Cohen & Steers, Inc. — Q3 2014 Form 10-Q
Business context and reporting period
Cohen & Steers is a global investment manager focused on real assets, including real estate, infrastructure and commodities. This unaudited filing covers the quarter and nine months ended September 30, 2014; comparisons are with the corresponding 2013 periods unless noted.
Financial and operating highlights
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $80.8 million | $74.0 million | $232.1 million | $224.3 million |
| Operating income | $32.3 million | $27.7 million | $89.6 million | $77.0 million |
| Operating margin | 40.0% | 37.4% | 38.6% | 34.3% |
| Net income attributable to common stockholders | $18.2 million | $18.3 million | $59.8 million | $48.7 million |
| Diluted EPS | $0.40 | $0.41 | $1.31 | $1.08 |
- Q3 revenue rose 9%, principally from higher advisory and administration fees as average assets under management (AUM) increased. Q3 operating expenses rose 5%; compensation and distribution costs increased. Operating income improved, but common-stockholder income was slightly lower, reflecting a $3.6 million non-operating loss versus $3.3 million of non-operating income a year earlier.
- For the first nine months, revenue increased 3% and expenses declined 3%, while non-operating results improved to $4.6 million of income from a $3.9 million loss. Management attributed the improvement mainly to seed-investment results and lower expenses, including the absence of $7.2 million of prior-year MIE launch-related distribution costs.
- AUM was $49.7 billion at September 30, up 7% year over year. For the first nine months, total net outflows were $1.1 billion, more than offset by $4.9 billion of market appreciation. Q3 AUM decreased $2.6 billion, including $1.6 billion of market depreciation and $1.0 billion of net outflows. Institutional accounts had $1.1 billion of Q3 net outflows; open-end funds had $103 million of net inflows.
- Cash and cash equivalents were $137.8 million, versus $128.3 million at December 31, 2013. Total assets were $327.3 million and total liabilities $45.6 million. The filing does not show a borrowing or debt balance; it reports no material capital lease obligations. Management described liquidity as strong and expected cash and operating cash flows to cover anticipated needs.
- Nine-month operating cash flow was $18.9 million, down from $41.1 million. Investing activities provided $10.9 million and financing activities used $19.3 million; cash ended the period at $137.8 million. Financing uses included $29.6 million in shareholder dividends and $11.7 million in share repurchases to satisfy employee tax withholding.
Material changes, outlook and risks
- Advisory and administration fees increased, while portfolio consulting and other revenue fell 30% in Q3 and 46% for the nine-month period, mainly due to lower model-strategy assets under advisement. Nine-month institutional advisory revenue declined 3%; open-end and closed-end fund advisory revenue increased 9% and 11%, respectively.
- Management expected the full-year 2014 effective tax rate to be approximately 36%, excluding discrete items. No earnings or AUM guidance was provided.
- On November 4, 2014, the company declared a $0.22 quarterly dividend and a $1.00 special dividend per share, payable December 19 to holders of record November 28.
- The company had an unfunded commitment of approximately $2.1 million under a $5.1 million co-investment commitment alongside GRP-TE; the commitment may extend over the fund’s life, up to 12 years, and its funding timing was unknown. Management reported no pending legal matters believed likely to have a material adverse effect, no material changes to previously disclosed risk factors, and no material changes in market-risk disclosures.
- Investment results and reported earnings can be affected by market movements and seed investments. The company also noted that $78.2 million of cash was held by foreign subsidiaries and that it intended to permanently reinvest those funds outside the U.S.
Important facts for investors to verify
- Whether institutional outflows and the larger Q3 market depreciation continue, and how AUM trends affect fee revenue.
- The sustainability of the decline in consulting revenue and the increase in compensation and other operating costs.
- How seed-investment performance, including the Q3 non-operating loss, affects future reported earnings.
- Cash-flow conversion and liquidity, including the timing of the remaining GRP-TE commitment and the declared special dividend.
- The filing’s debt presentation and the tax-rate outlook; no borrowing balance is clearly provided in the supplied filing text.