Cohen & Steers, Inc. — Q2 2013 Form 10-Q
Business context and period: Global investment manager focused on real assets, including real estate, infrastructure and commodities. This unaudited filing covers the quarter and six months ended June 30, 2013; comparisons are with 2012. Unless noted, amounts are in U.S. dollars.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $77.8 million | $67.4 million | $150.3 million | $131.2 million |
| Operating income | $28.6 million | $26.1 million | $49.3 million | $51.5 million |
| Non-operating income (loss) | $(10.2) million | $(2.0) million | $(7.3) million | $1.0 million |
| Net income attributable to common shareholders | $15.3 million | $16.1 million | $30.4 million | $34.1 million |
| Diluted EPS | $0.34 | $0.36 | $0.68 | $0.77 |
- Quarterly operating margin was approximately 36.7%, versus 38.7%; six-month operating margin was approximately 32.8%, versus 39.2%.
- Investment advisory and administration fees were $70.4 million in Q2 and $135.7 million for six months. Higher average AUM drove revenue growth, while portfolio consulting and other revenue declined.
- Operating expenses rose 19% in Q2 and 27% for six months. Six-month distribution and service expense included approximately $7.2 million of MIE launch-related payments.
- Trading-securities losses were $11.0 million in Q2 and $9.3 million for six months, primarily reflecting losses on seed investments. The income statement reports net income of $8.5 million for Q2 and $24.0 million for six months; common-shareholder income is higher because losses attributable to redeemable noncontrolling interests are deducted in arriving at that measure.
- Cash and cash equivalents were $107.5 million at June 30, 2013, up from $95.4 million at year-end. Total assets were $353.2 million and total liabilities were $46.2 million. The balance sheet shows no conventional borrowings; the filing does not provide a separate debt balance.
- Six-month operating cash flow was negative $0.4 million, compared with negative $16.5 million in 2012. Investing activities provided $10.1 million and financing activities provided $2.5 million. Dividends paid were $17.7 million and common-stock repurchases were $7.9 million.
- AUM was $47.8 billion at quarter-end, versus $44.4 billion a year earlier. Q2 had net outflows of $449 million and market depreciation of $1.0 billion; six-month net flows were positive $324 million.
Material changes and management commentary
- Revenue increased 15% in both the quarter and six-month period, primarily from higher average AUM. Open-end and closed-end mutual fund advisory revenue grew; institutional advisory revenue declined as effective fee rates fell.
- Operating income fell 10% for the six-month period despite revenue growth, as expenses increased faster than revenue. General and administrative costs rose, including professional fees, headquarters rent and technology costs.
- Management expects the 2013 full-year effective tax rate to approximate 38%, excluding discrete items. The filing provides no broader earnings or AUM guidance.
- Management stated that operating cash flows should be adequate for anticipated capital requirements and obligations. Cash and short-term investments in the U.S. were described as sufficient for U.S. working-capital needs.
Liquidity, risks and contingencies
- The company reported $93.9 million of future operating-lease payments, including $4.1 million for the remainder of 2013. It also had an unfunded commitment of up to approximately $2.8 million under a $5.1 million co-investment commitment to GRP-TE; funded to date was approximately $2.3 million.
- Cash included approximately $61.4 million held by foreign subsidiaries; the company generally intends to keep foreign-subsidiary funds invested outside the U.S.
- Investments include seed positions and Level 3 assets valued using models or other significant judgment. Derivative losses were $3.1 million for the six-month period. These exposures may contribute to earnings volatility.
- The company reported no pending legal matters believed likely to have a material adverse effect and no material changes to previously disclosed risk factors or market-risk disclosures. Disclosure controls were assessed as effective.
- On August 7, 2013, the company declared a quarterly dividend of $0.20 per share, payable September 27, 2013.
Important facts for investors to verify
- Whether institutional-account net outflows continue and whether open-end fund inflows can offset them.
- How market performance and seed-investment results affect AUM, non-operating income and earnings.
- The persistence of higher operating expenses, including MIE-related distribution costs, professional fees and rent.
- The timing and funding of the remaining GRP-TE commitment, and the valuation sensitivity of Level 3 investments.
- Cash availability across domestic and foreign subsidiaries, alongside lease obligations, dividends and other capital uses.