Business Context and Reporting Period
Company: Cohen & Steers, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: The Company is an asset manager specializing in income-oriented equity portfolios, including U.S. and international real estate securities, large-cap value stocks, listed infrastructure, utilities, and preferred securities. It also manages alternative investment strategies such as hedged real estate portfolios.
Key Financial Metrics
| Metric (in thousands) | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenue | $41,344 | $23,500 |
| Operating Income | $12,429 | $137 |
| Net Income (Attributable to Common Shareholders) | $8,880 | $(14,479) |
| Earnings Per Share (Diluted) | $0.21 | $(0.34) |
| Cash and Cash Equivalents | $152,745 | $113,943 |
| Total Assets | $308,961 | $328,711 |
| Total Liabilities | $20,924 | $40,376 |
| Net Cash Provided by Operating Activities | $4,999 | $(6,429) |
Assets Under Management (AUM): Total AUM reached $27.2 billion as of March 31, 2010, a 134% increase from $11.6 billion in the prior year period. Average AUM for the quarter was $24.9 billion.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 76% to $41.3 million, driven by a 78% increase in investment advisory fees from open-end funds, a 55% increase from closed-end funds, and a 107% increase from institutional separate accounts. This growth correlates with a 96% increase in average AUM.
- Profitability Turnaround: The Company reported a net income of $8.9 million compared to a net loss of $14.5 million in Q1 2009. Operating income surged from $137,000 to $12.4 million.
- Non-Operating Items: Q1 2009 included a significant other-than-temporary impairment charge of $18.2 million on available-for-sale securities. Q1 2010 non-operating income was $1.0 million, excluding this prior-year impairment.
- Expense Increases: Total operating expenses rose 24% to $28.9 million, primarily due to a 32% increase in employee compensation (higher bonuses and stock-based compensation) and a 40% increase in distribution fees.
- Accounting Changes: The Company deconsolidated its onshore global real estate long-short fund on February 1, 2010, reclassifying $26.2 million to equity investments.
Guidance, Outlook, and Risks
- Outlook: Management expects the effective tax rate for the full year 2010 to approximate 34%, excluding discrete items. No specific revenue or earnings guidance was provided in this filing.
- Liquidity: The Company maintains a highly liquid position with cash and cash equivalents of $152.7 million. Regulatory capital requirements for its broker-dealer and non-U.S. subsidiaries were significantly exceeded ($11.4 million and $40.2 million excess, respectively).
- Dividends: A quarterly cash dividend of $0.10 per share was declared on May 7, 2010, payable June 28, 2010.
- Risks: The filing references risk factors from the 2009 Form 10-K, including market volatility, regulatory changes, and the impact of fair value measurements on investment portfolios. There were no material changes to risk factors disclosed.
Investor Verification Checklist
- AUM Sustainability: Verify the durability of the 134% year-over-year increase in Assets Under Management, which drove the revenue surge.
- Compensation Structure: Review the 32% increase in employee compensation to understand the mix of fixed vs. variable (bonus) pay and its impact on future margins.
- Investment Portfolio Quality: Assess the composition of "available-for-sale" securities, specifically the $5.0 million in auction rate preferred securities and $2.9 million in corporate debt classified as Level 2.
- Deconsolidation Impact: Confirm the long-term financial impact of deconsolidating the onshore global real estate long-short fund and the shift to equity method accounting.
- Tax Rate Consistency: Monitor whether the projected 34% effective tax rate holds, given the volatility in tax benefits related to stock-based compensation.