Business Context and Reporting Period
Company: Cohen & Steers, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2010
Business Overview: The Company is an investment advisor specializing in U.S. and international real estate securities, large-cap value stocks, listed infrastructure, utilities, and preferred securities. It manages open-end and closed-end mutual funds as well as institutional separate accounts.
Key Financial Metrics
All figures in thousands, except per share data.
| Metric | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 |
|---|---|---|
| Total Revenue | $46,372 | $131,948 |
| Operating Income | $13,972 | $39,733 |
| Net Income (Attributable to Common Shareholders) | $13,163 | $33,646 |
| Earnings Per Share (Diluted) | $0.30 | $0.78 |
| Cash and Cash Equivalents (Sep 30, 2010) | $100,819 | |
| Total Assets (Sep 30, 2010) | $253,636 | |
| Assets Under Management (AUM) | $31.2 billion (Sep 30, 2010) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 37% for the three months and 58% for the nine months ended September 30, 2010, compared to the same periods in 2009. This was driven by higher investment advisory fees due to increased average AUM ($29.0 billion vs. $19.5 billion for the quarter; $27.0 billion vs. $15.6 billion for the nine months).
- Profitability: Net income attributable to common shareholders turned from a loss of $13.4 million in the nine months of 2009 to a profit of $33.6 million in the nine months of 2010. The 2009 loss was significantly impacted by other-than-temporary impairment charges of $32.2 million on available-for-sale securities.
- Non-Operating Income: Non-operating income improved from a loss of $17.5 million in the nine months of 2009 to a gain of $7.6 million in 2010. The 2010 results included a $5.3 million gain from the sale of previously impaired securities.
- Expense Increases: Total operating expenses rose 16% (quarter) and 19% (nine months) year-over-year, primarily due to higher employee compensation (incentive bonuses and stock-based compensation) and distribution fees linked to higher AUM.
Guidance, Outlook, and Risks
- Dividends: The Company declared a quarterly cash dividend of $0.10 per share on November 3, 2010. During the nine months ended September 30, 2010, the Company paid $98.1 million in dividends, including a special dividend of approximately $85.3 million.
- Tax Outlook: Management expects the full-year 2010 effective tax rate to approximate 34%, excluding discrete items.
- Liquidity: The Company maintains a highly liquid financial condition. Cash and cash equivalents decreased by $52.2 million in the nine months ended September 30, 2010, primarily due to dividend payments and stock repurchases.
- Legal Proceedings: The Company is a defendant in two putative shareholder derivative actions (Gammon v. Cohen & Steers and Livson v. Cohen & Steers) alleging breaches of fiduciary duty regarding the redemption of auction preferred shares. Management believes the claims are without merit but notes the outcome is uncertain and could potentially have a material adverse impact.
- Regulatory Capital: The Company's broker-dealer subsidiary exceeded minimum regulatory capital requirements by approximately $1.3 million as of September 30, 2010.
Investor Verification Checklist
- Asset Flows: Verify the sustainability of the $3.5 billion in net inflows over the nine-month period, particularly the $3.0 billion in institutional separate accounts.
- Impairment Reversals: Confirm the nature and tax implications of the $5.3 million gain from the sale of previously impaired securities included in non-operating income.
- Legal Exposure: Monitor the status of the shareholder derivative lawsuits regarding auction preferred share redemptions for potential liability.
- Dividend Policy: Assess the impact of the $98.1 million in dividend payments (including the special dividend) on future cash reserves and capital allocation.
- Fee Waivers: Review the $2.4 million in advisory fee waivers for the nine months ended September 30, 2010, and their effect on net revenue recognition.