Institutional Financial Markets' CEO Discusses Q2 2011 Results - Earnings Call Transcript

Institutional Financial Markets Inc. ( IFMI)

Q2 2011 Earnings Call

August 9, 2011 10:00 AM ET

Executives

Daniel Cohen – Chairman and CEO

John Costas – Chairman, PrinceRidge

Joe Pooler – CFO

Analysts

Mark Duffy – MMD Hudson

Rick Sherman – Oppenheimer

Dwight Emanuelson – Merrill Lynch

John Lydecker – MJ Whitman

Susan Schweitzer – Salient Advisors

Presentation

Operator

Good morning ladies and gentlemen and welcome to Institutional Financial Markets second quarter earnings conference call. My name is Julianne and I will be your operator for today. At this time all participants have been placed in a listen-only mode. Following formal remarks, the call will be opened to a question-and-answer session and instructions will be provided at that time. As a reminder, this conference call is being recorded.

Before we begin, IFMI would like to remind everyone that some of the statements the company makes during this call may contain forward-looking statements under applicable security laws. These statements may involve risks and uncertainties that could cause the company’s actual results to differ materially from the results discussed in such forward-looking statements. The forward-looking statements made during this call are made only as of the date of this call and the company undertakes no obligation to update such statements to reflect subsequent events or circumstances. IFMI advises you to read the cautionary note regarding forward-looking statements in its earnings release and in its most recent Annual Report on Form 10-K filed with the SEC.

Please also note that in the company’s quarterly earnings release for the second quarter of 2011 the non-GAAP measures have been reconciled to GAAP measures in accordance with SEC regulations.

I would now like to turn the call over to Mr. Daniel Cohen, Chairman and CEO of IFMI.

Daniel Cohen

Thank you, Julianne and thank you everybody for joining us for our second quarter 2011 earnings call. With me on the call are John Costas, the Chairman of PrinceRidge; and Joe Pooler, our CFO.

Before we discuss the financial results for the quarter, and the progress that we’ve made in terms of integrating our institutional capital markets business with PrinceRidge, let me first comment on our progress with our strategic, the transaction itself. On 1st of June we were pleased to announce the closing of the PrinceRidge investment, and our second quarter results include one month of PrinceRidge’s operating results. Since that time, we’ve been working hard to integrate the two platforms including combining offices, the value adding asset class performance reducing redundant costs.

Although we were happy to past the first milestone with PrinceRidge, the work really has just begun. Additionally, we’ve really entered a difficult and interesting stage in the market for fixed income. We work hard to be effectively positioned. However as Joe will describe, we have continued that good liquidity continue to generate net cash in the business is reflected in our adjusted earnings. And further, we have a great team, we’ll be able to develop our business and take advantage of opportunities for the overall difficulties in the financial sector.

Turning to our results for the second quarter, we did experienced year-on-year decreases in our revenue line items and our net trading revenue was down $3.5 million from the prior year. In addition, our principal investments did not generate meaning year-over-year revenue. That said we were pleased that we did earn $4.4 million in incentive piece in our asset management business in the second quarter from the successful and elimination of one of the Deep Value Funds, Fund 1A.

We continue building other areas in our asset management business and we believe there is great linked value in that business line. In addition, though we were disappointed by the decline in the year-over-year revenue, adjusted operating income was essentially breakeven for the quarter. As of June 30, 2011, our total equity was $89.2 million. Notably, our performance after considering the impact of the transaction and the transition costs along with our solid capital position has enabled us once again to return value to our stockholders through a $0.05 dividend for the quarter.

Overall, there is clearly much work to be done in IFMI. You should know however that we were keenly aware of what we must do to drive to stronger results and believe that we have taken the steps to create long-term value in the company. To this end, one initiative we are taking is the implementation of the numerous cost savings measures aimed at eliminating duplicate expense and focusing the combined IFMI and PrinceRidge on the most profitable business lines.

John will describe more of the combined entity, and Joe will describe our financial results, our liquidity, and our balance sheet. Looking ahead, we believe that with our new colleagues at PrinceRidge, we have the foundation and team in place to advance our strategies and delivered enhanced stockholder returns for the months and years to come. With that John, can I turn it over to you to talk about our capital markets business?

John Costas

Yes, thank you Daniel. As Daniel has already alluded to, we made it through a couple of milestones during the second quarter. The first with the interim regulatory closing of the transaction, and we continued to interact with the regulators and the review for the transaction is on track for final closing later this year.

Importantly the two businesses now are collocated in their headquarters in New York and in Chicago and the other regional offices in the U.S. And we’ve integrated the businesses from a personnel point which is what again as Daniel has alluded to, to cost rationalization across the businesses. We’ve experienced cost savings so far as we’ve integrated the middle and back offices, and we’re working with service providers to also consolidate our contractual obligations for the underpinning for the business.

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