Cowen Inc.

Today's conference is scheduled to begin shortly. Please continue to stand by. Thank you for your patience. Thank you. Good morning, and thank you for joining us to discuss Cowan's results for the first quarter 2022. By now, you should have received a copy of the earnings release, which can be accessed at investor.cowan.com. After the speaker's presentation, there will be a question and answer session. As a reminder, today's call is being recorded. I would now like to hand the call over to Mr. T.J. Farley, Cowan's Head of Investor Relations. Please go ahead.

Thank you, Michelle. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties associated described in our earnings release and other filings with the SEC. Cowan has no obligation to update the information presented on today's call. Also on today's call, we will be referencing certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliations of those measures to GAAP are presented in today's earnings release. As a reminder, we make available a quarterly financial supplement in the investor relations section of our website. We encourage you to review it in conjunction with our earnings release. Joining us on today's call are Cowen's Chair and Chief Executive Officer, Mr. Jeffrey Solomon, and our Chief Financial Officer, Mr. Stephen Lasoda. Now, I would like to turn the call over to Jeff.

Thank you, JT. Good morning, and thank you all for joining Cowen's earnings call for the first quarter of 2022. Today, I will provide highlights on our operating performance, and then Steve will review the financial results in more detail, after which we will be happy to answer your questions. The first quarter was a clear demonstration of the broad, sustainable business we built at Callen. It was the most challenging capital markets environment in over a decade, with U.S. ECM activity down 80% year over year and down almost 90% on a dollar volume basis. Amid the heightened market volatility, valuations in growth sectors were hit especially hard, with the XBI biotech index down nearly 20%. Despite these headwinds, we had a solid quarter, generating nearly $100 million in investment banking revenues, which is above our pre-pandemic averages in 2018 and 2019, and we put up the second-best quarter on record for our markets revenues. We maintained expense discipline, keeping our compensation ratio within our annual guidance range, and we returned additional capital to shareholders for purchasing shares equivalent to over half of our economic operating income during the quarter. We took additional steps to optimize our balance sheet, resulting in 18 million unrealized gain in the first quarter on an interest rate swap that we had used to offset higher interest rates And Steve will share the details on that more shortly. Now let's take a look at the first quarter operating highlights. In banking, our acquisitions of Quarton, MHT, and most recently Portico have helped grow our M&A and capital markets advisory practice, bolstering our relationships with financial sponsors and reducing our dependence on equity capital markets activity. That strategy of diversifying our capabilities across products and sectors, which we began in earnest in 2018, was clearly evidenced this quarter. as advisory assignments helped mitigate the impact of the sharp slowdown in IPOs and follow-on offerings. Despite the overall market slowdown, we completed 23 capital markets transactions in the first quarter, and in over 90% of them, we served as a book runner, agent, or advisor, demonstrating the strength of our client relationships. Our advisory revenues, which combines our M&A and capital markets advisory revenues, represented a record 76% of total banking, up from an average of 59% in 2021. Healthcare comprised only 36% of overall banking revenue, as we had strong contributions from the industrials, technology, and verticalized software data and analytics sectors. Within healthcare, non-biotech areas, including tools and diagnostics, med tech, healthcare services, and healthcare IT, made up 40% of our total healthcare banking revenues, which is reflective of our continued effort to diversify our coverage even within that sector. Despite the capital market slowdown, our pipeline remains strong. at about the same level as the start of the year, although the current market volatility adds uncertainty to the timing of both deals and underrating activity. Turning now to markets, it was an exceptional performance, averaging $3.2 million per day in revenue, up 18% over the 2021 average, and beating every quarter except the record first quarter of 2021. Highlights for the first quarter include record cash trading revenues, as well as strong gains in derivatives, ADR trading, and non-U.S. execution, we continue to have strong momentum in prime services and swaps. On the digital front, last month we held our official launch for Calendigital, and we've started spot trading of cryptocurrencies with several clients, with more in the onboarding pipeline. In the coming quarters, we plan to expand our client base and product offerings to include prime services, derivatives, and algorithmic trading. Our partnership with digital infrastructure firm Polysign is also producing results, Through its standard custody subsidiary, PolySign offers an attractive and differentiated digital custody solution for our clients. PolySign just completed a Series C financing round with key new investors as part of its acquisition of the leading crypto fund administration platform called MG Stover. While terms of the financing were not disclosed, this event did increase the value of Cowen's $25 million strategic investment made in PolySign in May of 2021. Looking at the current quarter, U.S. equity trading volumes in April have pulled back a bit from the strong activity, but our markets business remains active, generating a little more than 3 million a day in average trading volumes, well ahead of the 2021 full-year average. In research, our team continued an intense pace of client engagement by hosting nearly 100 topical conference calls, as well as holding several high-impact client events, including our Genetic Medicine Summit, our Mobile Disruption Conference, as well as our 42nd Annual Healthcare Conference and 43rd Annual Aerospace Defense and Industrials Conference. We further expanded our ESG offerings, building out an ESG specialty sales team, and publishing our annual ESG Best Ideas compilation, which quickly became one of our most read reports of the past year. We also continued to build out our thematic research capabilities. We launched a very successful thematic research podcast series, created a multi-sector conference call for clients focused on various implications of the war in Ukraine, and expanded our quarterly macro call for portfolio managers, which aggregates proprietary data points across multiple sectors. We also held our first digital mining conference in early April, which had very strong client participation. In investment management, total asset center management grew 11% year over year, and we generated the second highest management fees since 2008. The market volatility was a headwind for incentive fees, resulting in negative mark-to-market adjustments in the healthcare and sustainability strategies. Looking at our five investment strategies, our sustainability strategy had almost $1.4 billion in AUM at the quarter end. Long-term performance is strong despite the recent drop in the value of the Proterra investment. Our healthcare investment strategy completed four new fundings in the quarter and ended with almost $1.1 billion in AUM. Long-term performance remains strong despite the weakness in public biotech markets. The activist strategy ended the quarter with $8.4 billion in asset center management, and it outperformed the Russell 2000 benchmark for the quarter. The merger arbitrage strategy had $300 million, a little over $300 million in AUM. The strategy outperformed the HFRX merger arb index during the quarter. The healthcare royalty strategy ended the quarter with $3.6 billion in total AUM. As a reminder, our balance sheet does not reflect the value of our five investment strategies in any meaningful way. In the coming quarters, we will be exploring ways to provide greater insight into the investment management business in order to provide you all with a clear understanding of its substantial worth. Turning to our balance sheet, we had investment income gains of $23.6 million in the quarter. As the gain in the value of our strategic investment in PoliSign, as well as positive performance for our macro hedging strategy, we're partially offset by negative quarterly marks in values of investments in our healthcare strategy, our activist strategy, and our merchant banking portfolio. And with that, I will now turn the call over to Steve Lasota for a brief review of our quarterly financial results.