UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K

 

Current Report

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): February 25, 2016

 


 

COWEN GROUP, INC.

(Exact Name of Registrant as Specified in Charter)

 


 

Delaware

 

001-34516

 

27-0423711

(State or Other Jurisdiction
of Incorporation)

 

(Commission File Number)

 

(I.R.S. Employer
Identification No.)

 

599 Lexington Avenue

New York, NY 10022

(Address of Principal Executive Offices and Zip Code)

 

Registrant’s telephone number, including area code: (212) 845-7900

 


 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o                 Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o                 Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o                 Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o                 Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02. Results of Operations and Financial Condition.

 

On February 25, 2016, Cowen Group, Inc., a Delaware corporation (the “Company”) issued a press release announcing its financial results for the full year and quarter ended December 31, 2015, a copy of which is attached hereto as Exhibit 99.1.

 

The information in Exhibit 99.1 is furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.

 

2



 

Item 9.01. Financial Statements and Exhibits.

 

(d)

 

Exhibit

 

 

 

99.1

 

Press Release issued by the Company dated February 25, 2016.

 

3



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

COWEN GROUP, INC.

 

 

 

Date: February 25, 2016

By:

/s/ Owen S. Littman

 

 

Name:

Owen S. Littman

 

 

Title:

General Counsel

 

4


Exhibit 99.1

 

 

Press Release

 

COWEN GROUP, INC. ANNOUNCES

FOURTH QUARTER AND FULL YEAR 2015 FINANCIAL RESULTS

 

New York, February 25, 2016 - Cowen Group, Inc. (NASDAQ: COWN) (“Cowen” or “the Company”) today announced its operating results for the fourth quarter and full year ended December 31, 2015.

 

Highlights(1)

 

Full Year Financial Summary

 

·                  Total revenue of $529.7 million, up 6% compared to the same period in 2014.

 

·                  Economic income available to Cowen Group of $34.5 million or $0.30 per diluted share, compared to $44.2 million or $0.37 per diluted share in same period in 2014.

 

·                  GAAP net income attributable to common shareholders of $39.7 million or $0.34 per diluted common share compared to $167.2 million or $1.40 per diluted common share in the prior year period.  The prior year period includes the Company’s deferred tax valuation allowance which was released in the fourth quarter 2014, resulting in a deferred tax benefit of $128.1 million.

 

·                  Economic income excluding certain non-cash items was $72.1 million compared to $77.3 million in 2014.

 

Fourth Quarter Financial Summary

 

·                  Revenue of $160.7 million compared to $165.8 million in the prior year period.

 

·                  Economic income available to Cowen Group of $15.2 million or $0.14 per diluted share, compared to $18.9 million or $0.16 per diluted share in the fourth quarter 2014.

 

·                  GAAP net income attributable to common shareholders of $28.9 million or $0.26 per diluted common share compared to $142.5 million or $1.21 per diluted common share in the prior year period.  As previously mentioned, the prior year period includes the Company’s deferred tax valuation allowance, which was released in the fourth quarter 2014, resulting in a $128.1 million deferred tax benefit.

 

·                  Economic income excluding certain non-cash items was $25.3 million compared to $26.7 million in the fourth quarter 2014.

 

Operating Highlights

 

·                  Record revenue in 2015 was driven by strength in the investment banking and brokerage businesses and a solid return on invested capital.

 

·                  As of January 1, 2016, assets under management (AUM) were $13.3 billion, an $836.0 million increase from a year ago.  As of October 1, 2015, AUM was $13.7 billion.  Of the decline during the 3-month period, approximately $164.0 million was due to net redemptions and the remaining $257.0 million was performance-related.

 



 

·                  Book value per share increased to $6.52 as of December 31, 2015 from $6.07 on December 31, 2014.

 

·                  Tangible book value per share was $5.73 as of December 31, 2015 and compared to $5.68 as of December 31, 2014.

 

·                  In 2015 the Company repurchased 9.4 million shares for $48.7 million under the Company’s existing share repurchase program.

 

·                  On February 23, 2016, Cowen’s Board of Directors approved a $7.0 million increase in the Company’s share repurchase program.  With this increase, the total amount available for repurchase under the program is $25.0 million.

 


(1) Unless otherwise stated, all financial highlights are presented on an Economic Income basis.

 

Peter A. Cohen, Chairman and Chief Executive Officer of Cowen Group said, “Cowen Group achieved solid operating results for shareholders in 2015, despite a $47 million year over year reduction in performance fees.  Investment banking and brokerage delivered a record year, the alternative investment management business continued to grow assets and expand its platform, and we generated a solid return on invested capital.  We are well-capitalized to invest in future growth, take advantage of changes in our industry and drive long-term returns for our shareholders.”

 

2015 Fourth Quarter and Full Year GAAP Financial Information

 

For the fourth quarter of 2015, the Company reported GAAP net income attributable to common shareholders of $28.9 million, or $0.26 per diluted share, as compared to GAAP net income attributable to common shareholders of $142.5 million, or $1.21 per diluted share, in the fourth quarter of 2014.

 

For the full year 2015, the Company reported GAAP net income attributable to common shareholders of $39.7 million, or $0.34 per diluted share, as compared to GAAP net income attributable to common shareholders of $167.2 million, or $1.40 per diluted share, in the prior year.

 

Income tax benefit decreased by $72.5 million and $77.4 million in the fourth quarter and full year 2015, respectively.  This was primarily due to the 2014 release of the Company’s valuation allowance that was previously recorded against the Company’s US federal and state deferred tax assets during the fourth quarter 2014, partially offset by the deferred tax benefit recognized by the Company’s Luxembourg subsidiary in 2015.

 

The following table summarizes the Company’s GAAP financial results for the three months ended December 31, 2015 and 2014, and September 30, 2015, as well as the twelve months ended December 31, 2015 and 2014.

 

Summary GAAP Financial Information

 

 

 

Three Months Ended

 

Twelve Months Ended

 

(Dollar amounts in millions, except per share

 

December 31,

 

 

 

Sept. 30,

 

 

 

December 31,

 

 

 

information)

 

2015

 

2014

 

%

 

2015

 

%

 

2015

 

2014

 

%

 

Revenue

 

$

110.6

 

$

121.1

 

(9

)%

$

113.3

 

(2

)%

$

464.6

 

$

427.8

 

9

%

Net income (loss) attributable to Cowen Group, Inc. common stockholders

 

$

28.9

 

$

142.5

 

(80

)%

$

(11.9

)

(342

)%

$

39.7

 

$

167.2

 

(76

)%

Earnings (loss) per share (diluted)

 

$

0.26

 

$

1.21

 

(79

)% 

$

(0.11

)

(335

)% 

$

0.34

 

$

1.40

 

(76

)%

 

Note: Amounts may not add due to rounding.

 

The Company’s stockholders’ equity as of December 31, 2015 was $790.0 million compared to $677.7 million as of December 31, 2014.  The increase in shareholders’ equity was primarily related to the preferred stock issued in the second quarter 2015.

 

2



 

Common equity, which excludes preferred stock, was $688.7 million, or book value per share of $6.52 at December 31, 2015, compared to common equity of $677.7 million, or book value per share of $6.07 at December 31, 2014.

 

Tangible common equity was $604.7 million, or tangible book value of $5.73 at December 31, 2015, compared to tangible common equity of $634.3 million, or tangible book value of $5.68 at December 31, 2014.  The year over year decrease in tangible common equity was attributable to goodwill and intangibles assets recognized upon completion of two acquisitions, Concept Capital Markets, LLC and Conifer Securities, LLC, in the year ended December 31, 2015.

 

Select Balance Sheet Data

 

(Amounts in millions, except per share information)

 

December 31,
2015

 

September 30,
2015

 

December 31,
2014

 

 

 

 

 

 

 

 

 

Cowen Group Inc. stockholders’ equity

 

$

790.0

 

$

762.8

 

$

677.7

 

Common equity (CE)

 

$

688.7

 

$

661.5

 

$

677.7

 

Tangible common equity (TCE)

 

$

604.7

 

$

601.8

 

$

634.3

 

 

 

 

 

 

 

 

 

Book value per share (CE/CSO)

 

$

6.52

 

$

6.18

 

$

6.07

 

Tangible book value (TCE/CSO)

 

$

5.73

 

$

5.62

 

$

5.68

 

 

 

 

 

 

 

 

 

Common shares outstanding (CSO)

 

105.6

 

107.1

 

111.7

 

 

 

 

 

 

 

 

 

Reconciliation of Cowen Group Inc. stockholders’ equity to tangible common equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cowen Group Inc. stockholders’ equity

 

$

790.0

 

$

762.8

 

$

677.7

 

Less:

 

 

 

 

 

 

 

Preferred stock

 

101.3

 

101.3

 

 

Common equity (CE)

 

$

688.7

 

$

661.5

 

$

677.7

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

Goodwill & intangibles

 

84.0

 

59.7

 

43.4

 

Tangible common equity (TCE)

 

$

604.7

 

$

601.8

 

$

634.3

 

 

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, (ii) excludes goodwill and intangible impairment, (iii) excludes certain other acquisition-related and/or reorganization expenses and (iv) excludes 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. For US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue.   Economic Income (Loss) excludes the impact of the release of the Company’s 2014 deferred tax valuation allowance.

 

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.

 

3



 

The table below summarizes the Company’s Economic Income financial results for the three months ended December 31, 2015 and 2014, and September 30, 2015, as well as the twelve months ended December 31, 2015 and 2014.

 

Summary Economic Income (Loss) Financial Information

 

 

 

Three Months Ended

 

Twelve Months Ended

 

(Dollar amounts in millions, except per

 

December 31,

 

 

 

Sept. 30,

 

 

 

December 31,

 

 

 

share information)

 

2015

 

2014

 

%

 

2015

 

%

 

2015

 

2014

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

160.7

 

$

165.8

 

(3

)% 

$

82.8

 

94

%

$

529.7

 

$

497.6

 

6

%

Economic Income (Loss)

 

$

15.2

 

$

18.9

 

(19

)%

$

(14.5

)

(205

)% 

$

34.5

 

$

44.2

 

(22

)%

Economic Income (Loss) per share (diluted)

 

$

0.14

 

$

0.16

 

(16

)%

$

(0.13

)

(201

)%

$

0.30

 

$

0.37

 

(20

)%

 

Note: Amounts may not add due to rounding.

 

2015 Fourth Quarter and Full Year Economic Income Review

 

Total Economic Income Revenue

 

Total Economic Income revenue for the fourth quarter of 2015 was $160.7 million compared to $165.8 million in the fourth quarter of 2014.  The decrease in Economic Income revenue was primarily attributable to a decline in investment banking and performance fees which was partially offset by increases in brokerage, investment income and other revenue.

 

Total Economic Income revenue for the full year 2015 was $529.7 million compared to $497.6 million in the full year 2014.  The increase in Economic Income revenue was primarily attributable to an increase in investment banking, brokerage, management fees and other revenue which was partially offset by a decrease in performance fees.

 

Economic Income Revenue

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

 

 

Sept. 30,

 

 

 

December 31,

 

 

 

(Dollar amounts in millions)

 

2015

 

2014

 

%

 

2015

 

%

 

2015

 

2014

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment banking

 

$

36.0

 

$

44.9

 

(20

)%

$

53.0

 

(32

)%

$

222.8

 

170.5

 

31

%

Brokerage

 

48.1

 

41.3

 

17

%

41.9

 

15

%

160.4

 

146.2

 

10

%

Management fees

 

18.8

 

18.2

 

4

%

18.0

 

5

%

70.0

 

64.8

 

8

%

Incentive income

 

(0.5

)

28.8

 

(102

)%

(8.6

)

(95

)%

(1.5

)

45.7

 

(103

)%

Investment income

 

43.5

 

28.0

 

56

%

(22.0

)

(298

)% 

62.6

 

65.2

 

(4

)%

Other revenue

 

14.7

 

4.7

 

214

%

0.6

 

NM

 

15.4

 

5.2

 

198

%

Total Revenue

 

$

160.7

 

$

165.8

 

(3

)% 

$

82.8

 

94

%

$

529.7

 

$

497.6

 

6

%

 

Note: Amounts may not add due to rounding.

 

Non-interest Expenses

 

Fourth quarter 2015 non-interest expense was $138.6 million compared to $143.5 million in the prior year period.  Full year 2015 non-interest expense was $469.8 million compared to $435.9 million in the prior year.  Items included in non-interest expenses are discussed below.

 

Compensation and Benefits Expense

 

Fourth quarter 2015 compensation and benefits expense was $92.7 million compared to $106.7 million in the fourth quarter 2014.  The decrease was due to lower revenues during the fourth quarter of 2015 as compared to 2014 which resulted in a lower compensation and benefits accrual.

 

4



 

The compensation to Economic Income revenue ratio was 58% in the fourth quarter 2015 compared to 64% in the prior year period.

 

Full year 2015 compensation and benefits expense was $317.6 million compared to $302.2 million in the full year 2014.  The increase is due to higher revenues in 2015 as compared to 2014 which resulted in a higher compensation and benefits accrual.

 

For the full year 2015, the compensation to Economic Income revenue ratio was 60% compared to 61% in the prior year.

 

Fixed Non-Compensation Expenses

 

Fourth quarter 2015 fixed non-compensation expenses rose 4% year over year to $27.7 million.  This increase was primarily due to higher costs associated with our equity method investments and increased occupancy costs related to additional office space.

 

Full year 2015 fixed non-compensation expenses rose 9% year over year to $103.7 million.  This increase was primarily due to higher legal and other professional fees and increased occupancy costs related to additional office space.

 

Variable Non-Compensation Expenses

 

Fourth quarter 2015 variable non-compensation expenses were $19.2 million compared to $12.5 million in the fourth quarter 2014.  The increase was primarily related to costs associated with the acquisition of a Luxembourg reinsurance company as well as increased floor brokerage and trade execution costs.

 

Full year 2015 variable non-compensation expenses were $56.2 million compared to $45.7 million in the prior year.  The increase was primarily related to an increase in client services and business development, increased floor brokerage and trade execution costs and expenses related to the acquisition of a Luxembourg reinsurance company offset partially by a decrease in syndication costs.

 

Interest Expense

 

Interest expense, which primarily relates to debt issued during the first and fourth quarters of 2014, was $4.2 million in the fourth quarter 2015 compared to $3.8 million in the prior year quarter.  For the full year 2015, interest expense was $16.6 million compared to $9.8 million in 2014.

 

Non-Controlling Interest

 

Non-Controlling interest represents the portion of the net income or loss attributable to certain non-wholly owned subsidiaries that is allocated to partners.

 

Alternative Investment Segment (“Ramius”)

 

Ramius continued to attract and retain assets under management even in an environment where many investors have retrenched.  Each of our investment capabilities - alternative solutions, activism, royalties, credit, global macro, long/short equity, merger and event, managed futures or real estate - is highly relevant in today’s investment climate.  Our success in winning investment mandates over the years, regardless of the market environment, reflects that.  Many Ramius-affiliated funds delivered positive performance and outperformed their relevant HFRI indices.

 

5



 

Assets Under Management

 

As of January 1, 2016, the Company had assets under management of $13.3 billion, an increase of $836 million from January 1, 2015.  Total AUM decreased by $421 million from October 1, 2015.

 

Management Fees and Incentive Income

 

For the fourth quarter 2015, management fees for the alternative investment segment were $18.1 million compared to $18.2 million in the prior year.   For the full year 2015, management fees rose 6.5% year over year to $69.0 million from $64.8 million in 2014.  This increase in the full year was primarily related to an increase in management fees in some of our other businesses, including healthcare royalties.

 

The monthly management fee run rate for the alternative investment segment in the fourth quarter 2015 was $6.0 million.  Following an agreement to sell a portion of our ownership interest in the activist business back to the principals of Starboard at the end of the fourth quarter of 2015, we expect the overall monthly management fee run rate from Ramius-affiliated funds for the first quarter 2016 to be approximately $5.3 million.

 

The segment’s average annualized management fee charged in the fourth quarter 2015 was 0.53%, as compared to 0.59% in the prior year period.  The average annualized management fee for the 2015 full year was 0.52% versus 0.55% in 2014.

 

Incentive income (loss) was $(0.5) million in the fourth quarter 2015 compared to $28.8 million in the prior year period.  For the year ended December 31, 2015, incentive income (loss) was $(1.5) million versus $45.7 million in 2014.  This decrease in the three and twelve month periods was primarily related to the reversal of a prior accrual in performance fees.

 

Investment Income

 

For the fourth quarter 2015, investment income for the segment was $34.9 million, compared to $16.2 million in the fourth quarter 2014.  For the full year 2015, investment income for the segment was $49.2 million, compared to $45.2 million in 2014.  The increase in the fourth quarter and full year included $37 million of investment income associated with the acquisition a Luxembourg reinsurance company, partially offset by a decrease in performance of the Company’s own invested capital.

 

Other Income

 

Other income for the segment was $14.4 million in the fourth quarter 2015, compared to $4.5 million in the prior year period.  For the full year 2015, other income increased $9.9 million to $14.5 million from $4.6 million in the prior year period.  The increase in the fourth quarter and full year was primarily related to the Company reaching an agreement at the end of the fourth quarter of 2015 to sell a portion of its ownership interest in the activist business back to the principals of Starboard.

 

Broker-Dealer Segment (“Cowen and Company”)

 

Brokerage

 

Brokerage revenue was $48.1 million in the fourth quarter 2015 compared to $41.3 million in the fourth quarter 2014, an increase of 17% year over year.  The increase was attributable, in part, to increased market volatility which led to higher customer volumes in our cash equities and electronic trading business as well as the first full quarter contribution from our prime brokerage business.

 

6



 

For the year ended December 31, 2015, brokerage revenue rose 10% year over year to $160.4 million from $146.2 million in the prior year period.  The increase was attributable to higher customer volumes in our cash equities and electronic trading business and the initiation of our prime brokerage business in the third and fourth quarters of 2015.

 

Investment Banking

 

In the fourth quarter 2015, investment banking revenue was $36.0 million, compared to $44.9 million in the fourth quarter 2014.  The decrease in revenue was primarily due to reduced equity underwriting activity which was partially offset by a 35% year over year increase in our average underwriting fee per equity transaction.

 

For the full year 2015, investment banking revenue was $222.8 million, a 31% year over year increase from $170.5 million for 2014.  The increase in revenue was primarily due to an increase in equity underwriting activity.  Our average equity underwriting fee per transaction increased 45% year over year.

 

Investment Banking Revenue Summary

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Equity Underwriting

 

$

22.2

 

$

33.9

 

$

192.4

 

$

132.6

 

Debt Underwriting

 

4.4

 

2.4

 

4.3

 

22.5

 

Advisory

 

9.4

 

8.5

 

24.1

 

15.4

 

Total

 

$

36.0

 

$

44.9

 

$

220.8

 

$

170.5

 

 

Investment Banking Transaction Count

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Equity Underwriting

 

16

 

33

 

129

 

129

 

Of which bookrun:

 

8

 

9

 

74

 

42

 

Debt Underwriting

 

2

 

3

 

7

 

16

 

Advisory

 

4

 

6

 

13

 

12

 

Total

 

22

 

42

 

149

 

157

 

 

Investment Income

 

For the fourth quarter 2015, investment income for the segment was $8.6 million versus $11.8 million in the fourth quarter 2014.  For the full year 2015, investment income for the segment was $13.4 million versus $20.0 million in the prior year period.  The decrease in both periods was a result of a decrease in overall investment income which is allocated amongst the segments.

 

Share Repurchase Program

 

Cowen today announced that its Board of Directors approved an increase to the Company’s share repurchase program that authorizes Cowen to purchase up to an additional $7.0 million of Cowen’s Class A common shares from time to time.  With this increase, the total amount available for repurchase under the program is $25 million.

 

The $7.0 million increase is in addition to the Company’s existing $127.7 million share repurchase program, under which the Company has acquired 27.0 million shares for $109.7 million since August 2011.  Also, since the program was initially announced in July 2011, the Company has acquired an

 

7



 

additional 7.0 million shares outside of the share repurchase program as a result of net share settlement relating to the vesting of equity awards for $25.8 million.

 

The program permits the Company to purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws.  It does not obligate the Company to make any purchases at any specific time or situation.  The program may be suspended or discontinued at any time.  As of December 31, 2015, Cowen had 105.6 million Class A shares outstanding.

 

In the fourth quarter 2015, the Company repurchased 1.7 million shares for $7.0 million under the Company’s existing share repurchase program.  Also, the Company acquired approximately 79,000 shares outside of the share repurchase program as a result of net share settlement relating to the vesting of equity awards.

 

During the twelve months ended December 31, 2015, the Company repurchased 9.4 million shares for $48.7 million under the Company’s existing share repurchase program.  Also, the Company acquired approximately 1.7 million shares outside of the share repurchase program as a result of net share settlement relating to the vesting of equity awards.

 

Earnings Conference Call with Management

 

The Company will host a conference call to discuss its 2015 fourth quarter results on Thursday, February 25, 2016, at 4:30 pm EST.  The call can be accessed by dialing 1-(855) 760-0961 domestic or 1-(631) 485-4850 international.  The passcode for the call is 48779946.  A replay of the call will be available beginning at 7:30 pm EST February 25, 2016 through March 3, 2016.  To listen to the replay of this call, please dial 1-(855) 859-2056 domestic or 1-(404) 537-3406 international and enter passcode 48779946.

 

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 Group, Inc.

 

Cowen Group, Inc. is a diversified financial services firm and, together with its consolidated subsidiaries, provides alternative asset management, investment banking, research, and sales and trading services through its two business segments:  Ramius and its affiliates make up the Company’s alternative investment segment, while Cowen and Company and its affiliates make up the Company’s broker-dealer segment.  Ramius provides alternative asset management solutions to a global client base and manages a significant portion of Cowen’s proprietary capital.  Cowen and Company and its affiliates offer industry focused investment banking for growth-oriented companies, domain knowledge-driven research, a sales and trading platform for institutional investors and a comprehensive suite of prime brokerage services.  Founded in 1918, the firm is headquartered in New York and has offices located 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

 

8



 

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 Group, Inc.

Stephen Lasota, Chief Financial Officer, (212) 845-7919

Nancy Wu, (646) 562-1259

 

Source:  Cowen Group, Inc.

 

9



 

Cowen Group, Inc.

Preliminary Unaudited Condensed Consolidated Statements of Operations

(Dollar amounts in thousands, except per share data)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue

 

 

 

 

 

 

 

 

 

Investment banking

 

$

36,018

 

$

44,853

 

$

222,781

 

$

170,506

 

Brokerage

 

46,226

 

39,657

 

157,722

 

140,132

 

Management fees

 

10,737

 

12,215

 

41,906

 

40,627

 

Incentive income

 

1,101

 

(1,600

)

1,466

 

2,785

 

Interest and dividends

 

3,950

 

13,433

 

13,796

 

48,870

 

Reimbursement from affiliates

 

11,058

 

5,104

 

21,557

 

12,495

 

Other

 

1,042

 

7,019

 

3,726

 

9,446

 

Consolidated Funds

 

 

 

 

 

 

 

 

 

Interest and dividends

 

401

 

406

 

1,086

 

2,189

 

Other

 

78

 

9

 

527

 

726

 

Total revenue

 

110,611

 

121,096

 

464,567

 

427,776

 

Expenses

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

93,793

 

107,712

 

321,386

 

305,483

 

Interest and dividends

 

6,979

 

13,058

 

26,220

 

42,752

 

General, administrative and other expenses

 

46,149

 

40,156

 

154,458

 

137,988

 

Goodwill impairment

 

 

2,334

 

 

2,334

 

Consolidated Funds expenses

 

684

 

299

 

2,310

 

1,634

 

Total expenses

 

147,605

 

163,559

 

504,374

 

490,191

 

Other income (loss)

 

 

 

 

 

 

 

 

 

Net (losses) gains on securities, derivatives and other investments

 

12,340

 

56,701

 

36,789

 

104,928

 

Consolidated Funds net (losses) gains

 

6,873

 

5,178

 

14,497

 

15,323

 

Total other income (loss)

 

19,213

 

61,879

 

51,286

 

120,251

 

Income (loss) before income taxes

 

(17,781

)

19,416

 

11,479

 

57,836

 

Income tax expense/(benefit)

 

(52,708

)

(125,210

)

(47,496

)

(124,944

)

Net income (loss)

 

34,927

 

144,626

 

58,975

 

182,780

 

Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds

 

4,266

 

2,155

 

15,246

 

15,564

 

Net income (loss) attributable to Cowen Group, Inc.

 

$

30,661

 

$

142,471

 

$

43,729

 

$

167,216

 

Preferred stock dividends

 

1,717

 

 

4,075

 

 

Net income (loss) attributable to Cowen Group, Inc. common stockholders

 

28,944

 

142,471

 

39,654

 

167,216

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.27

 

$

1.26

 

$

0.36

 

$

1.45

 

Diluted

 

$

0.26

 

$

1.21

 

$

0.34

 

$

1.40

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in per share data:

 

 

 

 

 

 

 

 

 

Basic

 

107,236

 

113,492

 

110,090

 

114,926

 

Diluted

 

112,731

 

118,222

 

116,174

 

119,486

 

 

10



 

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, (ii) excludes goodwill and intangible impairment, (iii) excludes certain other acquisition-related and/or reorganization expenses and (iv) excludes 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. For US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue.    Economic Income (Loss) excludes the impact of the release of the Company’s 2014 deferred tax valuation allowance.

 

Additionally, we have reported in this press release our Economic Income (Loss) excluding certain non-cash expenses.  For this measure, we have adjusted Economic Income (Loss) by the following non-cash expense items:

 

·                  Depreciation and amortization and

·                  Share-based compensation expense.

 

Management believes that the non-GAAP calculation of Economic Income (Loss) excluding certain non-cash items will allow for a better understanding of the Company’s operating results.

 

11



 

Cowen Group, Inc.

Unaudited Economic Income (Loss)

(Dollar amounts in thousands)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue

 

 

 

 

 

 

 

 

 

Investment banking

 

$

36,018

 

$

44,853

 

$

222,781

 

$

170,506

 

Brokerage

 

48,104

 

41,264

 

160,436

 

146,247

 

Management fees

 

18,846

 

18,200

 

70,015

 

64,774

 

Incentive income

 

(462

)

28,808

 

(1,544

)

45,708

 

Investment income

 

43,524

 

27,984

 

62,596

 

65,215

 

Other revenue

 

14,693

 

4,674

 

15,382

 

5,168

 

Total revenue

 

160,723

 

165,783

 

529,666

 

497,618

 

Expenses

 

 

 

 

 

 

 

 

 

Non-interest expense

 

138,649

 

143,530

 

469,754

 

435,862

 

Interest expense

 

4,159

 

3,837

 

16,584

 

9,798

 

Total expenses

 

142,808

 

147,367

 

486,338

 

445,660

 

 

 

 

 

 

 

 

 

 

 

Net Economic Income (Loss) Before Non-controlling Interests

 

17,915

 

18,416

 

43,328

 

51,958

 

Non-controlling interests

 

(2,669

)

518

 

(8,796

)

(7,802

)

Economic Income (Loss)

 

$

15,246

 

$

18,934

 

$

34,532

 

$

44,156

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) Excluding Certain Non-cash Items:

 

 

 

 

 

 

 

 

 

Economic Income (Loss)

 

$

15,246

 

$

18,934

 

$

34,532

 

$

44,156

 

Exclusion of depreciation and amortization expense

 

4,538

 

3,718

 

15,784

 

14,861

 

Exclusion of share-based compensation expense

 

5,529

 

4,011

 

21,740

 

18,297

 

Economic Income (Loss) excluding certain non-cash items

 

$

25,313

 

$

26,663

 

$

72,056

 

$

77,314

 

 

 

 

 

 

 

 

 

 

 

Economic Income (Loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.14

 

$

0.17

 

$

0.31

 

$

0.38

 

Diluted

 

$

0.14

 

$

0.16

 

$

0.30

 

$

0.37

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in per share data:

 

 

 

 

 

 

 

 

 

Basic

 

107,236

 

113,492

 

110,090

 

114,926

 

Diluted

 

112,731

 

118,222

 

116,174

 

119,486

 

 

12



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended December 31, 2015

(Dollar amounts in thousands)

 

 

 

Three Months Ended December 31, 2015

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenue

 

 

 

 

 

 

 

 

 

Investment banking

 

$

36,018

 

$

 

$

 

$

36,018

 

Brokerage

 

46,226

 

1,878

(e)

 

48,104

 

Management fees

 

10,737

 

7,739

(a)

370

 

18,846

 

Incentive income

 

1,101

 

(2,022

)(a)

459

 

(462

)

Investment income

 

 

43,524

(c)

 

43,524

 

Interest and dividends

 

3,950

 

(3,950

)(c)(e)

 

 

Reimbursement from affiliates

 

11,058

 

(10,987

)(f)

(71

)

 

Other revenue

 

1,042

 

13,651

(c)

 

14,693

 

Consolidated Funds

 

479

 

 

(479

)

 

Total revenue

 

110,611

 

49,833

 

279

 

160,723

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Non interest expense

 

139,942

 

(1,293

)(c)(d)

 

138,649

 

Interest expense

 

6,979

 

(2,820

)(c)(e)

 

4,159

 

Consolidated Funds

 

684

 

 

(684

)

 

Total expenses

 

147,605

 

(4,113

)

(684

)

142,808

 

Total other income (loss)

 

19,213

 

(14,710

)(c)

(4,503

)

 

Income tax expense/(benefit)

 

(52,708

)

52,708

(b)

 

 

(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries and funds

 

(4,266

)

(1,943

)

3,540

 

(2,669

)

Economic Income (Loss) / Net income (loss) available to Cowen Group, Inc.

 

$

30,661

 

$

(15,415

)

$

 

$

15,246

 

 


Note: The following is a summary of the adjustments made to US GAAP net income (loss) to arrive at Economic Income:

 

Funds Consolidation:    The impacts of consolidation and 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 and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss).

 

Other Adjustments:

 

(a) Economic Income 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 excludes income taxes as management does not consider this item when evaluating the performance of the company.

(c) Economic Income recognizes Company income from proprietary trading (including interest and dividends) net of related expenses.

(d) Economic Income recognizes Companies proportionate share of expenses for certain real estate and other operating entities for which the investments are recorded under the equity method of accounting for investments.

(e) Economic Income (Loss) recognizes other brokerage dividends as brokerage revenue.

(f) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

 

13



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Three Months Ended December 31, 2014

(Dollar amounts in thousands)

 

 

 

Three Months Ended December 31, 2014

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenue

 

 

 

 

 

 

 

 

 

Investment banking

 

$

44,853

 

$

 

$

 

$

44,853

 

Brokerage

 

39,657

 

1,607

(e)

 

41,264

 

Management fees

 

12,215

 

5,745

(a)

240

 

18,200

 

Incentive income

 

(1,600

)

30,315

(a)

93

 

28,808

 

Investment income

 

 

27,984

(c)

 

27,984

 

Interest and dividends

 

13,433

 

(13,433

)(c)(e)

 

 

Reimbursement from affiliates

 

5,104

 

(5,401

)(f)

297

 

 

Other revenue

 

7,019

 

(2,345

)(c)

 

4,674

 

Consolidated Funds

 

415

 

 

(415

)

 

Total revenue

 

121,096

 

44,472

 

215

 

165,783

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Non interest expense

 

147,868

 

(4,338

)(c)(d)

 

143,530

 

Goodwill impairment

 

2,334

 

(2,334

)(g)

 

 

Interest expense

 

13,058

 

(9,221

)(c)(e)

 

3,837

 

Consolidated Funds

 

299

 

 

(299

)

 

Total expenses

 

163,559

 

(15,893

)

(299

)

147,367

 

Total other income (loss)

 

61,879

 

(59,613

)(c)

(2,266

)

 

Income tax expense/(benefit)

 

(125,210

)

125,210

(b)

 

 

(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries and funds

 

(2,155

)

921

 

1,752

 

518

 

Economic Income (Loss) / Net income (loss) available to Cowen Group, Inc.

 

$

142,471

 

$

(123,537

)

$

 

$

18,934

 

 


Note: The following is a summary of the adjustments made to US GAAP net income (loss) to arrive at Economic Income:

 

Funds Consolidation:    The impacts of consolidation and 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 and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss).

 

Other Adjustments:

 

(a) Economic Income 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 excludes income taxes as management does not consider this item when evaluating the performance of the company.

(c) Economic Income recognizes Company income from proprietary trading (including interest and dividends) net of related expenses.

(d) Economic Income recognizes Companies proportionate share of expenses for certain real estate and other operating entities for which the investments are recorded under the equity method of accounting for investments.

(e) Economic Income (Loss) recognizes stock borrow/loan activity and other brokerage dividends as brokerage revenue.

(f) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

(g) Economic Income (Loss) excludes goodwill impairment and other reorganization expenses.

 

14



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Twelve Months Ended December 31, 2015

(Dollar amounts in thousands)

 

 

 

Twelve Months Ended December 31, 2015

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenue

 

 

 

 

 

 

 

 

 

Investment banking

 

$

222,781

 

$

 

$

 

$

222,781

 

Brokerage

 

157,722

 

2,714

(e)

 

160,436

 

Management fees

 

41,906

 

26,802

(a)

1,307

 

70,015

 

Incentive income

 

1,466

 

(3,746

)(a)

736

 

(1,544

)

Investment income

 

 

62,596

(c)

 

62,596

 

Interest and dividends

 

13,796

 

(13,796

)(c)(e)

 

 

Reimbursement from affiliates

 

21,557

 

(21,747

)(f)

190

 

 

Other revenue

 

3,726

 

11,656

(c)

 

15,382

 

Consolidated Funds

 

1,613

 

 

(1,613

)

 

Total revenue

 

464,567

 

64,479

 

620

 

529,666

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Non interest expenses

 

475,844

 

(6,090

)(c)(d)

 

469,754

 

Interest expense

 

26,220

 

(9,636

)(c)(e)

 

16,584

 

Consolidated Funds

 

2,310

 

 

(2,310

)

 

Total expenses

 

504,374

 

(15,726

)

(2,310

)

486,338

 

Total other income (loss)

 

51,286

 

(42,505

)(c)

(8,781

)

 

Income tax expense/(benefit)

 

(47,496

)

47,496

(b)

 

 

(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries and funds

 

(15,246

)

599

 

5,851

 

(8,796

)

Economic Income (Loss) / Net income (loss) available to Cowen Group, Inc.

 

$

43,729

 

$

(9,197

)

$

 

$

34,532

 

 


Note: The following is a summary of the adjustments made to US GAAP net income (loss) to arrive at Economic Income:

 

Funds Consolidation:    The impacts of consolidation and 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 and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss).

 

Other Adjustments:

 

(a) Economic Income 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 excludes income taxes as management does not consider this item when evaluating the performance of the company.

(c) Economic Income recognizes Company income from proprietary trading (including interest and dividends) net of related expenses.

(d) Economic Income recognizes Companies proportionate share of expenses for certain real estate and other operating entities for which the investments are recorded under the equity method of accounting for investments.

(e) Economic Income (Loss) recognizes stock borrow/loan activity (prior to January 2015) and other brokerage dividends as brokerage revenue.

(f) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

 

15



 

Cowen Group, Inc.

Unaudited Reconciliation of Economic Income and GAAP Income for the Twelve Months Ended December 31, 2014

(Dollar amounts in thousands)

 

 

 

Twelve Months Ended December 31, 2014

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

Other

 

Funds

 

Economic

 

 

 

GAAP

 

Adjustments

 

Consolidation

 

Income

 

Revenue

 

 

 

 

 

 

 

 

 

Investment banking

 

$

170,506

 

$

 

$

 

$

170,506

 

Brokerage

 

140,132

 

6,115

(e)

 

146,247

 

Management fees

 

40,627

 

23,184

(a)

963

 

64,774

 

Incentive income

 

2,785

 

42,642

(a)

281

 

45,708

 

Investment income

 

 

65,215

(c)

 

65,215

 

Interest and dividends

 

48,870

 

(48,870

)(c)(e)

 

 

Reimbursement from affiliates

 

12,495

 

(12,837

)(f)

342

 

 

Other revenue

 

9,446

 

(4,278

)(c)

 

5,168

 

Consolidated Funds

 

2,915

 

 

(2,915

)

 

Total revenue

 

427,776

 

71,171

 

(1,329

)

497,618

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Non interest expense

 

443,471

 

(7,609

)(c)(d)

 

435,862

 

Goodwill impairment

 

2,334

 

(2,334

)(g)

 

 

Interest expense

 

42,752

 

(32,954

)(c)(e)

 

9,798

 

Consolidated Funds

 

1,634

 

 

(1,634

)

 

Total expenses

 

490,191

 

(42,897

)

(1,634

)

445,660

 

Total other income (loss)

 

120,251

 

(114,476

)(c)

(5,775

)

 

Income tax expense/(benefit)

 

(124,944

)

124,944

(b)

 

 

(Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries and funds

 

(15,564

)

2,292

 

5,470

 

(7,802

)

Economic Income (Loss) / Net income (loss) available to Cowen Group, Inc.

 

$

167,216

 

$

(123,060

)

$

 

$

44,156

 

 


Note: The following is a summary of the adjustments made to US GAAP net income (loss) to arrive at Economic Income:

 

Funds Consolidation:    The impacts of consolidation and 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 and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss).

 

Other Adjustments:

 

(a) Economic Income 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 excludes income taxes as management does not consider this item when evaluating the performance of the company.

(c) Economic Income recognizes Company income from proprietary trading (including interest and dividends) net of related expenses.

(d) Economic Income recognizes Companies proportionate share of expenses for certain real estate and other operating entities for which the investments are recorded under the equity method of accounting for investments.

(e) Economic Income (Loss) recognizes stock borrow/loan activity and other brokerage dividends as brokerage revenue.

(f) Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

(g) Economic Income (Loss) excludes goodwill impairment and other reorganization expenses.

 

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