Cowen Announces Financial Results for Third Quarter 2020

  • Reports 3Q20 US GAAP Net Income of $18.6 million or $0.62 per share
  • Economic Operating Income of $37.4 million, or $1.25 per share, second highest on record
  • Second-strongest quarter for Investment Banking and Brokerage, Record M&A revenues
  • Solid results despite impact of mark-to-market on unrealized Nikola investment, which reduced Economic Operating Income by $48.3 million, or $1.62 per share
  • Book Value increased to $30.48 per share and Tangible Book Value increased to $24.32 per share
  • Doubled quarterly cash dividend, to $0.08 per common share

NEW YORK, Oct. 27, 2020 (GLOBE NEWSWIRE) -- Cowen Inc. (NASDAQ: COWN) (“Cowen” or “the Company”) today announced its operating results for the third quarter ended September 30, 2020.

Jeffrey M. Solomon, Chair and Chief Executive Officer of Cowen, said, "Our results for the third quarter demonstrate the strength and sustainability of our operating business. It was the second-best quarter on record for markets and investment banking, we set a new record for M&A revenues and management fees are at multi-year highs. We also took advantage of the opportunity to repurchase shares at attractive valuations, with the largest quarterly buyback in five years. We continue to embrace our core values of vision, empathy, sustainability and tenacious teamwork as we help our clients, our colleagues and our communities to tackle their biggest challenges and navigate through these uncertain times."

Third Quarter 2020 Financial Summary

 US GAAP Economic Operating Income
 Three Months Ended
September 30,
 Three Months Ended
September 30,
($ in millions, except per share information)2020 2019 Δ % 2020 2019 Δ %
            
            
Revenue$387.7 $252.0 54% $274.3  $216.5  27%
Net income (loss) attributable to common stockholders$18.6 $2.1 786% $37.4  $10.1  270%
Earnings (loss) per common share (diluted)$0.62 $0.07 786% $1.25  $0.32  291%
            
Note: Throughout this press release the Company presents non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). A reconciliation of these non-GAAP measures appears under the section, "Reconciliation of US GAAP (Unaudited) to Economic Operating Income (Loss)."


Third Quarter 2020 Operating Financial Highlights (US GAAP) (unaudited)

Third quarter 2020 US GAAP revenue was $387.7 million compared to $252.0 million in the third quarter of 2019.

Third quarter 2020 US GAAP employee compensation and benefits expenses was $153.4 million, an increase of $33.1 million from the prior-year period.

Third quarter 2020 US GAAP income tax expense was $8.8 million compared to $1.4 million in the prior-year quarter.

Third quarter 2020 US GAAP total expenses totaled $249.2 million, an increase of $29.3 million from the prior-year period.

Third quarter 2020 US GAAP net income attributable to common stockholders was $18.6 million compared to net income attributable to common stockholders of $2.1 million in the third quarter of 2019.

Third Quarter 2020 Operating Financial Highlights (Non-GAAP)

Strong Investment Banking performance:
  Second-strongest quarter on record driven by capital markets activity in biotech and healthcare tools & diagnostics
  Record M&A revenues driven by several high-fee engagements. Deal pipeline now at record high level

Markets revenues near record levels, continuing share gains:
  Markets revenue, which includes brokerage, financing and other revenue, was $167.4 million ($2.62 million/day), just below the record highs of 2Q'20
  Posted strong performances in prime services, outsourced trading, securities finance, special situations and non-US execution

Strong momentum in investment management:
  Management fee run-rate at highest annual level since 2016, AUM increased year-over-year

Invested capital: Nikola position creates quarterly volatility
  Mark-to-market unrealized loss of $96.6 million on Nikola investment partially offset by gains in balance sheet investments including Cowen Healthcare Investments and SPAC trading

 

Capital Optimization Update

As of September 30, 2020, Cowen had book value of $30.48 per common share and tangible book value per common share of $24.32, up from book value of $28.96 and tangible book value of $22.94 at June 30, 2020, and up from book value of $24.77 and tangible book value of $18.72 at December 31, 2019.

In the third quarter of 2020, the Company repurchased $18.9 million of its common stock, or 1,144,254 shares, at an average price of $16.49 under the Company's existing share repurchase program, representing the largest quarterly share repurchase since the third quarter of 2015.

Outside the share repurchase program, in the third quarter of 2020 the Company acquired approximately $267 thousand of shares as a result of net share settlements relating to the vesting of equity awards, or 14,985 shares, at an average price of $17.80.

For the first nine months of 2020, the Company repurchased 2,974,711 shares for $43.4 million, or an average price of $14.60 under the Company's existing share repurchase program. Outside the share repurchase program, in the first nine months of 2020 the Company acquired approximately $6.3 million of shares as a result of net share settlements relating to the vesting of equity awards, or 505,702 shares at an average price of $12.45.

Increased Quarterly Cash Dividend

The Company increased its quarterly cash dividend payable on its common stock from $0.04 to $0.08 per common share. On October 21, 2020, the Board of Directors declared a cash dividend of $0.08 per common share. The dividend will be payable on December 15, 2020, to stockholders of record on December 1, 2020.

Select Balance Sheet Data

(Amounts in millions, except per share information)   
 September 30, 2020 December 31, 2019
Cowen Inc. stockholders' equity$911.2 $809.9
Common equity (CE)$809.9 $708.5
Tangible common equity (TCE)$646.1 $535.6
    
Book value per share (CE/CSO)$30.48 $24.77
Tangible book value per share (TCE/CSO)$24.32 $18.72
    
Common shares outstanding (CSO)26.6 28.6
    
Note: Common Equity (CE) is calculated as Cowen Inc, stockholders’ equity less our preferred stock issuance.
Tangible common equity (TCE) is calculated as common equity (CE) less goodwill and net intangible assets.


Cowen Inc.
US GAAP Preliminary Unaudited Condensed Consolidated Statements of Operations
(Dollar and share amounts in thousands, except per share data)
        
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2020 2019 2020 2019
Revenue       
Investment banking$194,341  $77,292 $503,351  $272,103
Brokerage138,483  93,995 425,069  302,840
Management fees11,954  7,300 35,211  21,480
Incentive income127  701 127  724
Interest and dividends37,552  60,707 127,547  129,846
Reimbursement from affiliates269  238 777  780
Reinsurance premiums2,505  8,146 18,943  29,068
Other1,369  1,237 4,709  3,228
Consolidated Funds revenues1,135  2,431 4,650  8,239
Total revenue387,735  252,047 1,120,384  768,308
Interest and dividends expense37,754  56,477 125,850  125,089
Total net revenue349,981  195,570 994,534  643,219
Expenses       
Employee compensation and benefits153,427  120,320 583,137  388,611
Reinsurance claims, commissions and amortization of deferred acquisition costs4,852  8,195 21,716  25,139
Operating, general, administrative and other expenses84,784  83,851 264,950  250,915
Depreciation and amortization expense5,682  5,082 17,324  14,990
Goodwill impairment     4,100
Consolidated Funds expenses494  2,516 4,793  6,229
Total expenses249,239  219,964 891,920  689,984
Other income (loss)       
Net (losses) gains on securities, derivatives and other investments(68,781) 18,446 83,738  61,440
Consolidated Funds net (losses) gains6,385  13,896 (29,410) 21,536
Total other income (loss)(62,396) 32,342 54,328  82,976
        
Income (loss) before income taxes38,346  7,948 156,942  36,211
Income tax expense/(benefit)8,830  1,365 52,589  9,615
Net income (loss)29,516  6,583 104,353  26,596
Net income (loss) attributable to non-controlling interests in consolidated subsidiaries and funds9,232  2,770 (19,843) 7,188
Net income (loss) attributable to Cowen Inc.20,284  3,813 124,196  19,408
Less: Preferred stock dividends1,698  1,698 5,094  5,094
Net income (loss) attributable to Cowen Inc. common stockholders$18,586  $2,115 $119,102  $14,314
        
Earnings (loss) per share:       
Basic$0.67  $0.07 $4.24  $0.48
Diluted$0.62  $0.07 $4.02  $0.46
        
Weighted average shares used in per share data:       
Basic27,663  29,529 28,078  29,687
Diluted29,970  31,264 29,646  31,381


Third Quarter 2020 Economic Income Financial Review

 Three Months Ended Nine Months Ended
 September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
(Dollar amounts in thousands)Op Co Asset Co Total Op Co Asset Co Total Op Co Asset Co Total Op Co Asset Co Total
Investment banking$185,151  $  $185,151  $69,433  $  $69,433  $474,778  $  $474,778  $254,374 $  $254,374
Brokerage167,084    167,084  110,178    110,178  466,823    466,823  346,095   346,095
Management fees14,374  262  14,636  10,321  586  10,907  41,724  634  42,358  30,016 1,788  31,804
Incentive income(2,621) 1,319  (1,302) 15,251  (862) 14,389  40,829  158  40,987  33,998 762  34,760
Investment income (loss)(90,364) (124) (90,488) 10,913  822  11,735  32,566  (13,671) 18,895  13,827 5,289  19,116
Other revenue(796) 2  (794) (132) 6  (126) (298) 4  (294) 5,295 56  5,351
Total revenue272,828  1,459  274,287  215,964  552  216,516  1,056,422  (12,875) 1,043,547  683,605 7,895  691,500
Interest Expense6,026  1,109  7,135  5,758  1,389  7,147  18,471  4,014  22,485  16,371 4,046  20,417
Total net revenues266,802  350  267,152  210,206  (837) 209,369  1,037,951  (16,889) 1,021,062  667,234 3,849  671,083
                        
Compensation & Benefits152,829  957  153,786  121,890  729  122,619  582,480  2,093  584,573  386,593 4,383  390,976
Fixed non-compensation expense34,257  127  34,384  36,458  625  37,083  106,350  378  106,728  107,889 2,485  110,374
Variable non-compensation expense37,736  6  37,742  37,216  40  37,256  121,846  18  121,864  113,728 127  113,855
Depreciation & Amortization5,670  5  5,675  5,073  9  5,082  16,756  17  16,773  14,957 30  14,987
Non-Controlling Interest2,105    2,105  661    661  5,584    5,584  2,944   2,944
Total expenses232,597  1,095  233,692  201,298  1,403  202,701  833,016  2,506  835,522  626,111 7,025  633,136
                        
Less: Preferred Dividend1,415  283  1,698  1,341  357  1,698  4,160  934  5,094  4,058 1,036  5,094
Economic Income (Loss) attributable to Common Shareholders32,790  (1,028) 31,762  7,567  (2,597) 4,970  200,775  (20,329) 180,446  37,065 (4,212) 32,853
                        
Add: Depreciation & Amortization5,670  5  5,675  5,073  9  5,082  16,756  17  16,773  14,957 30  14,987
Economic Operating Income (Loss) attributable to Common Shareholders$38,460  $(1,023) $37,437  $12,640  $(2,588) $10,052  $217,531  $(20,312) $197,219  $52,022 $(4,182) $47,840
                        
Economic Income per common share$1.09  $(0.03) $1.06  $0.24  $(0.08) $0.16  $6.77  $(0.69) $6.08  $1.17 $(0.13) $1.04
Economic Operating Income per common share$1.28  $(0.03) $1.25  $0.40  $(0.08) $0.32  $7.34  $(0.69) $6.65  $1.66 $(0.13) $1.53


Economic Income total revenues
were $274.3 million versus $216.5 million in the third quarter of 2019, an increase of 27%. Op Co revenue included in economic income was $272.8 million while Asset Co revenue included in economic income was $1.5 million.

Investment Banking revenues were $185.2 million, up 167% versus the prior-year period, driven by stronger equity capital markets activity as well as higher-fee M&A transactions.

Brokerage revenues of $167.1 million were up 52% versus the prior-year period, driven by strength in non-US trading, electronic trading, prime services and securities finance.

Management Fees rose 34% year-over-year to $14.6 million in the third quarter, driven by higher AUM in the sustainability strategy, private healthcare strategy and the healthcare royalties strategy. Management fees in Asset Co. were $0.3 million.

Incentive Income posted a loss of $1.3 million in the third quarter of 2020, down from income of $14.4 million in the prior-year period. Third quarter 2020 incentive income reflects the impact of mark-to-market declines in the value of positions in the private healthcare strategy, partially offset by a gain of $1.3 million in Asset Co.

Investment Income posted a loss of $90.5 million, versus income of $11.7 million in the prior-year period. The third quarter 2020 revenues include a $96.6 million unrealized loss on the investment in Nikola partially offset by positive performance in the event driven strategy, the healthcare strategy and the activist strategy. Investment income includes markdowns in Asset Co investments of $0.1 million.

Compensation and benefits expense was $153.8 million compared to $122.6 million in the third quarter of 2019. The increase was due to higher revenues offset only partially by a lower compensation to revenue ratio, as well as a $48.3 million reversal of a compensation accrual that was booked through 2Q 2020 related to previous gains on the Nikola investment. The third quarter 2020 compensation-to-revenue ratio was 56.1%, up from 54.6% in 2Q20 and down from 56.6% in 3Q19.

Fixed non-compensation expenses decreased $2.7 million from the prior-year period to $34.4 million. The decrease was due in part to lower service fees and reduced office service expenses.

Variable non-compensation expenses were $37.7 million, up from $37.3 million in the third quarter of 2019. The increase is related in part to higher brokerage and trade execution costs due to increased volumes, partially offset by lower travel, entertainment and business development expenses.

Economic Operating Income, which represents Economic Income attributable to common stockholders before depreciation and amortization, was $37.4 million for the third quarter of 2020, up from $10.1 million in the prior-year period. Third quarter 2020 Economic Operating Income for Op Co was $38.5 million, while Asset Co Economic Operating loss was $1.0 million.

Assets Under Management As of September 30, 2020, the Company had assets under management of $11.8 billion, an increase of $0.3 billion from June 30, 2020 and an increase of $1.0 billion from September 30, 2019, respectively.

Invested Capital As of September 30, 2020, the Company had invested capital in Op Co totaling $784.2 million, up from $711.8 million as of June 30, 2020, as an increase in invested broker dealer capital more than offset the impact of the mark-to-market on the Nikola investment.

As of Sept 30, 2020, the Company had invested capital in Asset Co totaling $127.7 million, an increase of $3.3 million from the invested capital invested as of June 30, 2020.

The largest Asset Co investments were the stake in Italian wireless broadband provider Linkem ($77.4 million), private equity funds Formation8/Eclipse ($39.1 million) and other private investments ($9.3 million).

Earnings Conference Call

Management will hold a conference call today, October 27, 2020 at 9:00 am ET to discuss these results and provide an update on business conditions.

Chair 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: (855) 760-0961
International dial-in: (631) 485-4850
Passcode: 8591505

Please call the conference telephone number at least 15 minutes prior to the start time.

The call can also be accessed through live audio webcast via this direct link:
https://edge.media-server.com/mmc/p/nazu2fc3

A replay of the call will be available for one week beginning at 12:00 pm ET on October 27, 2020 on the Company’s website at investor.cowen.com/investor-calls or via the following numbers:

U.S. replay dial-in: (855) 859-2056
International replay dial-in: (404) 537-3406
Replay ID: 8591505

About Cowen Inc.
Cowen Inc. (“Cowen” or the “Company”) is a diversified financial services firm offering investment banking services, research, sales and trading, prime brokerage, global clearing, commission management services and investment management. 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. As a result of the spread of COVID-19, economic uncertainties have arisen that have the potential in future periods to negatively impact the Company’s business, financial condition, results of operation, cash flows, strategies and prospects. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak and impact on our clients, employees, vendors and the markets in which we operate our businesses, all of which are uncertain and cannot be reasonably estimated at this time. 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.

 Non-GAAP Financial Measures

In addition to the results presented above in accordance with US GAAP, the Company presents supplemental financial measures that are non-GAAP measures. 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 and analysts regarding its performance and overall results of operations as it presents investors and analysts with a supplemental operating view of the Company’s financials to help better inform their analysis of the Company’s performance. These metrics are an integral part of the Company’s internal reporting to measure the performance of its business segments, allocate capital and other strategic decisions as well as assess 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) may not be comparable to similarly titled measures used by other public companies. Economic Income (Loss) should not be considered in isolation or as a substitute for 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.

In general, Economic Income (Loss) is a pre-tax measure that (i) includes management reclassifications which the Company believes provides additional insight on the performance of the Company’s core businesses and divisions (ii) eliminates the impact of consolidation for Consolidated Funds and excludes (iii) goodwill and intangible impairment (iv) certain other transaction-related adjustments and/or reorganization expenses and (v) certain costs associated with debt. Economic Operating Income (Loss) is a similar measure but before depreciation and amortization expenses.


Reconciliation of Net Income Attributable to Cowen Inc. Common Stockholders to Economic Income and Economic Operating Income

  Three Months Ended Nine Months Ended
  September 30, September 30,
(Dollar amounts in thousands)2020 2019 2020 2019
         
US GAAP Net income (loss) attributable to Cowen Inc. common stockholders$18,586 $2,115 $119,102 $14,314
 Adjustments:       
 Income tax expense (benefit)8,693 1,287 52,247 9,567
 Amortization of discount on convertible debt1,152 1,092 3,394 3,208
 Contingent liability adjustments3,023 300 4,781 298
 Goodwill & intangible impairment  544 4,100
 Transaction-related and other costs308 176 378 1,366
 Economic Income (Loss)$31,762 $4,970 $180,446 $32,853
 Add back: Depreciation and amortization expense5,675 5,082 16,773 14,987
 Economic Operating Income (Loss)$37,437 $10,052 $197,219 $47,840


Earnings Per Common Share (Diluted) to Economic Income Per Common Share (Diluted) and Economic Operating Income Per Common Share (Diluted)

  Three Months Ended Nine Months Ended
  September 30, September 30,
(Dollars per share)2020 2019 2020 2019
         
Earnings (loss) per common share (diluted):$0.62 $0.07 $4.02 $0.46
 Adjustments:       
 Income tax expense (benefit)0.29 0.04 1.76 0.30
 Amortization of discount on convertible debt0.04 0.03 0.11 0.10
 Contingent liability adjustments0.10 0.01 0.16 0.01
 Goodwill & intangible impairment  0.02 0.13
 Transaction-related and other costs0.01 0.01 0.01 0.04
 Economic income (Loss) per common share (diluted) $1.06 $0.16 $6.08 $1.04
 Add back: Depreciation and amortization expense0.19 0.16 0.57 0.49
 Economic Operating Income (Loss) per common share (diluted)$1.25 $0.32 $6.65 $1.53


 Three Months Ended September 30, 2020
 US GAAP Reclassifications and Adjustments Economic Income
(Dollars amounts in thousands)Net income (loss) Management Reclassifications Fund Consolidation Reclassifications (k) Income Statement Adjustments Total Economic Income/(Loss) Operating Company Asset Company
Revenues             
Investment banking$194,341  $(9,190)a, b$  $  $185,151  $185,151  $ 
Brokerage138,483  28,601 c, h    $167,084  167,084   
Management fees11,954  2,519 d, e163    $14,636  14,374  262 
Incentive income (loss)127  (1,462)e33    $(1,302) (2,621) 1,319 
Investment income (loss)  (90,488)f    $(90,488) (90,364) (124)
Interest and dividends37,552  (37,552)c         
Reimbursement from affiliates269  (269)b         
Reinsurance premiums2,505  (2,505)g         
Other revenue1,369  (2,160)g(3)   (794) (796) 2 
Consolidated Funds revenues1,135    (1,135)        
Total revenues387,735  (112,506) (942)   274,287  272,828  1,459 
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP)37,754  (29,467)c  (1,152)l7,135  6,026  1,109 
Total net revenues349,981  (83,039) (942) 1,152  267,152  266,802  350 
Expenses             
Compensation & benefits153,427  359 i    153,786  152,829  957 
Fixed non-compensation expense  37,708 e, j  (3,324)m34,384  34,257  127 
Variable non-compensation expense  37,742 j    37,742  37,736  6 
Other non-compensation expense89,636  (89,636)a, b, d, g, i         
Depreciation & amortization5,682      (7)n5,675  5,670  5 
Non-controlling interest  2,105 j    2,105  2,105   
Consolidated Funds expenses494    (494)        
Total expenses249,239  (11,722) (494) (3,331) 233,692  232,597  1,095 
Other income (loss)(62,396) 64,896 e, f, h(2,500)        
Income taxes expense / (benefit)8,830  (137)   (8,693)o     
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds9,232  (6,284)j(2,948)        
Income (loss) attributable to Cowen Inc.20,284      13,176  33,460  34,205  (745)
Less: Preferred stock dividends1,698        1,698  1,415  283 
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders$18,586  $  $  $13,176  31,762  32,790  (1,028)
Add back: Depreciation and amortization expense        5,675  5,670  5 
Economic Operating Income (Loss)        $37,437  $38,460  $(1,023)


 Three Months Ended September 30, 2019
 US GAAP Reclassifications and Adjustments Economic Income
(Dollars amounts in thousands)Net income (loss) Management Reclassifications Fund Consolidation Reclassifications (k) Income Statement Adjustments Total Economic Income/(Loss) Operating Company Asset Company
Revenues             
Investment banking$77,292 $(7,859)a, b$  $  $69,433  $69,433  $ 
Brokerage93,995 16,183 c, h    110,178  110,178   
Management fees7,300 3,033 d, e574    10,907  10,321  586 
Incentive income (loss)701 13,675 e13    14,389  15,251  (862)
Investment income (loss) 11,735 f    11,735  10,913  822 
Interest and dividends60,707 (60,707)c         
Reimbursement from affiliates238 (265)b27         
Reinsurance premiums8,146 (8,146)g         
Other revenue1,237 (1,389)g26    (126) (132) 6 
Consolidated Funds revenues2,431   (2,431)        
Total revenues252,047 (33,740) (1,791)   216,516  215,964  552 
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP)56,477 (48,238)c  (1,092)l7,147  5,758  1,389 
Total net revenues195,570 14,498  (1,791) 1,092  209,369  210,206  (837)
Expenses             
Compensation & benefits120,320 2,299 i    122,619  121,890  729 
Fixed non-compensation expense 37,559 e, j  (476)m37,083  36,458  625 
Variable non-compensation expense 37,256 j    37,256  37,216  40 
Other non-compensation expense92,046 (92,046)a, b, d, g, i         
Depreciation & amortization5,082       5,082  5,073  9 
Non-controlling interest 661 j    661  661   
Consolidated Funds expenses2,516   (2,516)        
Total expenses219,964 (14,271) (2,516) (476) 202,701  201,298  1,403 
Other income (loss)32,342 (26,721)e, f, h(5,621)   —      
Income taxes expense / (benefit)1,365 (78)   (1,287)o—      
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds2,770 2,126 j(4,896)   —      
Income (loss) attributable to Cowen Inc.3,813     2,855  6,668  8,908  (2,240)
Less: Preferred stock dividends1,698       1,698  1,341  357 
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders$2,115 $  $  $2,855  4,970  7,567  (2,597)
Add back: Depreciation and amortization expense        5,082  5,073  9 
Economic Operating Income (Loss)        $10,052  $12,640  $(2,588)


 Nine Months Ended September 30, 2020
 US GAAP Reclassifications and Adjustments Economic Income
(Dollars amounts in thousands)Net income (loss) Management Reclassifications Fund Consolidation Reclassifications (k) Income Statement Adjustments Total Economic Income/(Loss) Operating Company Asset Company
Revenues             
Investment banking$503,351  $(28,573)a, b$  $  $474,778  $474,778  $ 
Brokerage425,069  41,754 c, h    466,823  466,823   
Management fees35,211  5,672 d, e1,475    42,358  41,724  634 
Incentive income (loss)127  40,827 e33    40,987  40,829  158 
Investment income (loss)  18,895 f    18,895  32,566  (13,671)
Interest and dividends127,547  (127,547)c         
Reimbursement from affiliates777  (827)b50         
Reinsurance premiums18,943  (18,943)g         
Other revenue4,709  (4,982)g(21)   (294) (298) 4 
Consolidated Funds revenues4,650    (4,650)        
Total revenues1,120,384  (73,724) (3,113)   1,043,547  1,056,422  (12,875)
Interest and dividend expense125,850  (99,971)c  (3,394)l22,485  18,471  4,014 
Total net revenues994,534  26,247  (3,113) 3,394  1,021,062  1,037,951  (16,889)
Expenses             
Compensation & benefits583,137  1,436 i    584,573  582,480  2,093 
Fixed non-compensation expense  111,880 e, j  (5,152)m106,728  106,350  378 
Variable non-compensation expense  121,864 j    121,864  121,846  18 
Other non-compensation expense286,666  (286,666)a, b, d, g, i         
Depreciation & amortization17,324      (551)n16,773  16,756  17 
Non-controlling interest  5,584 j    5,584  5,584   
Consolidated Funds expenses4,793    (4,793)        
Total expenses891,920  (45,902) (4,793) (5,703) 835,522  833,016  2,506 
Other income (loss)54,328  (82,006)e, f, h27,678         
Income taxes expense / (benefit)52,589  (342)   (52,247)o     
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds(19,843) (9,515)j29,358    —      
Income (loss) attributable to Cowen Inc.$124,196      61,344  185,540  204,935  (19,395)
Less: Preferred stock dividends5,094        5,094  4,160  934 
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders$119,102  $  $  $61,344  180,446  200,775  (20,329)
Add back: Depreciation and amortization expense        16,773  16,756  17 
Economic Operating Income (Loss)        $197,219  $217,531  $(20,312)


 Nine Months Ended September 30, 2019
 US GAAP Reclassifications and Adjustments Economic Income
(Dollars amounts in thousands)Net income (loss) Management Reclassifications Fund Consolidation Reclassifications (k) Income Statement Adjustments Total Economic Income/(Loss) Operating Company Asset Company
Revenues             
Investment banking$272,103 $(17,729)a, b$  $  $254,374 $254,374 $ 
Brokerage302,840 43,255 c, h    346,095 346,095  
Management fees21,480 8,684 d, e1,640    31,804 30,016 1,788 
Incentive income (loss)724 33,479 e557    34,760 33,998 762 
Investment income (loss) 19,116 f    19,116 13,827 5,289 
Interest and dividends129,846 (129,846)c       
Reimbursement from affiliates780 (874)b94       
Reinsurance premiums29,068 (29,068)g       
Other revenue3,228 2,109 g14    5,351 5,295 56 
Consolidated Funds revenues8,239   (8,239)      
Total revenues768,308 (70,874) (5,934) —   691,500 683,605 7,895 
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP)125,089 (101,464)c  (3,208)l20,417 16,371 4,046 
Total net revenues643,219 30,590  (5,934) 3,208  671,083 667,234 3,849 
Expenses             
Compensation & benefits388,611 2,365 i    390,976 386,593 4,383 
Fixed non-compensation expense 112,038 e, j  (1,664)m110,374 107,889 2,485 
Variable non-compensation expense 113,855 j    113,855 113,728 127 
Other non-compensation expense276,054 (276,054)a, b, d, g, i       
Depreciation & amortization14,990 (3)     14,987 14,957 30 
Non-controlling interest 2,944 j    2,944 2,944  
Goodwill impairment4,100     (4,100)n   
Consolidated Funds expenses6,229   (6,229)      
Total expenses689,984 (44,855) (6,229) (5,764) 633,136 626,111 7,025 
Other income (loss)82,976 (73,907)e, f, h(9,069)      
Income taxes expense / (benefit)9,615 (48)   (9,567)o   
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds7,188 1,586 j(8,774)      
Income (loss) attributable to Cowen Inc.19,408     18,539  37,947 41,123 (3,176)
Less: Preferred stock dividends5,094       5,094 4,058 1,036 
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders$14,314 $  $  $18,539  32,853 37,065 (4,212)
Add back: Depreciation and amortization expense        14,987 14,957 30 
Economic Operating Income (Loss)        $47,840 $52,022 $(4,182)


Adjustments made to US GAAP Net Income (Loss) to arrive at Economic Operating Income (Loss)


Management Reclassifications
 Management reclassification adjustments and fund consolidation reclassification adjustments have no effect on economic income. These adjustments are reclassifications to change the location of certain line items.
aEconomic Income (Loss) presents underwriting expenses net of investment banking revenues.
bEconomic Income (Loss) presents expenses reimbursed from clients and affiliates within their respective expense category but is included as a part of revenues under US GAAP.
cEconomic 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.
dEconomic Income (Loss) presents revenues net of fund start-up costs and distribution fees paid to agents.
eEconomic Income (Loss) recognizes the Company's proportionate share of management and incentive fees and associated share of expenses on a gross basis for certain real estate operating entities, the healthcare royalty business and the activist business. Additionally, carried interest, which the Company applies an equity ownership model to, is recorded in other income (loss) for US GAAP and is shown as incentive income for Economic Income (Loss).
fEconomic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends) for which the majority of this activity is shown in other income (loss) for US GAAP reporting.
gEconomic Income (Loss) recognizes underwriting income from the Company's insurance related activities, net of expenses, within other revenue. The costs are recorded within expenses for US GAAP reporting.
hEconomic Income (Loss) recognizes gains and losses on investments held as part of the Company's facilitation and trading business within brokerage revenues as these investments are directly related to the markets business activities.
iEconomic Income (Loss) presents certain payments to associated banking partners as compensation rather than non-compensation expenses.
jEconomic Income (Loss) presents US GAAP expenses as either Fixed non-compensation or Variable non-compensation expenses. The Company also presents US GAAP Income (loss) attributable to non-controlling interests within total other expenses for Economic Income (Loss).
Fund Consolidation Reclassifications
kThe impacts of consolidation and the related elimination entries of the Consolidated Funds are not included in Economic Income (Loss). Adjustments to reconcile to US GAAP net income (loss) included elimination of incentive income and management fees earned from the Consolidated Funds and addition of investment fund expenses excluding management fees paid, investment fund revenues and investment income (loss).
Income Statement Adjustments
lEconomic Income (Loss) excludes the amortization of discount on convertible debt.
mEconomic Income (Loss) excludes acquisition related adjustments as management does not consider these items when evaluating the performance of the Company.
nEconomic Income (Loss) excludes goodwill and intangible impairment.
oEconomic Income (Loss) excludes income taxes.

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