Cohen & Company Inc.

Good morning, ladies and gentlemen. Welcome to Cohen and Company's third quarter 2025 earnings call. My name is Alicia, and I'll be your operator for today. Before we begin, Cohen and Company would like to remind everyone that some of the statements the company makes during this call may contain forward-looking statements under applicable securities laws. These statements may involve risks and uncertainties that could cause the company's actual results to differ materially from the results discussed in such forward-looking statements. The forward-looking statements made during this call are made only as of the date of this call, and the company undertakes no obligations to update such statements to reflect subsequent events or circumstances. Cohen & Company advises you to read the cautionary note regarding forward-looking statements in its earnings release and in its most recent annual report on Form 10-K filed with the SEC. Earlier today, Cohen and Company issued a press release announcing third quarter 2025 financial results. Today's discussion is complementary to that press release, which is available on the company's website at cohenandcompany.com. This conference call is being recorded, and a replay of it will be available for three days, beginning shortly after the conclusion of this call. The company's remarks also include certain non-GAAP financial measures that management leaves are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in the company's earnings release. After the prepared remarks, the call will be opened up for questions. I would now like to turn the call over to Mr. Daniel Cohen, Executive Chairman of Cohen and Company.

Thank you, Alicia. And everybody, welcome to our third quarter's earnings call. The results, which Lester, our CEO, and Joe, our CFO, will go over, speak for themselves. We are super excited about our present, our future, and what we really have been able to build. We're in the middle still of that build-out of Cohen & Company Securities into the premier frontier technology investment bank. But the results over the past few quarters show the potential. Year to September 30th, we have IPO'd with sponsors 18 new SPAC vehicles in a market that only has started to recover, we believe. Companies like Vertiv, MP Materials, DraftKings, and SoFi are among the companies, I can remind you, that have gone public with SPACs. Alone, those comprise well above $100 billion market cap. We have maintained our position as the leading advisor for D-SPAC transactions, and we have built strong franchises in rare earth and quantum computing now, as well as continued our leadership in the digital asset transaction space. With tokenization of financial assets just beginning, we expect to extend our experience in taking blockchain assets to traditional stock market vehicles to what we see as the future of traditional assets moving to the blockchain. We are stoked to continue building the future and we will share our expectations going forward. Let me turn it over to Lester to make remarks on our year-to-date, our company, and our future.

Thank you, Daniel. We had a strong performance in the third quarter as we continued to execute our strategy and drive sustainable value for our stockholders. Our third quarter total revenue was $84.2 million, and our adjusted pre-tax income was $16.4 million, representing 19.4% of total revenue. Year-to-date through September 30th, our total revenue was $172.8 million, and our adjusted pre-tax income was $23.2 million, representing 13.4% of total revenue. We are focused on capitalizing on innovative areas in the capital markets where we can add value to our clients through various business cycles. Our boutique investment bank, Kohn & Company Capital Markets, or CCM, focused on SPACs during the height of the SPAC market and continued working with our SPAC clients through difficult times of 2022 and 2023. The result of this consistent client focus has resulted in CCM at the top of the league tables, coming in number one in SPAC IPO underwritings with the most left book run deals year to date, and number one in SPAC advisory by a wide margin with lead share in D-SPAC pipes. To further enhance our SPAC franchise, we've added an equity trading team to provide our investors with an additional source of liquidity. We have taken the same approach in the digital asset space where we invested in client outreach during a low in the capital markets activity. As a result of this outreach, we have become a leader in the crypto capital markets with over $12 billion raised with crypto clients and 26 transactions closed across digital asset treasury strategies, M&A, IPOs, and D-SPACs during the 2025 year to date, placing CCM in the top three firms on Wall Street in this space. Launched in 2021, CCM has become an increasingly important component of our company overall, generating $133 million in the first nine months of 2025, up from $22.7 million in full year 2021. CCM as a percentage of revenue, total revenue, total company revenue has grown to 77% for the first nine months of 2025, from 15% in the full year of 2021. Going forward, we will continue to focus on being the advisor of choice to the growth and frontier technology section of the economy, including blockchain, fintech, rare earth metals, as well as the related sub-verticals of stablecoin, tokenization, and AI. During the quarter, CCM generated $68.6 million in net revenue across 18 clients. Supported by a strong pipeline of transactions, CCM is well positioned to continue accelerating growth and deliver an exceptional performance through the end of the year. During the nine months ended September 30, 2025, CCM has underwritten 18 SPAC IPOs, four of which have announced transactions with 14 searching for D-SPAC target companies. Clearly, there are significant potential D-SPAC fees to earn in the next 12 to 18 months as part of CCM's 300 million gross pipeline of possible transactions. To put this in perspective, at this point in 2024, CCM only had 145 million gross pipelines of possible transactions. Although the CCM business can be uneven from quarter to quarter, we remain confident that we can continue growing our CCM revenue base and are excited for 2026 as we are with our success in 2025. Furthermore, we are confident in our ability to attract incremental talent to our innovative, cutting-edge investment banking operations. In addition, the declining interest rate environment has bolstered our trading revenue, which was up 26% in the third quarter from the previous quarter, with increased revenue coming across all our trading desks. Also, our gross gestation repo book has grown to over $3.3 billion, and we expect these trends will continue, providing additional opportunities to enhance net trading revenue. We're also hopeful that our sponsor, SPAC Columbus Circle Capital Corp. 1, will close its business combination with ProCap BTC in the fourth quarter of 2025, or the first quarter of 2026. We are at an important flexion point in our long-term strategy. Based on what we have seen in trading revenue and our CCM pipeline thus far, we are confident that we will generate more than $50 million in revenue in the fourth quarter and more than $220 million in revenue for the full year 2025. We also anticipate our compensation and benefits expense lineup for the full year 2025 to be in a range of 68% to 72% of revenue and our adjusted pre-tax income for the full year 2025 to be in the range of 10% to 15% of revenue. At this level of annualized revenue, our total annual revenue per employee will be around $1.8 million. In contrast, for 2024, our annual revenue per employee was $700,000. We are pleased with our results and are grateful for the efforts of all our employees. We remain confident in our future earnings potential and are committed to driving long-term, sustainable value for our stockholders, including through quarterly dividends. Now I will return the call over to Joe to walk through this quarter's financial highlights in more detail.

Thank you, Lester. I'll begin with a discussion of our operating results for the quarter. Our net income attributable to Cone & Company Inc. shareholders was $4.6 million for the quarter, or $2.58 per fully diluted share, compared to net income of $1.4 million for the prior quarter, or $0.81 per fully diluted share, and net income of $2.2 million for the prior year quarter, or $1.31 per fully diluted share. Our adjusted pre-tax income was $16.4 million for the third quarter compared to adjusted pre-tax income of $5.5 million for the prior quarter and adjusted pre-tax income of $7.7 million for the prior year quarter. As a reminder, adjusted pre-tax income is a key earnings measurement for us, as it incorporates enterprise earnings attributable to our convertible non-controlling interest, which is substantially held by our founder and chairman, Daniel Cohen. Daniel holds his interest in the enterprise through the primary operating subsidiary, Cohen & Company, LLC, which is a consolidated subsidiary of Cohen & Company, Inc. New issue in advisory revenue for the quarter was $228 million, compared to 37.4 million from the prior quarter and 22.5 million from the year-ago quarter. All of our new issue and advisory revenue came from our CCM business and was primarily driven by SPAC M&A activity and SPAC IPO transactions. CCM's new issue revenue was partially offset by 159 million of negative principal transactions revenue from investment assets received as CCM client consideration. As a reminder, we have received financial instruments as consideration for advisory services provided by CCM instead of cash at times, which are included in other investments at fair value on our balance sheet. Any realized or unrealized gains or losses on these instruments after the day of closing are recorded in our principal transactions revenue line item. One CCM deal in particular was material to our results during the quarter. In August of 25, Nakamoto merged with KindlyMD to launch a Bitcoin treasury strategy with CCM acting as financial advisor and placement agent for the transaction's $540 million pipe and $200 million convertible note. CCM earned $179 million of new issue and advisory revenue from this transaction, which included $20 million of cash revenue and $159 million of non-cash revenue in the form of NACA, N-A-K-A, shares. And the $159 million is calculated using $11.6 million of NACA shares at the post-transaction closing share price of $1,360 million. The September 30 quarter-end closing price of NACA shares was only $1.07, resulting in $146 million principal transaction losses in our P&L. In total, the Nakamoto-KindlyMD transaction accounted for net $32.5 million of CCM revenue during the quarter. We were not able to sell the NACA shares during the third quarter pending registration, the NACA shares are now freely tradable. Net trading revenue came in at $13.6 million in the quarter, up $2.8 million from the prior quarter, and up $4.7 million from the third quarter of 24. The increase from both the prior quarters was due primarily to higher trading revenue across all of our trading groups. Asset management revenue totaled $1.9 million in the quarter, Down from both prior quarters, the decrease was related primarily to the sale of all of the company's legacy ALESCO CDO management contracts in 25. We will not record any additional asset management revenue from the ALESCO CDO contracts going forward. Third quarter principal transactions and other revenue was negative $159 million. due to the investment assets related to consideration received by CCM, including the previously mentioned NACA shares. Principal transactions revenue includes all the gains and losses and income earned on our $64 million investment portfolio. Compensation and benefits expense for the third quarter was $53.7 million, which was up from both prior quarters, primarily due to fluctuations in revenue income from equity method affiliates, and the related variable incentive compensation that goes along with those increases. In the third quarter, compensation and benefits expense as a percentage of revenue was 64%. The number of company employees was 124 as of September 30 of 25 compared to 118 at the prior quarter end and 113 at the prior year quarter end. Net interest expense for the quarter was $1.5 million, including $1.2 million on our two trust preferred debt instruments, $214,000 on our senior promissory notes, and $41,000 on our credit line. The gain on sales management contracts for the three months was $1.9 million, which resulted from the closing of the sale of three of our legacy ALESCO CDO management contracts. At this point, we've completed the sale of all of our legacy Ilesco CDO management contracts, and as noted, there will be no future asset management from them. Loss from equity method affiliates totaled $12.7 million, primarily due to mark-to-market losses on one of our SPAC series fund investments, which was partially offset by a $6.9 million credit recorded in the net income attributable to the non-convertible non-controlling interest line item. In terms of our balance sheet at the end of the quarter, total equity was 101.1 million compared to 90.3 million at the end of the year. The non-convertible non-controlling interest component of total equity was 3.9 million at the end of the quarter and 11.5 million at the end of the year. Thus, the total enterprise equity excluding the non-convertible, non-controlling interest was $97.1 million at the end of the quarter, an $18.3 million increase from $78.8 million at the end of the year. At quarter end, consolidated indebtedness was carried at $32.7 million. And as Lester mentioned, we declared a quarterly dividend of 25 cents per share payable on December 3, 2025 to stockholders of record as of November 19. The Board of Directors will continue to evaluate the dividend policy each quarter, and future decisions regarding dividends may be impacted by quarterly results and the company's capital needs. With that, I'll turn it back over to Lester for closing remarks.

Thanks, Joe. We remain confident in our ability to navigate the current environment execute on our strategic priorities, and continue driving progress as we enhance long-term value for our stockholders. Please direct any offline investor questions to Joe Pooler at 215-701-8952 or via email to investorrelations at conancompany.com. The contact information can also be found at the bottom of our earnings release. Operator, you can now open the line for questions. And thank you all for joining us today.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. There are no further questions at this time. I'd like to turn the floor back over to management for any additional closing remarks.

Thanks, Alicia, and thanks, everyone, for listening today. We look forward to reconvening at our call next quarter.

Thank you. This does conclude today's teleconference. We thank you for your participation. We now disconnect your lines.