Cowen, Inc. (COWN) CEO Jeffrey Solomon on Q1 2021 Results - Earnings Call Transcript

Cowen, Inc. (COWN) Q1 2021 Earnings Conference Call April 29, 2021 9:00 AM ET

Company Participants

James Farley - MD & Head, IR

Jeffrey Solomon - Chairman & CEO

Stephen Lasota - MD & CFO

Conference Call Participants

Sumeet Mody - Piper Sandler & Co.

Devin Ryan - JMP Securities

Steven Chubak - Wolfe Research

Christopher Allen - Compass Point Research & Trading

Michael Brown - KBW

Operator

Good morning. Thank you for joining us to discuss Cowen's results for the first quarter of 2021.

Now I would like to turn the call over to Mr. JT Farley, Cowen's Head of Investor Relations.

James Farley

Thank you, DD. Good morning. Thank you all for joining us. By now, you should have received a copy of the earnings release, which can be accessed at investor.cowen.com.

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 described in the company's earnings release and other filings with the SEC. Cowen has no obligation to update the information presented on today's call.

Also on today's call, our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors. Reconciliation of these measures to GAAP is consistent with the company's reconciliation as presented in today's earnings release.

I'm joined today by our Chair and CEO, Jeffrey Solomon; and our CFO, Steve Lasota.

Now I would like to turn the call over to Mr. Jeffrey Solomon, Cowen's Chair and Chief Executive Officer.

Jeffrey Solomon

Yes with -- Cowen's strongest on record in terms of both revenues and profitability, surpassing the previous record we set in the second quarter of last year. What is equally impressive is the breadth of the operating performance across the firm. We generated record results in investment banking in markets and impressive performance at Cowen Investment Management, which set new records for management fees as well as carried interest and incentive fees.

Also, please note that as we exhausted our NOLs in 2020 and are now a cash tax payer in the first quarter of 2021. Our financial performance builds upon our record results in 2020 and demonstrates the consistent earnings power we have established over the past several years through acquisitions as well as strategic investments in our team and our capabilities.

In recognition of this fact, Cowen's stock has risen in value significantly in recent months. Nonetheless, we believe that our valuation is still compelling as the factors driving our profitability and growth are not yet fully recognized by the market. Our team continued to work hard to deliver results for our clients, even as we continue to grapple with the challenges of working in a remote environment and the ongoing pandemic. Here are some of the highlights. In Investment banking, our momentum continued with the second consecutive record quarter. Revenues were up over 190% year-over-year. And in the last 2 quarters combined, we posted more than $500 billion in revenues, which is well in excess of our total banking revenues for the entire year of 2019.

As we've said before, Cowen's mission is to connect and advise aspirational investors to disruptive companies who have shared a quest to outperform. Our team is delivering on this mission. And as a result, we are building long-lasting relationships with our clients. In fact, about 50% of our banking revenues in the first quarter came from engagements with repeat clients, which is an important metric.

We were recently named the mid-market equity house of the year by international financing review for the third year running, the true satisfaction we have comes from knowing that we are helping companies and investors to achieve their goals by doing what we do best. We also generated record capital markets revenues of $238 million, comprised of $161 million in underwriting and $77 million of capital markets advisory business, which consists of private placement of debt and equity as well as private investments in public equity. It was our second best M&A quarter with $56 million in revenues, driven by a number of large completed public deals. M&A and capital markets advisory combined represents 45% of total banking revenues for the quarter.

As we've discussed previously, the high level of biotech capital markets activity remains a persistent tailwind for us at Cowen. But our banking strength this quarter is really across the board. Healthcare did lead the way with $162 million of revenues, and we continue to broaden out our healthcare franchise with $40 million -- $43 million of that coming from tools and diagnostics, med tech and health care IT, which we refer to collectively as future health.

We're also strongly growing outside of health care, posting the strongest quarter on record for our industrials and TMT businesses and sustainability remains a key focus, accounting for $70 million in banking revenues in the quarter. Our quarterly non-health care revenues were the highest they've ever been at $131 million. For perspective, that's more than all of our non-health care revenues for any full year prior to 2019.

Not surprisingly, it was a strong quarter for SPAC activity, which accounted for more than 1/3 of our banking revenues. It is worth noting, however, that even without any SPAC revenues in the first quarter, it still would have been the second best on record for banking. As we previously discussed, our SPAC-related business is very balanced due to our strength in advising both corporate selling SPACs as well as SPAC entities themselves. As a result, approximately 2/3 of our SPAC revenues comes from M&A advisory, pipes and back-end advisory fees and only 1/3 comes from SPAC IPOs.

During the quarter, we continued to build out our team with a number of lateral hires, including adding additional senior leadership in our healthcare group, and we're focused on ensuring that we have additional staffing and resources necessary to deliver for our clients at a consistently high level.

Looking ahead, we wouldn't be surprised if capital markets activity moderated somewhat in the coming quarters from the toward pace for the past 6 months. But nonetheless, we believe we are well positioned for continued strong performance, given the breadth and depth of our banking franchise. Even after booking all the revenue in the first quarter, our backlog remains at a record high level, about double the size it was at the end of 2019, with SPAC-related businesses making up less than 1/3 of the backlog. It is worth noting that even without any of those SPAC mandates, the backlog would still be up 60% versus the end of 2019. As a reminder, follow-on capital markets transactions, which are a meaningful source of our revenues, are not included in backlog.

In markets, we had another record quarter with daily revenues of over $3.6 million for trading day, 66% above the $2.1 million per day in the first quarter of 2020 and almost 40% above our full year 2020 average daily revenues. Nearly all of our volume-based markets activities were up significantly year-over-year, which is remarkable given the comparison includes the huge volume spikes we saw in March of 2020.

Non-U.S. execution was up 42% year-over-year, electronic trading was up 33% and cash trading was up 26%. And we're seeing promising early growth in our ADR trading. Special situations trading had a very strong quarter as well, particularly given the high levels of the SPAC trading in January and February. In our Institutional Services business, securities finance had strong performance, including solid growth in our growing swaps business.

Prime brokerage, which includes outsourced trading, was also a standout in the first quarter, with revenues up 41%. We won a pair of rewards during the quarter for best outsourced trading from HFM and Hedgeweek.

Our position in markets has never been stronger. We have outperformed competitors by -- in a challenging market conditions and while our results would show partially dependent on overall trading volumes, we are consistently hitting higher highs and lower lows -- and higher lows, sorry.

We're off to a strong quarter start for the year. And even if market volumes decline and revenues pulled back to a low $2 million per day, run rate -- a lower $2 million per day run rate, we would still generate the same level of markets revenues we did in a record year of 2020. We're also looking to expand our execution capabilities across additional asset classes to meet emerging client demands. We'll have more to say on this topic in coming quarters.

In research, we continue to be both prolific and forward thinking. Given our ongoing focus on sustainability, we became the first major Wall Street firm to commit to placing ESG score on every company research report that we published. We also continued our energy sector coverage transformation with the initiation of 17 new stocks in the biofuels, industrial gases, rare earth and battery and EV charging technology fields.

In the quarter, we published 20 Ahead of the Curve Series reports overall. On topics ranging from an analysis of President Biden's first 100 days, 2 advances in gene therapy, 2 robotics. We published 5 in-depth studies just on the subject of energy transformation alone. We are not resting on our successes. We took steps to continue to expand our capabilities by hiring analyst talent in biotechnology, cybersecurity, food and healthy living and managed care. We will be further expanding our research efforts in our areas of focus in the coming quarters.

In Investment management, we made considerable progress, both financially and operationally. Both management fees and incentive income set new quarterly records, while total assets under management are up $3.2 billion year-over-year to $14 billion.

Looking at our 5 investment strategies, after our capital raise in its first fund, our sustainability strategy had nearly $1.5 billion in AUM at quarter end, up from less than $500 billion in the first quarter of 2020. The strategy had strong performance due to the announcement of pending business combination by one of its largest portfolio companies, the electric vehicle technology firm, Proterra. This was the single largest contribution to Cowen's incentive income this quarter.

Our health care strategy ended with $946 million in AUM, up almost $300 million year-over-year and also had a strong performance, due in part to several recent IPOs among its portfolio companies. The healthcare royalty strategy ended the quarter with more than $3.6 billion in total AUM, up over $250 million year-over-year. The healthcare royalty strategy most recent main fund made $180 million of investments in the quarter. The funds are not currently open for new commitments.

The activist strategy had positive performance in the first quarter and is over $6.8 billion in AUM, up from $5.4 billion year-over-year. And the merger arbitrage strategy had $345 million in AUM at quarter end, down from $466 million year-over-year, due in part to rebalancing related outflows. This strategy had positive performance for the quarter as well.

Turning to Asset Co, which, as a reminder, includes noncore investments that we intend to monetize. The value of our investment in the Italian wireless company, Linkem was $79.4 million, $9.7 million higher than the first quarter of 2020, due to foreign exchange revaluation as well as strong new subscriber growth during COVID-19. The net asset value of our LP Investments in the Formation8 and Eclipse Funds rose $2 million to $41.4 million. As a reminder, the largest investment in Formation8 is the stake in wish.com, which had its initial public offering at the end of December.

And now I will turn the call over to Steve Lasota for a brief review of our financial results for the quarter. Steve?

Stephen Lasota

Thanks, Jeff. For the first quarter of 2021, GAAP revenue was up 283% year-over-year to a record $754.3 million from $196.7 million. We reported GAAP net income attributable to common shareholders of $145.8 million or $4.34 per diluted share, up from a GAAP net loss of $11.6 million or loss of $0.41 per diluted share in the prior year period.

GAAP compensation and benefit expenses were $388.2 million, an increase of $263.8 million from the prior year period. GAAP expenses, excluding compensation and depreciation and amortization, were $109.6 million for the first quarter. G&A expense was $4.4 million.

Income tax expense was $54.4 million compared to an income tax benefit of $1.2 million in the prior year period. And please note that we utilized all available net operating losses during 2020. So we are now a cash taxpayer as of the first quarter of 2021.

Now turning to our non-GAAP financial measures, which we refer to as pretax economic income, economic income and economic operating income. Please consult the earnings release and our quarterly filings for a definition of these terms as well as an explanation about how the company uses these non-GAAP measures and how investors find them useful.

The remainder of my remarks will be based on our non-GAAP financial measures. As a reminder, Cowen has 2 reportable business segments, Op Co and Asset Co. The Op Co segment consists of Cowen Investment Management, investment banking, markets and research. The Asset Co segment consists of private investments and other legacy investment strategies.

Op Co had total economic income proceeds of $685.2 million. Op Co pretax economic income was $198.5 million, economic income was $143.9 million and economic operating income was $147 million for the first quarter.

Asset Co had economic income proceeds of $2.2 million, pretax economic income loss of $1.6 million and economic income and economic operating income loss of $1.5 million. On an overall basis, we reported pretax economic income of $198.6 million, a 28.6% margin, up from a loss of $10.9 million in the prior year period. Economic income is presented net of dividends as well as associated taxes as the company utilized all available net operating losses during 2020. Economic income tax expense for the first quarter of 2021 was $52.8 million. Economic income was $142.4 million, a 20.7% margin for the first quarter of 2021, up from a loss of $12.6 million in the prior year period. And first quarter economic operating income was $145.6 million, a 21.2% margin compared to a loss of $7.1 million in the prior year period.

Total economic proceeds increased 226% year-over-year to $687.4 million. For the quarter, economic investment banking proceeds were up 196% year-over-year to $293.5 million. Economic brokerage proceeds were also very strong, up 67% year-over-year to $221.8 million. Economic management fees for the quarter were $27.2 million compared to $13.3 million in the prior year period. The first quarter of 2021, these include a onetime catch-up payment of $8.8 million due to the increase in assets under management in the sustainable strategy.

Economic incentive income was $108.7 million for the quarter, up from a loss of $4.1 million in the first quarter of 2020. Economic investment income was $35 million versus a loss of $31.1 million in the prior year period.

Turning now to our expenses. Compensation and benefit expense for the quarter was $388.4 million compared to $125.7 million in the prior year period related to increased revenues even though our comp to proceeds ratio declined year-over-year from 59.7% to 56.5% of economic income proceeds.

For full year 2021, we are targeting an annual compensation ratio between 56% and 57%, although it may vary from quarter to quarter. Fixed noncomp expenses totaled $37.4 million in the first quarter, almost unchanged from $37.5 million in the prior year period.

Variable non-comp expenses in the first quarter of 2021 were $51.9 million versus $43.3 million year-over-year. The increase was due to higher brokerage and trade and execution costs from increased volumes, partially offset by lower travel, entertainment and business development expenses.

For the remainder of 2021, we would expect T&E and business development expenses to rise from current levels as more in-person meetings are scheduled. First quarter depreciation and amortization expenses were $4.4 million compared to $5.4 million in the first quarter of 2020. We generated record economic operating income of $145.6 million or $4.34 per common share, which includes the impact of taxes at an effective rate of 26.8%. In future quarters, we expect our effective rate to remain in the range of 26% to 31%.

Turning to the balance sheet. At quarter end, the company had invested capital in Op Co totaling $800 million, up from $722.8 million at the end of 2020. In Asset Co, we had invested capital totaling $128.5 million at the end of March, down modestly from $131 million at the end of 2020.

Turning to our equity. Common equity, which is stockholders' equity, less preferred equity, was $1 billion compared to $868.2 million as of the end of 2020. Common book value per share, which is common equity divided by total shares outstanding, rose 16% to $37.45 as of March 31, 2021, compared to $32.34 as of December 31, 2020. Tangible book value per share was $30.92 at quarter end, up 19% from $25.95 at the end of 2020. Return on common equity was 15.5% for the first quarter of 2021, which annualizes to 62.2%, well above our target of generating mid-teens return on common equity on a consistent basis. Please note that this ROCE target is now calculated on an after-tax basis.

As we announced this morning, our Board of Directors increased our quarterly cash dividend by 25% to $0.10 per common share. During the first quarter, we repurchased 606,000 shares for $20.6 million, including purchases executed according to our existing 10b5-1 plan. This week, the Board approved an increase in our repurchase authorization to $50 million.

A fully diluted share count in the first quarter was a weighted average of 33.6 million shares, an increase of over 3.2 million shares over the previous quarter's weighted average. This increase was due to the pending conversion of Cowen's convertible notes, only the premium portion. And, to a lesser extent, the issuance of stock-based compensation.

Looking ahead, we now intend to repurchase shares in an amount equal to 25% to 35% of our economic operating income. We may be more opportunistic in buybacks depending on market conditions and available cash flow, and we'll prioritize additional capital returns when we're able to monetize assets such as Linkem. Over the long term, our goal is to reduce the dilutive share count from its current level.

With that, I'll turn the call back over to Jeff.

Jeffrey Solomon

Thanks, Steve. As you can see, it was an exceptionally strong quarter. While some of these tailwinds could moderate in coming quarters, we're still well prepared for continued long-term growth due in part to our leading market franchises in key industries with attractive future prospects, such as biotech and sustainability. We also have robust and expanding product capabilities in banking, institutional execution, world-class research with our differentiated investment management offerings.

As I noted at the start of the call, we believe the market has not yet fully cut up to the reality of our business momentum, and Cowen's stock is still trading at an attractive earnings multiple. The investments we've made, the strategic decisions we've taken, and most importantly, the talent and dedication of our team are likely to continue delivering outstanding results for all of our shareholders.

As we look ahead to the balance of 2021, we believe we'll be able to return more of our team members to offices in the coming months, but we will only do so when appropriate. We are focused on making sure that our team members have the support they need to work effectively and to remain healthy wherever they're working. We will continue to use the same guiding principle that has served us so well since last March. The safety of our colleagues and their families will always come first.

And with that, I will open it up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from Sumeet Mody of Piper Sandler.

Sumeet Mody

Congrats on the quarter and really the last 12 months. It seems like brokerage keeps getting stronger quarter-after-quarter, $3.6 million revenue per day, pretty impressive. We're just trying to get to the sustainability of these results. How should we think about the rest of the year? How do you guys think about that trajectory kind of internally? How much of the gains in the last 12 months across brokerage and services would you guys, say, are sort of market share gains that are sustainable versus kind of the related onetime activity spikes?

Jeffrey Solomon

That's a good question, Sumeet. And thanks for the recognition. I think as the business has gotten bigger, it's certainly more volume-dependent, right? And so I think you'll see our results trending more in line. When we think about levels that might return to pre-COVID, what our expectation is that we won't return to our pre-COVID levels.

In fact, what we've seen is we've taken meaningful share. So should things moderate over the remainder of the year, we will just -- we'll moderate at a much higher level than where we used to be. And as a result, I think that's the kind of thing that we've been looking for.

The whole goal here is to put in higher highs and higher lows. And certain things are outside of our control like the volumes. But even if volumes low, we're going to be at the high end of the market in general, and we'll be able to be in a position where our business is incredibly sustainable and profitable at those levels. So that's how we're thinking about it.

Sumeet Mody

And then just one more before I hop back in queue. Last quarter, you guys mentioned the goal was to keep the share count flat for the year, maybe there is one for Steve here. But given the increase in the share count after the converts have been retired, is that still a priority to keep that share count flat? And how should we think about the pace of repurchases throughout the year? Should we assume kind of the priority is offsetting dilution as opposed to being more price sensitive?

Jeffrey Solomon

Yes. So the goal is to offset dilution. And I think we have a couple of onetime events. Obviously, the converts is the biggest contributor. And of course, in the first quarter, we have a big vesting. So I think we always have challenges at maintaining that during the first quarter just given the limited period of time in which we have a window open.

Certainly, our goal is to continue to shrink that count. And I think the guidance first time we've given is that we'll be in and around 25% to 1/3 of our cash flows we will spend on stock buybacks because we think that's an appropriate level. And we will absolutely continue to buy stock back.

I think we recognize that we're moving from a book value story to an earnings story and in no small part due to some of the research that you and your colleagues have written, people recognize that. We do too. And so I said numerous times in the script that we're cheap. And so listen, I spent a good portion of my life learning how to buy cheap stocks. So as we continue to generate positive cash flow, you will continue to see us buy stock back. And I think the increase to $50 million, which is a record in terms of our willing -- our ability to buy stock back as an indication of that.

Operator

Our next question comes from Devin Ryan of JMP Securities.

Devin Ryan

Maybe I want to dig in a little bit on the investment banking commentary. I appreciate the outlook and some of the backlog comments. Maybe to touch on the SPAC market, which you highlighted a bit. You clearly have a great business there. And I'm just curious how you see things playing out from here just with, obviously, a little bit of SEC scrutiny and then maybe also some investor fatigue on the pipe side. You guys have been very selective around the sponsors that you work with. And so I guess I'm more approaching it from the angle of, does this create more of an opportunity to the extent it leaves out some of the maybe not as strong players? Just a little more perspective there, just given that you guys have a strong position?

Jeffrey Solomon

Yes. I appreciate that, and that is exactly how we see it. I mean, the toward pace of SPAC IPOs, nobody expected that in the first quarter. And you can see that we continue to be selective with the sponsors we choose because fundamentally, the only thing that works in the SPAC market we know long-term is you're going to actually deliver positive results for all the investors over time. And so we turned away a lot of business on the front and IPO part, in part because we felt that we needed to focus our energies and our efforts on the best sponsors in the market to deliver those results over the long haul.

My view is that will continue, right? We'll -- regardless of the slowdowns, which SPAC markets, since I've been doing this 25 years, they have periods of time which they raise a lot of money and then periods of time in which the market has to go through a digestion period, and this is one of them.

And so you may see front-end IPOs slow somewhat, but I think our -- when I look at what we have in front of us to execute between now and year-end in terms of the de-SPAC process, pipe raising and execution, it's incredibly robust. So we don't expect there to be a significant change. Most of our sponsors we expect will get successful deals done, and we'll be in the center of most of those.

Devin Ryan

And I guess, related question, just on the SPAC trading. You guys have kind of the leading business there, the highest market share by a long shot. I'm just curious kind of how the outlook for that business may trend from here? And how important that's been to what have obviously been fantastic brokerage results?

Jeffrey Solomon

Obviously, the more SPACs that are out there to trade, the better. I mean, that's pretty linear. So the fact that there's been a bunch of SPAC IPOs, even ones not done by Cowen, means there's a lot more trading activity in those spaces. And so that's actually worked out really well from us. I don't see that changing, right? Once the SPAC is public, it's public. They do tend to trade more when they go public and then when they announce deals. And so the more deals that get announced, you'll see a lot more trading. And so I just think when you look at the long-term trajectory of that business, it's a very meaningful market now and we continue to be the most meaningful player in that market. So I view that as a great tailwind in our business going forward.

Devin Ryan

Yes. Okay, great. Last quick one here for Steve, just on the non-compensation costs. Clearly, the variable piece is moving higher just from kind of extremely strong activity levels. But if we think about the fixed non-compensation, how should we think about the trajectory puts and takes from here or just as potentially people are kind of moving back into the offices and traveling again versus other kind of opportunities for savings?

Stephen Lasota

Yes. Well, the fixed non-comps should be steady, may increase slightly just for increased legal expenses and stuff like that, but related to investment banking deals. But on the variable side, we have, obviously, T&E in conferences and client development has been practically nil. We do expect that to start to pick up as in-person meetings but not to the levels that they were before. So maybe by the end of the year, we're at a 50% of what we used to do. So as we've talked in the past, we have budgeted for some of that for the back half of the year to come back.

Operator

Our next question comes from Steven Chubak of Wolfe Research.

Steven Chubak

So first question, Jeff, just as a clarifying question on the earlier discussion as it relates to how to think about normalization of brokerage activity. You did note that you're not going back to pre-COVID levels in terms of brokerage revenue per day, certainly encouraging to hear that commitment or expectation. At the same time, you did mention the $2 million in your prepared remarks. And I'm just wondering, should I view that as more representative of a floor in terms of what you think you can generate? Or is that your expectation in terms of what a normalized run rate might look like?

Jeffrey Solomon

I think that's a floor. I mean, I do. It's hard to see -- I mean, listen, I don't know what happens to volume. So I don't have a crystal ball. But I use that very much as a floor, given what we're seeing and given how the year has started out or how the quarter has started out. I can't see it being less than that for the remainder of the year.

Steven Chubak

Okay. Great. And then just on the capital management side, nice to hear also about the commitment to maintain pretty healthy levels of buyback. Now that you've largely optimized your liability stack and just given the sheer amount of free cash flow that you guys are generating, maybe you can just give us an update on just like your capital management priorities more broadly and more specifically your appetite to maybe expand inorganically?

Jeffrey Solomon

Yes. So I think the guidance we gave is the first time we're actually giving meaningful guidance this way in terms of what people can expect. I think as we monetize certain assets, you can probably expect more from us. I mean, I think we'll just -- we'll continue to tie those buybacks to moments in time in which we generate meaningful cash. I just -- I tied buybacks to cash too. So I want to be clear that there's elements of our earnings that are not readily turned into cash. So as we monetize those, you'll continue to see us return capital to shareholders.

Listen, again, I'll say what I said earlier, the stock is cheap. And for us to be able to be in a position where we can generate positive cash flow and buyback stock, we will continue to do that because we see it. That's part of the reason why we made the comments we made. I rarely talk about the value of the stock in an earnings release or in an earnings script. But I'm saying it very clearly, we think the stock is cheap. And so as we have positive cash flow, we will continue to be aggressive at buying back stock.

Operator

Our next question will come from Chris Allen of Compass Point.

Christopher Allen

Sorry, I got on the call a little bit late. I may have missed this. I'm not sure if you gave an update. Just wondering following Steve's question on kind of the market -- sorry, the brokerage business, any color in terms of where the second quarter is running out to date? I mean, I'm just contextualizing that versus the volume declines you're seeing across the industry?

Jeffrey Solomon

Yes. I mean, I think what we generally do is give you, we're running north of that minimum number by a meaningful amount during April. So I think it's -- what we've done historically is to sort of bring you forward to today's date. And so the number I put out there, we're north of that number on a daily average basis for the month of April. And I think it says a lot because there were a lot of slow days in April. So again, this is why I feel comfortable with the guidance that we've given in that area.

Christopher Allen

Got it. And then just on the investment banking pipeline, helpful color on the SPAC side. Just wondering if you could maybe parse out where the pipeline -- where you're seeing strength in the pipeline? What are the kind of opportunities from an industry perspective are currently?

Jeffrey Solomon

Yes. So I think it's a couple of different areas. Mid-market M&A, we have a significant amount of sell-side that we've yet to launch. I think that's something that we expect to happen as the economy turns back on and sponsors start to become more active. So I think you'll see really continued strength there. I think if the SPAC back ends, we'll continue to see strength there. We actually made a couple of announcements already in the month of April with some meaningful M&A transactions that have occurred there.

And again, I want to highlight to you and everybody. The conventions for the way that we report our banking numbers, you should really think about capital markets advisory and M&A as the same. Now we do it a little bit differently in our reporting than many of our peers. But if you were to compare us to the financial advisory firms, you really need to look at capital markets advisory business in M&A in the same bucket. That's $130 million, right, of -- for the first quarter, which is a record by a lot.

And the reason you have to look at them the same is because oftentimes they're tied together where we're doing a debt financing that may be tied to an M&A or we win a piece of debt financing, that's a cash out refi. The economics of debt advisory very much look like the economics of an M&A advisory business. And our competitors, when they put their advisory business out there because they don't have capital markets businesses, they lump them together.

So I think one of the things that we try to do is break that out for you, even though we report them as part of capital markets, you should really look at that because that for me is an indication that we're showing meaningful strength in our advisory business away from capital markets traditional underwriting business. And while I expect that to continue to also be strong, I can't think of a point in our history where we've been less dependent as a banking franchise on capital markets traditional underwriting activity. And this just shows the breadth and the depth of the investments we've made in personnel and teams. And so I just wanted to take that opportunity to maybe extend the comment a little bit more to highlight that to you.

Operator

[Operator Instructions]. And our next question comes from Michael Brown of KBW.

Michael Brown

So it's nice to see the update on the target to shift to an after-tax basis from a pretax basis. And I guess I wanted to follow-up on Steve's question about kind of the -- where you may be focusing for growth in the business, but a little bit more from an organic standpoint? Obviously, in the recent years, we've seen a lot more benefits of the diversification of the business and seeing record results across brokerage, investment banking, investment management is great to see. So you're throwing up a lot of cash flow here. So where's kind of the next leg of growth for the organic side of the business? Where are you looking to put the incremental investment dollars? Is it still focused on the advisory business or are you looking to continue to grow, maybe prime brokerage? Curious what's top of mind for you guys?

Jeffrey Solomon

So let's start with industries because I think that's really been a key driver for us at Cowen. We tend to look first at industries that we think are going to be disruptive in part because that's generally the industries that will need our products and services regardless of where they are.

So in the script, I went through some of the areas we're highlighting in research, in particular, with increased investments in health care and sustainability, which will continue to be key drivers for us. I think expanding into health care services for the first time in a meaningful way or in a long time with the hiring of a senior analyst in that area.

Within the subcategory of life sciences, generally, the real growth in tools and diagnostics, which I don't think people understand actually, we tend to lump everything together -- where people tend to lump everything together when they look at biopharma. There's a real difference between sort of the drug discovery part of the business and the tools and diagnostics part of the business. And we made some really good investments there, both in the banking and the research side. So you can expect to see us continue to show strength there.

So on the industrial side, we also -- cybersecurity, we hired a new analyst in that area. And we're seeing some real traction there. I think in payments and blockchain and those kinds of areas, you'll see us continue to look at that because we think that is a trend that is still reasonably early. And so -- and we think it will be disruptive for the next decade.

So from an industry standpoint, those will be the areas I would highlight, though, I would say just about every industry we cover is undergoing some meaningful transformation, like, for example, what we talked about an energy transformation. That is a very meaningful change to a traditional business. And we've seen a lot of our competitors exit the energy research business. And instead, what we've said is that business is not going away, it's just going to change meaningfully over the next 10 years, and we need to be a strong voice in that.

The initiations we had and the followership that we have in terms of investable ideas for companies and that's part of the reason why you see our cash brokerage business up meaningfully, right, because that ties much more to research calls. That's why you're seeing us make meaningful improvements in our algorithmic trading capability in part because there are very few people talking about energy transformation is a key theme. That's going to play out over the next 5 to 7 years. There's so many winners and losers in that space. So when we look to extend our capabilities, again, we generally start with research is the first place when we talk about it.

The other thing, I would say, we're continuing to add an outsourced trading. We're continuing to see growth in Europe. Our European research product, which now dovetails with our trading product that we invested in a few -- about 18 months ago, those are really starting to show significant traction.

Again, I think that Europe is probably 6 to 9 months behind the United States in terms of economic regrowth. So our view is that we'll see a pickup in European business, both in the trading side as well as in mid-market M&A where we have a footprint there. So I think you can see us lean in as Europe starts to come back online towards the back half of this year.

There's a number of places where I think we can choose to lean in, but I want to be clear to everybody, these are really obvious adjacencies to core businesses we are in. And so when you read announcements that come for us about places we're making investments, we're attaching those teams and those individuals to trains that are already moving that -- where we have a high degree of confidence in our ability to capture both market share and margin. And so I hope that answers your question. It's maybe a little more lengthy than you asked for, but we are thinking about this 24 hours a day, 7 days a week.

Michael Brown

No, that was great. And Jeff, just one here, I'd love to hear a little bit more about the SPAC trading business. I think it's really impressive to hear that you're the industry leader there and the fact that you've been able to retain that position, just given a lot of the larger players have much higher volumes in this space. So I was just wondering if you could share a little bit about, without giving away the special sauce, what kind of has made Cowen such a force in the SPAC trading space? What are your capabilities that you can offer investors that others just haven't been able to meet?

Jeffrey Solomon

Well, I think, partially, we've been doing it longer than anybody else has. When no one cared about SPACs, we were trading 50% of the flow in that space. And now everybody cares about SPACs and you go to the market leader, we're the market leader. I think -- and I -- I have a lot of respect. I've been -- I've said publicly that I bought my first SPAC in 1996, no one cared about it until over 18 months ago in a meaningful way.

We were great at it then. We're great at it now. And so just, look, anything else when a market explodes, if you have a pole position and you've got the right kind of connectivity with your existing clients, you can penetrate that. I also think it's -- I want to be clear, it is super integrated into our equity franchise and that's also something that's different, right?

When we have built our equity franchise, we built it with this idea that there's collaboration and connectivity, and we bring people into the organization, who fundamentally are intellectually curious and want to be able to understand product and bring that product to their clients. We have a premium for cross-selling and introduction. We also have a team approach where -- when individuals on our sales team or sales trading team are introducing new products. There's a collaborative effort to that. So no one really has to worry about the contention that goes on inside sales forces all the time.

As a result, Mike, it's made it really easy for us to recruit. I think if you're in the equities business, whether sales, sales trading or trading, you want to be a Cowen. And I think that's something maybe we don't talk enough about. It is a difficult market, and there's a lot of people out there in this business that are just not happy where they are. But when you look at the energy and the effort and the collaboration that goes on, we're taking meaningful share, but people want to -- at Cowen, want to be here because of the fact that we're winning and that momentum begets momentum.

So I look at the SPAC effort we make as an extension of that or a representation of that, but it's part of a bigger haul that's really in a great position due to the efforts of many, many, many people.

Operator

I would now like to turn the call back to Jeffrey Solomon. Please proceed with any further remarks.

Jeffrey Solomon

Well, thank you, operator. Once again, I'd like to express my gratitude to everybody on our team here at Cowen. What you've done over the past year, certainly over the past quarter, is truly incredible. And I know there are days when it feels like you're working super hard and you're sitting by yourself, and we've talked about this. Today is a day that is the manifestation of those efforts. And I hope that everybody at Cowen takes an opportunity to read and digest the performance because we don't get here without the individual efforts and the collective efforts of all of you.

You really do embrace our core values of vision, empathy, sustainability and tenacious teamwork. And without a belief in those values and the way that you show them every day, we certainly would not be able to put the numbers out that we put out for our shareholders.

I'm looking forward to seeing more of you in person in the coming months as we figure out how we return to the office in a responsible way. It's been a long time since I've seen many of you face-to-face. And I think I've said to many of you, I can't wait for that.

We're mindful of the fact though that our success is also dependent on all of our stakeholders, which include our clients and our shareholders as well as our team members, but also our families and our communities in which we live and work. And we recognize that doing well enables us to do good, and that is part of our ethos here at Cowen. And it's part of what motivates us every day. And so we're in a very fortunate position where we can share some of our success with the people and the communities that have helped to get us here.

Thank you all for joining us, and we look forward to speaking with you again on our next call in July. Have a great day.

Operator

This concludes today's conference call. Thank you for participating, and you may now disconnect.