FEDERATED HERMES, INC. [FHI] Filings

10-Q 1 fhi-20220630.htm 10-Q fhi-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________________________________________

FORM 10-Q

_______________________________________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-14818

_______________________________________________________________________________________

Federated Hermes, Inc.

(Exact name of registrant as specified in its charter)

_______________________________________________________________________________________


Pennsylvania						25-1111467
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1001 Liberty Avenue

15222-3779

Pittsburgh,

Pennsylvania

(Address of principal executive offices)

(Zip Code)

(Registrant’s telephone number, including area code) 412-288-1900

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class B common stock, no par value	FHI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: As of July 22, 2022, the Registrant had outstanding 9,000 shares of Class A common stock and 89,132,652 shares of Class B common stock.

Table of Contents



Table of Contents


Part I. Financial Information
	Item 1.	Financial Statements
		Consolidated Balance Sheets	4
		Consolidated Statements of Income	5
		Consolidated Statements of Comprehensive Income	6
		Consolidated Statements of Changes in Equity	7
		Consolidated Statements of Cash Flows	8
		Notes to the Consolidated Financial Statements	9
	Item 2.	Management ’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
	Item 4.	Controls and Procedures	52
Part II. Other Information
	Item 1.	Legal Proceedings	52
	Item 1A.	Risk Factors	52
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

	Item 6.	Exhibits	53
Signatures			54

FORWARD-LOOKING STATEMENTS

Certain statements in this report on Form 10-Q constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that could cause the actual results, levels of activity, performance or achievements of Federated Hermes, Inc. and its consolidated subsidiaries (collectively, Federated Hermes), 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. Forward-looking statements are typically identified by words or phrases such as “trend,” “potential,” “opportunity,” “believe,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “projection,” “assume,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “can,” “may,” and similar expressions. Among other forward-looking statements, such statements include certain statements relating to, or, as applicable, statements concerning management’s assessments, beliefs, expectations, assumptions, judgments, projections or estimates regarding: the pandemic and its impact; Russia’s invasion of Ukraine and its impact; asset flows, levels, values and mix and their impact; the possibility of impairments, business mix; the level, timing, degree and impact of changes in interest rates or gross or net yields; fee rates and recognition; sources, levels and recognition of revenues, expenses, gains, losses, income and earnings; the level and impact of reimbursements, rebates or assumptions of fund-related expenses and fee waivers for competitive reasons such as to maintain positive or zero net yields (Voluntary Yield-related Fee Waivers), to maintain certain fund expense ratios, to meet regulatory requirements or to meet contractual requirements (collectively, Fee Waivers); whether, under what circumstances and the degree to which Fee Waivers will be implemented; the impact of market volatility, liquidity, and other market conditions; whether and when revenue or expense is recognized; whether and when capital contributions could be made; the components and level of, and prospect for, distribution-related expenses; guarantee and indemnification obligations; the timing and amount of acquisition-related payment obligations; payment obligations pursuant to employment or incentive arrangements; vesting rights and requirements; business and market expansion opportunities, including acceleration of global growth; interest and principal payments or expenses; taxes, tax rates and the impact of tax law changes; borrowing, debt, future cash needs and principal uses of cash, cash flows and liquidity; the ability to raise additional capital; type, classification and consolidation of investments; uses of treasury stock; Federated Hermes’ product and market performance and Federated Hermes’ performance indicators; investor preferences; product and strategy demand, distribution, development and restructuring initiatives and related planning and timing; the effect, and degree of impact, of changes in customer relationships; legal proceedings; regulatory matters, including the pace, timing, impact, effects and other consequences of the current regulatory environment; the attractiveness and resiliency of money market funds; dedication of resources; accounting-related determinations; compliance, and related legal, compliance and other professional services expenses; and interest rate, concentration, market, currency and other risks and their impact. Among other risks and uncertainties, market conditions can change significantly and impact Federated Hermes’ business and results, including by changing Federated Hermes’ asset flows, levels, and mix, and business mix, which could cause a decline in revenues and net income, result in impairments and change the amount of Fee Waivers incurred by Federated Hermes. The obligation to make purchase price payments in connection with acquisitions is subject to certain adjustments and conditions, and the obligation to make contingent payments is based on net revenue growth levels and will be affected by the achievement of such levels. The

obligation to make additional payments pursuant to employment or incentive arrangements can be based on satisfaction of certain conditions set forth in those arrangements. Future cash needs, cash flows and uses of cash will be impacted by a variety of factors, including the number and size of any acquisitions, Federated Hermes’ success in developing, structuring and distributing its products and strategies, potential changes in assets under management (AUM) and/or changes in the terms of distribution and shareholder services contracts with intermediaries who offer Federated Hermes’ products to intermediary customers, and potential increased legal, compliance and other professional services expenses stemming from additional or modified regulation or the dedication of such resources to other initiatives. Federated Hermes’ risks and uncertainties also include liquidity and credit risks in Federated Hermes’ money market funds and revenue risk, which will be affected by yield levels in money market fund products, Fee Waivers, changes in fair values of AUM, any additional regulatory reforms, investor preferences and confidence, and the ability of Federated Hermes to collect fees in connection with the management of such products. Many of these factors could be more likely to occur as a result of continued scrutiny of the mutual fund industry by domestic or foreign regulators, and any disruption in global financial markets. As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither Federated Hermes nor any other person assumes responsibility for the accuracy and completeness, or updating, of such statements in the future. For more information on these items and additional risks that could impact the forward-looking statements, see Item 1A - Risk Factors included in Federated Hermes’ Annual Report on Form 10-K for the year ended December 31, 2021 and Part II, Item 1A - Risk Factors.

Table of Contents

Part I. Financial Information

Item 1. Financial Statements


Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
	June 30, 2022		December 31, 2021
ASSETS
Current Assets
Cash and Cash Equivalents	$	248,732	$	233,327
Investments—Consolidated Investment Companies	102,865		105,542
Investments—Affiliates and Other	78,170		87,805
Receivables, net of reserve of $21 and $21, respectively	53,850		65,317
Receivables—Affiliates	36,487		30,956
Prepaid Expenses	34,175		29,322
Other Current Assets	7,124		7,178
Total Current Assets	561,403		559,447
Long-Term Assets
Goodwill	784,900		798,871

Intangible Assets, net of accumulated amortization of $41,649 and $39,618, respectively	433,091		471,209
Property and Equipment, net of accumulated depreciation of $112,432 and $113,624, respectively	41,588		46,965
Right-of-Use Assets, net	99,238		108,306
Other Long-Term Assets	31,697		33,389
Total Long-Term Assets	1,390,514		1,458,740
Total Assets	$	1,951,917	$	2,018,187
LIABILITIES
Current Liabilities
Accounts Payable and Accrued Expenses	$	73,761	$	64,019
Accrued Compensation and Benefits	93,929		162,203
Lease Liabilities	17,788		17,447

Other Current Liabilities	21,669		27,038
Total Current Liabilities	207,147		270,707
Long-Term Liabilities
Long-Term Debt	397,448		223,350
Long-Term Deferred Tax Liability, net	197,484		205,206
Long-Term Lease Liabilities	94,758		105,270
Other Long-Term Liabilities	32,456		36,435
Total Long-Term Liabilities	722,146		570,261
Total Liabilities	929,293		840,968
Commitments and Contingencies (Note (17))
TEMPORARY EQUITY
Redeemable Noncontrolling Interests in Subsidiaries	54,731		63,202
PERMANENT EQUITY
Federated Hermes, Inc. Shareholders’ Equity
Common Stock:
Class A, No Par Value, 20,000 Shares Authorized, 9,000 Shares Issued and Outstanding	189		189
Class B, No Par Value, 900,000,000 Shares Authorized, 109,505,456 Shares Issued	467,647		448,929
Additional Paid-In Capital from Treasury Stock Transactions	3,472		0
Retained Earnings	1,224,527		1,187,001
Treasury Stock, at Cost, 20,307,504 and 16,094,488 Shares Class B Common Stock, respectively	(684,286)		(538,464)
Accumulated Other Comprehensive Income (Loss), net of tax	(43,656)		16,362


Total Permanent Equity	967,893		1,114,017
Total Liabilities, Temporary Equity and Permanent Equity	$	1,951,917	$	2,018,187

(The accompanying notes are an integral part of these Consolidated Financial Statements.)


Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Revenue
Investment Advisory Fees, net—Affiliates	$	197,466	$	149,107	$	367,687	$	332,941
Investment Advisory Fees, net—Other	60,577		65,182		123,350		129,037
Administrative Service Fees, net—Affiliates	70,182		77,750		143,689		152,051
Other Service Fees, net—Affiliates	33,248		15,192		46,855		31,062
Other Service Fees, net—Other	4,535		3,809		9,191		7,122
Total Revenue	366,008		311,040		690,772		652,213
Operating Expenses
Compensation and Related	128,086		132,769		262,051		276,389
Distribution	84,243		38,115		132,804		82,504
Systems and Communications	18,446		18,954		37,940		37,549
Professional Service Fees	13,976		15,122		27,444		29,759
Office and Occupancy	10,512		11,082		21,835		22,322
Advertising and Promotional	4,736		4,623		7,468		7,447
Travel and Related	3,328		898		5,123		1,195
Other	10,363		7,668		19,840		15,761
Total Operating Expenses	273,690		229,231		514,505		472,926
Operating Income	92,318		81,809		176,267		179,287
Nonoperating Income (Expenses)
Investment Income, net	1,577		1,148		2,671		1,780
Gain (Loss) on Securities, net	(20,885)		6,245		(32,580)		7,624
Debt Expense	(3,350)		(346)		(4,571)		(837)
Other, net	(13)		(184)		68		161
Total Nonoperating Income (Expenses), net	(22,671)		6,863		(34,412)		8,728
Income Before Income Taxes	69,647		88,672		141,855		188,015
Income Tax Provision	18,889		35,193		36,500		60,190
Net Income Including the Noncontrolling Interests in Subsidiaries	50,758		53,479		105,355		127,825
Less: Net Income (Loss) Attributable to the Noncontrolling Interests in Subsidiaries	(6,899)		(2,405)		(8,165)		(2,543)
Net Income	$	57,657	$	55,884	$	113,520	$	130,368
Amounts Attributable to Federated Hermes, Inc.
Earnings Per Common Share—Basic	$	0.64	$	0.57	$	1.24	$	1.32
Earnings Per Common Share—Diluted	$	0.64	$	0.56	$	1.24	$	1.31
Cash Dividends Per Share	$	0.27	$	0.27	$	0.54	$	0.54

(The accompanying notes are an integral part of these Consolidated Financial Statements.)


Consolidated Statements of Comprehensive Income
(dollars in thousands)
(unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Net Income Including the Noncontrolling Interests in Subsidiaries	$	50,758	$	53,479	$	105,355	$	127,825

Other Comprehensive Income (Loss), net of tax
Permanent Equity


Foreign Currency Translation Gain (Loss)	(42,884)		1,495		(60,018)		5,053



Temporary Equity
Foreign Currency Translation Gain (Loss)	(1,068)		868		(1,525)		2,298
Other Comprehensive Income (Loss), net of tax	(43,952)		2,363		(61,543)		7,351
Comprehensive Income Including the Noncontrolling Interests in Subsidiaries	6,806		55,842		43,812		135,176
Less: Comprehensive Income (Loss) Attributable to Redeemable Noncontrolling Interests in Subsidiaries	(7,967)		(1,537)		(9,690)		(245)

Comprehensive Income Attributable to Federated Hermes, Inc.	$	14,773	$	57,379	$	53,502	$	135,421

(The accompanying notes are an integral part of these Consolidated Financial Statements.)


Consolidated Statements of Changes in Equity
(dollars in thousands)
(unaudited)
	Federated Hermes, Inc. Shareholders’ Equity
	Common Stock		Additional Paid-in Capital from Treasury Stock Transactions		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss), net of tax		Total Permanent Equity		Redeemable Noncontrolling Interest in Subsidiaries/ Temporary Equity
Balance at December 31, 2021	$	449,118	$	0	$	1,187,001	$	(538,464)	$	16,362	$	1,114,017	$	63,202

Net Income (Loss)	0		0		55,863		0		0		55,863		(1,266)
Other Comprehensive Income (Loss), net of tax	0		0		0		0		(17,134)		(17,134)		(457)
Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0		0		30,340
Consolidation (Deconsolidation)	0		0		0		0		0		0		(16,034)
Stock Award Activity	9,288		0		(12,116)		12,147		0		9,319		707
Dividends Declared	0		0		(24,952)		0		0		(24,952)		0
Distributions to Noncontrolling Interests in Subsidiaries	0		0		0		0		0		0		(4,339)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		0		(14,221)		0		0		(14,221)		14,221
Acquisition of Additional Equity of FHL	0		3,518		0		34,048		0		37,566		(37,805)
Purchase of Treasury Stock	0		0		0		(102,537)		0		(102,537)		0

Balance at March 31, 2022	$	458,406	$	3,518	$	1,191,575	$	(594,806)	$	(772)	$	1,057,921	$	48,569

Net Income (Loss)	0		0		57,657		0		0		57,657		(6,899)
Other Comprehensive Income (Loss), net of tax	0		0		0		0		(42,884)		(42,884)		(1,068)
Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0		0		15,314

Stock Award Activity	9,430		(46)		0		62		0		9,446		0
Dividends Declared	0		0		(24,705)		0		0		(24,705)		0
Distributions to Noncontrolling Interests in Subsidiaries	0		0		0		0		0		0		(1,185)


Purchase of Treasury Stock	0		0		0		(89,542)		0		(89,542)		0

Balance at June 30, 2022	$	467,836	$	3,472	$	1,224,527	$	(684,286)	$	(43,656)	$	967,893	$	54,731


Consolidated Statements of Changes in Equity
(dollars in thousands)
(unaudited)
	Federated Hermes, Inc. Shareholders' Equity
	Common Stock		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss), net of tax		Total Permanent Equity		Redeemable Noncontrolling Interest in Subsidiaries/ Temporary Equity
Balance at December 31, 2020	$	418,858	$	1,027,699	$	(324,731)	$	15,171	$	1,136,997	$	236,987

Net Income (Loss)	0		74,484		0		0		74,484		(138)
Other Comprehensive Income (Loss), net of tax	0		0		0		3,558		3,558		1,430
Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0		25,762
Consolidation (Deconsolidation)	0		0		0		0		0		(16,237)
Stock Award Activity	9,216		(15,234)		15,249		0		9,231		2,481
Dividends Declared	0		(26,788)		0		0		(26,788)		0
Distributions to Noncontrolling Interests in Subsidiaries	0		0		0		0		0		(1,898)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		2,670		0		0		2,670		(2,670)
Purchase of Treasury Stock	0		0		(45,030)		0		(45,030)		0

Balance at March 31, 2021	$	428,074	$	1,062,831	$	(354,512)	$	18,729	$	1,155,122	$	245,717

Net Income (Loss)	0		55,884		0		0		55,884		(2,405)
Other Comprehensive Income (Loss), net of tax	0		0		0		1,495		1,495		868
Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0		899,962
Consolidation (Deconsolidation)	0		0		0		0		0		(894,175)
Stock Award Activity	7,760		(189)		205		0		7,776		2,518
Dividends Declared	0		(26,550)		0		0		(26,550)		0
Distributions to Noncontrolling Interests in Subsidiaries	0		0		0		0		0		(1,016)


Purchase of Treasury Stock	0		0		(31,797)		0		(31,797)		0

Balance at June 30, 2021	$	435,834	$	1,091,976	$	(386,104)	$	20,224	$	1,161,930	$	251,469

(The accompanying notes are an integral part of these Consolidated Financial Statements.)


Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
	Six Months Ended
	June 30,
	2022		2021
Operating Activities
Net Income Including the Noncontrolling Interests in Subsidiaries	$	105,355	$	127,825
Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities

Depreciation and Amortization	14,423		14,999
Share-Based Compensation Expense	18,720		16,976
Subsidiary Share-Based Compensation Expense	707		4,999
(Gain) Loss on Disposal of Assets	(737)		(5,163)
Provision (Benefit) for Deferred Income Taxes	(2,163)		18,678




Consolidation/(Deconsolidation) of Other Entities	(20)		11,029

Net Unrealized (Gain) Loss on Investments	33,315		(2,442)
Net Sales (Purchases) of Investments—Consolidated Investment Companies	(43,219)		(64,399)



Other Changes in Assets and Liabilities:
(Increase) Decrease in Receivables, net	10		6,933
(Increase) Decrease in Prepaid Expenses and Other Assets	(3,526)		(2,504)
Increase (Decrease) in Accounts Payable and Accrued Expenses	(53,008)		(67,723)
Increase (Decrease) in Other Liabilities	9,659		(4,257)
Net Cash Provided (Used) by Operating Activities	79,516		54,951
Investing Activities
Purchases of Investments—Affiliates and Other	(5,081)		(5,643)

Proceeds from Redemptions of Investments—Affiliates and Other	8,067		13,915
Cash Paid for Property and Equipment	(2,889)		(3,255)


Net Cash Provided (Used) by Investing Activities	97		5,017
Financing Activities
Dividends Paid	(49,659)		(53,339)
Purchases of Treasury Stock	(204,604)		(77,973)
Distributions to Noncontrolling Interests in Subsidiaries	(5,524)		(2,914)
Contributions from Noncontrolling Interests in Subsidiaries	45,654		34,394


Proceeds from New Borrowings	488,300		0


Payments on Debt	(311,650)		(10,000)

Other Financing Activities	(9,484)		(1,978)
Net Cash Provided (Used) by Financing Activities	(46,967)		(111,810)
Effect of Exchange Rates on Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	(17,717)		1,826
Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	14,929		(50,016)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Beginning of Period	238,052		308,635
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, End of Period	252,981		258,619
Less: Restricted Cash Recorded in Other Current Assets	3,978		4,598
Less: Restricted Cash and Restricted Cash Equivalents Recorded in Other Long-Term Assets	271		289
Cash and Cash Equivalents	$	248,732	$	253,732

(The accompanying notes are an integral part of these Consolidated Financial Statements.)

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Notes to the Consolidated Financial Statements

(unaudited)

(1) Basis of Presentation

Federated Hermes, Inc. and its consolidated subsidiaries (collectively, Federated Hermes) provide investment advisory, administrative, distribution and other services to various investment products, including sponsored investment companies, collective funds and other funds (Federated Hermes Funds) and separate accounts (which include separately managed accounts, institutional accounts, certain sub-advised funds and other managed products, collectively Separate Accounts) in both domestic and international markets. In addition, Federated Hermes markets and provides stewardship and real estate development services to various domestic and international companies. The interim consolidated financial statements of Federated Hermes included herein (Consolidated Financial Statements) have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP). In the opinion of management, the financial statements reflect all adjustments that are of a normal recurring nature and necessary for a fair presentation of the results for the interim periods presented.

In preparing the Consolidated Financial Statements, management is required to make estimates and assumptions that affect the amounts reported therein and in the accompanying notes. Actual results may differ from those estimates, and such differences may be material to the Consolidated Financial Statements.

The Consolidated Financial Statements should be read in conjunction with Federated Hermes’ Annual Report on Form 10-K for the year ended December 31, 2021. Certain items reported in previous periods have been reclassified to conform to the current period’s presentation.

(2) Significant Accounting Policies

For a listing of Federated Hermes’ significant accounting policies, please refer to Federated Hermes’ Annual Report on Form 10-K for the year ended December 31, 2021.

(3) Equity Acquisition

On March 14, 2022, Federated Hermes completed a tender offer resulting in the acquisition of the remaining approximate 10% noncontrolling interests in Federated Hermes Limited (FHL, formerly known as Hermes Fund Managers Limited) from a trustee of a non-U.S. domiciled employee benefit trust established for the benefit of certain members of FHL’s management, a non-U.S. resident former FHL employee and other non-U.S. resident key FHL employees under a long-term incentive plan established in connection with the 2018 acquisition of FHL (2022 Acquisition of FHL Noncontrolling Interests). Pursuant to the 2022 Acquisition of FHL Noncontrolling Interests, FHL became a 100% indirect, wholly-owned subsidiary of Federated Hermes.

The 2022 Acquisition of FHL Noncontrolling Interests was transacted in shares whereby Federated Hermes issued awards of restricted Class B common stock under Federated Hermes Stock Incentive Plan and Federated Hermes UK Sub-Plan, as amended, and treasury Class B common stock, in exchange for the beneficial interests in shares of FHL. The FHL shares were exchanged at fair value for Federated Hermes shares valued at £36.4 million or $47.5 million, which was based on a third-party valuation of FHL. See Note (12) for additional information regarding the share exchange.

(4) Revenue from Contracts with Customers

The following table presents Federated Hermes’ revenue disaggregated by asset class:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2022		2021		2022		2021
Equity	$	132,602	$	171,595	$	279,459	$	337,953
Money market	145,807		49,286		232,097		129,978
Fixed-income	51,954		57,716		109,828		114,493
Other1	35,645		32,443		69,388		69,789
Total Revenue	$	366,008	$	311,040	$	690,772	$	652,213

1 Primarily includes Alternative / Private Markets (including but not limited to private equity, real estate and infrastructure), multi-asset and stewardship services revenue.

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Notes to the Consolidated Financial Statements

(unaudited)

The following table presents Federated Hermes’ revenue disaggregated by performance obligation:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2022		2021		2022		2021
Asset Management1	$	258,043	$	214,289	$	491,037	$	461,978
Administrative Services	70,182		77,750		143,689		152,051
Distribution2	31,182		12,191		42,259		25,219
Other3	6,601		6,810		13,787		12,965
Total Revenue	$	366,008	$	311,040	$	690,772	$	652,213

1 The performance obligation may include administrative, distribution and other services recorded as a single asset management fee under Topic 606, as it is part of a unitary fee arrangement with a single performance obligation.

2 The performance obligation is satisfied at a point in time. A portion of this revenue relates to a performance obligation that has been satisfied in a prior period.

3 Primarily includes shareholder service fees and stewardship services revenue.

The following table presents Federated Hermes’ revenue disaggregated by geographical market:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2022		2021		2022		2021
Domestic	$	291,507	$	224,283	$	538,316	$	480,773
Foreign1	74,501		86,757		152,456		171,440
Total Revenue	$	366,008	$	311,040	$	690,772	$	652,213

1 This represents revenue earned by non-U.S. domiciled subsidiaries.

The following table presents Federated Hermes’ revenue disaggregated by product type:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2022		2021		2022		2021
Federated Hermes Funds	$	300,896	$	242,049	$	558,231	$	516,054
Separate Accounts	60,577		65,182		123,350		129,037
Other1	4,535		3,809		9,191		7,122
Total Revenue	$	366,008	$	311,040	$	690,772	$	652,213

1 Primarily includes stewardship services revenue.

For nearly all revenue, Federated Hermes is not required to disclose certain estimates of revenue expected to be recorded in future periods as a result of applying the following exemptions: (1) contract terms are short-term in nature (i.e., expected duration of one year or less due to termination provisions) and (2) the expected variable consideration would be allocated entirely to future service periods.

Federated Hermes expects to recognize revenue in the future related to the unsatisfied portion of the stewardship services and real estate development performance obligations at June 30, 2022. Generally, contracts are billed in arrears on a quarterly basis and have a three-year duration, after which the customer can terminate the agreement with notice, generally from three to 12 months. Based on existing contracts and the applicable foreign exchange rates as of June 30, 2022, Federated Hermes may recognize future fixed revenue from these services as presented in the following table:


(in thousands)
Remainder of 2022	$	6,693
2023	6,006
2024	3,100
2025 and Thereafter	1,143
Total Remaining Unsatisfied Performance Obligations	$	16,942

Table of Contents

Notes to the Consolidated Financial Statements

(unaudited)

(5) Concentration Risk

(a) Revenue Concentration by Asset Class

The following table presents Federated Hermes’ significant revenue concentration by asset class:


	Six Months Ended
	June 30,
	2022		2021
Equity Assets	40	%	52	%
Money Market Assets	34	%	20	%
Fixed-Income Assets	16	%	18	%

The change in the relative proportion of Federated Hermes’ revenue attributable to money market assets for the six months ended June 30, 2022, as compared to the same period in 2021, was primarily the result of a decrease in Voluntary Yield-related Fee Waivers. See section below entitled Low Short-Term Interest Rates.

The change in the relative proportion of Federated Hermes’ revenue attributable to equity and fixed-income assets for the six months ended June 30, 2022 as compared to the same period in 2021, was primarily the result of lower average equity assets and increased money market revenue in 2022.

Low Short-Term Interest Rates

In March 2020, in response to disrupted economic activity as a result of the outbreak of a novel coronavirus (the Pandemic), the Federal Open Market Committee of the Federal Reserve Board (FOMC) decreased the federal funds target rate range to 0% - 0.25%. The federal funds target rate drives short-term interest rates. As a result of the near-zero interest-rate environment, the gross yield earned by certain money market funds was not sufficient to cover all of the fund’s operating expenses. Beginning in the first quarter 2020, Federated Hermes began to implement Voluntary Yield-related Fee Waivers in order for certain money market funds to maintain positive or zero net yields (Voluntary Yield-related Fee Waivers). These Voluntary Yield-related Fee Waivers have been partially offset by related reductions in distribution expense as a result of Federated Hermes’ mutual understanding and agreement with third-party intermediaries to share the impact of the Voluntary Yield-related Fee Waivers. In response to global economic activity and elevated inflation levels, the FOMC raised the federal funds target rate four times in 2022. The range is currently 2.25% - 2.50% as of the July 2022 FOMC meeting. These rate increases have nearly eliminated the net negative pre-tax impact of the Voluntary Yield-related Fee Waivers.

During the three and six months ended June 30, 2022, Voluntary Yield-related Fee Waivers totaled $9.5 million and $85.3 million, respectively. These fee waivers were partially offset by related reductions in distribution expenses of $9.0 million and $66.5 million, respectively, such that the net negative pre-tax impact to Federated Hermes was $0.5 million and $18.8 million for the three and six months ended June 30, 2022, respectively. During the three and six months ended June 30, 2021, Voluntary Yield-related Fee Waivers totaled $117.8 million and $200.9 million, respectively. These fee waivers were partially offset by related reductions in distribution expenses of $71.0 million and $132.5 million, respectively, such that the net negative pre-tax impact to Federated Hermes was $46.8 million and $68.4 million for the three and six months ended June 30, 2021, respectively.

(b) Revenue Concentration by Investment Fund Strategy

The following table presents Federated Hermes’ revenue concentration by investment fund strategy:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

Federated Hermes Government Obligations Fund	11	%	3	%	9	%	5	%
Federated Hermes Kaufmann Fund and Federated Hermes Kaufmann Fund II	7	%	11	%	8	%	11	%
Federated Hermes Global Emerging Markets strategy	5	%	10	%	6	%	9