Cohen & Steers, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparison with Q1 2012. Cohen & Steers is a global investment manager focused on real assets, including real estate, infrastructure and commodities. Figures are unaudited.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Total revenue | $72.5 million | $63.7 million | Up 14% |
| Operating expenses | $51.7 million | $38.3 million | Up 35% |
| Operating income | $20.7 million | $25.4 million | Down 18% |
| Operating margin | 28.6% | 39.8% | Down 11.2 percentage points |
| Net income attributable to common shareholders | $15.1 million | $18.1 million | Down 16% |
| Diluted earnings per share | $0.34 | $0.41 | Down 17% |
| Net cash used in operating activities | $26.4 million | $56.3 million | Cash outflow narrowed |
- Investment advisory and administration fees, the largest revenue source, increased to $65.4 million from $58.2 million. Average assets under management (AUM) rose 10% to $47.4 billion.
- Cash and cash equivalents were $80.3 million at March 31, 2013, down from $95.4 million at year-end. Total assets were $354.3 million and total liabilities were $60.4 million. The filing presents no conventional corporate debt balance.
- Operating cash outflow reflected working-capital needs, including increased accounts receivable and securities owned and payment of accrued compensation. Financing provided $11.4 million, including $18.9 million of contributions to consolidated funds; share repurchases used $7.8 million.
- Management described the financial condition as highly liquid and said operating cash flows were expected to be adequate for anticipated capital requirements and obligations.
Material changes and management commentary
- Total AUM reached $49.3 billion, versus $44.9 billion a year earlier. Q1 net inflows were $773 million, while market appreciation added $2.8 billion.
- Institutional accounts had $344 million of Q1 net outflows, improved from $1.4 billion in Q1 2012. Open-end funds had $659 million of net inflows; closed-end funds received $458 million, primarily from the MIE launch.
- Expenses rose sharply, chiefly because of approximately $7.2 million of distribution costs associated with the MIE offering. Excluding those costs, distribution and service fee expense was $7.9 million. Higher compensation, professional fees, rent and technology costs also contributed.
- Q1 2013’s effective tax rate was approximately 35%, including discrete items; excluding those items it was approximately 37%. Management expected the full-year 2013 rate to approximate 37%, excluding discrete items.
- After quarter-end, the company declared a quarterly dividend of $0.20 per share, payable June 26, 2013.
Risks, commitments and unusual items
- The company committed to co-invest 5% of capital raised by GRP-TE, up to $25 million. Approximately $2.4 million had been funded by March 31; the unfunded commitment was not recorded as a liability, and its final amount and timing were uncertain.
- Operating lease obligations totaled $95.8 million, including $6.0 million for the remainder of 2013. Management reported no pending legal matters it believed could materially adversely affect the business or financial condition.
- Cash was principally held at three major financial institutions, creating counterparty credit exposure. The company also noted investment valuation risks, including Level 3 assets requiring significant judgment.
- The filing reported no material changes to previously disclosed market risks or risk factors. Management stated disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether AUM growth and inflows persist, particularly given continued institutional outflows and reliance on market appreciation.
- Whether higher expenses—including MIE launch costs and ongoing distribution, compensation and overhead—moderate, and how margins recover.
- The final GRP-TE co-investment obligation, timing of funding and liquidity implications of its potentially long investment period.
- The quality and collection of receivables, the drivers of operating cash outflows, and the composition and liquidity of cash and investments, including foreign-held balances.
- Whether the stated 2013 tax-rate expectation and $0.20 quarterly dividend remain consistent with subsequent results and capital needs.