Cohen & Steers, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. Cohen & Steers is a global investment manager specializing in real assets and alternative income. Comparisons below are with the corresponding 2022 periods unless stated otherwise. Dollar amounts are in millions except per-share data.
Financial and operating performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $123.7 | $140.0 | $370.4 | $441.6 |
| Operating income | $40.9 | $57.2 | $126.6 | $169.2 |
| Operating margin, GAAP | 33.0% | 40.9% | 34.2% | 38.3% |
| Net income attributable to common stockholders | $32.1 | $44.6 | $99.2 | $138.5 |
| Diluted EPS, GAAP | $0.65 | $0.90 | $2.00 | $2.81 |
| Operating cash flow | Not stated by quarter | $113.4 | $3.6 |
Q3 revenue decreased 11.6%; nine-month revenue decreased 16.1%. Investment advisory and administration fees fell 11.2% in Q3 and 15.7% year to date, chiefly reflecting lower average assets under management (AUM). Distribution and service fees also declined with lower U.S. open-end fund AUM. GAAP operating expenses were nearly flat in Q3 (+0.1%) but fell 10.5% year to date, partly due to lower compensation and distribution costs.
Management reported non-GAAP “as adjusted” Q3 diluted EPS of $0.70 and operating margin of 35.5%; nine-month adjusted diluted EPS was $2.16 and adjusted margin 36.7%. These measures exclude specified items and are supplemental, not substitutes for GAAP results.
AUM, liquidity, and balance sheet
- AUM was $75.2 billion at September 30, down 5.1% from $79.2 billion a year earlier. Management attributed the decline mainly to net outflows of $2.1 billion and distributions of $3.3 billion, partly offset by market appreciation of $1.4 billion. Twelve-month organic decay rate was 2.7%.
- For the quarter, total net flows were approximately negative $47 million; market depreciation was $4.6 billion and distributions were $604 million. Institutional accounts had $311 million of net inflows, while open-end funds had $360 million of net outflows.
- Cash and cash equivalents on the balance sheet were $133.1 million at September 30, versus $247.4 million at year-end 2022. Net liquid assets, as defined by the company, were $273.3 million, compared with $271.6 million at year-end.
- Nine-month operating cash flow was $113.4 million; investing cash outflow was $128.0 million, including $80.0 million net purchases of U.S. Treasury securities and $46.1 million of property and equipment purchases, primarily for the future headquarters. Financing cash outflow was $99.2 million, including $84.4 million of dividends and $20.7 million of share repurchases for employee tax withholding.
- The company reported no drawn borrowings under its $100 million senior unsecured revolving credit facility, which matures January 20, 2026; it was in covenant compliance. Operating lease liabilities were $133.3 million. Total contractual obligations were $242.5 million, including $223.0 million of operating leases.
Changes, outlook, risks, and unusual items
- Lower AUM and weaker markets weighed on fee revenue and earnings. At September 30, AUM was down year over year in open-end funds and closed-end funds; institutional AUM was modestly higher.
- G&A rose 14.7% in Q3 and 22.6% year to date, primarily due to costs associated with the future headquarters at 1166 Avenue of the Americas. The company cited overlapping lease expense during the build-out; it expects $14–$18 million of additional build-out payments through Q1 2024. The current headquarters lease is scheduled to expire in January 2024.
- Q3 GAAP results included a $10.1 million net investment loss. For the nine months, the net investment loss was $10.0 million, compared with a $30.9 million loss in 2022. Q3 included $1.2 million of performance fees from certain institutional accounts.
- Management provided no specific financial guidance in this filing. It stated that revenue depends substantially on AUM, which is affected by market movements, client flows, and distributions. Market, interest-rate, currency, and seed-investment exposures, as well as closed-end fund market conditions, may affect results and growth.
- Commitments included up to $50 million to REOF, with $25.9 million unfunded, and up to $125 million to CNSREIT, with $124.8 million unfunded. Funding timing is determined by the investment vehicles. The company said no pending ordinary-course legal matter was believed to have a material adverse effect; it reported no material changes to previously disclosed risk factors.
- On November 2, 2023, the company declared a $0.57-per-share quarterly dividend, payable November 28 to holders of record November 13. The company revised its non-GAAP adjusted-results methodology effective January 1, 2023 to include interest and dividends from seed investments; prior periods were not recast because the impact was deemed not significant.
Important facts for investors to verify
- Whether AUM flows, market performance, and distributions improve or continue to pressure fee revenue.
- How the new headquarters’ build-out costs, overlapping leases, and remaining cash requirements develop.
- Whether the large unfunded REOF and CNSREIT commitments are called, and their effects on liquidity and investment exposure.
- How much reported cash-flow improvement reflects recurring operations versus working-capital movements and consolidated investment vehicles.
- The reconciliation and consistency of adjusted results with GAAP results, including the revised seed-investment methodology.