Federated(US:FHI)2024-04-26 20:27Part I. Financial Information Financial Statements The unaudited consolidated financial statements as of March 31, 2024, detail the company's financial position, performance, and cash flows Consolidated Balance Sheets Total assets slightly decreased to $2.09 billion while total liabilities declined, resulting in an increase in total permanent equity Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $2,086,972 | $2,101,844 | | Total Current Assets | $719,656 | $720,729 | | Goodwill | $805,925 | $807,156 | | Total Liabilities | $866,415 | $947,747 | | Total Current Liabilities | $212,499 | $287,343 | | Long-Term Debt | $347,909 | $347,843 | | Total Permanent Equity | $1,147,427 | $1,128,252 | Consolidated Statements of Income Revenue and net income increased year-over-year for the first quarter, driving higher earnings per share Q1 2024 vs Q1 2023 Income Statement (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Revenue | $396,371 | $382,189 | | Total Operating Expenses | $297,790 | $297,023 | | Operating Income | $98,581 | $85,166 | | Income Before Income Taxes | $104,018 | $92,475 | | Net Income | $75,033 | $69,601 | | Earnings Per Share (Diluted) | $0.89 | $0.78 | | Cash Dividends Per Share | $0.28 | $0.27 | Consolidated Statements of Cash Flows Cash from operations increased, while financing activities, including share buybacks and dividends, led to a net decrease in cash Cash Flow Summary for Three Months Ended March 31 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $14,031 | $5,420 | | Net Cash Provided by Investing Activities | $27,587 | $1,838 | | Net Cash Used by Financing Activities | ($63,526) | ($22,016) | | Net (Decrease) in Cash | ($23,320) | ($12,711) | Notes to the Consolidated Financial Statements Disclosures detail revenue recognition, concentration risks, debt structure, and the declaration of a special dividend Q1 Revenue by Asset Class (in thousands) | Asset Class | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Money market | $202,640 | $179,536 | | Equity | $116,515 | $124,653 | | Fixed-income | $48,675 | $47,890 | | Other | $28,541 | $30,110 | | Total Revenue | $396,371 | $382,189 | - Revenue from money market assets constituted 51% of total revenue in Q1 2024, up from 47% in Q1 2023, highlighting its growing importance30 - A single intermediary, The Bank of New York Mellon Corporation, accounted for approximately 11% of total revenue in Q1 202432 - On April 25, 2024, the board declared a total dividend of $1.31 per share, consisting of a $0.31 quarterly dividend and a $1.00 special dividend, payable on May 15, 202491 Management's Discussion and Analysis of Financial Condition and Results of Operations Total managed assets grew 11% year-over-year to $778.7 billion, driven by strong inflows into money market assets Business Developments Significant developments include new domestic regulations, international fund regime progress, and a special cash dividend declaration - Key domestic regulatory developments include the SEC's climate-related disclosure rules, the DOL's final "Fiduciary Rule" broadening the definition of investment advice, and the FTC's ban on new post-employment non-compete agreements99104105 - Internationally, there has been progress on the UK's Overseas Fund Regime (OFR) for non-UK funds, and the EU has adopted AIFMD II, which amends rules for alternative and mutual funds concerning delegation, liquidity risk, and reporting107115 - On April 25, 2024, the board declared a special cash dividend of $1.00 per share, in addition to a regular quarterly dividend of $0.31 per share, to be paid on May 15, 2024127 Asset Highlights Total managed assets grew to $778.7 billion, led by a 14% increase in money market assets, while long-term assets saw net redemptions Managed Assets at Period End (in millions) | Asset Class | March 31, 2024 | March 31, 2023 | % Change | | :--- | :--- | :--- | :--- | | Equity | $80,157 | $83,629 | (4)% | | Fixed-Income | $96,325 | $87,461 | 10% | | Alternative / Private Markets | $20,465 | $21,174 | (3)% | | Money Market | $578,811 | $505,800 | 14% | | Total Managed Assets | $778,686 | $701,037 | 11% | Q1 2024 Changes in Long-Term Assets (in millions) | Asset Class | Beginning Assets | Net Sales (Redemptions) | Market Gains (Losses) & Other | Ending Assets | | :--- | :--- | :--- | :--- | :--- | | Equity | $79,291 | ($3,436) | $4,302 | $80,157 | | Fixed-Income | $94,920 | $1,188 | $217 | $96,325 | | Total Long-Term | $197,629 | ($2,295) | $4,541 | $199,875 | - Money market assets continued to benefit from favorable market conditions, attractive yields compared to alternatives like bank deposits, and high liquidity levels in the financial system147 Results of Operations Revenue growth from money market assets and flat operating expenses drove higher net income and diluted EPS - Revenue increased primarily due to higher average money market fund assets, which was partially offset by lower average equity assets149 - The effective tax rate increased to 27.9% in Q1 2024 from 22.7% in Q1 2023, mainly due to a valuation allowance on foreign deferred tax assets and a smaller tax benefit from share-based compensation vesting153 - Diluted EPS increased by $0.11 YoY, with $0.07 from increased net income and $0.04 from a reduction in shares outstanding via buybacks155 Liquidity and Capital Resources The company maintains sufficient liquidity with $605.7 million in liquid assets and an undrawn $350 million credit facility - The company has $350 million in unsecured senior notes due in 2032 and an undrawn $350 million revolving credit facility expiring in 2026162163 - The company was in compliance with all debt covenants, with an interest coverage ratio of 40 to 1 (vs required 4 to 1) and a leverage ratio of 0.72 to 1 (vs required maximum of 3 to 1)164 - Future cash needs include funding acquisitions, global expansion, dividends, debt obligations, share repurchases, and a planned technology investment of approximately $310 million through 2026166 Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk exposures were reported compared to the 2023 year-end filing - There were no material changes to Federated Hermes' market risk exposures as of March 31, 2024, compared to the year-end 2023 report180 Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2024184 - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting184 Part II. Other Information Legal Proceedings The company does not anticipate any material loss from current legal claims asserted in the ordinary course of business - As of March 31, 2024, the company does not believe that a material loss related to any claims asserted against it in the ordinary course of business is reasonably possible86182 Risk Factors No material changes were reported to the risk factors disclosed in the 2023 Annual Report on Form 10-K - No material changes were reported to the risk factors from the company's 2023 Form 10-K183 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased over 1 million shares in Q1 2024, with 3.5 million shares remaining under the buyback program Q1 2024 Share Repurchases | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January | 64,399 | $28.25 | | February | 585,000 | $35.06 | | March | 432,721 | $33.91 | | Total | 1,082,120 | $34.20 | - The share repurchase program, authorized in October 2023 for up to 5.0 million shares, had 3,492,415 shares remaining for purchase at the end of the quarter186 Other Information Seven directors were elected at the Annual Meeting, and no Rule 10b5-1 trading plan changes were made by insiders - Seven directors were elected to the Board at the Annual Meeting on April 25, 2024, including Joseph C. Bartolacci, J. Christopher Donahue, and Thomas R. Donahue188189 - No director or officer adopted, modified, or terminated a Rule 10b5-1(c) or non-Rule 10b5-1(c) trading arrangement during the quarter ended March 31, 2024190 Exhibits This section lists all exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and XBRL data - Filed exhibits include CEO and CFO certifications (Exhibits 31.1, 31.2, 32) and various Inline XBRL documents for interactive data191193