Federated Investors, Inc. Reports First Quarter 2019 Earnings

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- Q1 2019 EPS of $0.54 - Managed assets reach a record $484.9 billion - Board declares $0.27 per share quarterly dividend

April 25, 2019 4:18 PM EDT

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PITTSBURGH, April 25, 2019 /PRNewswire/ -- Federated Investors, Inc. (NYSE: FII), one of the world's largest investment managers, today reported earnings per diluted share (EPS) of $0.54 for Q1 2019, compared to $0.60 for the same quarter last year on net income of $54.5 million for Q1 2019 compared to $60.3 million for Q1 2018.

Federated's total managed assets were a record $484.9 billion at March 31, 2019, up $92.7 billion or 24% from $392.2 billion at March 31, 2018 and up $25.0 billion or 5% from $459.9 billion at Dec. 31, 2018. Total average managed assets for Q1 2019 were $475.4 billion, up $77.4 billion or 19% from $398.0 billion reported for Q1 2018 and up $31.7 billion or 7% from $443.7 billion reported for Q4 2018. The results in this press release include activity of Hermes Fund Managers Limited (Hermes), beginning July 1, 2018.

"Liquidity management products saw strong flows in the first quarter, as Federated's money market funds offered the potential for higher yields than deposit accounts," said J. Christopher Donahue, president and chief executive officer. "Assets in our prime, government and tax-free money market funds were up from the previous quarter, and investors turned to Federated for liquidity management solutions that provide diligent credit analysis, broad diversification and competitive yields."

Federated's board of directors declared a quarterly dividend of $0.27 per share. The dividend is payable on May 15, 2019 to shareholders of record as of May 8, 2019. During Q1 2019, Federated purchased 60,833 shares of Federated class B common stock for $1.5 million.

Federated's equity assets were $80.2 billion at March 31, 2019, up $21.4 billion or 36% from $58.8 billion at March 31, 2018 and up $7.7 billion or 11% from $72.5 billion at Dec. 31, 2018. Top-selling equity funds during Q1 2019 on a net basis were Federated Kaufmann Small Cap Fund, Hermes Global Emerging Markets Fund, Federated MDT Small Cap Growth Fund, Federated MDT Small Cap Core Fund and Federated MDT Mid Cap Growth Fund.

Federated's fixed-income assets were $64.1 billion at March 31, 2019, up $1.9 billion or 3% from $62.2 billion at March 31, 2018 and up $0.9 billion or 1% from $63.2 billion at Dec. 31, 2018. Top-selling fixed-income funds during Q1 2019 on a net basis included Federated Total Return Bond Fund, Federated Municipal Ultrashort Fund, Federated U.S. Government Securities Fund: 1-3 Years, Federated Sterling Cash Plus Fund and Federated Mortgage Fund.

Money market assets were $318.4 billion at March 31, 2019, up $52.5 billion or 20% from $265.9 billion at March 31, 2018 and up $16.6 billion or 6% from $301.8 billion at Dec. 31, 2018. Money market fund assets were $214.8 billion at March 31, 2019, up $32.4 billion or 18% from $182.4 billion at March 31, 2018 and up $6.3 billion or 3% from $208.5 billion at Dec. 31, 2018. Federated's money market separate account assets were $103.6 billion at March 31, 2019, up $20.1 billion or 24% from $83.5 billion at March 31, 2018 and up $10.3 billion or 11% from $93.3 billion at Dec. 31, 2018.

Financial Summary

Q1 2019 vs. Q1 2018

Revenue increased $43.2 million or 16% primarily due to the consolidation of Hermes' revenue, which included performance fees of $2.8 million, and higher average money market assets. These increases in revenue were partially offset by a decrease in revenue from lower average equity and fixed-income assets (excluding Hermes).

During Q1 2019, Federated derived 61% of its revenue from long-term assets (40% from equity assets, 14% from fixed-income assets and 7% from alternative/private markets and multi-asset), 38% from money market assets and 1% from sources other than managed assets.

Operating expenses increased $52.0 million or 28% primarily due to the consolidation of Hermes' expenses.

Nonoperating income (expenses), net increased $2.4 million primarily due to an increase in the market value of investments.

Q1 2019 vs. Q4 2018

Revenue was down slightly, primarily due to two fewer days in the quarter and lower performance fees, offset by higher average money market assets. Operating expenses increased $16.9 million or 8% primarily due to higher compensation and related expenses resulting from higher incentive compensation and seasonality in payroll taxes, and an increase in distribution expenses primarily due to the increase in money market fund assets.

Nonoperating income (expenses), net increased $7.8 million primarily due to an increase in the market value of investments.

Federated's level of business activity and financial results are dependent upon many factors, including market conditions, investment performance and investor behavior. These factors and others, including asset levels and mix, product sales and redemptions, market appreciation or depreciation, revenues, fee waivers, expenses and regulatory changes, can significantly impact Federated's business activity levels and financial results. Risk factors and uncertainties that can influence Federated's financial results are discussed in the company's annual and quarterly reports as filed with the Securities and Exchange Commission (SEC).

Federated will host an earnings conference call at 9 a.m. Eastern on April 26, 2019. Investors are invited to listen to Federated's earnings teleconference by calling 877-407-0782 (domestic) or 201-689-8567 (international) prior to the 9 a.m. start time. The call may also be accessed online in real time via the About section of FederatedInvestors.com. A replay will be available from approximately 12:30 p.m. Eastern on April 26, 2019 until May 3, 2019 by calling 877-481-4010 (domestic) or 919-882-2331 (international) and entering access code 46069. An online replay will be available via FederatedInvestors.com for one year.

Federated Investors, Inc. is a leading global investment manager with $484.9 billion in assets under management as of March 31, 2019. Our investment solutions span 129 equity, fixed-income, alternative/private markets, multi-asset and money market funds and a range of separately managed account strategies. Providing comprehensive investment management to approximately 9,500 institutions and intermediaries, our clients include corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers. Headquartered in Pittsburgh, Federated's nearly 1,900 employees include those in New York, Boston, London and several other offices worldwide. In 2018, Federated acquired a majority interest in Hermes Investment Management, which provides world-class active management and stewardship services.

Federated ranks in the top 6% of equity fund managers in the industry, the top 7% of money market fund managers and the top 11% of fixed-income fund managers1. Federated also ranks as the 10th-largest SMA manager2. Information regarding Hermes is available at Hermes-Investment.com. An analyst presentation that includes information about Hermes also is available. For more information, visit FederatedInvestors.com.

###

1) Strategic Insight, March 31, 2019. Based on assets under management in open-end funds.2) Money Management Institute/Cerulli, Q4 2018.Federated Securities Corp. is distributor of the Federated funds.Separately managed accounts are made available through Federated Global Investment Management Corp., Federated Investment Counseling, Federated MDTA LLC, Hermes Investment Management Limited and Hermes European Equities Limited, each a registered investment adviser.

Certain statements in this press release, such as those related to liquidity management solution attributes, performance, investor preferences and demand, and asset flows and mix, constitute or may constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the company, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Other risks and uncertainties include the ability of the company to predict the level of fee waivers and expenses in future quarters, predict whether performance fees or carried interest will be earned, sustain product demand, and asset flows and mix, which could vary significantly depending on various factors, such as market conditions, investment performance and investor behavior. Other risks and uncertainties include the risk factors discussed in the company's annual and quarterly reports as filed with the SEC. As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither the company nor any other person assumes responsibility for the accuracy and completeness of such statements in the future.

*Unaudited Condensed Consolidated Statements of Income*
(in thousands, except per share data)
	Quarter Ended				% Change Q1 2018 to Q1 2019		Quarter Ended		% Change Q4 2018 to Q1 2019
	March 31, 2019		March 31, 2018				Dec. 31, 2018
Revenue
Investment advisory fees, net	$	211,199	$	174,266	21	%	$	213,990	(1)	%
Administrative service fees, net—affiliates	54,135		49,023		10		52,022		4
Other service fees, net	41,716		40,563		3		41,204		1
Total Revenue	307,050		263,852		16		307,216		0

Operating Expenses
Compensation and related	111,216		78,374		42		99,153		12
Distribution	77,632		72,498		7		73,482		6
Systems and communications	12,794		8,433		52		11,528		11
Office and occupancy	11,362		7,541		51		10,384		9
Professional service fees	10,486		9,631		9		10,461		0
Advertising and promotional	4,190		3,228		30		5,174		(19)
Travel and related	3,848		2,821		36		4,627		(17)
Other	4,633		1,655		180		4,453		4
Total Operating Expenses	236,161		184,181		28		219,262		8
Operating Income	70,889		79,671		(11)		87,954		(19)

Nonoperating Income (Expenses)
Investment income (loss), net	2,709		718		277		(1,666)		263
Debt expense	(1,400)		(1,330)		5		(1,522)		(8)
Other, net	324		(143)		327		(2,972)		111
Total Nonoperating Income (Expenses), net	1,633		(755)		316		(6,160)		127
Income before income taxes	72,522		78,916		(8)		81,794		(11)
Income tax provision	17,911		18,910		(5)		20,162		(11)
Net income including the noncontrolling interests in subsidiaries	54,611		60,006		(9)		61,632		(11)
Less: Net income (loss) attributable to the noncontrolling interests in subsidiaries	65		(325)		120		96		(32)
Net Income	$	54,546	$	60,331	(10)	%	$	61,536	(11)	%

Amounts Attributable to Federated Investors, Inc.
Earnings Per Share1
Basic and diluted	$	0.54	$	0.60	(10)	%	$	0.61	(11)	%
Weighted-Average Shares Outstanding
Basic	96,994		97,187				96,758
Diluted	96,995		97,189				96,758
Dividends Declared Per Share	$	0.27	$	0.25			$	0.27

Unvested share-based awards that receive non-forfeitable dividend rights are deemed participating securities and are required to be considered in the computation of basic earnings per share under the "two-class method." As such, total net income of $2.1 million, $2.4 million and $2.3 million available to unvested restricted Federated shareholders for the quarterly periods ended March 31, 2019, March 31, 2018 and Dec. 31, 2018, respectively, was excluded from the computation of basic earnings per share. In addition to the amounts excluded from the basic earnings per share calculation, the computation of diluted earnings per share excludes net income available to unvested shareholders of a nonpublic consolidated subsidiary for the quarterly periods ended March 31, 2019 and Dec. 31, 2018.

*Unaudited Condensed Consolidated Balance Sheets*
(in thousands)	March 31, 2019		Dec. 31, 2018
Assets
Cash and other investments	$	162,111	$	190,490
Other current assets	116,240		113,611
Intangible assets, net, including goodwill	1,156,809		1,149,247
Other long-term assets	200,016		90,335
Total Assets	$	1,635,176	$	1,543,683

Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities	$	131,692	$	181,180
Long-term debt	130,000		135,000
Other long-term liabilities	289,545		187,869
Redeemable noncontrolling interests	186,200		182,513
Equity excluding treasury stock	1,174,731		1,144,458
Treasury stock	(276,992)		(287,337)
Total Liabilities, Redeemable Noncontrolling Interests and Equity	$	1,635,176	$	1,543,683

*Unaudited Changes in Long-Term Assets - By Asset Class*
(in millions)	Quarter Ended
	March 31, 2019		Dec. 31, 2018		March 31, 2018
Equity
Beginning assets	$	72,497	$	84,143	$	62,816
Sales1	5,136		4,274		3,193
Redemptions1	(5,926)		(6,777)		(5,258)
Net redemptions1	(790)		(2,503)		(2,065)
Net exchanges	13		(180)		(127)
Impact of foreign exchange2	(122)		0		0
Market gains and losses3	8,647		(8,963)		(1,794)
Ending assets	$	80,245	$	72,497	$	58,830

Fixed Income
Beginning assets	$	63,158	$	65,369	$	64,160
Sales1	5,416		5,330		4,908
Redemptions1	(6,341)		(7,424)		(6,594)
Net redemptions1	(925)		(2,094)		(1,686)
Net exchanges	(33)		214		127
Impact of foreign exchange2	8		0		0
Market gains and losses3	1,899		(331)		(396)
Ending assets	$	64,107	$	63,158	$	62,205

Alternative / Private Markets4
Beginning assets	$	18,318	$	18,621	$	366
Sales1	313		437		41
Redemptions1	(858)		(530)		(67)
Net redemptions1	(545)		(93)		(26)
Net exchanges	(2)		1		1
Impact of foreign exchange2	387		0		0
Market gains and losses3	(304)		(211)		2
Ending assets	$	17,854	$	18,318	$	343

Multi-asset
Beginning assets	$	4,093	$	4,790	$	5,014
Sales1	104		119		128
Redemptions1	(241)		(369)		(235)
Net redemptions1	(137)		(250)		(107)
Net exchanges	2		(23)		0
Market gains and losses3	301		(424)		(64)
Ending assets	$	4,259	$	4,093	$	4,843

Total Long-term Assets4
Beginning assets	$	158,066	$	172,923	$	132,356
Sales1	10,969		10,160		8,270
Redemptions1	(13,366)		(15,100)		(12,154)
Net redemptions1	(2,397)		(4,940)		(3,884)
Net exchanges	(20)		12		1
Impact of foreign exchange2	273		0		0
Market gains and losses3	10,543		(9,929)		(2,252)
Ending assets	$	166,465	$	158,066	$	126,221


1)	For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.
2)	Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes. Reporting only contains foreign exchange separately beginning with Q1 2019 (previously included in Market gains and losses).
3)	Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions, net investment income and the impact of changes in foreign exchange rates for periods prior to Q1 2019.
4)	Includes $8.1 billion and $8.3 billion at March 31, 2019 and Dec. 31, 2018, respectively, of assets managed by a nonconsolidated entity, Hermes GPE LLP, in which Hermes holds an equity method investment.

*Unaudited Changes in Long-Term Assets - By Asset Class and Product Type*
(in millions)
	Quarter Ended
	March 31, 2019
	Equity				Fixed Income				Alternative / Private Markets				Multi-asset				Total
	Funds		Separate Accounts1		Funds		Separate Accounts1		Funds2		Separate Accounts1		Funds		Separate Accounts1		Funds2		Separate Accounts1
Beginning assets	$	36,584	$	35,913	$	40,490	$	22,668	$	11,365	$	6,953	$	3,920	$	173	$	92,359	$	65,707
Sales	3,412		1,724		4,154		1,262		254		59		102		2		7,922		3,047
Redemptions	(3,003)		(2,923)		(4,726)		(1,615)		(387)		(471)		(235)		(6)		(8,351)		(5,015)
Net sales (redemptions)	409		(1,199)		(572)		(353)		(133)		(412)		(133)		(4)		(429)		(1,968)
Net exchanges	13		0		(8)		(25)		(2)		0		2		0		5		(25)
Impact of foreign exchange3	(15)		(107)		23		(15)		240		147		0		0		248		25
Market gains and losses4	5,066		3,581		1,256		643		(306)		2		283		18		6,299		4,244
Ending assets	$	42,057	$	38,188	$	41,189	$	22,918	$	11,164	$	6,690	$	4,072	$	187	$	98,482	$	67,983


1)	Includes separately managed accounts, institutional accounts, sub-advised funds and other managed products. For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.
2)	Includes $8.1 billion of assets managed by a nonconsolidated entity, Hermes GPE LLP, in which Hermes holds an equity method investment.
3)	Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
4)	Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions and net investment income.

*Unaudited Changes in Long-Term Assets - By Product Type*
(in millions)	Quarter Ended
	March 31, 2019		Dec. 31, 2018		March 31, 2018
Total Fund Assets1
Beginning assets	$	92,359	$	101,437	$	79,301
Sales	7,922		7,868		5,956
Redemptions	(8,351)		(10,375)		(7,634)
Net redemptions	(429)		(2,507)		(1,678)
Net exchanges	5		13		(2)
Impact of foreign exchange2	248		0		0
Market gains and losses3	6,299		(6,584)		(622)
Ending assets	$	98,482	$	92,359	$	76,999

Total Separate Accounts Assets4
Beginning assets	$	65,707	$	71,486	$	53,055
Sales5	3,047		2,292		2,314
Redemptions5	(5,015)		(4,725)		(4,520)
Net redemptions5	(1,968)		(2,433)		(2,206)
Net exchanges	(25)		(1)		3
Impact of foreign exchange2	25		0		0
Market gains and losses3	4,244		(3,345)		(1,630)
Ending assets	$	67,983	$	65,707	$	49,222

Total Long-term Assets1,4
Beginning assets	$	158,066	$	172,923	$	132,356
Sales5	10,969		10,160		8,270
Redemptions5	(13,366)		(15,100)		(12,154)
Net redemptions5	(2,397)		(4,940)		(3,884)
Net exchanges	(20)		12		1
Impact of foreign exchange2	273		0		0
Market gains and losses3	10,543		(9,929)		(2,252)
Ending assets	$	166,465	$	158,066	$	126,221


1)	Includes $8.1 billion and $8.3 billion at March 31, 2019 and Dec. 31, 2018, respectively, of assets managed by a nonconsolidated entity, Hermes GPE LLP, in which Hermes holds an equity method investment.
2)	Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes. Reporting only contains foreign exchange separately beginning with Q1 2019 (previously included in Market gains and losses).
3)	Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions, net investment income and the impact of changes in foreign exchange rates for periods prior to Q1 2019.
4)	Includes separately managed accounts, institutional accounts, sub-advised funds and other managed products.
5)	For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.

*Unaudited Managed Assets* (in millions)	March 31, 2019		Dec. 31, 2018		Sept. 30, 2018		June 30, 2018		March 31, 2018
By Asset Class
Equity	$	80,245	$	72,497	$	84,143	$	57,973	$	58,830
Fixed-income	64,107		63,158		65,369		61,435		62,205
Alternative / private markets1	17,854		18,318		18,621		292		343
Multi-asset	4,259		4,093		4,790		4,730		4,843
Total long-term assets	166,465		158,066		172,923		124,430		126,221
Money market	318,413		301,794		264,233		255,247		265,944
Total Managed Assets	$	484,878	$	459,860	$	437,156	$	379,677	$	392,165

By Product Type
Funds:
Equity	$	42,057	$	36,584	$	43,578	$	31,699	$	31,507
Fixed-income	41,189		40,490		41,817		39,877		40,529
Alternative / private markets1	11,164		11,365		11,457		292		343
Multi-asset	4,072		3,920		4,585		4,521		4,620
Total long-term assets	98,482		92,359		101,437		76,389		76,999
Money market	214,764		208,480		182,966		172,671		182,437
Total Fund Assets	$	313,246	$	300,839	$	284,403	$	249,060	$	259,436
Separate Accounts:
Equity	$	38,188	$	35,913	$	40,565	$	26,274	$	27,323
Fixed-income	22,918		22,668		23,552		21,558		21,676
Alternative / private markets	6,690		6,953		7,164		0		0
Multi-asset	187		173		205		209		223
Total long-term assets	67,983		65,707		71,486		48,041		49,222
Money market	103,649		93,314		81,267		82,576		83,507
Total Separate Account Assets	$	171,632	$	159,021	$	152,753	$	130,617	$	132,729
Total Managed Assets	$	484,878	$	459,860	$	437,156	$	379,677	$	392,165


1)	Includes $8.1 billion, $8.3 billion and $8.4 billion at March 31, 2019, Dec. 31, 2018 and Sept. 30, 2018, respectively, of assets managed by a nonconsolidated entity, Hermes GPE LLP, in which Hermes holds an equity method investment.

*Unaudited Average Managed Assets*	Quarter Ended
(in millions)	March 31, 2019		Dec. 31, 2018		Sept. 30, 2018		June 30, 2018		March 31, 2018
By Asset Class
Equity	$	77,554	$	78,084	$	84,262	$	58,818	$	61,555
Fixed-income	64,167		63,881		64,750		61,648		63,538
Alternative / private markets1	18,311		18,410		18,504		319		355
Multi-asset	4,225		4,449		4,805		4,824		4,979
Total long-term assets	164,257		164,824		172,321		125,609		130,427
Money market	311,150		278,885		261,571		260,371		267,546
Total Avg. Managed Assets	$	475,407	$	443,709	$	433,892	$	385,980	$	397,973

By Product Type
Funds:
Equity	$	40,217	$	39,871	$	43,473	$	31,911	$	32,680
Fixed-income	41,095		41,088		41,501		40,199		41,022
Alternative / private markets1	11,545		11,351		11,109		319		355
Multi-asset	4,042		4,268		4,598		4,604		4,749
Total long-term assets	96,899		96,578		100,681		77,033		78,806
Money market	209,260		194,009		179,562		175,885		181,856
Total Avg. Fund Assets	$	306,159	$	290,587	$	280,243	$	252,918	$	260,662
Separate Accounts:
Equity	$	37,337	$	38,213	$	40,789	$	26,907	$	28,875
Fixed-income	23,072		22,793		23,249		21,449		22,516
Alternative / private markets	6,766		7,059		7,395		0		0
Multi-asset	183		181		207		220		230
Total long-term assets	67,358		68,246		71,640		48,576		51,621
Money market	101,890		84,876		82,009		84,486		85,690
Total Avg. Separate Account Assets	$	169,248	$	153,122	$	153,649	$	133,062	$	137,311
Total Avg. Managed Assets	$	475,407	$	443,709	$	433,892	$	385,980	$	397,973


1)	The average balance includes $8.4 billion, $8.3 billion and $8.2 billion for the quarters ended March 31, 2019, Dec. 31, 2018 and Sept. 30, 2018, respectively, of assets managed by a nonconsolidated entity, Hermes GPE LLP, in which Hermes holds an equity method investment.

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