Cohen & Steers, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited consolidated results. Cohen & Steers is a global investment manager focused on real assets, preferred securities and other income strategies. Revenue is primarily driven by fees on assets under management (AUM).
Financial and operating performance
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Total revenue | $83.8 million | $72.8 million; up 15% year over year |
| Operating income / margin | $34.5 million / 41.2% | $27.6 million / 37.9% |
| Net income attributable to common stockholders | $20.8 million; diluted EPS $0.45 | $19.4 million; diluted EPS $0.43 |
| Operating expenses | $49.3 million | $45.2 million; up 9% |
| Non-operating income (loss) | $(1.6) million | $3.2 million |
| Operating cash flow | $0.3 million | $(0.1) million |
| Cash and cash equivalents | $99.5 million at March 31 | $124.9 million at December 31, 2014 |
| Total assets / liabilities | $255.0 million / $26.6 million | $280.7 million / $52.1 million at December 31, 2014 |
Investment advisory and administration fees rose 15% to $77.8 million, mainly reflecting higher average AUM. Distribution and service fees increased 13% to $3.9 million; portfolio consulting and other revenue rose 20% to $2.2 million. Employee compensation increased 8% and general and administrative expense increased 12%. The effective tax rate was approximately 37%, versus 36.5% a year earlier. The filing does not identify a debt balance in the presented statements.
Quarterly AUM increased $1.5 billion to $54.7 billion, as $2.0 billion of market appreciation more than offset $451 million of net outflows. Average AUM was $55.0 billion, up 15% year over year. Institutional accounts had $618 million of quarterly net outflows; open-end mutual funds had $167 million of net inflows. Management reported an overall annualized organic decay rate of 3% for the quarter.
Cash, liquidity and capital
Cash fell by $24.7 million during the quarter, excluding foreign-exchange effects. Financing used $25.0 million, including $18.7 million of share repurchases to satisfy employee tax withholding obligations and $11.4 million of dividends, partly offset by $4.7 million of excess tax benefits. Investing used $0.04 million. Management said cash and operating cash flows should be adequate for anticipated capital requirements and obligations. Approximately $78.9 million of cash was held by foreign subsidiaries and was intended to be permanently reinvested.
The company reported no material capital lease obligations. Contractual operating lease payments totaled $92.9 million. It had funded $3.2 million of a co-investment commitment of up to $5.1 million; the timing of the remaining funding was uncertain. Regulatory capital exceeded minimum requirements by approximately $1.1 million at its U.S. broker-dealer and $62.7 million in aggregate at its Hong Kong and U.K. subsidiaries.
Changes, outlook and risks
- Year-over-year revenue and operating income grew, with operating margin improving. Management also reported quarter-over-quarter revenue growth of 2%, operating income growth of 7%, and margin expansion to 41.2% from 39.5%.
- The non-operating result turned negative, primarily due to lower unrealized earnings from seed investments; Q1 2015 included losses on trading investments and equity-method affiliates.
- Management expected a full-year 2015 tax rate of approximately 37%, excluding discrete items. No broader earnings or AUM guidance was provided.
- A new global listed infrastructure institutional account and the company’s first global natural-resource-equities mandate were funded. A new Australian listed investment company was expected to list in Q2 2015, subject to market conditions.
- Management reported no material changes to the risk factors or market-risk disclosures from the 2014 Form 10-K. It said there were no pending legal matters believed likely to materially affect results, cash flows or financial condition; the company also cooperates with regulatory and other information requests.
- Available-for-sale investments included $16.0 million in unrealized-loss positions, which management considered temporary; none had been in a loss position for more than 12 months. Some real-estate fund interests use less observable valuation inputs, and changes in assumptions could materially affect fair value.
- Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether institutional outflows persist and whether mutual-fund inflows can offset them; fee revenue remains sensitive to market levels and client flows.
- How seed-investment and affiliate results evolve after the Q1 non-operating loss.
- The drivers of the substantial cash decline, including compensation-related working-capital movements, repurchases and dividends; also consider the location of foreign-held cash.
- The timing and funding requirements of the remaining co-investment commitment and the company’s long-term operating lease obligations.
- The filing reports a May 7, 2015 declared dividend of $0.25 per share, payable June 25, 2015 to holders of record June 2, 2015.