Cowen

Cowen Announces Third Quarter 2019 Financial Results

  • Reports GAAP EPS of $0.07 and Economic Operating EPS of $0.34
  • Profitability Driven by Higher Year-over-Year Incentive Income and Brokerage Revenues
  • Cowen Investment Management Launches New Sustainable Investments Strategy

NEW YORK, Oct. 24, 2019 (GLOBE NEWSWIRE) -- Cowen Inc. (NASDAQ: COWN) (“Cowen” or “the Company”) today announced its operating results for the third quarter ended September 30, 2019.

GAAP

  • Third quarter 2019 revenue was $252.0 million compared to $221.0 million in the third quarter of 2018.
  • Third quarter 2019 net income was $2.1 million, or $0.07 per diluted common share, compared to $13.8 million, or $0.45 per diluted common share in the third quarter of 2018.

Economic Income (Non-GAAP)

  • Third quarter 2019 revenue decreased 4% to $217.1 million from $226.2 million in the prior-year period.
  • Third quarter 2019 economic income was $5.5 million, or $0.18 per diluted common share, compared to $21.0 million, or $0.68 per diluted common share, in the prior-year period.
  • Third quarter 2019 economic operating income was $10.6 million, or $0.34 per diluted common share, compared to $23.9 million, or $0.77 per diluted common share, in the prior-year period.

Third Quarter 2019 Financial Summary

  Three Months Ended       Nine Months Ended    
September 30       September 30    
(Dollar amounts in millions, except per share information) 2019   2018   %   2019   2018   %
                       
GAAP:                      
Revenue $ 252.0     $ 221.0     14  %   $ 768.3     $ 707.0     9 %
Net income (loss) attributable to Cowen Inc. $ 3.8     $ 15.5     (75 )%   $ 19.4     $ 37.7     (49 )%
  Less:  Preferred stock dividends $ (1.7 )   $ (1.7 )   %   $ (5.1 )   $ (5.1 )   %
Net income (loss) attributable to common stockholders $ 2.1     $ 13.8     (85 )%   $ 14.3     $ 32.6     (56 )%
                       
ECONOMIC INCOME (NON-GAAP):                      
Economic income revenue $ 217.1     $ 226.2     (4 )%   $ 695.0     $ 702.1     (1 )%
Income (loss) attributable to Cowen Inc. $ 7.2     $ 22.7     (68 )%   $ 41.4     $ 68.5     (40 )%
  Less:  Preferred stock dividends $ (1.7 )   $ (1.7 )   %   $ (5.1 )   $ (5.1 )   %
Economic income (loss) $ 5.5     $ 21.0     (74 )%   $ 36.3     $ 63.4     (43 )%
                       
  Add:  Depreciation and amortization $ 5.1     $ 2.9     75 %   $ 15.0     $ 8.9     69 %
Economic operating income $ 10.6     $ 23.9     (56 )%   $ 51.3     $ 72.2     (29 )%
                       
PER COMMON SHARE (DILUTED)                      
GAAP:                      
Earnings (loss) per common share $ 0.07     $ 0.45     (85 )%   $ 0.46     $ 1.07     (57 )%
                       
Economic income (non-GAAP):                      
Economic income (loss) per common share $ 0.18     $ 0.68     (74 )%   $ 1.16     $ 2.07     (44 )%
Economic operating income (loss) per common share $ 0.34     $ 0.77     (56 )%   $ 1.63     $ 2.36     (31 )%
                       
Note: Amounts may not add up due to rounding. In reporting periods prior to 2Q 2019 Economic Income was labeled as "Economic Income Attributable to Common Shareholders."  A reconciliation of economic income (loss) to GAAP net income appears under the section, "Summary Economic Income (Loss) to GAAP Reconciliation." 

Quarterly Financial Supplement

Supplemental financial, statistical and business-related information is included in the Company's quarterly financial supplement. This information should be read in conjunction with the Company's earnings release. Both the earnings release and the financial supplement are available on the Investor Relations section of the Company's website at investor.cowen.com/presentations.

Third Quarter 2019 Operating Highlights (Non-GAAP)

  • Improved revenue diversification:
    – Sequential improvement in incentive income and investment income offset sequentially lower revenues in investment banking and brokerage, highlighting sustainability of the operating business in challenging market conditions.
    – Non-healthcare revenue as a percentage of investment banking revenue rose to 55% from 43% in 3Q 2018.

  • Steady contribution from recurring revenue businesses:
    – Brokerage revenues were up 4% year-over-year to $105.9 million. Markets revenue, which includes brokerage, financing and other revenue, was $111.7 million, up 4% from the third quarter of 2018.
    – Revenue from institutional services (including prime services, clearing, commission management and commission recapture) was $31.6 million, up 13% year-over-year.

  • Leveraged Cowen's domain expertise ("Cowen DNA") with the operating businesses:
    – Positioning the investment management platform towards strategies that are salable, scalable and reflect Cowen DNA, such as the new sustainable investments strategy and expansion of the healthcare investments strategy.
    – Raised approximately $550 million in assets for Cowen branded strategies in the third quarter of 2019.

  • Increased transparency in segment reporting:
    Operating Company ("Op Co") and Asset Company ("Asset Co") reporting structure provides investors with greater insight into the profitability of the Company's business and the monetization potential of legacy investments.

Management Commentary
Jeffrey M. Solomon, Chairman and Chief Executive Officer of Cowen, said, "The third quarter of 2019 demonstrated the value of increasing diversity in our revenue mix. We were able to generate profitability despite more challenging market conditions for investment banking. We benefited from our scaled markets platform and had solid fund performance at Cowen Investment Management, where we also launched a new sustainability strategy and raised additional committed capital for our private healthcare strategy.”

GAAP Financial Review
Third Quarter Commentary

Revenue was $252.0 million compared to $221.0 million in the third quarter of 2018.  The increase was primarily due to increased activity in securities finance.

Interest and dividend expense was $56.5 million compared to $26.0 million in the prior-year period. The increase was primarily due to increased activity in securities finance.

Employee compensation and benefits expense decreased $13.1 million from the prior-year period to $114.2 million.

Operating, general, administrative and other expenses increased $13.6 million year-over-year to $83.9 million. The increase was primarily related to increased marketing and business development expenses and professional fees.

Depreciation and amortization expense of $5.1 million increased $1.9 million from the prior-year period. The increase was primarily due to higher amortization related to intangibles acquired through the Quarton acquisition.

Other income was $32.3 million compared to $42.0 million in the prior-year period. This change was primarily related to a decrease in performance of the Company's own invested capital.

Income tax expense was $1.4 million compared to an expense of $5.1 million in the prior-year quarter. This change was primarily attributable to the change in the Company's pre-tax book income.

Net income attributable to non-controlling interests increased by $3.6 million to $8.9 million from the prior-year period. The increase was primarily the result of an increase in income earned by the consolidated funds in the current year period.

Capital

Select Balance Sheet Data

(Amounts in millions, except per share information) September 30, 2019   December 31, 2018   September 30, 2018
           
Cowen Inc. stockholders' equity   $817.1     $794.4     $808.2
Common equity (CE)   $715.7     $693.1     $706.9
           
Book value per share (CE/CSO)   $24.67     $24.37     $24.26
           
Common shares outstanding (CSO)   29.0     28.4     29.1
           
Summary Stockholders' Equity Information
           
Cowen Inc. stockholders' equity   $817.1     $794.4     $808.2
Less:          
  Preferred stock   $101.3     $101.3     $101.3
Common equity (CE)   $715.7     $693.1     $706.9
           
Note: Amounts may not add up due to rounding.          

Share Repurchase Program

In the third quarter of 2019, the Company repurchased $10.4 million of its common stock, or 663,166 shares, at an average price of $15.69 under the Company's existing share repurchase program.

Outside the share repurchase program, in the third quarter of 2019 the Company acquired approximately $2.1 million of shares as a result of a net share settlement relating to the vesting of equity awards, or 132,348 shares, at an average price of $15.67.

The Board of Directors authorized an increase in the share buyback authorization. Approximately $25 million is currently available for repurchase under the program.

Economic Income (Non-GAAP) Financial Review
Throughout the remainder of this press release the Company presents Economic Income financial measures that are not prepared in accordance with accounting principles generally accepted in the United States of America (“US 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 and (iv) certain costs associated with debt. Economic Operating Income (Loss) is a similar measure but before depreciation and amortization expenses. 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 investment funds. For US GAAP purposes, all of these items, are recorded in other income (loss). Economic Income (Loss) recognizes (a) incentive fees during periods when the fees are not yet crystallized for US GAAP reporting and (b) retainer fees, relating to investment banking activities, earned during the period that would otherwise be deferred until closing 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 US 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.

Summary Economic Income (Loss) to GAAP Reconciliation

  Three Months Ended   Nine Months Ended
  September 30   June 30   September 30
(Per share information) 2019   2018   2019   2019   2018
                   
Economic income (loss) per common share (diluted) $ 0.18     $ 0.68     $ 0.49     $ 1.16     $ 2.07  
Adjustments:                  
  Income taxes (0.04 )   (0.17 )   (0.16 )   (0.30 )   (0.52 )
  Uncrystallized incentive fees     (0.03 )       (0.02 )   (0.09 )
  Amortization of discount on convertible debt (0.03 )   (0.04 )   (0.03 )   (0.10 )   (0.10 )
  Debt extinguishment costs                 (0.02 )
  Retainer fees deferred for GAAP (0.02 )       (0.03 )   (0.09 )    
  Unrealized gain (loss) on conversion option (a)     0.01             (0.24 )
  Goodwill impairment (b)         (0.13 )   (0.13 )    
Contingent liability adjustment (0.01 )           (0.01 )    
  Transaction-related and other costs (0.01 )   (0.01 )       (0.04 )   (0.02 )
GAAP earnings (loss) per share (diluted) $ 0.07     $ 0.45     $ 0.13     $ 0.46     $ 1.07  
                   
Note: Amounts may not add due to rounding.


(a) Prior to the Company's June 26, 2018 shareholder meeting, the embedded conversion option feature associated with its convertible notes (due 2022) was recognized at fair value in accordance with US GAAP as a derivative liability.  The profit and loss movement related to that liability was associated with the movement of the Company's 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.
(b) In conjunction with the change in segments and restructuring of reporting units in 2Q19, the Company recognized a goodwill impairment in the amount of $4.1 million within Asset Co.

Economic Income Revenue

  Three Months Ended   Nine Months Ended
  September 30       June 30       September 30    
(Dollar amounts in millions) 2019   2018   %   2019   %   2019   2018   %
                               
Investment banking $ 70.0     $ 77.5     (10 )%   $ 104.2     (33 )%   $ 257.2     $ 251.5     2 %
Brokerage 105.9     101.7     4 %   120.7     (12 )%   331.7     328.9     1 %
Management fees 10.9     12.4     (12 )%   10.5     4 %   31.8     38.0     (16 )%
Incentive income 14.4     6.9     108 %   4.2     240 %   35.4     21.5     65 %
Investment income (loss) 16.1     27.7     (42 )%   0.5     NM   33.5     61.9     (46 )%
Other revenues (0.1 )   0.1     NM   4.3     NM   5.4     0.3     NM
Total Revenue $ 217.1     $ 226.2     (4 )%   $ 244.4     (11 )%   $ 695.0     $ 702.1     (1 )%

Third Quarter 2019 Commentary

Total Economic Income revenue was $217.1 million compared to $226.2 million in the third quarter of 2018, a decrease of 4%. The year-over-year decrease in Economic Income revenue was primarily attributable to a decrease in investment banking activity and investment income, partially offset by increases in brokerage revenue and incentive income. Third quarter 2018 investment income included a gain of $23 million due to an increase in the value of Cowen's Tilray investment, which was divested in January 2019.

Interest expense increased $0.7 million to $7.1 million in the third quarter compared with $6.4 million in the prior year period.  The increase is primarily related to debt issued in June of 2018 and May of 2019.

Net of interest expense, Economic Income revenue was $209.9 million versus $219.8 million in the prior-year quarter.

Total expenses were $202.7 million compared to $197.1 million in the prior year period. Items included are discussed below.

  • Compensation and benefits expense was $116.5 million compared to $126.7 million in the third quarter 2018. The compensation-to-revenue ratio was 53.7%, down from 56.0% in the prior year period.
     
  • Fixed non-compensation expenses increased $2.4 million year over year to $37.1 million.
     
  • Variable non-compensation expenses were $37.3 million, up from $30.7 million in the third quarter 2018.
     
  • Net income attributable to non-controlling interests increased by $4.7 million to $6.8 million for the three months ended September 30, 2019, compared with $2.1 million in the prior-year period. Non-controlling interests represent 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 third quarter of 2019 was $1.8 million compared to $1.7 million in the prior year period.

Amortization expense was $3.2 million compared to $1.3 million in the third quarter of 2018. The increase is primarily related to intangible assets recognized in the Quarton acquisition.

Economic Operating Income, which represents Economic Income attributable to common stockholders before depreciation and amortization, was $10.6 million for the third quarter of 2019, compared to Economic Operating Income of $23.9 million in the prior-year period.

As of October 1, 2019, the Company had assets under management of $10.5 billion, a decrease of $1.6 billion and $0.4 billion from July 1, 2019 and October 1, 2018 respectively.

Business Segment Results
Change in Segments

During the second quarter of 2019, the Company realigned the business and reportable segment information that the Chief Operating Decision Maker ("CODM") regularly reviews to evaluate performance for operating decision-making purposes, including evaluation and allocation of resources.  As a result, the Company changed its segment reporting structure based on the Company's domain expertise as a driver of harmonized repeatable revenue for its operating business versus the Company’s long-term monetization strategies.

As a result of the change in segments, the Company has the following business segments: Operating Company (Op Co) and Asset Company (Asset Co).

  • The Op Co segment consists of four divisions: Cowen Investment Management (CIM), Investment Banking, Markets, and Research. Each of Op Co’s four divisions leverage the Research division’s core domain expertise to drive harmonized repeatable revenue for the segment.

    • The CIM division offers investors access to a number of strategies to meet their specific needs including merger arbitrage, activism, healthcare royalties, and private healthcare investing which leverage the content and domain expertise that are aligned with the Company's core areas of expertise ("Cowen DNA").

    • The Investment Banking division includes public and private capital raising transactions and providing strategic advisory services.

    • The Markets division includes trading equity and equity-linked securities on behalf of institutional investors as well as a full-service suite of prime brokerage services, cross-asset trading, securities finance, global execution, clearing and commission management businesses.

    • The Research division provides thought leadership and domain expertise that helps facilitate brokerage revenue in the Markets division, drive deal flow in the Investment Banking division and facilitate investor relationships and investing within CIM’s investment products.

  • The Asset Co segment consists of certain of the Company’s private investments, private real estate assets and other legacy investments. While the Asset Co segment is not a reportable segment, the Company provides segment level information for Asset Co.

Operating Company Segment

Brokerage revenue increased $4.2 million to $105.9 million in the third quarter 2019 compared to $101.7 million in the third quarter of 2018. The increase was primarily attributable to stronger institutional brokerage activity and a year-over-year increase in market-wide U.S. equity trading volumes.

Investment banking revenue was $70.0 million, a 10% decrease over the prior-year quarter.  The decrease was primarily due to weaker capital markets activity.

Investment Banking Revenue Summary

  Three Months Ended   Nine Months Ended
  September 30   September 30
(Dollar amounts in millions)   2019     2018     2019     2018
Capital Markets   $53.1       $55.3       $200.0       $200.4  
Advisory   17.0       22.2       57.2       51.1  
  Total   $70.0       $77.5       $257.2       $251.5  

Investment Banking Transaction Count

  Three Months Ended   Nine Months Ended
  September 30   September 30
  2019   2018   2019   2018
Capital Markets 30   31   106   99
  Of which bookrun: 15   19   68   69
Advisory 13   6   32   21
Total 43   37   138   120

Management fees in the Op Co segment were $10.3 million compared to $10.8 million in the prior-year quarter.

Incentive income in the Op Co segment was $15.4 million compared to $1.9 million in the prior-year quarter. This increase was due in part to increased incentive fees for Cowen Healthcare Investments.

Investment income in the Op Co segment was $15.2 million compared to income of $25.8 million in the prior-year quarter. The decrease was due in part to a $23 million increase in the Company's Tilray investment in the third quarter of 2018, partially offset by $12.2 million in gains recognized in the third quarter of 2019 related to exits in investments in our private healthcare strategy.

Asset Company Segment

As of October 1, 2019, the Company had invested capital in Asset Co totaling $145.0 million. The largest investments in Asset Co in the third quarter 2019 were in Italian wireless broadband provider Linkem ($70.0 million) private equity funds Formation8/Eclipse ($40.9 million) and private real estate holding Surfside ($9.9 million).

Total Asset Co economic income revenue was $0.4 million compared to $8.6 million in the prior-year quarter. The decrease was primarily due to an increase in the carrying value of Linkem in the third quarter of 2018.

Management fees in the Asset Co segment were $0.6 million compared to $1.5 million in the prior-year quarter.

Incentive income (loss) in Asset Co was $(1.0) million compared to income of $5.1 million in the prior-year quarter.

Investment income in Asset Co was $0.8 million compared to $1.9 million in the prior-year quarter.

Earnings Conference Call
Management will hold a conference call today (Thursday, October 24, 2019) at 9:00 am ET to discuss these results and provide an update on business conditions.

Chairman and Chief Executive Officer Jeffrey M. Solomon and Chief Financial Officer Stephen A. Lasota will host the presentation, followed by a question and answer period.

U.S. dial in: 1-(855) 760-0961
International dial-in: 1-(631) 485-4850
Passcode: 5476788

The call can also be accessed through live audio webcast or by delayed replay on the Company’s website at investor.cowen.com. Please call the conference telephone number 10 minutes prior to the start time.
A replay of the call will be available beginning at 12:00 pm ET October 24, 2019 through 12:00 pm ETOctober 31, 2019.

U.S. replay dial-in: 1-(855) 859-2056
International replay dial-in: 1-(404) 537-3406
Replay ID: 5476788

About Cowen Inc.
Cowen Inc. (“Cowen” or the “Company”) is a diversified financial services firm offering investment banking services, equity and credit research, sales and trading, prime brokerage, global clearing, commission management services and actively managed alternative investment products. Cowen focuses on delivering value-added capabilities to our clients in order to help them outperform. Founded in 1918, the Company is headquartered in New York and has offices worldwide. Learn more at Cowen.com

Investor Relations Contact:
JT Farley
(646) 562-1056
james.farley@cowen.com
Source:  Cowen Inc.

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.

Cowen Inc.
US GAAP Preliminary Unaudited Condensed Consolidated Statements of Operations
(Dollar amounts in thousands, except per share data)
               
  Three Months Ended   Nine Months Ended
  September 30   September 30
  2019   2018   2019   2018
Revenue              
Investment banking $ 77,292     $ 81,923     $ 272,103     $ 264,737  
Brokerage 93,995     92,035     302,840     301,053  
Management fees 7,300     7,546     21,480     22,336  
Incentive income 701     33     724     97  
Interest and dividends 60,707     26,448     129,846     77,511  
Reimbursement from affiliates 238     353     780     1,066  
Aircraft lease revenue     375         1,509  
Reinsurance premiums 8,146     8,378     29,068     26,251  
Other 1,237     1,634     3,228     3,846  
Consolidated Funds revenues 2,431     2,303     8,239     8,579  
Total revenue 252,047     221,028     768,308     706,985  
Interest and dividends expense 56,477     26,000     125,089     74,846  
Total net revenue 195,570     195,028     643,219     632,139  
Expenses              
Employee compensation and benefits 114,206     127,303     380,378     394,288  
Reinsurance claims, commissions and amortization of deferred acquisition costs 8,195     8,773     25,139     27,428  
Operating, general, administrative and other expenses 83,851     70,247     250,915     221,770  
Depreciation and amortization expense 5,082     3,139     14,990     9,558  
Goodwill impairment         4,100      
Consolidated Funds expenses 2,516     1,687     6,229     7,267  
Total expenses 213,850     211,149     681,751     660,311  
Other income (loss)              
Net (losses) gains on securities, derivatives and other investments 18,446     32,040     61,440     64,728  
  Gain/(loss) on debt extinguishment             (556 )
Consolidated Funds net (losses) gains 13,896     9,942     21,536     58,792  
Total other income (loss) 32,342     41,982     82,976     122,964  
               
Income (loss) before income taxes 14,062     25,861     44,444     94,792  
Income tax expense/(benefit) 1,365     5,083     9,615     15,999  
Net income (loss) 12,697     20,778     34,829     78,793  
Net income (loss) attributable to non-controlling interests in consolidated subsidiaries and funds 8,884     5,290     15,421     41,053  
Net income (loss) attributable to Cowen Inc. 3,813     15,488     19,408     37,740  
Less: Preferred stock dividends 1,698     1,698     5,094     5,094  
Net income (loss) attributable to Cowen Inc. common stockholders $ 2,115     $ 13,790     $ 14,314     $ 32,646  
               
Earnings (loss) per share:              
Basic $ 0.07     $ 0.47     $ 0.48     $ 1.10  
Diluted $ 0.07     $ 0.45     $ 0.46     $ 1.07  
               
Weighted average shares used in per share data:              
Basic 29,529     29,610     29,687     29,662  
Diluted 31,264     30,844     31,381     30,613  


 Appendix:  Non-GAAP Financial Measures

In addition to the results presented above in accordance with accounting principles generally accepted in United States of America ("US 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 US 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 US 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 US 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 US GAAP, including its consolidated funds. Economic Income (Loss) is considered by management as a supplemental measure to the US 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 and (iv) certain costs associated with debt.  Economic Operating Income (Loss) is a similar measure but before depreciation and amortization expenses.  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 investment funds. For US GAAP purposes, all of these items, are recorded in other income (loss). Economic Income (Loss) recognizes (a) incentive fees during periods when the fees are not yet crystallized for US GAAP reporting and (b) retainer fees, relating to investment banking activities, earned during the period that would otherwise be deferred until closing 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 US GAAP and Economic Revenue for the Three Months Ended September 30, 2019
(Dollar amounts in thousands)
               
      Adjustments    
      Other   Funds   Economic
  US GAAP   Adjustments (1)   Consolidation (2)   Income
Revenues              
Investment banking $ 77,292     $ (7,270 ) (a) $     $ 70,022  
Brokerage 93,995     11,865   (b)     105,860  
Management fees 7,300     3,033   (c) 574     10,907  
Incentive income 701     13,663   (c) 13     14,377  
Investment income     16,053   (d)     16,053  
Interest and dividends 60,707     (60,707 ) (b)(d)      
Reimbursement from affiliates 238     (265 ) (e) 27      
Reinsurance premiums 8,146     (8,146 ) (f)      
Other revenue 1,237     (1,389 ) (f) 26     (126 )
Consolidated Funds 2,431         (2,431 )    
Total revenues $ 252,047     $ (33,163 )   $ (1,791 )   $ 217,093  
               


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), non-controlling interests and interest and non-interest expenses based on the nature of the respective line item.
(2 ) Fund consolidation reflects 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) presents underwriting expenses net of investment banking revenues, expenses reimbursed from clients within their respective expense category.  Economic Income (Loss) also records retainer fees, relating to investment banking activities, collectible during the period that would otherwise be deferred until closing for US GAAP reporting.
(b) Economic Income (Loss) brokerage revenues included net securities borrowed and securities loaned activities which are shown gross in interest income and interest expense for US GAAP.
(c) Economic Income (Loss) recognizes revenues (i) net of distribution fees paid to agents, (ii) records income from uncrystallized incentive fees and (iii) the Company's proportionate share of management and incentive fees of certain real estate operating entities, the healthcare royalty business and the activist business.
(d) Economic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends).
(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) Economic Income (Loss) recognizes underwriting income from the Company's insurance related activities, net of expenses, within other revenue.


Cowen Inc.
Unaudited Reconciliation of US GAAP and Economic Revenue for the Three Months Ended September 30, 2018
(Dollar amounts in thousands)
               
      Adjustments    
      Other   Funds   Economic
  US GAAP   Adjustments (1)   Consolidation (2)   Income
Revenues              
Investment banking $ 81,923     $ (4,413 ) (a) $     $ 77,510  
Brokerage 92,035     9,637   (b)     101,672  
Management fees 7,546     4,459   (c) 381     12,386  
Incentive income 33     6,857   (c)(a) 20     6,910  
Investment income     27,672   (d)(g)     27,672  
Interest and dividends 26,448     (26,448 ) (b)(d)      
Reimbursement from affiliates 353     (418 ) (e) 65      
Aircraft lease revenue 375     (375 ) (g)      
Reinsurance premiums 8,378     (8,378 ) (f)      
Other revenue 1,634     (1,551 ) (f)     83  
Consolidated Funds 2,303         (2,303 )    
Total revenues $ 221,028     $ 7,042     $ (1,837 )   $ 226,233  
               


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), non-controlling interests and interest and non-interest expenses based on the nature of the respective line item.
(2 ) Fund consolidation reflects 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) presents underwriting expenses net of investment banking revenues, expenses reimbursed from clients within their respective expense category.  Economic Income (Loss) also records retainer fees, relating to investment banking activities, collectible during the period that would otherwise be deferred until closing for US GAAP reporting.
(b) Economic Income (Loss) brokerage revenues included net securities borrowed and securities loaned activities which are shown gross in interest income and interest expense for US GAAP.
(c) Economic Income (Loss) recognizes revenues (i) net of distribution fees paid to agents, (ii) records income from uncrystallized incentive fees and (iii) the Company's proportionate share of management and incentive fees of certain real estate operating entities, the healthcare royalty business and the activist business.
(d) Economic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends).
(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) Economic Income (Loss) recognizes underwriting income from the Company's insurance related activities, net of expenses, within other revenue.
(g) Aircraft lease revenue is shown net of expenses in investment income for Economic Income (Loss).


Cowen Inc.
Unaudited Reconciliation of US GAAP and Economic Revenue for the Nine Months Ended September 30, 2019
(Dollar amounts in thousands)
               
      Adjustments    
      Other   Funds   Economic
  US GAAP   Adjustments (1)   Consolidation (2)   Income
Revenues              
Investment banking $ 272,103     $ (14,869 ) (a) $     $ 257,234  
Brokerage 302,840     28,849   (b)     331,689  
Management fees 21,480     8,684   (c) 1,640     31,804  
Incentive income 724     34,072   (c) 557     35,353  
Investment income     33,522   (d)     33,522  
Interest and dividends 129,846     (129,846 ) (b)(d)      
Reimbursement from affiliates 780     (874 ) (e) 94      
Reinsurance premiums 29,068     (29,068 ) (f)      
Other revenue 3,228     2,109   (f) 14     5,351  
Consolidated Funds 8,239         (8,239 )    
Total revenues $ 768,308     $ (67,421 )   $ (5,934 )   $ 694,953  
               


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), non-controlling interests and interest and non-interest expenses based on the nature of the respective line item.
(2 ) Fund consolidation reflects 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) presents underwriting expenses net of investment banking revenues, expenses reimbursed from clients within their respective expense category.  Economic Income (Loss) also records retainer fees, relating to investment banking activities, collectible during the period that would otherwise be deferred until closing for US GAAP reporting.
(b) Economic Income (Loss) brokerage revenues included net securities borrowed and securities loaned activities which are shown gross in interest income and interest expense for US GAAP.
(c) Economic Income (Loss) recognizes revenues (i) net of distribution fees paid to agents, (ii) records income from uncrystallized incentive fees and (iii) the Company's proportionate share of management and incentive fees of certain real estate operating entities, the healthcare royalty business and the activist business.
(d) Economic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends).
(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) Economic Income (Loss) recognizes underwriting income from the Company's insurance related activities, net of expenses, within other revenue.


Cowen Inc.
Unaudited Reconciliation of US GAAP and Economic Revenue for the Nine Months Ended September 30, 2018
(Dollar amounts in thousands)
               
      Adjustments    
      Other   Funds   Economic
  US GAAP   Adjustments (1)   Consolidation (2)   Income
Revenues              
Investment banking $ 264,737     $ (13,261 ) (a) $     $ 251,476  
Brokerage 301,053     27,876   (b)     328,929  
Management fees 22,336     13,465   (c) 2,197     37,998  
Incentive income 97     21,336   (c) 37     21,470  
Investment income     61,927   (d)(g)     61,927  
Interest and dividends 77,511     (77,511 ) (b)(d)      
Reimbursement from affiliates 1,066     (1,264 ) (e) 198      
Aircraft lease revenue 1,509     (1,509 ) (g)      
Reinsurance premiums 26,251     (26,251 ) (f)      
Other revenue 3,846     (3,596 ) (f)     250  
Consolidated Funds 8,579         (8,579 )    
Total revenues $ 706,985     $ 1,212     $ (6,147 )   $ 702,050  
               


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), non-controlling interests and interest and non-interest expenses based on the nature of the respective line item.
(2 ) Fund consolidation reflects 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) presents underwriting expenses net of investment banking revenues, expenses reimbursed from clients within their respective expense category.  Economic Income (Loss) also records retainer fees, relating to investment banking activities, collectible during the period that would otherwise be deferred until closing for US GAAP reporting.
(b) Economic Income (Loss) brokerage revenues included net securities borrowed and securities loaned activities which are shown gross in interest income and interest expense for US GAAP.
(c) Economic Income (Loss) recognizes revenues (i) net of distribution fees paid to agents, (ii) records income from uncrystallized incentive fees and (iii) the Company's proportionate share of management and incentive fees of certain real estate operating entities, the healthcare royalty business and the activist business.
(d) Economic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends).
(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) Economic Income (Loss) recognizes underwriting income from the Company's insurance related activities, net of expenses, within other revenue.
(g) Aircraft lease revenue is shown net of expenses in investment income for Economic Income (Loss).

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Source: Cowen Inc.