10-QPeriod: Q3 FY2018

KKR & Co. Inc. Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 2, 2018For Securities:KKRKKRTKKR-PDKKRS

Summary

KKR & Co. Inc. reported strong financial performance for the third quarter and first nine months of 2018. Total revenues saw a significant increase year-over-year, driven by growth in both Fee and Other income and Capital Allocation-Based Income. This was primarily fueled by higher transaction fees, management fees from new funds like Global Infrastructure Fund III, and substantial net gains from investment activities, particularly in Private Equity. The company also successfully completed its conversion from a limited partnership to a Delaware corporation on July 1, 2018, which impacted its tax structure and resulted in a recorded tax benefit. Despite increased compensation and administrative expenses, KKR demonstrated robust growth in its key financial metrics. Assets Under Management (AUM) and Fee Paying Assets Under Management (FPAUM) both saw positive growth, reflecting successful capital raising and deployment across its Private Markets and Public Markets businesses. The company's investment portfolio showed strong appreciation, especially in Private Equity, contributing significantly to realized and unrealized gains. Investors should note the positive market conditions experienced during the quarter, although the report also highlights increased market volatility towards the end of the period, which could impact future valuations.

Financial Highlights

33 data points
Beta

Revenue

$1.13B

Net Income

$648.54M

57.4% Net Margin

Total Assets

$50.34B

Cash & Equivalents

$3.29B

Free Cash Flow

-$726.51M

Financial Statements
Beta
Revenue$1.13B
Interest Expense$211.08M
Net Income$648.54M

Key Highlights

  • 1Total Revenues increased significantly in Q3 2018 to $1.13 billion, up from $750 million in Q3 2017, driven by higher Fees and Other income and Capital Allocation-Based Income.
  • 2Net Income Attributable to Class A Common Stockholders surged to $640.2 million in Q3 2018, a substantial increase from $153.6 million in the prior year's quarter.
  • 3Assets Under Management (AUM) grew to $194.6 billion as of September 30, 2018, up from $168.5 billion at the end of 2017, indicating successful fundraising and investment deployment.
  • 4The company completed its conversion from a limited partnership to a Delaware corporation (the "Conversion") on July 1, 2018, impacting its tax structure and leading to a recorded net tax benefit.
  • 5Private Equity segment showed strong performance with Net Gains from Investment Activities of $572.1 million in Q3 2018, up significantly from $151.8 million in Q3 2017.
  • 6Capital Markets revenues saw a substantial increase in transaction fees, driven by a rise in both the number and size of capital markets transactions.
  • 7KKR's Book Value per Outstanding Adjusted Share increased to $16.68 as of September 30, 2018, from $14.20 at December 31, 2017, reflecting the growth in the company's investment portfolio and after-tax distributable earnings.

Frequently Asked Questions

KKR demonstrated strong financial performance, with total revenues increasing to $1.13 billion in Q3 2018 from $750 million in Q3 2017. Net income attributable to Class A common stockholders significantly rose to $640.2 million from $153.6 million in the prior year. This growth was driven by higher management and transaction fees, increased carried interest and general partner capital interest, and significant net gains from investment activities, particularly in Private Equity.

On July 1, 2018, KKR completed its conversion from a Delaware limited partnership to a Delaware corporation. This change means KKR's income is now subject to U.S. corporate income taxes, which differs from its prior tax treatment as a partnership. The conversion resulted in a recorded net tax benefit and a deferred tax asset of $257.1 million related to a partial step-up in the tax basis of certain assets. While this change increased overall income tax expense (or benefit) recognition, the company reported a net income tax benefit of $129.4 million for the three months ended September 30, 2018, primarily due to the initial tax benefits recorded upon conversion.

KKR's total AUM grew to $194.6 billion as of September 30, 2018, from $168.5 billion at the end of 2017. This growth was primarily attributed to new capital raised in funds like Global Infrastructure Fund III and Energy and Income Growth Fund II, as well as an increase in the value of the Private Markets portfolio. The Public Markets business also saw significant growth, partly due to the FS Investments Transaction and new capital raised in leveraged credit, private credit, and hedge fund strategies.

Investment activities were a major contributor to KKR's strong results. Net gains from investment activities totaled $666.7 million in Q3 2018, a significant increase from $52.0 million in Q3 2017. This was driven by strong net realized gains ($241.1 million) and net unrealized gains ($425.7 million). The Private Equity segment, in particular, saw substantial gains from mark-to-market movements in portfolio companies like USI, Inc. and Heartland Dental LLC, as well as from the partial sale of its investment in First Data Corporation.