Cohen & Steers, Inc. — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; comparison is with Q1 2010 unless otherwise noted. Cohen & Steers manages investment portfolios focused on real estate securities, infrastructure and utilities, preferred securities, and other strategies for individual and institutional clients.
Financial and operating highlights
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Revenue | $54.8 million | $41.3 million |
| Operating income | $18.9 million | $12.4 million |
| Operating margin | 34.5% | 30.1% |
| Net income attributable to common shareholders | $13.0 million | $8.9 million |
| Diluted EPS | $0.30 | $0.21 |
| Cash flow from operating activities | $(10.6) million | $3.1 million |
- Investment advisory and administration fees were $51.1 million, up from $38.1 million. Distribution and service fees were $2.4 million; portfolio consulting and other revenue was $1.3 million.
- Total expenses rose 24% to $35.8 million, below revenue growth of 32%. Higher compensation, distribution costs and general and administrative expenses were the main increases.
- Assets under management (AUM) ended the quarter at $38.0 billion, up 40% year over year; average AUM increased 45% to $36.1 billion. Q1 net inflows were $1.8 billion, with $1.7 billion of market appreciation.
- Cash and cash equivalents were $117.7 million at quarter-end, versus $136.2 million at December 31, 2010. Total assets were $271.8 million; total liabilities were $27.2 million. The balance sheet lists no corporate borrowings. No material capital lease obligations were reported.
- Operating cash use reflected, among other items, lower accrued compensation and income tax payable, and increased receivables. Investing used $3.8 million; financing used $4.7 million, including $6.3 million of share repurchases primarily for employee tax withholding.
Changes, outlook and risks
- Growth in fees was driven by higher average AUM, reflecting net inflows and market appreciation across account types. Institutional accounts had $1.2 billion of Q1 net inflows; open-end funds had $507 million and closed-end funds $129 million.
- Effective tax rates were approximately 35% in Q1 2011 and 34% in Q1 2010. Management expects a full-year 2011 rate of approximately 35%, excluding discrete items. The filing provides no broader earnings or revenue guidance.
- From February 23, 2011, the company consolidated the Global Listed Infrastructure Fund after obtaining over 50% of its voting interest. It reported $9.6 million of securities owned and a $378,000 trading loss from the consolidated fund; third-party interests are presented as redeemable noncontrolling interest.
- Management described the company’s financial condition as highly liquid and said operating cash flows should be adequate for anticipated capital needs and obligations. Level 2 investments included $38.1 million in equity investments in long-short funds and $5.2 million in auction-rate preferred securities.
- The company reported no material changes to market-risk disclosures or previously disclosed risk factors. It said no pending ordinary-course legal matter was believed to pose a material adverse effect. Two shareholder derivative actions were dismissed with prejudice on April 14, 2011, without settlement or concessions.
- A quarterly dividend of $0.15 per share was declared May 6, 2011, payable June 28 to holders of record June 3. The filing cautions that actual results may differ from forward-looking statements.
Important facts for investors to verify
- Whether AUM inflows and market appreciation persist, and how they translate into fee revenue and margins.
- The drivers and sustainability of negative operating cash flow, particularly compensation, tax and receivables movements.
- Performance, valuation and redemption terms of the company’s fund investments, including the newly consolidated infrastructure fund and Level 2 holdings.
- Execution of the stated 2011 tax-rate expectation and the impact of future compensation, distribution and operating costs.