Cohen & Steers, Inc. — Q1 2014 Form 10-Q
Business context and period: Global investment manager focused on real assets, including real estate, infrastructure and commodities. Unaudited results cover the three months ended March 31, 2014, compared with Q1 2013; balance-sheet figures compare March 31, 2014 with December 31, 2013. Amounts below are U.S. dollars.
Key financial metrics
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Total revenue | $72.8 million | $72.5 million, up 1% |
| Operating income | $27.6 million | $20.7 million |
| Operating margin | 37.9% | 28.6% |
| Net income attributable to common stockholders | $19.4 million; diluted EPS $0.43 | $15.1 million; diluted EPS $0.34 |
| Cash from operations | $(0.1) million | $(26.4) million |
| Cash and cash equivalents | $125.7 million | $128.3 million at Dec. 31, 2013 |
| Total assets / liabilities | $274.2 million / $41.0 million | $274.9 million / $51.2 million at Dec. 31, 2013 |
| Assets under management | $49.0 billion at quarter-end | $49.3 billion at March 31, 2013 |
Operating margin is calculated as operating income divided by revenue. The filing reports no borrowings or debt balance on the balance sheet; it does disclose operating-lease commitments totaling $90.5 million. Management describes liquidity as strong and says operating cash flows should be adequate for anticipated capital needs and obligations. Cash represented $125.7 million of total assets; cash, equity-method investments, available-for-sale investments and receivables, excluding Level 3 investments, were 76% of assets.
Material changes and operating trends
- Advisory and administration fees rose $2.2 million, reflecting higher average AUM overall. Fees from institutional accounts fell 8% to $19.5 million, while open-end fund fees increased 6% to $28.6 million and closed-end fund fees increased 14% to $19.4 million.
- Portfolio consulting and other revenue declined 50% to $1.8 million, primarily due to lower average assets under advisement in model-based strategies.
- Expenses fell 13% to $45.2 million, mainly because Q1 2013 included approximately $7.2 million of MIE launch-related distribution costs. Excluding that prior-year item, distribution expenses increased from approximately $7.9 million to $8.3 million. Compensation rose 3% to $24.0 million.
- Non-operating income increased to $3.2 million, primarily on higher earnings from seed investments. The company reported $3.2 billion of market appreciation and net AUM outflows of $116 million during Q1 2014; institutional outflows of $220 million outweighed open-end fund inflows of $104 million.
- Cash from operations improved substantially year over year but remained slightly negative. Cash declined $2.6 million during the quarter, excluding foreign-exchange effects. Investing activities provided $3.8 million; financing used $6.3 million, including $10.6 million of stock repurchases, principally for employee tax withholding on vested restricted stock units.
Outlook, risks and unusual items
- Management expects a 2014 effective tax rate of approximately 36.5%, excluding discrete items. No revenue or earnings guidance was provided.
- The company has committed up to $5.1 million to co-invest alongside GRP-TE; approximately $2.8 million had been funded by March 31, leaving an unfunded amount not recorded on the balance sheet. Funding timing is uncertain, and the investment may remain illiquid for up to 12 years.
- Operating-lease payments total $90.5 million, including $7.2 million for the remainder of 2014. The company reported no pending legal matter it believes would materially affect results, cash flows or financial condition, and no material changes to previously disclosed risk factors.
- Approximately $70.6 million of cash was held by foreign subsidiaries; management said it intends to permanently reinvest those funds outside the U.S. Cash is concentrated at three financial institutions. The filing also describes market, foreign-exchange, investment-valuation and fund-flow risks; Level 3 holdings rely partly on unobservable inputs.
- Effective January 1, 2014, Martin Cohen became Executive Chairman and Robert H. Steers became sole CEO. The company declared a $0.22-per-share quarterly dividend on May 8, payable June 26, 2014.
Important facts for investors to verify
- Whether AUM flows—especially institutional and global/international real-estate outflows—persist, and how they affect fee revenue.
- Whether operating cash generation remains weak or improves, given the quarter’s near-zero operating cash flow and working-capital movements.
- The sustainability of reported earnings growth after separating recurring operations from investment gains and the prior-year MIE launch-cost comparison.
- The timing and funding of the remaining GRP-TE commitment, and valuation assumptions for illiquid Level 3 investments.
- Dividend coverage, employee-related share repurchases, foreign cash availability, and the stated tax-rate outlook.