Federated Hermes (FHI) Q2 2024 earnings summary

Executive summary

• Assets under management reached a record $782.7 billion as of June 30, 2024, up 11% year-over-year, led by strong money market inflows and market appreciation in fixed income.

• Q2 2024 revenue was $402.6 million, down 7% year-over-year but up 2% sequentially, with a diversified business mix across equity, fixed income, alternatives, and liquidity.

• Net income for Q2 2024 was $16.3 million, a 76% decrease from Q2 2023, primarily due to a $66.3 million non-cash impairment charge related to the 2018 Hermes acquisition.

• Diluted EPS for Q2 2024 was $0.20, including a ($0.76) per share impairment charge; dividends paid per share were $1.59 for the first half of 2024.

• Board declared a $0.31 per share dividend payable August 15, 2024, and repurchased 1.56M shares for $47.5M in Q2 2024.

Financial highlights

• Total revenue for the six months ended June 30, 2024 was $799.0 million, down 2% year-over-year.

• Operating income for Q2 2024 was $40.7 million, down 59% year-over-year, reflecting the impairment charge.

• Net income for the first half of 2024 was $96.1 million, down from $141.8 million in the prior year period.

• Effective tax rate for Q2 2024 was 54.9%, up from 27.4% in Q2 2023, due to a valuation allowance on foreign deferred tax assets and the impairment.

• Cash and investments at June 30, 2024, were $453 million; long-term debt was $348 million.

Outlook and guidance

• Management expects continued strong demand for money market and liquidity products, as well as interest in quantitative equity and dynamic fixed-income strategies.

• Institutional pipeline includes $1.9 billion in net mandates yet to fund, diversified across private markets, fixed income, and equity.

• Regulatory developments in the U.S. and Europe are expected to increase compliance costs and may materially impact financial condition.

• Project a $6 million revenue reduction in H2 related to fund director proxy costs.

• Effective tax rate expected at 27%-29% for the remainder of 2024.