Why did GAAP net income decline year-over-year while adjusted metrics grew strongly?

GAAP net income attributable to KKR common stockholders fell to $668 million in Q2 2024 from $844 million in Q2 2023, while adjusted net income rose 49%. The gap reflects non-operating and non-cash items that KKR excludes from its adjusted measures, including unrealized gains and losses on investments, unrealized carried interest and related compensation, equity-based compensation, and insurance-related investment gains and losses. Investors should review the GAAP-to-non-GAAP reconciliation in the appendix to understand these differences.

What drove the growth in Fee Related Earnings?

According to the release, FRE growth was driven primarily by higher management fees, which rose to $847 million from $749 million year-over-year, and by increased capital markets transaction fees, which rose to $223 million from $190 million. Fee related compensation as a share of revenue also declined, improving the FRE margin to 65% on an LTM basis from 61% a year earlier.

What is the outlook for Strategic Holdings, and how does it fit into KKR's earnings mix?

KKR expects Strategic Holdings Operating Earnings to be modest in 2024, reaching more than $300 million by 2026, more than $600 million by 2028, and more than $1 billion by 2030. These earnings are driven by dividends from KKR's core private equity businesses. These forward-looking targets are estimates subject to assumptions and risks, and the release notes there is no guarantee they will be achieved as presented.

How much capital did KKR raise and deploy, and what does the pipeline look like?

KKR raised $32 billion of new capital in Q2 2024 and deployed $23 billion, compared with $10 billion deployed a year earlier. Management said it has a healthy deal pipeline for the second half of 2024 across its businesses and geographies. Uncalled commitments (dry powder) totaled $108 billion at quarter-end, and about $53 billion of committed capital that is not yet paying fees is expected to become payable once invested or once the investment period begins.

Is the dividend secure, and what is KKR's leverage position?

KKR declared a regular quarterly dividend of $0.175 per share, but the release states that future dividends remain at the discretion of the board and that there is no assurance any particular dividend policy will be maintained. On the balance sheet, KKR reported $15.5 billion of cash and investments against $8.6 billion of outstanding debt at par, implying net cash and investments of about $6.9 billion excluding insurance and strategic holdings. The company is rated 'A' by S&P and Fitch and had $2.75 billion of undrawn revolver capacity.

KKR & Co. Inc. 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed July 31, 2024. Cited figures are marked; the original filing is the authoritative source.

KKR & Co. Inc. reported strong second quarter 2024 results on July 31, 2024, with management highlighting record Fee Related Earnings (FRE) of $755 million^a ($0.84 per adjusted share), up 25% year-over-year, and Total Operating Earnings (TOE) of $1.05 billion, up 36%.

Adjusted Net Income (ANI) rose 49% year-over-year to $972 million^b ($1.09 per adjusted share). GAAP net income attributable to KKR common stockholders was $668 million for the quarter ($0.72 diluted EPS), down from $844 million a year earlier, largely reflecting lower investment-related and carried interest items and a change in the composition of consolidated results rather than operating weakness. Management emphasized that the quarter's gains were broad-based across the platform.

Fundraising and deployment accelerated meaningfully. KKR raised $32 billion^c of new capital in the quarter (the second-highest quarter in its history), bringing first-half 2024 new capital raised to $63 billion, versus $24 billion in 1H'23. Capital invested reached $23 billion in the quarter, up from $10 billion a year earlier, and assets under management (AUM) grew 16% year-over-year to $601 billion, while fee-paying AUM rose 16% to $487 billion.

Perpetual capital reached $250 billion^d, representing 42% of AUM, driven largely by organic growth at Global Atlantic, KKR's insurance subsidiary, which KKR has owned 100% of since the first quarter of 2024. The company also declared a regular quarterly dividend of $0.175 per common share, payable August 27, 2024, and continued to guide to growing Strategic Holdings Operating Earnings, targeting $300 million+ by 2026, $600 million+ by 2028, and $1 billion+ by 2030.

Balance sheet metrics remain solid: cash and investments of $15.5 billion against $8.6 billion of outstanding debt (at par), an 'A' rating from both S&P and Fitch, and approximately $7.1 billion of gross unrealized carried interest. Investors should note that the filing furnishes the earnings release under Item 2.02, so the information is not deemed filed under the Exchange Act.

02—Key points

Key Highlights

Record-level Fee Related Earnings of $755 million in Q2 2024, up 25% year-over-year, with FRE per adjusted share of $0.84 and LTM FRE of $2.7 billion.
Total Operating Earnings rose 36% year-over-year to $1.05 billion ($1.17 per adjusted share), with management targeting TOE at roughly 70% of Total Segment Earnings over time.
Adjusted Net Income of $972 million ($1.09 per adjusted share) in the quarter, up 49% year-over-year; LTM ANI of $3.5 billion.
New capital raised of $32 billion in Q2 2024 (second-highest quarter in company history) and $63 billion in 1H'24, versus $24 billion in 1H'23; capital invested of $23 billion in the quarter, up from $10 billion a year earlier.
AUM reached $601 billion (up 16% YoY) and fee-paying AUM reached $487 billion (up 16% YoY); perpetual capital of $250 billion represents 42% of AUM.
GAAP net income to KKR common stockholders was $668 million ($0.72 diluted EPS) versus $844 million ($0.94) a year earlier, a decline investors should weigh against the strong adjusted metrics.
Quarterly dividend of $0.175 per share declared, payable August 27, 2024, to holders of record as of August 12, 2024; balance sheet includes $15.5 billion of cash and investments against $8.6 billion of debt at par, rated 'A' by S&P and Fitch.

03—Questions

Frequently Asked Questions

Why did GAAP net income decline year-over-year while adjusted metrics grew strongly?
GAAP net income attributable to KKR common stockholders fell to $668 million in Q2 2024 from $844 million in Q2 2023, while adjusted net income rose 49%. The gap reflects non-operating and non-cash items that KKR excludes from its adjusted measures, including unrealized gains and losses on investments, unrealized carried interest and related compensation, equity-based compensation, and insurance-related investment gains and losses. Investors should review the GAAP-to-non-GAAP reconciliation in the appendix to understand these differences.
What drove the growth in Fee Related Earnings?
According to the release, FRE growth was driven primarily by higher management fees, which rose to $847 million from $749 million year-over-year, and by increased capital markets transaction fees, which rose to $223 million from $190 million. Fee related compensation as a share of revenue also declined, improving the FRE margin to 65% on an LTM basis from 61% a year earlier.
What is the outlook for Strategic Holdings, and how does it fit into KKR's earnings mix?
KKR expects Strategic Holdings Operating Earnings to be modest in 2024, reaching more than $300 million by 2026, more than $600 million by 2028, and more than $1 billion by 2030. These earnings are driven by dividends from KKR's core private equity businesses. These forward-looking targets are estimates subject to assumptions and risks, and the release notes there is no guarantee they will be achieved as presented.
How much capital did KKR raise and deploy, and what does the pipeline look like?
KKR raised $32 billion of new capital in Q2 2024 and deployed $23 billion, compared with $10 billion deployed a year earlier. Management said it has a healthy deal pipeline for the second half of 2024 across its businesses and geographies. Uncalled commitments (dry powder) totaled $108 billion at quarter-end, and about $53 billion of committed capital that is not yet paying fees is expected to become payable once invested or once the investment period begins.
Is the dividend secure, and what is KKR's leverage position?
KKR declared a regular quarterly dividend of $0.175 per share, but the release states that future dividends remain at the discretion of the board and that there is no assurance any particular dividend policy will be maintained. On the balance sheet, KKR reported $15.5 billion of cash and investments against $8.6 billion of outstanding debt at par, implying net cash and investments of about $6.9 billion excluding insurance and strategic holdings. The company is rated 'A' by S&P and Fitch and had $2.75 billion of undrawn revolver capacity.

04—Continue

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