the prior year period. The increase was due to an increase in depreciable assets acquired from the Convergex acquisition.

Amortization expense was $1.1 million compared to $1.8 million in the fourth quarter of 2017. The decrease is primarily related to a decrease in certain intangible assets which have been fully amortized.

Economic Operating Income, which represents Economic Income attributable to common stockholders less preferred stock dividends and the add back of depreciation and amortization, was $8.7 million for the fourth quarter of 2018, compared to an Economic Operating Loss of $7.9 million in the prior year period.

Management Commentary

Jeffrey M. Solomon, Chief Executive Officer of Cowen, said, "2018 was a milestone year for Cowen. We made important strides toward accomplishing our operational and financial objectives established at the beginning of the year. We continue to work hard to make the company more profitable and our businesses more sustainable. As a result of decisions made last year as well as in prior years, we significantly improved ROCE to 12.1%. As we look ahead to the remainder of 2019, we will continue to execute on our objectives by applying the framework philosophy, 'simpler, fewer, deeper.'"

For earnings history and earnings-related data on Cowen Group (COWN) click here.

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