Federated(FHI) - 2025 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Federated Hermes, Inc. for the period ended June 30, 2025, including balance sheets, income statements, and cash flows, along with detailed notes Consolidated Balance Sheets As of June 30, 2025, total assets increased to $2.15 billion from $2.08 billion, while total liabilities decreased to $874.5 million, leading to an increase in total permanent equity to $1.11 billion Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $2,151,585 | $2,084,684 | | Cash and Cash Equivalents | $370,987 | $504,441 | | Goodwill | $864,764 | $804,818 | | Total Liabilities | $874,487 | $933,964 | | Long-Term Debt | $348,237 | $348,106 | | Total Permanent Equity | $1,114,105 | $1,095,206 | Consolidated Statements of Income For Q2 2025, total revenue grew to $424.8 million, operating income surged to $117.1 million, and net income attributable to the company was $91.0 million, or $1.16 per diluted share Q2 and H1 2025 vs 2024 Income Statement (in thousands, except EPS) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $424,844 | $402,583 | $848,384 | $798,954 | | Operating Income | $117,084 | $40,717 | $248,856 | $139,298 | | Net Income | $91,000 | $21,027 | $192,134 | $96,060 | | Earnings Per Share (Diluted) | $1.16 | $0.20 | $2.40 | $1.12 | Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash from operating activities was $33.1 million, while financing activities used $169.3 million, primarily for share repurchases and dividend payments Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $33,086 | $102,705 | | Net Cash Provided (Used) by Investing Activities | ($17,544) | $31,164 | | Net Cash Provided (Used) by Financing Activities | ($169,261) | ($208,575) | | Net (Decrease) in Cash | ($136,097) | ($76,043) | Notes to the Consolidated Financial Statements These notes detail the acquisition of Rivington Energy, revenue disaggregation, debt structure, share repurchase activities, and subsequent events, including a new 5.0 million share repurchase program - On April 7, 2025, Federated Hermes acquired a 60% equity interest in Rivington Energy Management Limited for an upfront cash payment of £23.6 million ($30.0 million) to accelerate growth in non-U.S. markets[23][24] - Money market assets constitute the largest revenue concentration, accounting for 53% of total revenue for the six months ended June 30, 2025[34] - The company's debt includes $350 million in unsecured senior notes at a fixed rate of 3.29% due in 2032, with compliance with all debt covenants as of June 30, 2025[68][70] - Subsequent to the quarter end, on July 31, 2025, the board declared a $0.34 per share dividend and authorized a new share repurchase program for up to 5.0 million shares of Class B common stock[99][100] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses an 8% increase in total managed assets to $845.7 billion, covering business and regulatory developments, revenue growth drivers, decreased operating expenses, liquidity, and critical accounting policies Business Developments On April 7, 2025, Federated Hermes Limited acquired a 60% majority interest in Rivington, a UK-based renewable energy project development business, to accelerate non-U.S. growth - The company acquired a 60% equity interest in Rivington, a U.K.-based renewable energy project development business, on April 7, 2025[106] Current Regulatory Developments The U.S. regulatory landscape is shifting with a new Presidential administration, leading to a regulatory freeze, delayed SEC rule compliance, and withdrawal of pending proposals, while the company advocates for specific changes - The new U.S. Presidential administration has initiated a regulatory freeze, leading to delayed compliance dates for rules like Form N-PORT amendments and a potential shift towards deregulation[111][112] - The SEC withdrew 15 pending rule proposals in June 2025, including significant proposals on the Custody Rule, cybersecurity risk management, and ESG disclosures[117] - Federated Hermes is advocating for the repeal of the 2023 amendments to Rule 2a-7 concerning mandatory liquidity fees for institutional money market funds, arguing the SEC's adoption violated the Administrative Procedures Act[115] Asset Highlights Total managed assets grew 8% year-over-year to $845.7 billion at June 30, 2025, driven by an 8% increase in money market assets and a 14% increase in equity assets Managed Assets at Period End (in millions) | Asset Class | June 30, 2025 | June 30, 2024 | % Change | | :--- | :--- | :--- | :--- | | Equity | $88,994 | $77,851 | 14% | | Fixed-Income | $98,687 | $95,294 | 4% | | Money Market | $634,400 | $586,647 | 8% | | Total Managed Assets | $845,675 | $782,729 | 8% | Average Managed Assets - Six Months Ended June 30 (in millions) | Asset Class | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Equity | $82,834 | $78,553 | 5% | | Fixed-Income | $98,862 | $95,638 | 3% | | Money Market | $636,185 | $580,570 | 10% | | Total Average Managed Assets | $840,254 | $778,038 | 8% | Results of Operations For Q2 2025, revenue increased by $22.3 million YoY, operating expenses decreased by $54.1 million due to lower intangible asset related expenses, and net income rose significantly to $70.0 million - Q2 2025 revenue increased by $22.3 million YoY, mainly from higher average money market ($18.5 million) and equity assets ($2.4 million)[165] - Q2 2025 operating expenses decreased by $54.1 million YoY, largely because of a $65.9 million reduction in Intangible Asset Related expense after a significant impairment was recorded in Q2 2024[167] - Diluted EPS for Q2 2025 was $1.16, an increase of $0.96 from Q2 2024, driven by higher net income ($0.88) and share repurchases ($0.08)[176] Liquidity and Capital Resources As of June 30, 2025, liquid assets were $576.9 million, with operating activities providing $33.1 million in cash, while financing activities used $169.3 million for share repurchases and dividends - Net cash from operating activities for H1 2025 was $33.1 million, down from $102.7 million in H1 2024[180] - During H1 2025, the company used $185.7 million to purchase treasury stock and paid $52.2 million in dividends[182] - The company has a $350 million revolving credit facility with an additional $200 million accordion feature, with no outstanding borrowings as of June 30, 2025[185] Quantitative and Qualitative Disclosures About Market Risk As of June 30, 2025, there were no material changes to the company's market risk exposures from those disclosed in its 2024 Annual Report on Form 10-K - There were no material changes to the company's market risk exposures as of June 30, 2025, compared to the year-end 2024 disclosures[202] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, excluding the recently acquired Rivington business - The company's disclosure controls and procedures were deemed effective as of June 30, 2025[209] - The assessment of controls excluded the recently acquired Rivington business, which represented less than 1% of total assets and revenue[209] Part II. Other Information Legal Proceedings This section refers to Note (18) of the Consolidated Financial Statements, stating that no material loss related to ordinary course claims is reasonably possible - Information on legal proceedings is detailed in Note (18) to the Consolidated Financial Statements[204] Risk Factors There are no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - There are no material changes to the risk factors from the company's 2024 Annual Report on Form 10-K[205] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, 1,547,182 shares were repurchased at an average price of $41.72 per share, with approximately 1.1 million shares remaining available under the existing program Share Repurchases - Q2 2025 | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April | 52,300 | $38.67 | | May | 384,275 | $40.93 | | June | 1,110,607 | $42.14 | | Total | 1,547,182 | $41.72 | - As of June 30, 2025, 1,144,315 shares remained available for repurchase under the plan authorized in October 2024[207] Other Information No director or officer adopted, modified, or terminated a Rule 10b5-1(c) or non-Rule 10b5-1(c) trading arrangement during the fiscal quarter ended June 30, 2025 - No director or officer initiated, changed, or ended a Rule 10b5-1 trading plan during the second quarter of 2025[210] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - The exhibits filed with this report include CEO/CFO certifications (Exhibits 31.1, 31.2, 32) and XBRL data files (Exhibits 101, 104)[211]