KKR & Co. Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 9, 2024. KKR is a global alternative asset manager with capital markets and insurance businesses. Results include Global Atlantic, which KKR acquired fully on January 2, 2024, and consolidated investment funds and vehicles.
Financial results and key metrics
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| GAAP revenue | $9.657 billion | $3.127 billion |
| Income before taxes | $1.363 billion | $408 million |
| Net income | $1.094 billion | $260 million |
| Net income attributable to KKR common stockholders | $682 million | $323 million |
| GAAP diluted EPS | $0.74 | $0.36 |
| Fee Related Earnings (non-GAAP) | $669 million | $549 million |
| Total Segment Earnings (non-GAAP) | $1.155 billion | $980 million |
| Adjusted Net Income (non-GAAP) | $864 million | $719 million |
- Revenue mix and earnings quality: GAAP revenue rose sharply, driven chiefly by insurance net premiums of $6.037 billion versus $474 million and asset management and strategic holdings capital allocation-based income of $1.263 billion versus $449 million. Insurance premiums and claims both reflect the scale and timing of reinsurance transactions; GAAP revenue growth is therefore not directly comparable as a measure of recurring fee growth.
- Asset management: Fees and other revenue were $694 million, up from $677 million. Carried interest was $1.145 billion versus $343 million. Net gains from asset management and strategic holdings investment activities were $638 million, versus a $159 million loss, including $829 million of unrealized gains and $191 million of realized losses.
- Insurance: Net investment income was $1.520 billion versus $1.301 billion; net investment-related losses were $241 million versus $124 million. Net policy benefits and claims were $7.261 billion versus $1.527 billion. Insurance Operating Earnings, a non-GAAP segment measure, were $273 million versus $205 million.
- Cash flows: Operating cash flow was positive $1.527 billion, compared with negative $1.933 billion; investing cash flow was negative $6.199 billion versus negative $3.819 billion; financing cash flow was positive $45 million versus positive $2.073 billion. Cash, cash equivalents and restricted cash fell $4.643 billion during the quarter to $16.166 billion. Cash flow includes consolidated funds and insurance activity and is not a direct measure of corporate free cash flow.
- Balance sheet and debt: Total assets were $339.8 billion and total liabilities $282.9 billion at March 31, 2024. Reported debt obligations were $45.1 billion in asset management and strategic holdings and $3.1 billion in insurance. These balances include debt of consolidated funds and other entities, much of which is non-recourse beyond the relevant assets. KKR separately reported book value of $28.3 billion and cash and short-term investments of $4.0 billion on a non-GAAP basis that excludes specified consolidated vehicles.
- Scale and deployment: AUM was $577.6 billion, FPAUM $470.6 billion, and uncalled commitments $97.5 billion at quarter-end. Capital invested during the quarter was $14.1 billion, up from $9.8 billion.
Material changes versus the prior comparable period
- KKR acquired the remaining Global Atlantic minority interests for approximately $2.6 billion cash and $41 million in exchangeable securities. Because Global Atlantic was already consolidated, the purchase was accounted for as an equity transaction; it reduced KKR stockholders’ equity.
- Starting in Q1 2024, KKR reports Strategic Holdings as a separate segment, initially covering its core private equity balance-sheet investments. Prior periods were recast for segment presentation, but Strategic Holdings management and performance fees did not apply historically.
- Fee Related Earnings increased to $669 million from $549 million, and Total Segment Earnings increased to $1.155 billion from $980 million. Total Investing Earnings declined to $193 million from $227 million, as lower net realized investment income partly offset higher realized performance income.
- Global Atlantic’s assumed block reinsurance volumes were $10.2 billion versus $79 million. This, alongside other business growth, substantially increased premiums, policy reserves and insurance assets; it is a key reason GAAP insurance revenue and claims are not like-for-like indicators of underlying growth.
- KKR’s common shares outstanding were approximately 885.0 million at quarter-end. Diluted weighted-average shares rose to 925.1 million from 887.2 million, reflecting dilution from equity awards.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no formal earnings guidance. Management describes market and economic conditions as important drivers of fundraising, deployment, realizations, valuations, capital markets activity and insurance sales. It cites positive U.S. and European equity markets in Q1, elevated but moderating inflation, and higher long-term government bond yields.
- As of the filing date, pending or post-quarter transactions represented at least $400 million of realized carried interest and realized investment income; not all was expected to be realized in Q2. Some transactions remained subject to closing conditions, and KKR gave no assurance as to timing or completion.
- KKR announced a common dividend policy of $0.70 per share annually, or $0.175 quarterly, subject to Board discretion. A $0.175 dividend was declared for payment May 28, 2024. No shares were repurchased in Q1.
- Effective January 2024, the permitted carry-pool allocation may reach 80%, subject to fund-specific terms and independent director approval. KKR also revised targeted compensation ranges: 15%–20% of fee-related revenues and 70%–80% of realized carried interest and certain incentive fees. Carry-related compensation and reported earnings can vary materially with investment marks and realizations.
- Valuation and insurance risks: A substantial portion of KKR’s private equity and real assets is valued using Level III inputs, including market comparables and discounted cash flows; actual realization values may differ materially. Global Atlantic is exposed to interest-rate, credit, equity-market, policyholder behavior and reinsurance counterparty risks. Its commercial mortgage loan credit-loss allowance rose to $676 million from $602 million, and loans at least 90 days past due or in foreclosure totaled $587 million.
- Commitments and contingencies: At quarter-end, KKR had $7.9 billion of unfunded fund commitments and $504 million of capital-markets commitments; Global Atlantic had $3.8 billion of investment funding commitments. Carried interest subject to clawback was approximately $550 million assuming liquidation at reported fair values; the disclosed zero-value stress case was $3.7 billion, with potential reimbursement rights against Associates Holdings.
- Legal matters: KKR disclosed ongoing U.S. Department of Justice antitrust investigations and SEC investigations concerning business-related electronic communications. Motions to dismiss were denied in two Kentucky-related actions in May 2024. Management could not estimate a reasonably possible loss range, but stated it did not then expect pending matters to have a material adverse effect on the financial statements; an adverse outcome could nevertheless materially affect a future period.
- After quarter-end, KKR renewed capital-markets revolving facilities, and Global Atlantic replaced its revolving credit facility in May 2024 with a new facility of up to $1.0 billion. KKR reported compliance with material debt covenants at March 31, 2024.
Important facts for investors to verify
- Separate recurring fee earnings and cash realizations from unrealized carried interest, investment marks and insurance accounting effects; review the non-GAAP reconciliations and segment recast.
- Assess the drivers and durability of Global Atlantic’s unusually large assumed reinsurance volumes, premiums, policy reserves, investment yields and insurance operating earnings.
- Review debt by legal entity and recourse, corporate liquidity excluding consolidated funds, and the cash demands from acquisition costs, investment commitments, policyholder activity and dividends.
- Track Level III valuation assumptions, credit-loss allowances, mortgage delinquencies and the potential impact of market movements on KKR’s carry and Global Atlantic’s liabilities.
- Monitor the status and potential financial effects of the Kentucky litigation and DOJ and SEC investigations, as well as clawback exposure and the revised carry-pool arrangements.