Business Context and Reporting Period
Company: Cohen & Steers, Inc. (CNS)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2004
Key Event: The Company completed its Initial Public Offering (IPO) on August 18, 2004, and converted from an S-corporation to a C-corporation on August 16, 2004. The results for the three and nine months ended September 30, 2004, reflect operations as both a private and public company.
Key Financial Metrics
| ($ in thousands, except per share data) | Three Months Ended Sep 30, 2004 |
Nine Months Ended Sep 30, 2004 |
|---|---|---|
| Total Revenue | $29,121 | $82,058 |
| Operating Income (Loss) | $(37,817) | $(18,815) |
| Net Income (Loss) | $(20,589) | $(2,658) |
| Earnings Per Share (Basic/Diluted) | $(0.60) | $(0.09) |
| Cash and Cash Equivalents (Sep 30, 2004) | $47,350 | N/A |
| Working Capital (Sep 30, 2004) | $100,510 | N/A |
| Assets Under Management (AUM) | $16.07 Billion | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 68% for the quarter and 79% for the nine-month period compared to the prior year, driven primarily by a 53% increase in Assets Under Management (AUM) to $16.1 billion.
- Operating Loss: The Company reported a significant operating loss of $37.8 million for the quarter (vs. $3.2 million income in 2003) and $18.8 million for the nine months (vs. $4.6 million income in 2003).
- Stock-Based Compensation: Operating expenses surged 373% for the quarter due to a one-time non-cash stock-based compensation charge of $46.0 million associated with the grant of Restricted Stock Units (RSUs) coincident with the IPO.
- Liquidity: Cash and cash equivalents increased from $7.5 million at year-end 2003 to $47.4 million at September 30, 2004, following the IPO which generated net proceeds of approximately $99.0 million.
- Tax Status: The Company recognized a significant income tax benefit ($17.0 million for the quarter) due to the conversion to C-corporation status and the creation of deferred tax assets from the stock-based compensation charge.
Guidance, Outlook, and Risks
- Outlook: Management expects operating expenses and income taxes to increase as a result of operating as a public C-corporation. The Company intends to use IPO proceeds for marketable securities, new product launches, distribution expansion, and strategic acquisitions.
- Planned Acquisition: The Company expects to close by the end of 2004 on a 50% interest in Houlihan Rovers SA, a Brussels-based real estate securities money manager.
- Dividends: The Board declared a quarterly cash dividend of $0.10 per share, payable January 17, 2005.
- Risks and Contingencies:
- Litigation: A former employee filed a lawsuit challenging the forfeiture of 404,971 RSUs (valued at approx. $2.3 million) due to a violation of non-competition covenants. The Company intends to defend vigorously.
- Market Risk: Revenue is highly correlated with the market value of assets managed. A decline in real estate securities prices could reduce fee revenue.
- Concentration: Investment Banking revenue is volatile and concentrated; in Q3 2004, two clients represented 97% of segment revenue.
Investor Verification Checklist
- Non-Recurring Charges: Verify the impact of the $46.0 million one-time stock-based compensation charge on future quarters, as it is not indicative of ongoing operating costs.
- RSU Forfeiture Litigation: Monitor the outcome of the lawsuit regarding the $2.3 million RSU forfeiture, which could reverse previously recorded expenses.
- Fee Waivers: Review the extent of contractual fee waivers for affiliated closed-end funds ($8.8 million waived in the nine months ended Sep 30, 2004) which are not included in revenue.
- Public Company Costs: Assess the trajectory of General and Administrative expenses as the Company transitions fully to public company reporting and compliance standards.
- Acquisition Closing: Confirm the closing of the Houlihan Rovers SA acquisition and its impact on consolidated AUM and revenue.