Cohen & Steers, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. Cohen & Steers is a global investment manager focused on real assets and alternative income. This unaudited filing covers the quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Revenue is primarily asset-based advisory and administration fees.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $154.2 million | $111.2 million | $424.2 million | $311.1 million |
| Operating income | $68.2 million | $43.3 million | $179.9 million | $107.0 million |
| Operating margin | 44.3% | 39.0% | 42.4% | 34.4% |
| Net income attributable to common stockholders | $51.5 million | $31.9 million | $146.9 million | $81.0 million |
| Diluted EPS | $1.05 | $0.66 | $3.00 | $1.67 |
| Operating cash flow | Not separately stated | Not separately stated | $171.0 million | $87.2 million |
Q3 revenue rose 38.7% year over year, primarily reflecting higher average assets under management (AUM) across investment vehicles; lower institutional performance fees partly offset growth. Nine-month revenue increased 36.4%. Q3 GAAP operating margin improved 5.3 percentage points, and nine-month margin improved 8.0 points. Adjusted operating margins were 45.6% and 43.9% for the quarter and nine-month period, respectively, versus 39.6% and 38.6% in 2020.
At September 30, cash and cash equivalents were $168.5 million, total assets $468.6 million, and total liabilities $138.0 million. The company reported no outstanding debt and net liquid assets of $227.1 million, up from $119.3 million at December 31, 2020. Nine-month cash increased $128.6 million, after operating cash flow of $171.0 million, investing cash inflow of $37.3 million, and financing cash outflow of $79.7 million. Dividends paid were $65.2 million; common-stock repurchases were $21.4 million, primarily for employee tax withholding.
Quarterly dividends declared were $0.45 per share; nine-month dividends declared totaled $1.35 per share. On November 4, 2021, the company declared a further $0.45 quarterly dividend and a $1.25 special dividend per share, payable November 30.
Business trends and changes versus prior periods
AUM reached $97.3 billion at quarter-end, up 38.0% from $70.5 billion a year earlier. The increase reflected $11.5 billion of net inflows and $18.2 billion of market appreciation, partly offset by $3.0 billion of distributions. Nine-month net inflows were $7.7 billion. Open-end funds had $45.6 billion of AUM and $2.0 billion of Q3 net inflows; institutional accounts ended at $39.3 billion and had $616 million of Q3 net outflows. Real estate and preferred securities represented 62.7% and 27.5% of AUM, respectively.
Q3 employee compensation and benefits expense rose 29.3%, mainly due to higher incentive compensation and restricted-stock-unit amortization. Distribution and service fee expense rose 36.0% with higher open-end fund AUM and a shift toward a higher-cost intermediary. For the nine months, general and administrative expense fell 25.4%; 2020 included approximately $12.0 million of costs related to an RQI rights offering.
GAAP non-operating results were volatile: investment gains were $11.9 million for the first nine months of 2021 versus an $11.4 million loss in 2020. The 2021 nine-month effective tax rate was 20.7%, compared with 22.9%; reversals of certain uncertain-tax-benefit liabilities and tax effects related to appreciated restricted stock units contributed to the lower rate. Adjusted nine-month diluted EPS was $2.79, below the $3.00 GAAP figure, while adjusted 2020 EPS was $1.82 versus $1.67 GAAP; adjustments include seed-investment results, RSU vesting, foreign exchange, and discrete tax items.
Outlook, risks, contingencies, and unusual items
- No numerical earnings or AUM guidance is provided. Management expects operating cash flows and existing cash to be more than adequate for anticipated requirements and says liquidity is currently strong.
- Results depend heavily on market values and client flows because most revenue is based on managed assets. Market declines, especially in real estate and preferred securities, higher interest rates, economic weakness, or client withdrawals could reduce AUM and fees. Closed-end fund issuance and leverage also depend on market conditions.
- The company committed up to $50.0 million to Cohen & Steers Real Estate Opportunities Fund, L.P.; none had been funded by September 30.
- Management reported no pending legal matters believed likely to have a material adverse effect, no material changes to previously disclosed risk factors, and no material change in internal control over financial reporting. Disclosure controls were assessed as effective.
- Forward-looking statements are subject to risks described in the 2020 Form 10-K and this filing; the company disclaims an obligation to update them.
Key facts for investors to verify
- Whether AUM growth and fee revenue remain durable, particularly given Q3 institutional outflows and lower performance fees.
- Exposure to real estate and preferred securities, and sensitivity of AUM and revenues to market, interest-rate, and client-flow changes.
- How much of reported earnings and the year-over-year improvement reflects investment gains, tax items, and other adjustments rather than recurring operating performance.
- Cash generation and capital returns relative to the $50.0 million unfunded investment commitment and the declared special dividend.
- Reconciliation and consistency of management’s non-GAAP adjusted measures with GAAP results.