Cowen Group Inc (COWN) Q1 2021 Earnings Call Transcript

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Cowen Group Inc (COWN)
Q1 2021 Earnings Call
Apr 30, 2021, 12:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

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.

JT Farley -- Managing Director, Head of Investor Relations

Thank you, [Indecipherable]. 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 -- Steve Lasota.

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

Jeffrey M. Solomon -- Chair and Chief Executive Officer

Yes. On -- 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, an impressive performance in 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 taxpayer in the first quarter of 2021. Our financial performance builds upon our record results in 2020 and demonstrates the consistent earnings power we've 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 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 continues 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 two quarters combined, we posted more than $0.5 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 healthcare IT, which we refer to collectively as future health.

We're also strongly growing outside of healthcare, 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-healthcare revenues were the highest they've ever been at $131 million. For perspective, that's more than all of our non-healthcare revenues for any full year prior to 2019.

Not surprisingly, it was a strong quarter for SPAC activity, which accounted for more than a third of our banking revenues. It is worth noting, however, that even without any SPAC revenues in the first quarter it's 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 SPAC, as well as SPAC entities themselves. As a result, approximately two-thirds of our SPAC revenues comes from M&A advisory, pipes, and back and advisory fees, and only one-third 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 torrid pace of the past six 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 a third 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, following 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-US 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 SPAC trading in January and February. In our Institutional Services business, securities finance had a strong performance, including solid growth in our growing swaps business. Prime brokerage, which includes outsourced trading was also a stand out in the first quarter, with revenues up 41%. We want to pay our rewards during the quarter for best-outsourced trading from HSM and hedge week.

Our position in markets has never been stronger. We have outperformed competitors by -- in a challenging market conditions. And while our results will 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 pull 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 -- on every company research report that we publish. 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, through advances in gene therapy, to robotics. We published five in-depth studies just in the subject of energy transformation alone.

But we are not resting on our successes, we took steps to continue to expand our capabilities by hiring analyst talent in biotechnology, cyber security, 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 five investment strategies, after a capital raise in its first run, our sustainability strategy had nearly $1.5 billion in AUM at quarter end, up from less than $0.5 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 from Proterra. This was a single largest contribution to Cowen's incentive income this quarter.

Our healthcare 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 royalties 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 non-core 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 LT investments in the Formation 8 and Eclipse funds rose $2 million to $41.4 million. As a reminder, the largest investment in Formation8 is a 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 A. Lasota -- Chief Financial Officer

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 a net 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, D&A expense was $0.4 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 tax player as of the first quarter of 2021.

Now turning to our non-GAAP financial measures, which we refer to as pre-tax 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 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 two 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 pre-tax 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, pre-tax 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 pre-tax 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.

In the first quarter of 2021, these include a one-time catch-up payment of $8.8 million due to the increase in assets under management and the sustainability 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 with $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% 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 non-comp 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 in 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 plans.

This week, the Board approved an increase in our repurchase authorization to $50 million. Our 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 and 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 will 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 M. Solomon -- Chair and Chief Executive Officer

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 is not yet fully caught up to the reality of our business momentum and Cowen stock is still trading at attractive earnings multiple. 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 202, 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?

Questions and Answers:

Operator

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

Sumeet Mody -- Piper Sandler -- Analyst

Hey, thanks, good morning guys. Congrats on the quarter and really for the last 12 months. It seems like brokerage keeps getting stronger quarter after quarter $3.6 million in revenues per day, pretty impressive. So 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, what you guys say are sort of market share gains that are sustainable versus kind of the related one-time activity spikes?

Jeffrey M. Solomon -- Chair and Chief Executive Officer

I think your question is to me and thanks, for the recognition. I think as the business has gotten bigger is certainly more volume-dependent, right? So I think you'll see our results trending more in line, 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, will 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 is volume 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 -- Piper Sandler -- Analyst

Thanks. 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 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?

Stephen A. Lasota -- Chief Financial Officer

Yeah. So the goal is to offset dilution. I mean I think we have a couple of one-time 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 and maintaining that during the first quarter, just given the, the limited -- 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 will be in and around 25% to a third 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 earning story and in no small part due to some of the, 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, of our ability to buy stock back is an indication of that.

Sumeet Mody -- Piper Sandler -- Analyst

Great. Thanks, Jeff.

Operator

Thank you. Our next question comes from Devin Ryan of JMP Securities. One moment. Please go ahead.

Devin Ryan -- JMP Securities -- Analyst

Good morning, Jeff, and Steve. How are you guys?

Jeffrey M. Solomon -- Chair and Chief Executive Officer

Good. How are you Dev?

Devin Ryan -- JMP Securities -- Analyst

Doing great. Thank you. Maybe I want to dig in a little bit on the investment Banking commentary, I appreciate the outlook in 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 if we [Indecipherable] some of the, maybe not as strong players. Yeah, just from a little more perspective, there just given that you guys have a strong position?

Jeffrey M. Solomon -- Chair and Chief Executive Officer

Yeah. 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 if you can actually deliver positive results for all the investors over time and so we turned away a lot of business in 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 we'll 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 raised 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 it to be a significant change. Most of our sponsors we expect will get successful deals done and will be in the center of most of those.

Devin Ryan -- JMP Securities -- Analyst

And I guess related question just on the SPAC trading you guys have kind of 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, would have obviously been fantastic brokerage results?

Jeffrey M. Solomon -- Chair and Chief Executive Officer

Obviously, the more SPAC that are out there to trade the better, I mean it's pretty linear. So in fact that there has been a bunch of SPAC IPOs, even the ones not done by Cowen, means there's a lot more trading activity in those spaces. And so that has actually worked out really well for us. I don't see that changing, right. Once the SPAC is public it's public, they do, they do tend to trade more when they go public and then when they announced 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 -- JMP Securities -- Analyst

Yeah. Okay, great. Last quick one here for Steve. Just on the non-compensation costs. Clearly, the variable pieces 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 just potentially people are kind of moving back into the offices and traveling again versus other kinds of opportunities for savings?

Stephen A. Lasota -- Chief Financial Officer

Yeah. 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 and 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 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.

Devin Ryan -- JMP Securities -- Analyst

Yeah. Okay, great. I will leave it there. Thank you, guys.

Jeffrey M. Solomon -- Chair and Chief Executive Officer

Thanks, Devin.

Stephen A. Lasota -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Steven Chubak of Wolfe Research. Please go ahead.

Steven Chubak -- Wolfe Research -- Analyst

Hi, good morning.

Jeffrey M. Solomon -- Chair and Chief Executive Officer

Hi, Steve.

Steven Chubak -- Wolfe Research -- Analyst

First question, Jeff. Just, it's a clarifying question on the earlier discussion as it relates to how to think about the 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, your expectation in terms of what a normalized run rate might look like?

Jeffrey M. Solomon -- Chair and Chief Executive Officer

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

Steven Chubak -- Wolfe Research -- Analyst

Okay, great. And then just on 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 extend inorganically?

Jeffrey M. Solomon -- Chair and Chief Executive Officer

Yeah. So I think the guidance we gave, 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 tie buybacks to cash too, so I want to be clear that there is elements of our earnings that are not readily turned into cash as we monetize those, you'll continue to see us return capital to shareholders. 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 buy back stock, we will continue to do that because we see it, that's is part of the reason why we made the comments we made. I really talk about the value of the stock in an earnings release or in the 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.

Steven Chubak -- Wolfe Research -- Analyst

Great. That's all I had. Thanks so much for taking my questions.

Jeffrey M. Solomon -- Chair and Chief Executive Officer

Great. Thank you.

Operator

Thank you. Our next question will come from Chris Allen of Compass Point. Your line is open.

Chris Allen -- Compass Point -- Analyst

Morning, guys. Sorry, I joined the call a bit late, so I may have missed this, not sure if you have given an update. Just wondering, following Steve's question on kind of the markets, I'm sorry, the brokerage business, any color in terms of where the second quarter is running at to date? I mean textualizing that versus the volume declines you're seeing across the industry?

Stephen A. Lasota -- Chief Financial Officer

Yeah, I mean, I think what we generally do is give you, we're running north of that minimum number by meaningful amount during April. So I think it's, what we've done historically is just 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 as you guys say, there's a lot of slow days in April. So, again, that's why I feel comfortable with the, guidance that we've given in that area.

Chris Allen -- Compass Point -- Analyst

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, where the kind of opportunities move industry perspective are currently?

Jeffrey M. Solomon -- Chair and Chief Executive Officer

Yeah. So I think it's a couple of different areas. Mid-market M&A, we have a significant amount of sell-sides that we've yet to launch. I think that's something that we expect to happen, as the economy turns back on and sponsor starting to become more active. So I think you'll see really continued strength there. I think the SPAC back ends. We'll continue to see strength there. We've actually made a couple of announcements already in the month of April with the 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. And we do it a little bit differently, in our reporting and 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 and M&A in the same bucket. That's just a $130 million, right? for the first quarter, which is a record by a lot.

And the reason you have to look at the same is because oftentimes they're tied together in what we're doing, a debt financing that may be tied to an M&A or we win a piece of debt financing that the cash-out refi, the economics of debt advisory are 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've tried 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 to 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 -- I want to take that opportunity to maybe extend the comment a little bit more to highlight that to you.

Chris Allen -- Compass Point -- Analyst

Thanks. That was it from me.

Jeffrey M. Solomon -- Chair and Chief Executive Officer

Great. Thanks so much.

Operator

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

Michael Brown -- KBW -- Analyst

Great. Good morning, Jeff and Steve.

Jeffrey M. Solomon -- Chair and Chief Executive Officer

Hey, Mike.

Michael Brown -- KBW -- Analyst

So it's nice to see the update on the target to shift to a after-tax basis from a pre-tax basis. And I guess I wanted to follow up on Steve's question about kind of the -- where do you may be focusing for growth in the business, but a little bit more from a 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 and the rest of the management is, it's great to see. So you're throwing up a lot of cash flow here. So where is 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 M. Solomon -- Chair and Chief Executive Officer

So let's start with the -- 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, well in the script, I went through some of the areas we're highlighting in research, in particular, with increased investments in healthcare sustainability, which will continue to be key drivers for us. I think, expanding into healthcare 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've 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 new analysts in that area, and we're seeing some real traction there. I think, in payments and blockchain in 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 we'll be disruptive for the next decade. So, from an industry standpoint, that's -- those would be the areas I would highlight. Though I would say just about every industry recovers undergoing some meaningful transformation like, for example, when we talk about 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 said -- what we've said is that, that this 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 meaningful improvements in our algorithmic trading capability, in part because there are very few people talking about energy transformation as a key theme, that's going to play out over the next five years to seven years. There are 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 we talk about it.

The only thing I would say, we're continuing to add an outsource trading. We're continuing to see growth in Europe. The -- 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 six months to nine 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 could see us lean in as Europe starts to come back online toward 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 we -- when you read announcements that come for us about workplaces 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 questions. Maybe a little more lengthy than you asked for, but we are thinking about this 24 hours a day, seven days a week.

Michael Brown -- KBW -- Analyst

No. That was great. Thank you for all that color. And Jeff, just one here. I'd like 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, that you can offer investors that others just haven't been able to meet? Thanks.

Jeffrey M. Solomon -- Chair and Chief Executive Officer

Well, I think, partially we've been doing longer than anybody else there. When no one cared about SPAC, we were trading 50% of the flow in that space. Now everybody cares about SPACs and you go to the market leader, we're the market leader. I think it -- and I have a lot of respect. I mean, I've said publicly that -- about my first SPAC in 1996. No one cared about it until 18 months ago in a meaningful way. We were great at it then, we're great at it now. And so, just like anything else, when the market explodes, if you are in 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've built it with this idea that there is collaboration in 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 that -- on our sales team, our sales training team are introducing new products, there is 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 made it really easy for us to recruit. I think if you're in the equities business, with our sales, sales trading, or trading, you want to be at 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 it goes on, we're taking meaningful share. But people wanted, at Cowen, want to be here because of the fact that we're winning and that momentum, biggest momentum. So, I look at the SPAC effort we make as an extension of that or representation of that, but it's part of a bigger hole that's really in a great position due to the efforts of many, many, many people.

Michael Brown -- KBW -- Analyst

Okay, great. Thanks for taking my questions.

Jeffrey M. Solomon -- Chair and Chief Executive Officer

All right. Well, thank you.

Operator

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

Jeffrey M. Solomon -- Chair and Chief Executive Officer

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, it's 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, our vision, empathy, sustainability, and tenacious teamwork. And without belief in those values and the way that you show them every day, we certainly will 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. Then 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

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

JT Farley -- Managing Director, Head of Investor Relations

Jeffrey M. Solomon -- Chair and Chief Executive Officer

Stephen A. Lasota -- Chief Financial Officer

Sumeet Mody -- Piper Sandler -- Analyst

Devin Ryan -- JMP Securities -- Analyst

Steven Chubak -- Wolfe Research -- Analyst

Chris Allen -- Compass Point -- Analyst

Michael Brown -- KBW -- Analyst

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