Cohen & Steers, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. Cohen & Steers is a global investment manager specializing in real assets and alternative income. This unaudited report covers the quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods.
Financial results and liquidity
- Revenue: Q2 revenue was $120.6 million, down 18.2% year over year; first-half revenue was $246.7 million, down 18.2%. Lower average assets under management were the primary driver.
- Profit and margins: Q2 operating income was $40.8 million versus $61.0 million, and operating margin was 33.9% versus 41.4%. Net income attributable to common stockholders was $31.8 million, or $0.64 diluted EPS, versus $52.0 million, or $1.06. First-half common-stockholder income was $67.1 million, or $1.36 diluted EPS, versus $94.0 million, or $1.91. Consolidated net income, before noncontrolling interests, was $32.5 million in Q2 versus $26.1 million.
- Adjusted results (non-GAAP): Q2 adjusted net income attributable to common stockholders was $34.7 million and adjusted diluted EPS was $0.70, compared with $47.2 million and $0.96. First-half adjusted net income was $72.3 million and adjusted diluted EPS was $1.46, compared with $98.4 million and $2.00.
- Cash flow: First-half operating cash flow was $38.7 million, versus cash used of $48.8 million in 2022. Investing activities used $31.2 million, including $20.1 million of property and equipment purchases; financing activities used $77.1 million, including $56.2 million of dividends and $20.6 million of share repurchases. Cash and cash equivalents in the cash-flow statement were $181.2 million, including cash held in consolidated investment vehicles; the balance sheet reports $178.5 million.
- Liquidity and debt: Net liquid assets were $279.4 million at June 30, compared with $271.6 million at December 31, 2022. The company had a $100 million senior unsecured revolving facility maturing in January 2026, had drawn none of it, and was in compliance with its covenants. No other debt balance is reported in the supplied filing text.
- Balance sheet: Total assets were $625.0 million and total liabilities were $181.1 million. Operating lease liabilities were $115.6 million.
Material changes and management commentary
- Assets under management (AUM) were $80.4 billion at June 30, down 8.5% from $87.9 billion a year earlier. The year-over-year decline reflected $2.7 billion in net outflows, $1.4 billion of market depreciation and $3.4 billion of distributions. Q2 AUM rose $508 million from quarter start, as $1.8 billion of market appreciation more than offset $512 million in net outflows and $757 million in distributions.
- Average AUM for Q2 was $79.4 billion, versus $95.1 billion a year earlier. Open-end fund advisory and administration revenue fell 22.1%; institutional account revenue fell 12.4%; and closed-end fund revenue fell 12.9%.
- Q2 expenses declined 7.7% to $79.8 million. Lower employee compensation and distribution fees were partly offset by a 26.4% increase in general and administrative expense, primarily reflecting costs for the future headquarters.
- Prior-year results included substantial investment losses: net investment loss was $28.6 million in Q2 2022 and $25.0 million in the first half of 2022, compared with gains of $0.4 million and $0.05 million, respectively, in 2023. This affected period-to-period comparisons of consolidated income. The company also reports that the allocation to noncontrolling interests differed materially between periods.
Outlook, risks and unusual items
- The filing provides no specific revenue, earnings or AUM guidance. Management says the business is exposed to market, interest-rate and currency movements; because advisory fees are primarily tied to AUM, market declines and investor withdrawals can reduce revenue. Management also notes that market conditions may constrain closed-end fund offerings.
- The company expects to incur approximately $35 million to $45 million, net of lease incentives, for the future headquarters build-out by year-end 2023. The current headquarters lease runs through January 2024, creating overlapping lease costs; management expects to vacate the current premises in Q4 2023. Q2 included $2.5 million of lease-transition and related costs excluded from adjusted results. The lease asset and liability were reduced by $22.2 million following landlord-reimbursable build-out costs.
- At June 30, the company had up to $50 million committed to REOF, with $28.8 million unfunded, and up to $125 million committed to CNSREIT, with $124.8 million unfunded. Funding timing is determined by the investment vehicles.
- The company reported no pending legal matters it believed could materially adversely affect its results, cash flows or financial position, and no material changes to the risk factors in its 2022 Form 10-K. Disclosure controls were assessed as effective.
- On August 3, 2023, the board declared a $0.57-per-share quarterly dividend, payable August 24 to holders of record August 14. The company revised its adjusted-results methodology effective January 1, 2023; prior periods were not recast because management considered the impact not significant.
Important facts for investors to verify
- Whether AUM flows and market performance improve, particularly in open-end funds and preferred securities, which contributed to notable outflows.
- How the $35–$45 million headquarters build-out estimate, lease overlap and landlord reimbursements develop, and whether costs remain consistent with management’s expectations.
- The timing and potential liquidity impact of funding the $153.6 million in remaining REOF and CNSREIT commitments.
- The reconciliation of reported cash measures and the effects of consolidated investment vehicles and noncontrolling interests on earnings and cash flows.
- The assumptions and comparability of non-GAAP adjusted results, including the revised methodology and excluded transition costs.