Cohen & Steers, Inc. — Q2 2016 Form 10-Q
Business context and period. Unaudited results for the quarter and six months ended June 30, 2016. Cohen & Steers is a global investment manager focused on liquid real assets and income strategies. Revenue is primarily asset-based advisory and administration fees, making results sensitive to markets, currency movements, and investor flows.
Key financial metrics
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $86.4M | $83.5M | $166.1M | $167.3M |
| Operating income | $34.1M | $31.2M | $62.4M | $65.7M |
| Operating margin | 39.5% | 37.3% | 37.6% | 39.3% |
| Net income attributable to common stockholders | $24.8M | $19.0M | $42.9M | $39.8M |
| Diluted EPS | $0.53 | $0.42 | $0.93 | $0.87 |
| Dividends declared per share | $0.26 | $0.25 | $0.52 | $0.50 |
- Q2 non-operating income was $4.5M, largely reflecting seed-investment gains; it was $46K in Q2 2015. For the six months, non-operating income was $5.1M versus a $1.5M loss.
- Cash and cash equivalents were $140.7M at June 30, down from $142.7M at December 31, 2015. Total assets were $297.1M and total liabilities $41.0M. The balance sheet reports no debt or borrowings.
- Six-month operating cash flow was $30.7M, compared with $36.2M a year earlier. Investing used $3.7M and financing used $27.8M, including $23.9M of dividends and $7.9M of share repurchases for employee tax withholding.
- Management said cash, equity-method investments, available-for-sale investments, and accounts receivable represented 81% of assets, versus 73% at year-end. Cash held by foreign subsidiaries was approximately $86.4M.
Changes versus comparable periods
- Q2 revenue increased 3% year over year; operating income rose 9% and operating margin expanded 2.2 percentage points. Revenue increased 8% and operating income 21% sequentially from Q1 2016, according to management.
- For the first half, revenue declined 1%, operating income fell 5%, and operating margin contracted 1.7 percentage points. Higher compensation and depreciation more than offset lower distribution expenses.
- First-half GAAP net income attributable to common stockholders increased 8%, with the improvement supported by seed-investment results. On management’s non-GAAP adjusted basis, first-half net income was $40.0M versus $40.4M and diluted EPS was $0.86 versus $0.88; adjustments exclude seed-investment results and specified accelerated restricted-stock vesting costs and related tax effects.
- Assets under management reached a record $58.7B, up 17% from $50.1B a year earlier. Q2 AUM increased $3.7B, comprising $2.3B net inflows and $2.7B market appreciation, partly offset by $1.3B distributions. Management reported a 17% annualized organic growth rate for the quarter.
- First-half average AUM declined 1% year over year to $53.8B, despite higher ending AUM. Closed-end fund average AUM fell 10% year over year for the six months; institutional and open-end fund AUM were stronger.
Outlook, risks, and unusual items
- Management expects a 2016 full-year effective tax rate of approximately 36.6%, excluding discrete items. The filing provides no earnings or revenue guidance.
- Management believes cash and operating cash flows will be adequate for anticipated capital needs and obligations. A $0.26-per-share quarterly dividend was declared August 4, payable September 22, 2016.
- The company has a commitment to co-invest up to $5.1M alongside GRP-TE; approximately $3.3M had been funded, leaving the timing of the remaining commitment uncertain. Contractual operating lease payments total $85.0M.
- Fund ownership changes affected accounting: LPX moved from consolidation to equity-method accounting effective March 1, and MLO moved from equity method to available-for-sale accounting effective June 1. Management’s new consolidation-guidance adoption also changed the evaluation of sponsored funds.
- Management reported no pending legal matters believed likely to have a material adverse effect and no material changes to previously disclosed risk factors or market-risk disclosures. Disclosure controls were judged effective; no material internal-control change was reported.
- Principal business risks include market-driven AUM and fee fluctuations, investor redemptions, investment performance, and currency movements. The filing notes cash deposits are concentrated at three major financial institutions.
Important facts for investors to verify
- Whether AUM growth and positive net flows persist, particularly in strategies with recent outflows or weaker average AUM.
- How much reported earnings growth reflects recurring operating performance versus volatile seed-investment gains; compare GAAP results with the company’s non-GAAP reconciliation.
- Whether operating cash generation remains sufficient to support dividends, capital spending, and remaining co-investment commitments.
- The assumptions behind management’s approximately 36.6% 2016 tax-rate expectation and the timing of the unfunded GRP-TE commitment.