Cowen Group, Inc. Announces 2008 Second Quarter Results

NEW YORK, Aug. 5 /PRNewswire-FirstCall/ -- Cowen Group, Inc.
(Nasdaq: COWN) today announced its operating results for the quarter ended
June 30, 2008.
Total revenue for the quarter ended June 30, 2008 was $62.7 million,
representing a decrease of 12% from $71.2 million in the prior year period.
For the quarter ended June 30, 2008, the Company reported a net loss of $0.7
million, or $0.06 per share, compared to net income of $0.2 million in the
prior year period, or $0.02 per fully diluted share. The Company's results
for the second quarter of 2008 included $1.3 million in compensation expense
related to employee stock awards in connection with our initial public
offering, compared to $2.5 million of expense in second quarter of 2007.
Excluding compensation expense related to employee stock awards in connection
with our initial public offering, the Company's adjusted net operating loss
for the second quarter of 2008 was $0.3 million compared to adjusted net
operating income of $1.7 million in the prior year period (see "Financial
Measures" below for a discussion of adjusted operating income). In addition,
the Company's results for the second quarter of 2008 included $2.0 million in
placement fee expense related to Cowen Healthcare Royalty Partners ("CHRP").
Total revenue for the six months ended June 30, 2008 was $117.7 million,
down 19% from $144.8 million for the prior year period. For the six months
ended June 30, 2008, the Company recorded a net loss of $0.1 million, compared
to net income of $2.7 million for the six months ended June 30, 2007. Net
income for the 2007 period included the effects of a one-time $1.8 million
gain related to the sale of the Company's membership seat on the Chicago Board
Options Exchange. The Company's results for the first half of 2008 included a
net benefit of $2.9 million associated with the compensation expense related
to employee stock awards in connection with our initial public offering,
compared to $5.0 million of expense in first half of 2007. The Company's
adjusted net operating loss for the six months ended June 30, 2008 was $1.7
million as compared to adjusted net operating income of $4.5 million in the
prior year period.
"I am pleased with the continued effort that our employees have
demonstrated over the past six months despite very difficult market
conditions. The new issue market during the second quarter was among the
worst I have ever witnessed," said Greg Malcolm, Chief Executive Officer.
"Though the lack of new issue activity continues to impact our overall
results, Cowen performed well in areas not constrained by current market
conditions including our brokerage and strategic advisory areas. I would also
note that we are particularly excited about Cowen Healthcare Royalty Partners
("CHRP") which raised capital commitments in excess of $500 million for its
inaugural fund. We believe that CHRP will be an outstanding business on a
stand-alone basis and it will expand our leading healthcare and life sciences
franchise."
Highlights
-- Strategic advisory revenue increased 61% year-over-year. During the
quarter, Cowen completed 5 strategic advisory transactions with an aggregate
value of $0.9 billion. Among these, Cowen acted as exclusive financial
advisor to CollaGenex Pharmaceutical in its $420 million sale to Galderma,
S.A. and exclusive financial advisor to Macrovision in the sale of its
software business unit for $200 million.
-- Cowen Healthcare Royalty Partners closed its first fund with capital
commitments in excess of $500 million, representing one of the largest
inaugural healthcare private-equity funds ever raised. With this closing,
Cowen has added its first meaningful source of recurring revenue.
-- Non-compensation expenses decreased 3% year-over-year. Excluding the
non-recurring placement fee expense related to CHRP, non-compensation expenses
decreased 11% compared to the prior year period.

Results of Operations

Investment Banking
Investment banking revenue was $20.5 million in the second quarter of
2008, down 32% from $30.1 million in the second quarter of 2007. The second
quarter's results reflected a decrease in revenue from capital raising
activities, offset partially by an increase in strategic advisory revenue.
-- Equity underwriting revenue was $4.3 million, down 72% from $15.2
million in the prior year period. The decrease was primarily a result of
decreased transaction volume due to an overall decrease in public capital
raising activity, both market-wide and in Cowen's target sectors. In the
second quarter of 2008, the company lead-managed 1 offering and co-managed 5
offerings of equity and convertible securities for 6 companies, raising
proceeds of $0.9 billion. In the second quarter of 2007, the company
lead-managed 7 offerings and co-managed 13 offerings of equity and convertible
securities for 20 companies raising proceeds of $3.3 billion.
-- Private equity revenue was $2.8 million in the second quarter of 2008,
a decrease of $3.9 million, or 58% compared to $6.7 million in the second
quarter of 2007. The decrease was primarily attributable to decreased
transaction volume consistent with the overall slowdown in private capital
raising activity. During the second quarter of 2008, the company completed 3
private transactions raising proceeds of approximately $80 million. In the
second quarter of 2007, the Company completed 5 private transactions raising
proceeds of approximately $247 million.
-- Strategic advisory revenue was $13.4 million in the second quarter of
2008, an increase of $5.1 million, or 61%, compared to $8.3 million in the
second quarter of 2007. The year-over-year increase was the result of
increased transaction volume, despite decreased activity across Cowen's
sectors, and higher average fees per transaction. During the second quarter
of 2008, Cowen completed 5 strategic advisory assignments with an aggregate
value of $0.9 billion. In the second quarter of 2007, the Company completed 4
strategic advisory assignments with an aggregate value of $0.5 billion.
The number of transactions in the Company's public equity backlog at
quarter end was equal to the number at the end of the first quarter. In
addition, Cowen's strategic advisory backlog entering the third quarter had
increased 24% compared to the end of the first quarter.
Brokerage
Cowen's core brokerage revenue (see "Financial Measures" below for a
discussion of core brokerage revenue) increased $0.4 million to $37.0 million
in the second quarter of 2008, compared to $36.6 million in the second quarter
of 2007. Overall brokerage revenue decreased $1.4 million, or 4%, to $37.1
million for the second quarter of 2008 compared to $38.5 million for the prior
year period. The decrease was principally caused by a reduction in the value
of the Company's warrant positions in the second quarter versus an increase in
the value of the Company's warrant positions in the prior year period. All of
the Company's warrant positions were received in connection with investment
banking transactions; however, mark to market changes in value are required to
be reflected in the brokerage line item.
Interest and Dividend Income
Interest and dividend income was $0.9 million in the second quarter of
2008, a decrease of $1.0 million, or 51%, compared with $1.9 million in the
prior year period. The decrease resulted primarily from lower average
interest rates in the second quarter of 2008 compared with the second quarter
of 2007.
Other
Other revenue in the second quarter of 2008 was $4.1 million, an increase
of $3.5 million, or 544%, compared to $0.6 million in the second quarter of
2007. The increase was attributable to an increase in fees for managing the
assets and investments of certain private equity and alternative investment
funds.
Compensation Expense
Employee compensation and benefits expense was $38.9 million in the second
quarter of 2008, a decrease of $4.9 million, or 11%, compared with $43.8
million in the prior year period. The decrease was attributable to the
application of the Company's compensation to revenue ratio to lower revenue in
the second quarter of 2008, partially offset by the increase of the Company's
compensation to revenue ratio, excluding the expense associated with the
initial grant of equity, to 60% in the second quarter of 2008 compared to 58%
in the second quarter of 2007. Employee compensation and benefits expense for
the second quarter of 2008 included $1.3 million of expense associated with
the initial grant of equity to the Company's employees in connection with its
initial public offering which compares to $2.5 million of expense in the prior
year period.
Non-Compensation Expense
Non-compensation expense was $26.1 million in the second quarter of 2008,
a decrease of $0.9 million, or 3%, compared with $27.0 million in the prior
year period. The decrease was principally attributable to reductions in
communications expenses, maintenance costs related to outsourcing our trading
and order management system, employment agency fees and consulting expenses.
These decreases were partially offset by an increase in service fees and a
non-recurring $2.0 million placement fee expense related to CHRP. Excluding
the placement agent fee, non-compensation expenses were down 11%
year-over-year.
Provision for Income Taxes
The Company recorded a tax benefit of $1.7 million for the three months
ended June 30, 2008, which reflects an effective tax rate of 70.0%, compared
to a provision for taxes of $0.2 million in the second quarter of 2007, which
reflects an effective tax rate of 40.9%. The higher effective tax rate in the
second quarter of 2008 was primarily the result of certain non-deductible
expenses including the non-recurring placement agent fee related to CHRP.
Investors Conference Call
Greg Malcolm, Chief Executive Officer, and Thomas Conner, Chief Financial
Officer, will host a conference call to discuss the Company's second quarter
and first half financial results on Tuesday, August 5, 2008, at 9:00 am EDT.
This call can be accessed by dialing 1-866-362-4829 domestic or 1-617-597-5346
international. The passcode for the call is 23707266. A replay of the call
will be available beginning at 11:00 amAugust 5, 2008 through August 12,
2008. To listen to the replay, please dial 1-888-286-8010 domestic or
1-617-801-6888 international and enter passcode 24543635. The call can also
by accessed through live audio webcast or by delayed replay on the Company's
website at www.cowen.com.
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 adjusted operating income. 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 business 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 companies, and are
not identical to corresponding measures used in our various agreements or
public filings.
About Cowen Group, Inc.
Cowen Group, Inc., through its operating subsidiaries, provides investment
banking, sales and trading, and equity research services to companies and
institutional investor clients in the healthcare, technology,
telecommunications, aerospace and defense, consumer and alternative energy
sectors. We also offer traditional and alternative asset management services
to institutional investors. Our asset management business includes teams
based in the U.S. and the U.K. Our U.S. team focuses on a growth-oriented
investment style centered on small and mid-sized companies based primarily in
North America. Our U.K. team provides traditional asset management products,
focusing on a global equity strategy. Our alternative asset management
business consists of Cowen Healthcare Royalty Partners, which invests
principally in commercial-stage biopharmaceutical products and companies, and
Cowen Capital Partners, which manages a portfolio of middle market private
equity investments for third party investors.
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.
The Company's actual results could differ materially from those anticipated in
forward-looking statements for many reasons, including the factors described
in the section entitled "Risk Factors" in the Company's Annual Report on Form
10-K 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.

Cowen Group, Inc.
Preliminary Unaudited Consolidated Statements of Operations
(Dollar amounts in thousands, except per share data and
book value per share)

Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Revenues
Investment banking $20,502 $30,148 $34,364 $55,511
Brokerage 37,116 38,539 75,199 83,750
Interest and dividend income 919 1,894 2,142 4,031
Other 4,133 642 5,955 1,472
Total revenues 62,670 71,223 117,660 144,764
Expenses
Employee compensation and benefits 38,905 43,823 67,714 88,990
Floor brokerage and trade execution 3,073 3,187 5,513 6,641
Service fees, net 4,117 3,714 8,326 7,217
Communications 3,893 4,418 7,542 8,615
Occupancy and equipment 4,030 4,373 8,219 8,650
Marketing and business development 3,877 4,129 7,503 7,344
Depreciation and amortization 649 1,015 1,287 1,781
Interest 63 154 106 295
Other 6,430 6,031 11,552 12,228
Total expenses 65,037 70,844 117,762 141,761
Operating (loss) income (2,367) 379 (102) 3,003
Gain on exchange memberships - - - 1,775
(Loss) income before income taxes (2,367) 379 (102) 4,778
(Benefit) provision for income taxes (1,656) 155 (45) 2,083
Net (loss) income $(711) $224 $(57) $2,695
Earnings (loss) per share:
Basic $(0.06) $0.02 $(0.01) $0.21
Diluted $(0.06) $0.02 $(0.01) $0.20

Weighted average shares used in per
share data:
Basic 11,238 12,912 11,246 12,911
Diluted 11,238 13,530 11,246 13,474

Other Metrics at June 30, 2008 and
2007
Stockholders' equity $206,959 $230,391
Common shares outstanding 14,367 15,885
Book value per share $14.41 $14.50
Tangible book value per share * $10.92 $11.36

* Tangible book value per share is calculated as follows: Stockholders'
equity, less $50 million of goodwill, divided by common shares
outstanding.

Cowen Group, Inc.
Non-GAAP Financial Measures

Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
(dollars in millions)

Reconciliation of Operating Income to
Adjusted Net Operating (Loss) Income

Operating (loss) income $(2.4) $0.4 $(0.1) $3.0
Exclusion of compensation expense
(reversal) related to IPO awards 1.3 2.5 (2.9) 5.0
Adjusted operating (loss) income (1.1) 2.9 (3.0) 8.0
(Benefit) provision for income taxes (0.8) 1.2 (1.3) 3.5
Adjusted net operating (loss)
income $(0.3) $1.7 $(1.7) $4.5

Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
(dollars in millions)

Reconciliation of Brokerage Revenue to
Core Brokerage Revenue
Brokerage revenue $37.1 $38.5 $75.2 $83.8
Exclusion of the (income) loss from
warrants, asset management seed
funds, restricted stock received in
connection with the demutualization
of certain exchanges and mutual fund
investments held as a hedge against
legacy deferred compensation
obligations (0.1) (1.9) 1.5 (7.0)
Core brokerage revenue $37.0 $36.6 $76.7 $76.8

Non-GAAP Financial Measures
We have reported in this press release our adjusted net operating (loss)
income for the quarters and six months ended June 30, 2008 and 2007 on a
non-GAAP basis by:
-- excluding the non-cash compensation expense (reversal) associated with
equity awards granted in connection with our IPO; and
-- calculating the (benefit) provision for income taxes using the
effective tax rate for the period.
Management believes that the grant of equity awards in connection with our
IPO was an extraordinary, non-recurring event. We expect that additional
equity will be granted in connection with our compensation, hiring and
retention practices, and therefore will be included in our compensation and
benefits expense to revenue ratio. Historically, the expense associated with
all equity awards, other that the IPO awards, have been included in this
ratio.
We have reported in this press release our core brokerage revenue for the
quarters and six months ended June 30, 2008 and 2007 on a non-GAAP basis by:
-- excluding the income or loss from warrants, asset management seed
funds, restricted stock received in connection with the demutualization of
certain exchanges and mutual fund investments held as a hedge against legacy
deferred compensation obligations.
Management believes that the non-GAAP calculation of core brokerage
revenue will allow for a better understanding of the revenue generated by our
sales and trading activities as it excludes gains and losses associated with
activities that are not conducted by our sales and trading professionals, but
that are required to be reported in the brokerage line item.
SOURCE Cowen Group, Inc.

Thomas Conner, Chief Financial Officer of Cowen Group, Inc., +1-646-562-1719