Federated(FHI) - 2025 Q2 - Quarterly Results

Q2 2025 Earnings Overview Financial Highlights Federated Hermes reported a record $845.7 billion in assets under management for Q2 2025. Earnings per share surged to $1.16 from $0.20 in the prior-year quarter, primarily due to the absence of a significant non-cash impairment charge that impacted the Q2 2024 results. The company also declared a quarterly dividend and authorized a new share repurchase program Financial Metric Comparison | Financial Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | EPS (diluted) | $1.16 | $0.20 | +480% | | Net Income | $91.0 million | $21.0 million | +333% | Assets Under Management (AUM) Overview | Assets Under Management (AUM) | June 30, 2025 | June 30, 2024 | March 31, 2025 | | :--- | :--- | :--- | :--- | | Total Managed Assets | $845.7 billion | $782.7 billion | $839.8 billion | | YoY Change | +$63.0 billion (+8%) | | | | QoQ Change | +$5.9 billion (+1%) | | | - The Board of Directors declared a dividend of $0.34 per share and authorized a new share repurchase program for up to 5 million shares of class B common stock[4] Business and Operational Highlights The company experienced strong investor interest in its MDT equity and alternative quantitative investment solutions. Demand was also high for microshort and ultrashort funds, reflecting a focus on capital preservation and liquidity. In terms of capital return, the company repurchased $64.5 million of its stock during the quarter - CEO J. Christopher Donahue noted continued interest in the company's MDT equity and alternative quantitative investment solutions, which utilize a disciplined, repeatable process[4] - Demand for microshort and ultrashort funds was driven by investors seeking capital preservation, liquidity, and higher yields than money market strategies[4] - During Q2 2025, the company purchased 1,547,182 shares of its class B common stock for $64.5 million[4] Assets Under Management (AUM) Analysis Total AUM reached a record $845.7 billion, marking an 8% increase year-over-year. Growth was observed across all major asset classes, with equity assets showing the strongest percentage growth at 14% YoY. Money market assets remain the largest component, increasing 8% YoY AUM by Asset Class | Asset Class | AUM at June 30, 2025 | YoY Change | QoQ Change | | :--- | :--- | :--- | :--- | | Equity | $89.0 billion | +14% | +10% | | Fixed-Income | $98.7 billion | +4% | -1% | | Alternative/Private Markets | $20.7 billion | +3% | +7% | | Money Market | $634.4 billion | +8% | -0.4% | | Total Managed Assets | $845.7 billion | +8% | +1% | Equity Assets Equity assets increased 14% year-over-year to $89.0 billion. This growth was supported by strong net sales in various MDT strategy funds, including the MDT Mid Cap Growth Fund and MDT All Cap Core Fund - Equity assets stood at $89.0 billion at June 30, 2025, up 14% from the prior year and 10% from the prior quarter[5] - Top-selling equity funds on a net basis included Federated Hermes MDT Mid Cap Growth Fund, Federated Hermes MDT Mid Cap Growth Collective Investment Fund, and Federated Hermes MDT All Cap Core Fund[5] Fixed-Income Assets Fixed-income assets grew 4% year-over-year to $98.7 billion. Top-selling products in this category included microshort and ultrashort bond funds, indicating investor demand for shorter-duration strategies - Fixed-income assets were $98.7 billion at June 30, 2025, up 4% from the prior year but down slightly from the previous quarter[7] - Top-selling fixed-income funds included the Federated Hermes Conservative Municipal Microshort Fund and the Federated Hermes Ultrashort Bond Fund[7] Alternative/Private Markets Assets Alternative and private markets assets saw modest growth, increasing 3% year-over-year to $20.7 billion as of June 30, 2025 - Alternative/private markets assets reached $20.7 billion, up 3% from June 30, 2024, and up 7% from March 31, 2025[8] Money Market Assets Money market assets, the company's largest segment, grew 8% year-over-year to $634.4 billion. Within this, money market fund assets reached a record high of $468.0 billion - Total money market assets were $634.4 billion at quarter-end, an 8% increase from the prior year[9] - Money market fund assets achieved a record $468.0 billion, up 10% from June 30, 2024[9] Financial Performance Analysis Q2 2025 vs. Q2 2024 Performance Revenue grew 6% year-over-year, driven by higher average money market and equity assets. Operating expenses saw a significant 15% decrease, primarily because the prior-year quarter included a large impairment charge on an intangible asset. This favorable expense comparison, combined with revenue growth, led to a substantial increase in operating and net income - Revenue increased by $22.3 million (6%) due to higher average money market and equity assets[10] - Operating expenses decreased by $54.1 million (15%), mainly due to the absence of a Q2 2024 intangible asset impairment charge of $66.3 million[2][11] - Nonoperating income increased by $11.8 million, primarily from a rise in the market value of investments[12] - In Q2 2025, revenue was sourced 53% from money market assets and 46% from long-term assets (equity, fixed-income, alternatives)[10] Q2 2025 vs. Q1 2025 Performance On a sequential basis, revenue was nearly flat, with the benefit of an extra day in the quarter being offset by lower performance fees. Operating expenses increased by 5%, largely because the first quarter of 2025 included a one-time value added tax (VAT) refund from the U.K., making for a difficult comparison - Revenue increased by a marginal $1.3 million, primarily due to one more day in Q2, partially offset by decreased performance fees[13] - Operating expenses rose by $16.0 million (5%), mainly because Q1 2025 results included a $12.3 million VAT refund which lowered that quarter's expenses[13] Year-to-Date (YTD) 2025 vs. YTD 2024 Performance For the first six months of 2025, revenue increased by 6% compared to the same period in 2024, driven by higher average assets. Operating expenses decreased by 9%, again reflecting the significant impairment charge taken in Q2 2024. Consequently, net income for the first half of the year doubled - YTD revenue increased by $49.4 million (6%) due to higher average money market and equity assets, along with an increase in performance fees[15] - YTD operating expenses decreased by $60.1 million (9%), primarily due to the Q2 2024 impairment charge and a VAT refund received in 2025[17] - The revenue mix for the first half of 2025 was consistent, with 53% from money market assets and 46% from long-term assets[16] Detailed Financial Statements and Data Consolidated Statements of Income The income statements for Q2 and the first half of 2025 show substantial year-over-year growth. For Q2 2025, operating income grew 188% to $117.1 million, and net income attributable to the company increased 333% to $91.0 million. For the six-month period, net income doubled to $192.1 million Q2 2025 vs Q2 2024 Consolidated Statements of Income | (in thousands) | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $424,844 | $402,583 | 6% | | Total Operating Expenses | $307,760 | $361,866 | (15%) | | Operating Income | $117,084 | $40,717 | 188% | | Net Income | $91,000 | $21,027 | 333% | YTD 2025 vs YTD 2024 Consolidated Statements of Income | (in thousands) | YTD 2025 | YTD 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $848,384 | $798,954 | 6% | | Total Operating Expenses | $599,528 | $659,656 | (9%) | | Operating Income | $248,856 | $139,298 | 79% | | Net Income | $192,134 | $96,060 | 100% | Consolidated Balance Sheets The balance sheet shows total assets of $2.15 billion as of June 30, 2025, up from $2.08 billion at the end of 2024. Key changes include an increase in intangible assets and a corresponding increase in treasury stock due to share repurchases, which reduced total equity Consolidated Balance Sheet Summary | (in thousands) | June 30, 2025 | Dec. 31, 2024 | | :--- | :--- | :--- | | Total Assets | $2,151,585 | $2,084,684 | | Total Liabilities | $874,487 | $933,964 | | Total Equity | $1,114,105 | $1,095,206 | Changes in Long-Term Assets This section details the flow of long-term assets. For Q2 2025, total long-term assets experienced net redemptions of $466 million, as net sales of $1.8 billion in equity were more than offset by net redemptions of $2.4 billion in fixed income. Market gains and foreign exchange had a significant positive impact on ending asset values By Asset Class In Q2 2025, equity assets had net sales of $1.8 billion, while fixed-income assets saw net redemptions of $2.4 billion. Alternative/private markets assets recorded net sales of $231 million. Market gains contributed positively across equity ($5.3B) and fixed income ($1.4B) Q2 2025 Long-Term Asset Flows by Class | Q2 2025 Flows (in millions) | Net Sales (Redemptions) | Market Gains (Losses) | Ending Assets | | :--- | :--- | :--- | :--- | | Equity | $1,781 | $5,277 | $88,994 | | Fixed Income | ($2,385) | $1,373 | $98,687 | | Alternative/Private Markets | $231 | ($118) | $20,738 | | Total Long-term | ($466) | $6,657 | $211,275 | By Asset Class and Offering Type A deeper look into Q2 2025 flows shows that equity net sales were strong in both funds ($569M) and separate accounts ($1.2B). Conversely, fixed-income net redemptions were split between funds (-$1.2B) and separate accounts (-$1.2B) Q2 2025 Net Sales by Asset Class and Offering Type | Q2 2025 Net Sales (in millions) | Funds | Separate Accounts | Total | | :--- | :--- | :--- | :--- | | Equity | $569 | $1,212 | $1,781 | | Fixed Income | ($1,188) | ($1,197) | ($2,385) | | Alternative/Private Markets | $283 | ($52) | $231 | By Offering Type For Q2 2025, total long-term fund assets experienced net redemptions of $413 million, while separate accounts saw smaller net redemptions of $53 million. For the first six months of 2025, both categories saw net inflows, with funds at $103 million and separate accounts at $525 million Q2 2025 Long-Term Asset Flows by Offering Type | Q2 2025 Flows (in millions) | Net Sales (Redemptions) | Ending Assets | | :--- | :--- | :--- | | Total Fund Assets | ($413) | $110,409 | | Total Separate Account Assets | ($53) | $100,866 | Managed and Average Managed Assets This section provides a historical view of managed assets. Total managed assets ended Q2 2025 at a record $845.7 billion. Average managed assets for the quarter were $837.3 billion, down slightly from Q1 2025 but up 7% from Q2 2024. Money market assets consistently represent the largest portion of both ending and average AUM Managed Assets by Type (Period End) | (in millions) | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Total Long-term Assets | $211,275 | $202,651 | $196,082 | | Money Market Assets | $634,400 | $637,122 | $586,647 | | Total Managed Assets | $845,675 | $839,773 | $782,729 | Average Managed Assets by Quarter | Quarter Ended (in millions) | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Total Avg. Long-term Assets | $204,761 | $203,377 | $196,816 | | Total Avg. Money Market Assets | $632,543 | $639,827 | $582,758 | | Total Avg. Managed Assets | $837,304 | $843,204 | $779,574 | Corporate Information Earnings Call Information The company will host its Q2 2025 earnings conference call on Friday, August 1, 2025, at 9 a.m. Eastern Time. The report provides domestic and international call-in numbers, as well as details for accessing the online webcast and replay - An earnings conference call is scheduled for 9 a.m. Eastern on Friday, August 1, 2025[19] - Investors can listen via phone by calling 888-506-0062 (domestic) or 973-528-0011 (international), or online through the company's website[19] About Federated Hermes Federated Hermes is a global active investment manager headquartered in Pittsburgh, with over 2,000 employees worldwide. As of June 30, 2025, the firm managed $845.7 billion in assets, offering a wide range of investment solutions to more than 10,000 institutional and intermediary clients - The company is a global leader in active investment management with $845.7 billion in assets under management as of June 30, 2025[20][21] - It provides equity, fixed-income, alternative/private markets, multi-asset, and liquidity management strategies to over 10,000 institutions and intermediaries globally[20]