Cohen & Steers, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014; filed August 8, 2014. Cohen & Steers is a global investment manager focused on real assets, including real estate, infrastructure and commodities.
Financial and operating results
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $78.4 million | $77.8 million | $151.2 million | $150.3 million |
| Operating income | $29.7 million | $28.6 million | $57.3 million | $49.3 million |
| Operating margin | 37.8% | 36.7% | 37.9% | 32.8% |
| Net income attributable to common stockholders | $22.2 million | $15.3 million | $41.6 million | $30.4 million |
| Diluted earnings per share | $0.49 | $0.34 | $0.91 | $0.68 |
- Q2 total revenue rose 1%; investment advisory and administration fees increased $2.6 million, partly offset by a $1.9 million decline in portfolio consulting and other revenue. For the first half, revenue also rose 1%, with higher advisory fees offset by a $3.8 million decline in consulting and other revenue.
- Q2 expenses declined 1%. First-half expenses declined 7%, mainly reflecting the absence of $7.2 million of MIE launch-related distribution costs recorded in 2013. Compensation increased 4% in Q2 and 3% for the first half.
- Non-operating results improved substantially year over year, primarily due to seed-investment performance. Q2 included a $2.8 million trading-securities gain versus a $11.0 million loss in Q2 2013; first-half results were a $3.7 million gain versus a $9.3 million loss.
- Assets under management were $52.3 billion at June 30, up 9% from $47.8 billion a year earlier, primarily due to market appreciation. Q2 net flows were a $6 million outflow; first-half net flows were a $122 million outflow. Institutional outflows were partly offset by open-end fund inflows.
- Cash and cash equivalents were $112.3 million, down from $128.3 million at December 31, 2013. Total assets were $293.1 million and liabilities $35.9 million; stockholders’ equity was $249.9 million. The balance sheet does not report borrowings or debt.
- First-half operating cash flow was $2.8 million, investing cash flow was $3.0 million, and financing cash flow was negative $22.0 million. Financing uses included $19.7 million of dividends and $11.6 million of share repurchases, partly offset by $7.3 million of contributions from redeemable noncontrolling interests.
- Dividends declared were $0.22 per share for Q2 and $0.44 per share for the first half. A further $0.22 quarterly dividend was declared August 7, payable September 26, 2014.
Outlook, risks and unusual items
- Management expects a 2014 effective tax rate of approximately 35.5%, excluding discrete items. The filing gives no specific revenue, earnings or AUM guidance.
- Management states cash and operating cash flows should be adequate for anticipated capital requirements and obligations. Approximately $75.7 million of cash was held by foreign subsidiaries, which the company intended to permanently reinvest outside the U.S.
- The company had a commitment to co-invest up to $5.1 million alongside GRP-TE; approximately $2.9 million had been funded at quarter-end. The remaining commitment is unfunded, illiquid, and its timing depends on underlying investment drawdowns.
- Operating lease commitments totaled $88.1 million. The company reported no material capital lease obligations and no pending legal matters it believed could materially affect results, cash flows or financial condition.
- Key business sensitivities include market performance and resulting changes in AUM and fees, client flows, and performance of seed investments. Management reported no material change in market-risk disclosures or risk factors from its 2013 Form 10-K.
- Disclosure controls were assessed as effective at a reasonable assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether AUM growth and fee revenue can persist despite institutional net outflows and weaker consulting revenue.
- How much earnings growth depends on volatile seed-investment and trading gains rather than recurring operating revenue.
- The timing and amount of any remaining GRP-TE co-investment funding, and the liquidity of those investments.
- The company’s cash position and cash generation after dividends, employee-related share repurchases, and its foreign cash reinvestment policy.
- The stated 35.5% full-year tax-rate expectation and any subsequent updates or discrete tax items.