Cohen & Steers, Inc. — Q2 2020 Form 10-Q
Business context and reporting period. Cohen & Steers is a global investment manager specializing in liquid real assets, preferred securities and other income strategies. This unaudited filing covers the quarter and six months ended June 30, 2020; comparisons are to the corresponding 2019 periods unless stated otherwise. Amounts are in U.S. dollars.
Financial results and condition
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Total revenue | $94.1 million | $101.8 million | $199.9 million | $196.0 million |
| Operating income | $35.3 million | $38.1 million | $63.7 million | $73.5 million |
| GAAP operating margin | 37.5% | 37.4% | 31.8% | 37.5% |
| Net income attributable to common stockholders | $28.5 million | $31.3 million | $49.1 million | $63.9 million |
| Diluted earnings per share | $0.59 | $0.65 | $1.01 | $1.33 |
| Net cash provided by operating activities | — | $55.6 million | $45.9 million |
- Q2 revenue fell 7.6%, primarily reflecting lower average assets under management (AUM) across institutional, open-end and closed-end vehicles. First-half revenue rose 2.0%, mainly due to higher average AUM in open-end funds and one additional day in the period.
- Q2 expenses declined 7.7%, including lower incentive compensation and distribution costs. First-half expenses increased 11.2%, chiefly reflecting approximately $12.0 million in costs associated with the Cohen & Steers Quality Income Realty Fund (RQI) rights offering.
- First-half non-operating results included a net investment loss of $14.7 million, compared with a $15.7 million gain in 2019. This contributed to lower GAAP first-half earnings. First-half adjusted diluted EPS, a non-GAAP measure, was $1.15 versus $1.19; adjusted operating margin was 38.0% versus 38.1%. The filing’s adjustments exclude specified seed-investment effects, rights-offering costs and other items; these measures are supplemental, not GAAP.
- Cash and cash equivalents were $88.1 million at June 30, down from $101.4 million at year-end 2019. Net liquid assets were $177.1 million versus $178.9 million. The company reported no outstanding debt; operating lease liabilities were $37.7 million.
- Operating cash flow was $55.6 million for the first half. Financing outflows included $37.3 million of dividends and $25.9 million of share repurchases, which the company said were to satisfy employee tax withholding obligations on vested restricted stock units. Cash declined by $12.1 million before the $1.1 million adverse foreign-exchange effect.
- Total assets were $368.3 million at June 30, compared with $402.4 million at December 31, 2019. The company declared a $0.39-per-share quarterly dividend on August 6, payable August 27, 2020.
Material changes and AUM
- AUM was $66.3 billion at June 30, 2020, down 0.4% from $66.6 billion a year earlier. First-half net inflows of $4.6 billion were outweighed by $8.8 billion of market depreciation and $1.7 billion of distributions.
- During Q2, AUM increased by $9.0 billion from the quarter’s beginning, supported by $3.4 billion of net inflows and $6.6 billion of market appreciation, offset by $1.0 billion of distributions. Management reported a 24.0% annualized organic growth rate for the quarter, compared with 0.4% organic decay in Q2 2019.
- First-half reported operating margin fell to 31.8%, largely due to the RQI rights-offering expenses; adjusted operating margin was nearly unchanged year over year. The reported first-half tax rate was 19.0% versus 24.2%, primarily reflecting discrete tax items related to restricted stock units.
Outlook, risks and contingencies
- No quantified earnings, revenue or AUM guidance is provided. Management said operating cash flows were expected to be more than adequate for present and reasonably foreseeable commitments and obligations, while noting that COVID-19 effects remained highly uncertain.
- Management said business operations had not been materially disrupted by the pandemic as of the filing, with most employees working remotely. It warned that prolonged market weakness could reduce portfolio values, AUM and fee revenue, increase redemptions or client losses, and affect profitability, liquidity and future dividend capacity. The filing also cites operational, vendor, employee and cybersecurity risks associated with remote work and the pandemic.
- The company had a commitment to co-invest up to $5.1 million alongside GRP-TE; approximately $3.8 million had been funded by June 30. The unfunded amount was not recorded as a liability. Contractual obligations reported at June 30 totaled $57.1 million, including operating leases, purchase obligations and other liabilities.
- Management reported no pending legal matters it believed could materially affect results, cash flows or financial condition. The company deferred approximately $9.3 million of income tax payments to July 15, 2020 under pandemic-related relief.
Important facts for investors to verify
- Whether AUM inflows persist and offset market volatility, distributions and potential client withdrawals, particularly given the fee model’s sensitivity to average AUM.
- How much of the first-half GAAP earnings decline reflects recurring operating performance versus seed-investment losses, the RQI rights offering and discrete tax items; review the company’s non-GAAP reconciliation.
- Whether COVID-19-related market, operational, vendor, cybersecurity or employee risks affect fee revenue, cash generation, profitability or dividend capacity in subsequent periods.
- The timing and amount of the remaining co-investment commitment, and the company’s cash and liquidity position after dividends, repurchases and contractual payments.