Segment Reporting

3 Months Ended

Mar. 31, 2020

Change in segments

During the second quarter of 2019 the Company realigned the information that the CODM regularly reviews to evaluate performance for operating decision-making purposes, including evaluation and allocation of resources. As a result of this change in segment reporting, the Company retrospectively revised prior period results, by segment, to conform to the current period presentation (see Note 1). This structure includes two business segments: Op Co and Asset Co. The structure is based on the Company's domain expertise as a driver of balance sheet harmonization and repeatable revenues for its operating business versus the Company's long-term monetization strategies.

The Op Co segment consists of CIM, Investment Banking, Markets and Research. The Asset Co segment consists of the Company's private investments, private real estate investments and other legacy investment strategies.

Performance measures

The performance measure for these segments is Economic Income (Loss), which management uses to evaluate the financial performance of and make operating decisions for the segments including determining appropriate compensation levels. Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including headcount, square footage and other factors.

In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for Consolidated Funds and excludes (ii) goodwill and intangible impairment (iii) certain other transaction-related adjustments and/or reorganization expenses and (iv) certain costs associated with debt. Economic Operating Income (Loss) represents Economic Income (Loss) before depreciation and amortization expenses. In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment-related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income (Loss) revenues also include management fees, incentive income and investment income earned through the Company's investment as a general partner in certain real estate entities and the Company's investment in the activist business and certain investment funds. For US GAAP purposes, all of these items, are recorded in other income (loss). Economic Income (Loss) recognizes (a) incentive fees during periods when the fees are not yet crystallized for US GAAP reporting, (b) start-up costs of a fund over the expected life of the fund and (c) retainer fees, relating to investment banking activities, earned during the period that would otherwise be deferred until closing for US GAAP reporting. In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue.

As further stated below, one major difference between Economic Income (Loss) and US GAAP net income (loss) is that Economic Income (Loss) presents the segments' results of operations without the impact resulting from the full consolidation of any of the Consolidated Funds. The consolidation of these investment funds' results include the pro rata share of the income or loss attributable to other owners of such entities which is reflected in net income (loss) attributable to non-controlling interest in consolidated subsidiaries in the accompanying condensed consolidated statements of operations. This pro rata share has no effect on the overall financial performance for the segments, as ultimately, this income or loss is not income or loss for the segments themselves. Included in Economic Income (Loss) is the actual pro rata share of the income or loss attributable to the Company as an investor in such entities, which is relevant in management making operating decisions and evaluating financial performance. The Company does not disclose total asset information for its business segments as the information is not reviewed by the CODM.

The following tables set forth operating results for the Company's Op Co and Asset Co segments and related adjustments necessary to reconcile the Company's Economic Income (Loss) measure to arrive at the Company's consolidated US GAAP net income (loss):


	Three Months Ended March 31, 2020
							Adjustments
	Operating Company		Asset Company		Total Economic Income (Loss)		Funds Consolidation		Other Adjustments			US GAAP Net Income (Loss)
	(dollars in thousands)
Revenues
Investment banking	$	98,759	$	—	$	98,759	$	—	$	6,269	(a)	$	105,028
Brokerage	132,672		—		132,672		—		6,690		(b)(g)	139,362
Management fees	14,711		204		14,915		(678)		(2,633)		(c)	11,604
Incentive income (loss)	(2,487)		(2,402)		(4,889)		—		4,889		(c)	—
Investment income (loss)	(19,449)		(11,655)		(31,104)		—		31,104		(d)(g)	—
Interest and dividends	—		—		—		—		42,077		(b)(d)	42,077
Reimbursement from affiliates	—		—		—		(25)		286		(e)	261
Reinsurance premiums	—		—		—		—		10,471		(f)	10,471
Other revenue	562		—		562		—		1,288		(f)	1,850
Consolidated Funds revenues	—		—		—		3,156		—			3,156
Total revenues	224,768		(13,853)		210,915		2,453		100,441			313,809
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP)	6,343		1,435		7,778		—		31,014		(b)(d)	38,792
Total net revenues	218,425		(15,288)		203,137		2,453		69,427			275,017
Expenses
Non interest expense	211,066		859		211,925		—		16,514		(a)(e)(h)(i)	228,439

Consolidated Funds expenses	—		—		—		2,714		—			2,714
Total expenses	211,066		859		211,925		2,714		16,514			231,153
Total other income (loss)	—		—		—		(62,054)		(55,094)		(c)(d)(i)	(117,148)
Income taxes expense / (benefit)	—		—		—		—		(1,173)		(h)	(1,173)
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds	1,740		—		1,740		(62,315)		(1,613)			(62,188)
Income (loss) attributable to Cowen Inc.	5,619		(16,147)		(10,528)		—		605			$	(9,923)
Less: Preferred stock dividends	1,358		340		1,698		—		—			1,698
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders	4,261		(16,487)		(12,226)		$	—	$	605		$	(11,621)
Add back: Depreciation and amortization expense	5,428		6		5,434
Economic operating income (loss)	$	9,689	$	(16,481)	$	(6,792)



	Three Months Ended March 31, 2019
							Adjustments
	Operating Company		Asset Company		Total Economic Income (Loss)		Funds Consolidation		Other Adjustments			US GAAP Net Income (Loss)
	(dollars in thousands)
Revenues
Investment banking	$	82,991	$	—	$	82,991	$	—	$	(2,885)	(a)	$	80,106
Brokerage	111,872		—		111,872		—		(14,409)		(b)(g)	97,463
Management fees	9,728		703		10,431		(501)		(2,789)		(c)	7,141
Incentive income (loss)	16,637		110		16,747		(544)		(16,188)		(c)	15
Investment income (loss)	9,427		842		10,269		—		(10,269)		(d)(g)	—
Interest and dividends	—		—		—		—		29,092		(b)(d)	29,092
Reimbursement from affiliates	—		—		—		(34)		322		(e)	288

Reinsurance premiums	—		—		—		—		6,591		(f)	6,591
Other revenue	1,123		36		1,159		—		(98)		(f)	1,061
Consolidated Funds revenues	—		—		—		2,340		—			2,340
Total revenues	231,778		1,691		233,469		1,261		(10,633)			224,097
Interest expense (Economic Income/(Loss)) / Interest and dividend expense (US GAAP)	5,317		1,247		6,564		—		22,520		(d)	29,084
Total net revenues	226,461		444		226,905		1,261		(33,153)			195,013
Expenses
Non interest expense	206,531		2,379		208,910		—		12,091		(a)(e)(h)(i)	221,001

Consolidated Funds expenses	—		—		—		1,482		—			1,482
Total expenses	206,531		2,379		208,910		1,482		12,091			222,483
Total other income (loss)	—		—		—		621		40,321		(c)(d)(i)	40,942
Income taxes expense / (benefit)	—		—		—		—		3,177		(h)	3,177
Income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds	1,023		—		1,023		400		(911)			512
Income (loss) attributable to Cowen Inc.	18,907		(1,935)		16,972		—		(7,189)			9,783
Less: Preferred stock dividends	1,375		323		1,698		—		—			1,698
Economic Income (Loss)/ Income (loss) attributable to Cowen Inc. common stockholders	17,532		(2,258)		15,274		$	—	$	(7,189)		$	8,085
Add back: Depreciation and amortization expense	4,939		17		4,956
Economic operating income (loss)	$	22,471	$	(2,241)	$	20,230

The following is a summary of the adjustments made to US GAAP net income (loss) to arrive at Economic Income (Loss):

Funds Consolidation: The 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).

Other Adjustments:


(a)			Economic Income (Loss) presents underwriting expenses net of investment banking revenues, expenses reimbursed from clients within their respective expense category. Economic Income (Loss) also records retainer fees, relating to investment banking activities, collectible during the period that would otherwise be deferred until closing for US GAAP reporting.

(b)			Economic 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.

(c)			Economic Income (Loss) recognizes revenues (i) net of fund start-up costs and distribution fees paid to agents, (ii) records income from uncrystallized incentive fees and (iii) the Company's proportionate share of management and incentive fees of certain real estate operating entities, the healthcare royalty business and the activist business.

(d)			Economic 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.

(e)			Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.

(f)			Economic 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.

(g)			Economic 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.

(h)			Economic Income (Loss) excludes income taxes and acquisition related adjustments as management does not consider these items when evaluating the performance of the segment.

(i)			Economic Income (Loss) recognizes the Company's proportionate share of expenses, for certain real estate operating entities and the activist business, for which the investments are recorded under the equity method of accounting for investments.

For the three months ended March 31, 2020 and 2019, there was no one investment fund or other customer which represented more than 10% of the Company's total revenues.