Cohen & Steers, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Cohen & Steers is a global investment manager specializing in real assets and alternative income. Unless noted otherwise, amounts are in U.S. dollars.
Financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $125.7 million | $105.8 million | +18.8% |
| Operating expenses | $73.8 million | $77.5 million | -4.7% |
| Operating income | $51.9 million | $28.4 million | +83.1% |
| Operating margin, GAAP | 41.3% | 26.8% | +14.5 percentage points |
| Net income attributable to common stockholders | $48.9 million | $20.6 million | +137.4% |
| Diluted EPS, GAAP | $1.00 | $0.42 | +$0.58 |
| Diluted EPS, as adjusted | $0.79 | $0.61 | +$0.18 |
| Operating margin, as adjusted | 42.3% | 38.2% | +4.1 percentage points |
Revenue growth primarily reflected higher average assets under management (AUM). Investment advisory and administration fees rose 20.2% to $116.9 million. Adjusted results are non-GAAP and exclude specified seed-investment, foreign-currency, tax, and other items.
AUM was $87.0 billion at quarter-end, up 51.7% from $57.4 billion a year earlier. During Q1, net inflows were $3.8 billion and market appreciation was $4.0 billion, partly offset by $0.7 billion in distributions. Average AUM rose 20.1% year over year to $82.8 billion.
Cash, liquidity, and capital
- Operating cash flow was $8.9 million, compared with cash used of $5.6 million in Q1 2020. Investing activities provided $39.2 million, largely reflecting $57.0 million of investment sales and maturities; financing activities used $34.5 million.
- Cash and cash equivalents were $54.7 million at March 31, 2021, versus $41.2 million at December 31, 2020. Net liquid assets were $139.6 million, up from $119.3 million.
- The company reported no outstanding debt. Management said cash and expected operating cash flows should be adequate for anticipated capital needs and obligations.
- Dividends paid were $21.7 million; the quarterly dividend declared was $0.45 per share. The company also repurchased $21.3 million of stock, primarily to satisfy employee tax withholding on vested restricted stock units.
Material changes and unusual items
- Q1 2021 included a $4.6 million net gain on investments, compared with a $22.0 million net loss in Q1 2020. This difference materially affected GAAP non-operating results and net income.
- Q1 2020 expenses included approximately $12.0 million of costs associated with the RQI rights offering. This contributed to the year-over-year increase in GAAP operating margin; adjusted operating margin also increased.
- The effective tax rate was 8.4%, versus 2.2% in Q1 2020. The 2021 rate reflected discrete tax items, including reversals of certain unrecognized-tax-benefit liabilities and the value of restricted stock units delivered in January.
- Employee compensation expense increased 18.5%, mainly from higher incentive compensation and restricted-stock-unit amortization. General and administrative expense declined 56.0%, chiefly reflecting the prior-year rights-offering costs.
Outlook, risks, and contingencies
The filing provides no specific earnings or AUM guidance. Management’s liquidity commentary was positive, but results remain sensitive to market performance and investor flows: most revenue is tied to AUM-based advisory and administration fees. At quarter-end, 61.4% of managed assets were in real estate and 27.3% in preferred securities. Market declines, interest-rate changes, economic weakness, or client withdrawals could reduce AUM and fee revenue. The filing reports no material change to the risk factors in the 2020 Form 10-K.
The company had an unfunded co-investment commitment of approximately $1.3 million, out of a total commitment of up to $5.1 million; timing of funding was unknown. Management reported no pending legal matters believed likely to have a material adverse effect. A $0.45-per-share dividend declared May 6, 2021 was payable May 27 to holders of record May 17.
Important facts for investors to verify
- How much of AUM and revenue growth is sustained by net inflows versus market appreciation, and whether flows continue across strategies.
- How seed-investment gains and losses affect reported GAAP earnings compared with adjusted results.
- Whether compensation growth and other operating costs remain aligned with revenue and AUM trends.
- The sensitivity of fee revenue to real estate and preferred-securities valuations, interest rates, and client redemptions.
- The timing and funding requirements of the remaining co-investment commitment and the company’s ability to sustain dividends and buybacks.