Cohen & Steers, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited consolidated results. Cohen & Steers is a global investment manager focused on real assets and alternative income. Its fee revenue is primarily linked to assets under management (AUM).
Financial performance
- Revenue: $126.1 million, down 18.2% from $154.2 million. Advisory and administration fees fell 17.8% to $118.0 million, mainly reflecting lower average AUM; distribution and service fees declined 23.4% to $7.6 million.
- Profit: Operating income was $44.9 million, down 11.9%; operating margin was 35.6%, versus 33.1%. Net income attributable to common stockholders was $35.3 million, down 16.0%; diluted EPS was $0.71 versus $0.85.
- Non-GAAP results: Adjusted net income was $37.6 million versus $51.2 million, and adjusted diluted EPS was $0.76 versus $1.04. Adjusted operating margin declined to 38.0% from 44.7%. Adjustments include seed-investment items, foreign-exchange effects, accelerated stock vesting and headquarters transition costs; 2022 also included RLTY IPO costs.
- Cash flow: Operating cash flow was negative $15.0 million, compared with negative $106.4 million. Investing cash outflow was $35.0 million and financing cash outflow was $46.5 million. Cash and cash equivalents were $149.5 million on the balance sheet; cash-flow-statement cash, including cash held in consolidated investment vehicles, was $153.6 million.
- Liquidity and debt: Net liquid assets were $261.6 million, down from $271.6 million at year-end 2022. The company had no borrowings on its $100 million revolving facility at quarter-end; it matures January 20, 2026, and the company reported compliance with its covenants.
- Capital returns and balance sheet: The company paid $28.1 million in dividends and repurchased $20.4 million of shares, with repurchases used to satisfy employee tax withholding. It reported $137.7 million of operating lease liabilities. No funded debt was reported at quarter-end.
AUM and changes versus prior year
- AUM at March 31, 2023 was $79.9 billion, down 21.8% from $102.1 billion a year earlier; average quarterly AUM fell 17.8% to $83.2 billion.
- The year-over-year AUM decline reflected $15.7 billion of market depreciation, $3.6 billion of distributions and $2.9 billion of net outflows. Preferred securities were a significant source of outflows; real assets multi-strategy had inflows.
- For the quarter, AUM decreased by $520 million to $79.9 billion: net outflows of $497 million and distributions of $694 million were partly offset by $671 million of market appreciation. U.S. real estate had quarterly net inflows, while preferred securities had substantial outflows.
- Revenue fell faster than expenses: expenses declined 21.3% to $81.2 million. Lower incentive compensation and lower distribution costs contributed to the decline, while general and administrative expense rose 26.7%, including $3.2 million of incremental costs tied to the future headquarters.
- Non-operating income was $1.6 million versus $5.1 million, including a $0.3 million investment loss and a $1.3 million foreign-currency loss in Q1 2023. The effective tax rate increased to 22.5% from 18.1%.
Outlook, risks and contingencies
- Management gave no specific earnings or AUM guidance. It said elevated market volatility, which continued into Q2, followed bank failures in the U.S. and abroad. Those events had not materially affected the business at filing, but their outcome was uncertain and could affect future AUM and results.
- Revenue and seed-investment values are exposed to market movements, interest and currency rates, and investor flows. Management also noted that market conditions could constrain closed-end fund launches and growth.
- The company expected to incur approximately $35 million–$45 million of future-office build-out costs, net of lease incentives, by year-end 2023. It expected overlapping current- and future-headquarters costs until the existing lease expires in January 2024.
- Unfunded investment commitments were approximately $27.3 million to REOF and $124.8 million to CNSREIT; funding timing is determined by the investment vehicles. Contractual obligations totaled $240.6 million, primarily operating leases.
- Management reported no pending ordinary-course legal matter it believed could materially adversely affect results, cash flows or financial position. The filing reported no material change to the prior annual report’s risk factors and no material change in internal control over financial reporting.
- On May 4, 2023, the board declared a $0.57-per-share quarterly dividend, payable May 25, 2023.
Important facts for investors to verify
- Whether AUM and fee revenue stabilize, particularly in preferred securities and real estate strategies, and whether net flows improve.
- How continued market volatility and any further banking-sector effects influence AUM, seed investments and performance.
- The timing and cash requirements for the $152.1 million of unfunded investment commitments, headquarters spending and other liquidity needs.
- How recurring earnings compare with adjusted results, including the company’s adjustment methodology and the impact of headquarters transition costs.
- That cash-flow-statement cash includes cash held in consolidated investment vehicles and is not identical to balance-sheet cash; the revolving facility was undrawn at March 31, 2023.