Cohen & Steers, Inc. — Q2 2015 Form 10-Q
Business context and reporting period
Unaudited results cover the quarter and six months ended June 30, 2015, compared with the same 2014 periods. Cohen & Steers is a global investment manager focused on liquid real assets and income strategies; fees are substantially tied to assets under management (AUM).
Key financial metrics
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $83.5m | $78.4m | $167.3m | $151.2m |
| Operating income | $31.2m | $29.7m | $65.7m | $57.3m |
| Operating margin | 37.3% | 37.8% | 39.3% | 37.9% |
| Net income attributable to common stockholders | $20.8m | $22.2m | $41.6m | $41.6m |
| Diluted EPS | $0.45 | $0.49 | $0.91 | $0.91 |
| Dividends declared per share | $0.25 | $0.22 | $0.50 | $0.44 |
At June 30, cash and cash equivalents were $125.8m; total assets were $277.0m, total liabilities $34.3m, and stockholders’ equity $241.9m. The balance sheet presents no borrowings or debt line item; the filing does not provide a clear debt balance. Cash from operating activities was $36.2m for the first half, versus $2.8m a year earlier. Cash ended the period at $125.8m, up $0.5m excluding foreign-exchange effects. Financing used $36.5m, including $22.7m of dividends and $19.2m of share repurchases to satisfy employee tax withholding, partly offset by $4.7m in excess tax benefits.
Material changes versus comparable periods
- Year over year, second-quarter revenue rose 6.5%, while operating income rose 5.1%; common-stockholder net income fell 6.4% and diluted EPS declined from $0.49 to $0.45.
- For the first half, revenue increased 10.6% and operating income increased 14.8%, while common-stockholder net income was essentially unchanged.
- Sequentially, Q2 revenue declined 0.4% from Q1, operating income fell 9.8%, and operating margin declined from 41.2% to 37.3%, primarily reflecting lower average AUM.
- Q2 non-operating income was $1.8m versus $5.0m a year earlier; first-half non-operating income fell to $0.2m from $8.2m, mainly due to lower realized and unrealized earnings from seed investments.
- AUM declined $4.5bn, or 8.3%, during Q2 to $50.1bn, due to $3.8bn of market depreciation and $0.7bn of net outflows. Against June 2014, AUM was down 4%; first-half net outflows were $1.2bn.
Outlook, commentary, risks and unusual items
- Management expected the full-year 2015 effective tax rate to be approximately 37%, excluding discrete items. No broader earnings or AUM guidance was provided.
- Management cited a 5% annualized overall organic decay rate for Q2, including 10% for open-end mutual funds and 4% for institutional accounts. Outflows and market depreciation remain important revenue risks.
- The company won a $450m global listed infrastructure mandate, expected to fund in stages beginning in the second half of 2015. An affiliated listed investment company launched July 1 with $214m net of underwriting commissions.
- The company reported a highly liquid financial position and believed cash and operating cash flows would cover anticipated requirements. Approximately $85.2m of cash was held by foreign subsidiaries and intended to be permanently reinvested. A co-investment commitment totals up to $5.1m; $3.2m was funded, leaving an unfunded amount whose timing is unknown.
- Operating lease commitments totaled $91.3m. Management reported no pending legal matter believed to have a material adverse effect, no material change to previously disclosed risk factors, and no material change in market-risk disclosures.
- During the first half, the company’s ownership in MLO fell below 20%; it ceased equity-method accounting and classified the investment as available for sale, including a noncash $21.1m reclassification. Available-for-sale investments had $3.1m of gross unrealized losses at quarter-end; management considered the impairments temporary.
- The board declared a $0.25-per-share quarterly dividend on August 6, payable September 24, 2015. Disclosure controls were assessed as effective; management reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether AUM outflows and market depreciation persist, particularly in U.S. real estate and open-end funds, and how they affect fee revenue.
- Whether the 37% expected tax rate and Q2 margin pressure continue through the remainder of 2015.
- Performance and valuation of seed investments, especially the MLO reclassification and unrealized losses on available-for-sale holdings.
- Timing and funding of the remaining GRP-TE co-investment commitment, as well as the staged funding of the $450m mandate.
- Cash availability after dividends, employee tax-withholding share repurchases, lease commitments, and the foreign-subsidiary cash reinvestment policy.