Cohen & Steers, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. Cohen & Steers is a global investment manager focused on real assets and income-oriented strategies. Financial statements are unaudited.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $79.7 million | $80.8 million | $247.0 million | $232.1 million |
| Operating income | $31.5 million | $32.3 million | $97.2 million | $89.6 million |
| Operating margin | 39.5% | 40.0% | 39.4% | 38.6% |
| Net income attributable to common stockholders | $17.1 million | $18.2 million | $58.7 million | $59.8 million |
| Diluted EPS | $0.37 | $0.40 | $1.28 | $1.31 |
- Q3 revenue declined 1% year over year, primarily from lower average assets under management across institutional accounts, open-end funds and closed-end funds. Operating income fell 3%; common-stockholder net income fell 6%.
- Nine-month revenue rose 6%, mainly from higher average AUM and growth in portfolio consulting and distribution fees. Operating income increased 8%, but common-stockholder net income declined 2%, as non-operating results deteriorated.
- Non-operating results were a loss of $3.0 million in Q3 and a loss of $2.7 million for the nine months, versus losses of $3.6 million and income of $4.6 million, respectively, in 2014. Seed-investment losses were the principal factor.
- Cash and cash equivalents were $146.2 million at September 30, 2015, versus $124.9 million at year-end 2014. Nine-month operating cash flow was $68.4 million, compared with $18.9 million a year earlier. Financing cash outflow was $47.9 million, including $34.1 million of dividends and $19.2 million of share repurchases, primarily for employee tax withholding on vested restricted stock units.
- Total assets were $296.0 million and total liabilities $49.4 million. The filing reports no debt balance; no material capital lease obligations were reported. Operating lease commitments totaled $90.7 million.
- Management characterized liquidity as strong and said cash and operating cash flows should be adequate for anticipated requirements. Cash, equity-method and available-for-sale investments, and accounts receivable—excluding Level 3 investments—represented 79% of total assets.
AUM, outlook and material developments
- Period-end AUM was $49.7 billion, down $404 million, or 1%, during Q3; average quarterly AUM was $50.7 billion, down 2% from Q3 2014. Q3 net outflows were $239 million and market depreciation was $165 million. Management cited a 2% annualized organic decay rate.
- For the first nine months, AUM declined $3.4 billion: net outflows of $1.4 billion and market depreciation of $2.0 billion. U.S. and global/international real estate had significant outflows; preferred securities and global listed infrastructure recorded net inflows in the quarter.
- Management expected the full-year 2015 tax rate to be approximately 38%, excluding discrete items. No revenue, earnings or AUM guidance was provided.
- The company launched a Luxembourg-domiciled global listed infrastructure fund in September and registered a U.S. low-duration preferred and income fund, expected to be available by year-end.
- On November 3, 2015, the company declared a $0.25 quarterly dividend and a $0.50 special dividend per share, payable December 16 to holders of record November 25.
Risks, contingencies and unusual items
- Results depend on market valuations, foreign exchange movements, AUM levels and client subscriptions and redemptions. Management reported net outflows and market depreciation in Q3.
- Available-for-sale investments had $9.4 million of gross unrealized losses at quarter-end; none had been in a loss position for more than 12 months. Management considered the losses temporary and said it had the ability and intent to hold the investments until recovery.
- Unfunded co-investment commitment alongside GRP-TE was approximately $1.9 million: up to $5.1 million total, of which approximately $3.2 million had been funded. Timing is contingent on underlying investment drawdowns.
- Management reported no pending legal matters believed likely to have a material adverse effect and no material changes to the risk factors in the 2014 Form 10-K. Disclosure controls were deemed effective; no material change in internal control was reported.
- Other notable accounting effects included a $21.1 million non-cash reclassification of the MLO investment from equity-method to available-for-sale accounting after ownership and influence declined, and a $10.4 million nine-month other comprehensive loss, largely reflecting unrealized losses on available-for-sale investments.
Important facts for investors to verify
- Whether AUM flows improve, particularly in real estate strategies, and how market performance affects fee revenue.
- Whether seed-investment losses and unrealized investment losses persist or reverse.
- The cash impact and sustainability of regular and special dividends, alongside lease obligations and the GRP-TE commitment.
- The assumptions behind management’s approximately 38% full-year tax-rate estimate and the effect of any discrete tax items.
- Performance and adoption of the newly launched or planned funds; the filing provides no quantified forward revenue or earnings guidance.