Cohen & Steers, Inc. — Q3 2022 Form 10-Q
Business context and period: Cohen & Steers is a global investment manager specializing in real assets and alternative income. This unaudited filing covers the quarter and nine months ended September 30, 2022; comparisons are to the same periods in 2021 unless stated otherwise. Results are sensitive to market-driven changes in assets under management (AUM), which drive most advisory fees.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $140.0M | $154.2M | $441.6M | $424.2M |
| Operating income | $57.2M | $68.2M | $169.2M | $179.9M |
| Operating margin | 40.9% | 44.3% | 38.3% | 42.4% |
| Net income attributable to common stockholders | $44.6M | $51.5M | $138.5M | $146.9M |
| Diluted EPS | $0.90 | $1.05 | $2.81 | $3.00 |
| Operating cash flow | Not separately presented | Not separately presented | $3.6M | $171.0M |
Q3 revenue declined 9.2% year over year as advisory and administration fees fell 8.9%, mainly reflecting lower average AUM and performance fees recognized in Q3 2021. For the first nine months, revenue grew 4.1%, but expenses rose 11.5%; operating income declined 5.9%. GAAP net income attributable to common stockholders fell 13.4% in Q3 and 5.7% year to date. The nine-month effective tax rate was 20.0% versus 20.7%.
Management also reported non-GAAP adjusted diluted EPS of $0.92 for Q3 2022 versus $1.06 a year earlier, and $2.91 for the first nine months versus $2.79. Adjusted figures exclude specified items and are supplemental, not a substitute for GAAP results.
AUM, cash flow, debt and liquidity
- AUM was $79.2B at September 30, down 18.6% from $97.3B a year earlier. For the nine-month period, net flows were negative $559M, market depreciation was $24.5B, and distributions were $2.4B. Q3 alone had net outflows of $598M and market depreciation of $7.4B.
- Average AUM was $89.7B in Q3, down 9.5% year over year. The company reported a 1.3% organic growth rate for the twelve months ended September 30; institutional accounts had a 2.8% organic decay rate.
- Nine-month operating cash flow was $3.6M, versus $171.0M in 2021. Management attributed the 2022 result in part to net investment purchases within consolidated investment vehicles. Investing cash flow was negative $44.9M and financing cash flow was positive $29.1M, including $134.6M of net contributions from redeemable noncontrolling interests.
- Cash and cash equivalents were $162.0M on the balance sheet; cash reported in the cash-flow statement was $165.2M, including $3.3M held in a consolidated investment vehicle. Net liquid assets were $252.8M, up from $212.7M at year-end 2021. The company reported no outstanding debt.
- Dividends paid in the first nine months totaled $80.5M; the equity statement reports $1.65 per share declared. A further $0.55-per-share dividend was declared November 3, 2022, payable November 29.
Material changes, outlook and risks
- Investment losses were a major non-operating item: net investment loss was $5.9M in Q3 and $30.9M for the first nine months, compared with losses of $0.4M and gains of $11.9M in the respective 2021 periods. Nine-month unrealized investment losses were $41.1M, partly offset by realized gains.
- Q3 expenses declined 3.7% year over year, including lower incentive compensation and distribution fees, but general and administrative costs increased 13.1%. Nine-month expenses rose 11.5%; RLTY IPO-related costs accounted for $15.2M of the increase and were excluded from adjusted results.
- Effective August 1, the company deconsolidated SICAV RAP after its ownership interest fell below 10%. This reduced both investments and redeemable noncontrolling interests by $120.3M, without a cash impact.
- Management cited inflation and higher interest rates as adverse to AUM and fee revenue, while inflation also pressured compensation and operating costs. It said Russian and Ukrainian securities exposure was limited and not expected to materially affect results; sanctions compliance measures were in place.
- The company entered a 16-year New York headquarters lease with a stated commitment of $210.1M; payments begin in 2024. It expects $40M–$50M of build-out costs, net of lease incentives. Total contractual operating lease obligations at September 30 were $226.7M. The new lease liability and right-of-use asset will be recorded when the lease commences.
- The company had committed up to $50M to REOF and funded $17.4M by September 30; timing of the remainder is determined by the fund. Management said it expects to secure a corporate line of credit for investment opportunities and infrastructure, but reported no current debt or specific facility terms.
- Management provided no quantified earnings or AUM guidance in the supplied filing text. It noted that actual results may differ from forward-looking statements due to market, business and other risks. It reported no pending legal matters believed likely to have a material adverse effect and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether market conditions, AUM declines and net flows continue to pressure advisory revenue and operating margins.
- The drivers and potential persistence of investment losses, including seed-investment valuations and market exposures.
- The timing and cash effects of the headquarters lease, its $40M–$50M build-out, and the proposed credit facility.
- Future funding needs for the remaining REOF commitment and the effect of consolidated investment vehicles on reported cash flows.
- The assumptions and exclusions behind non-GAAP adjusted results, and the sustainability of dividends in light of earnings and liquidity.