Cohen & Steers, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Cohen & Steers is a global investment manager specializing in real assets and alternative income. Unless otherwise noted, financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $154.2 million | $125.7 million | +22.6% |
| Operating expenses | $103.2 million | $73.8 million | +39.8% |
| Operating income | $51.0 million | $51.9 million | -1.8% |
| Operating margin | 33.1% | 41.3% | -8.2 percentage points |
| Net income attributable to common stockholders | $42.0 million | $48.9 million | -14.0% |
| Diluted EPS | $0.85 | $1.00 | -15.0% |
Investment advisory and administration fees rose 22.9% to $143.7 million, primarily reflecting higher average assets under management (AUM). Distribution and service fee expense more than doubled to $34.0 million, mainly due to $14.2 million of costs associated with the initial public offering (IPO) of the Cohen & Steers Real Estate Opportunities and Income Fund (RLTY), as well as higher AUM in U.S. open-end funds. The effective tax rate increased to 18.1% from 8.4%; the prior-year rate benefited from an unrecognized-tax-benefit adjustment.
Management’s non-GAAP as adjusted results excluded seed-investment effects, accelerated restricted-stock vesting, RLTY IPO costs, certain foreign currency effects, and related tax adjustments. Adjusted diluted EPS was $1.04 versus $0.79, and adjusted operating margin was 44.7% versus 42.3%. These non-GAAP measures are supplemental and are not substitutes for GAAP results.
AUM and operating trends
- AUM was $102.1 billion at March 31, 2022, up 17.3% from $87.0 billion a year earlier, but down from $106.6 billion at December 31, 2021. In Q1, net inflows of $756 million were more than offset by $4.6 billion of market depreciation and $697 million of distributions.
- Average AUM was $101.2 billion, up 22.2% year over year. Open-end funds had $208 million of net inflows; institutional accounts had $6 million of net outflows; closed-end funds had $554 million of net inflows.
- For the twelve months ended March 31, 2022, the company reported a 7.3% organic growth rate overall, including 17.7% for open-end funds and a 2.7% organic decay rate for institutional accounts.
Cash, liquidity, and capital
- Cash and cash equivalents were $84.8 million at quarter-end, compared with $184.4 million at year-end 2021. The company reported no outstanding debt.
- Net liquid assets were $196.8 million, down from $212.7 million at year-end. This measure includes cash, U.S. Treasury securities, liquid seed investments and other current assets, less current liabilities.
- Operating cash flow was negative $106.4 million, versus positive $8.9 million in Q1 2021. Management attributed the current-quarter use in part to $100.8 million of net investment purchases associated with consolidated sponsored funds and $15.2 million of RLTY IPO costs. Investing cash flow was negative $30.4 million; financing cash flow was positive $38.6 million, including $90.7 million of net contributions from redeemable noncontrolling interests.
- Quarterly dividends paid were $26.8 million; common-stock repurchases of $25.6 million were to satisfy employee tax withholding obligations on vesting restricted stock units, not purchases under a publicly announced repurchase plan. A $0.55-per-share dividend was declared May 5, 2022, payable May 26.
Outlook, risks, and unusual items
- The filing provides no specific earnings or AUM guidance. Management expects operating cash flows to be sufficient to meet obligations and foreseeable commitments and states that the company’s liquidity is strong.
- Management said revenue and seed-investment values are exposed to market fluctuations because advisory and administration fees are based largely on AUM. The Russian invasion of Ukraine added threats to global growth and inflation; the company reported limited Russian and Ukrainian securities exposure and did not expect a material financial impact.
- The company had committed up to $50.0 million to REOF, with $21.1 million funded by March 31; the fund determines the timing of remaining funding. Contractual obligations totaled $44.9 million, including leases, purchase obligations, and a transition-tax liability.
- Management disclosed no pending ordinary-course legal matters believed likely to have a material adverse effect, and no material changes to the risk factors in its 2021 Form 10-K. It reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether AUM and fee revenue recover from the sharp Q1 market depreciation, and whether net flows remain positive across investment vehicles.
- How recurring operating costs and margins compare after separating the $15.2 million RLTY IPO costs and other non-GAAP adjustments from GAAP results.
- The drivers of the large operating cash outflow, including fund consolidation and investment activity, and the level of corporate cash and net liquid assets excluding fund-related balances.
- The timing and remaining funding requirement for the REOF commitment, as well as the sustainability of the declared dividend.
- The effect of market, currency, interest-rate, and seed-investment risks on AUM, fee income, and investment values.