Cohen & Steers, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Cohen & Steers is a global investment manager focused on liquid real assets, preferred securities and related income strategies. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2020 | Q3 2019 | First 9 months 2020 | First 9 months 2019 |
|---|---|---|---|---|
| Revenue | $111.2 | $105.0 | $311.1 | $301.0 |
| Operating income | $43.3 | $40.1 | $107.0 | $113.7 |
| Operating margin | 39.0% | 38.2% | 34.4% | 37.8% |
| Net income attributable to common stockholders | $31.9 | $34.0 | $81.0 | $97.9 |
| Diluted EPS | $0.66 | $0.70 | $1.67 | $2.03 |
| Operating cash flow | Not separately stated | Not separately stated | $87.2 | $73.8 |
- Q3 revenue rose 5.9%, driven primarily by $5.2 million of institutional performance fees and higher average open-end fund assets. Q3 operating income increased 7.9%, while common-stockholder net income fell 6.2%; the effective tax rate rose to 28.2% from 23.3%.
- Nine-month revenue increased 3.4%, but operating income decreased 5.9% and common-stockholder net income declined 17.3%. The period included an $11.4 million net investment loss, compared with a $20.2 million gain in 2019, and higher general and administrative expenses.
- Q3 operating margin improved year over year; the nine-month margin declined, mainly reflecting approximately $12.0 million of costs associated with the Q1 RQI rights offering. Management’s non-GAAP adjusted nine-month margin was 38.6%, versus 38.4% in 2019; adjusted figures exclude specified items and should be considered supplemental.
- Assets under management were $70.5 billion at quarter-end, down 0.5% from $70.8 billion a year earlier. Q3 net inflows were $2.3 billion; nine-month net inflows were $6.9 billion, partly offset by market depreciation and distributions. Average AUM in Q3 was up 1.7% year over year.
- Cash and cash equivalents were $96.3 million at September 30, 2020, versus $101.4 million at year-end 2019. Net liquid assets were $196.6 million, up from $178.9 million. The company reported no outstanding debt. Nine-month operating cash flow of $87.2 million exceeded the prior-year $73.8 million.
- Nine-month financing cash outflows were $82.4 million, including $56.0 million of dividends and $25.9 million of share repurchases, principally for employee tax withholding. Cash declined $4.8 million over the period, excluding foreign-exchange effects.
Changes, outlook and notable items
- Revenue growth reflected higher AUM in open-end funds and institutional performance fees; closed-end fund revenue was lower. The company reported nine-month net flows of $6.9 billion, while market movements reduced AUM.
- Management said operating activities and available liquidity were expected to be more than adequate for present and reasonably foreseeable commitments. The filing provides no quantified earnings or revenue guidance. Management expected the implied closed-end fund fee rate to rise in Q4 following the new fund offering.
- After quarter-end, the initial offering of the Cohen & Steers Tax-Advantaged Preferred Securities and Income Fund concluded on October 27, raising approximately $1.3 billion excluding leverage. The underwriters had a 45-day option for up to 7.5 million additional shares. The company reported approximately $56.7 million of offering costs incurred during Q4.
- On November 5, the company declared a $0.39 quarterly dividend and a $1.00 special dividend per share, payable December 1 to holders of record November 16. Future dividends remain subject to board approval and business, financial, legal and regulatory considerations.
- COVID-19 remained a key uncertainty. Management reported that operations had not been materially disrupted to date, but warned that renewed restrictions, market declines, redemptions, client losses, vendor disruptions, remote-work cybersecurity risks and employee impacts could adversely affect AUM, fees, earnings and dividend capacity.
- The company disclosed no pending legal matter it believed would materially affect its results, cash flows or financial condition. It had a co-investment commitment of up to $5.1 million, of which approximately $3.8 million was funded at quarter-end; timing of the remaining funding was unknown.
Important facts for investors to verify
- Whether the $6.9 billion of nine-month net inflows and Q3 inflows persist, and how market performance and client withdrawals affect AUM and fee revenue.
- The sustainability of reported earnings: compare GAAP results with adjusted measures and assess the impact of investment gains and losses, performance fees, tax items and offering-related expenses.
- The total and timing of PTA offering costs, potential additional share issuance under the underwriters’ option, and the offering’s contribution to future fee revenue.
- The cash impact and ongoing affordability of the $1.00 special dividend, alongside the regular dividend, commitments and other capital uses.
- COVID-19-related market, operational, vendor, cybersecurity and workforce risks, including any subsequent developments not reflected in this quarter-end filing.