SEC Filing | Cowen Inc

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cown-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 001-34516

Cowen Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)			27-0423711 (I.R.S. Employer Identification No.)
599 Lexington Avenue New York, New York (Address of Principal Executive Offices)			10022 (Zip Code)

(646) 562-1010

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Exchange on Which Registered

Class A Common Stock, par value $0.01 per share

COWN

The Nasdaq Global Market

7.75% Senior Notes due 2033

COWNL

The Nasdaq Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of April 30, 2021, there were 26,866,951 shares of the registrant's common stock outstanding.

Table of Contents


Item No.			Page No.
PART I. FINANCIAL INFORMATION			4
	1. Unaudited Condensed Consolidated Financial Statements		4
		Condensed Consolidated Statements of Financial Condition	4
		Condensed Consolidated Statements of Operations	6
		Condensed Consolidated Statements of Comprehensive Income (Loss)	8
		Condensed Consolidated Statements of Changes in Equity	9
		Condensed Consolidated Statements of Cash Flows	10
		Notes to Condensed Consolidated Financial Statements	12
	2. Management's Discussion and Analysis of Financial Condition and Results of Operations		64
	3. Quantitative and Qualitative Disclosures About Market Risk		95
	4. Controls and Procedures		95
PART II. OTHER INFORMATION			95
	1. Legal Proceedings		95
	1A. Risk Factors		96
	2. Unregistered Sales of Equity Securities and Use of Proceeds		97
	3. Defaults Upon Senior Securities		98
	4. Mine Safety Disclosures		98
	5. Other Information		98
	6. Exhibits		99
SIGNATURES			100

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Special Note Regarding Forward-Looking Statements

We have made statements in this Quarterly Report on Form 10-Q (including in "Management's Discussion and Analysis of Financial Condition and Results of Operations") that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking terms such as "may," "might," "will," "would," "could," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "project," "possible," "potential," "intend," "seek" or "continue," the negative of these terms and other comparable terminology or similar expressions. In addition, our management may make forward-looking statements to analysts, representatives of the media and others. These forward-looking statements represent only the Company's beliefs regarding future events (many of which, by their nature, are inherently uncertain and beyond our control) and are predictions only, based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. In particular, you should consider the risks contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 and the risks contained in Item 1A of this periodic report on Form 10-Q for the three months ended March 31, 2021.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update any of these forward-looking statements after the date of this filing to conform our prior statements to actual results or revised expectations.

Unaudited Condensed Consolidated Financial Statements are presented for the three months ended March 31, 2021 and 2020. The Consolidated Financial Statements as of December 31, 2020 were audited.

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PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements


Cowen Inc. Condensed Consolidated Statements of Financial Condition (dollars in thousands, except share and per share data) (unaudited)
Assets	As of March 31, 2021		As of December 31, 2020
Cash and cash equivalents	$	1,147,531	$	645,169
Cash collateral pledged	110,303		110,743
Segregated cash	168,942		185,141
Securities owned, at fair value ($2,042,776 and $1,218,947 were pledged to various parties)	3,156,100		2,001,602
Securities purchased under agreements to resell	—		191
Receivable on derivative contracts, at fair value	95,536		51,482
Securities borrowed	1,996,757		1,908,187
Other investments ($151,933 and $133,454 at fair value, respectively)	366,783		255,027
Deposits with clearing organizations, brokers and banks	82,078		104,952
Receivable from brokers, dealers and clearing organizations, net of allowance of $640 and $885, respectively	1,920,753		1,729,744
Receivable from customers, net of allowance of $758 and $530, respectively	199,668		103,963
Fees receivable, net of allowance of $2,982 and $3,348, respectively	208,898		160,349
Due from related parties	20,921		21,068
Fixed assets, net of accumulated depreciation and amortization of $42,681 and $40,670, respectively	31,424		33,023
Operating lease right-of-use assets	77,268		78,241
Goodwill	147,084		147,084
Intangible assets, net of accumulated amortization of $27,073 and $37,884, respectively	28,116		24,403
Deferred tax asset, net	1,757		9,030
Other assets	76,921		54,884
Consolidated Funds
Cash and cash equivalents	935		417
Securities owned, at fair value	8,940		10,622

Other investments	100,035		192,670

Other assets	46		207
Total Assets	$	9,946,796	$	7,828,199
Liabilities, Temporary Equity and Permanent Equity
Liabilities
Securities sold, not yet purchased, at fair value	$	931,082	$	728,115
Securities sold under agreements to repurchase	2,546		5,036
Payable for derivative contracts, at fair value	52,125		76,160
Securities loaned	3,083,945		2,476,414
Payable to brokers, dealers and clearing organizations	488,471		415,143
Payable to customers	2,657,600		1,680,326
Commission management payable	139,621		116,987
Compensation payable	361,793		373,339
Operating lease liabilities	81,400		82,735
Notes payable and other debt	542,519		383,067
Convertible debt	81,682		80,808
Fees payable	42,915		43,833
Due to related parties	99		51
Accounts payable, accrued expenses and other liabilities	240,790		196,479
Consolidated Funds

Due to related parties	9		7




Accounts payable, accrued expenses and other liabilities	219		578
Total Liabilities	$	8,706,816	$	6,659,078

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Cowen Inc. Condensed Consolidated Statements of Financial Condition (dollars in thousands, except share and per share data) (unaudited)
	As of March 31, 2021		As of December 31, 2020
(continued)
Commitments and Contingencies (Note 17)
Temporary Equity
Redeemable non-controlling interests	$	—	$	—
Permanent Equity
Cowen Inc. stockholders' equity
Preferred stock, par value $0.01 per share: 10,000,000 shares authorized, 120,750 shares issued and outstanding as of March 31, 2021 (aggregate liquidation preference of $120,750) and 10,000,000 shares authorized, 120,750 shares issued and outstanding as of December 31, 2020 (aggregate liquidation preference of $120,750), respectively	$	1	$	1
Class A common stock, par value $0.01 per share: 62,500,000 shares authorized, 50,227,804 shares issued and 26,852,331 outstanding as of March 31, 2021 and 62,500,000 shares authorized, 49,465,491 shares issued and 26,845,628 outstanding as of December 31, 2020, respectively (including 292,968 and 334,230 restricted shares, respectively)	334		334
Class B common stock, par value $0.01 per share: 62,500,000 authorized, no shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	—		—
Additional paid-in capital	1,151,377		1,130,138
(Accumulated deficit) retained earnings	328,930		185,901
Accumulated other comprehensive income (loss)	(3)		(7)
Less: Class A common stock held in treasury, at cost, 23,375,473 and 22,619,863 shares as of March 31, 2021 and December 31, 2020, respectively	(373,774)		(346,870)
Total Cowen Inc. Stockholders' Equity	1,106,865		969,497
Nonredeemable non-controlling interests	133,115		199,624
Total Permanent Equity	$	1,239,980	$	1,169,121
Total Liabilities, Temporary Equity and Permanent Equity	$	9,946,796	$	7,828,199

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Cowen Inc. Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited)
	Three Months Ended March 31,
		2021		2020
Revenues
Investment banking		$	304,834	$	105,028
Brokerage		173,737		141,377
Investment income (loss)
Securities principal transactions, net		63,965		(31,045)
Portfolio fund principal transactions, net		15,403		(2,818)
Carried interest allocations		96,769		(11,544)
Total investment income (loss)		176,137		(45,407)
Management fees		25,742		11,604
Incentive income		2,258		—
Interest and dividends		59,388		42,077
Reimbursement from affiliates		288		261

Insurance and reinsurance premiums		7,117		10,471
Other revenues		8,169		1,321
Consolidated Funds
Principal transactions, net		(3,349)		(73,143)
Interest and dividends		2		2,525
Other revenues		—		609
Total revenues		754,323		196,723
Interest and dividends expense		57,641		38,792
Total net revenues		696,682		157,931

Expenses
Employee compensation and benefits		388,196		124,428
Brokerage and trade execution costs		45,656		32,886
Underwriting expenses		6,915		3,640
Professional, advisory and other fees		15,460		11,039
Service fees		5,731		6,837
Communications		9,267		8,176
Occupancy and equipment		9,540		9,530
Depreciation and amortization		4,354		5,442
Client services and business development		6,848		11,803

Insurance and reinsurance claims, commissions and amortization of deferred acquisition costs		6,455		10,430

Other expenses		3,457		4,228
Consolidated Funds
Interest and dividends		—		1,252
Professional, advisory and other fees		110		990
Brokerage and trade execution costs		—		20
Other expenses		161		452
Total expenses		502,150		231,153
Other income (loss)
Net gains (losses) on other investments		12,645		(62)
Bargain purchase gain, net of tax		3,855		—
Gain/(loss) on debt extinguishment		(4,538)		—




Total other income (loss)		11,962		(62)
Income (loss) before income taxes		206,494		(73,284)
Income tax expense (benefit)		54,428		(1,173)
Net income (loss)		152,066		(72,111)

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Cowen Inc. Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited)
	Three Months Ended March 31,
		2021		2020

(continued)
Net income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds		4,562		(62,188)
Net income (loss) attributable to Cowen Inc.		147,504		(9,923)
Preferred stock dividends		1,698		1,698
Net income (loss) attributable to Cowen Inc. common stockholders		$	145,806	$	(11,621)

Weighted average common shares outstanding:
Basic		27,359		28,598
Diluted		33,565		28,598
Earnings (loss) per share:
Basic		$	5.33	$	(0.41)
Diluted		$	4.34	$	(0.41)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Cowen Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)


	Three Months Ended March 31,

		2021	2020
Net income (loss)				$	152,066		$	(72,111)
Other comprehensive income (loss), net of tax:
Foreign currency translation			4			—



Total other comprehensive income (loss), net of tax				4			—
Comprehensive income (loss)				$	152,070		$	(72,111)
Less: Comprehensive income attributable to non-controlling interests				4,562			(62,188)
Comprehensive income (loss) attributable to Cowen Inc.				$	147,508		$	(9,923)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Cowen Inc.

Condensed Consolidated Statements of Changes in Equity

(dollars in thousands, except share data)

(unaudited)