Business Context and Reporting Period
Company: Cohen & Steers, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: The Company is a manager of income-oriented equity portfolios specializing in U.S. and international real estate securities, large cap value stocks, listed infrastructure, utilities, and preferred securities. It also manages alternative investment strategies including hedged real estate portfolios and private real estate multimanager strategies.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2010 |
Six Months Ended June 30, 2010 |
|---|---|---|
| Total Revenue | $44,232 | $85,576 |
| Operating Income | $13,332 | $25,761 |
| Net Income (Attributable to Common Shareholders) | $11,603 | $20,483 |
| Earnings Per Share (Diluted) | $0.27 | $0.48 |
| Cash and Cash Equivalents | $165,530 | $165,530 |
| Total Assets | $312,050 | $312,050 |
| Total Liabilities | $20,916 | $20,916 |
| Net Cash Provided by Operating Activities | N/A | $14,229 |
Assets Under Management (AUM): Total AUM was $26.2 billion as of June 30, 2010, a 61% increase from $16.3 billion in the prior year period. Average AUM for the six months ended June 30, 2010, was $26.0 billion.
Material Changes vs. Prior Comparable Period
- Revenue Growth: Total revenue increased 68% for the three months and 72% for the six months ended June 30, 2010, compared to 2009. This was driven primarily by higher investment advisory fees due to increased average AUM ($27.0 billion vs. $14.6 billion for the quarter; $26.0 billion vs. $13.7 billion for the six months).
- Profitability Turnaround: The Company reported net income of $11.6 million for the quarter and $20.5 million for the six months, a significant improvement from net losses of $6.4 million and $20.9 million, respectively, in the prior year periods.
- Non-Operating Income: Non-operating income was $2.1 million for the quarter and $3.1 million for the six months, compared to losses of $5.4 million and $21.7 million in 2009. The 2010 results included gains of approximately $3.1 million from the sale of previously impaired securities, whereas 2009 results were negatively impacted by other-than-temporary impairment charges of $14.0 million (quarter) and $32.2 million (six months).
- Expense Increases: Total operating expenses increased 19% for the quarter and 21% for the six months, primarily due to higher employee compensation (incentive bonuses and stock-based compensation) and distribution fees linked to higher AUM.
Guidance, Outlook, and Risks
- Dividends: On August 5, 2010, the Company declared a quarterly cash dividend of $0.10 per share and a special cash dividend of $2.00 per share, payable September 27, 2010.
- Tax Outlook: Management expects the effective tax rate for the full year 2010 to approximate 34%, excluding discrete items.
- Liquidity: The Company maintains a highly liquid financial condition. Cash and cash equivalents increased by $14.6 million in the six months ended June 30, 2010. The Company believes cash flows from operations will be adequate to meet capital requirements.
- Controls and Procedures: Management concluded that disclosure controls and procedures were not effective as of June 30, 2010, due to an administrative oversight where a Form 8-K regarding Q1 2010 earnings was not transmitted to the SEC until August 6, 2010. Enhanced controls have been implemented.
- Legal Contingencies: Certain closed-end mutual funds received shareholder demand letters alleging breach of fiduciary duties regarding the redemption of auction market preferred shares. A committee of independent directors is evaluating these letters.
Investor Verification Checklist
- Special Dividend Impact: Verify the cash impact of the declared $2.10 per share special dividend ($85.3 million total) on future liquidity and balance sheet.
- Non-Recurring Gains: Confirm the sustainability of earnings by excluding the ~$3.1 million gain from the sale of previously impaired securities included in non-operating income.
- Internal Control Remediation: Monitor the effectiveness of the enhanced disclosure controls implemented following the Form 8-K filing delay.
- Legal Proceedings: Track the status of the shareholder demand letters regarding closed-end fund preferred share redemptions.
- AUM Flows: Assess the sustainability of the 61% year-over-year AUM growth, noting that market depreciation offset net inflows in the quarter.