Apollo Global Management, Inc. quarterly report, Q1 FY2024

Apollo Global Management, Inc. — Q1 2024 Form 10-Q

Reporting period: Three months ended March 31, 2024; unaudited. Apollo is a global alternative asset manager and retirement services provider, with asset management and retirement services businesses operated primarily through AAM and Athene. The filing reports three segments: Asset Management, Retirement Services and Principal Investing.

Financial and operating highlights

Metric	Q1 2024	Comparable period / change
Total revenue	$7.040 billion	+$1.739 billion; +32.8% year over year
Net income attributable to Apollo common stockholders	$1.403 billion	$1.010 billion; +38.9%
Diluted EPS	$2.28	$1.66
Segment Income	$1.300 billion	$1.093 billion; +19.0%
Adjusted Net Income (non-GAAP)	$1.064 billion	$845 million
Operating cash flow	$70 million	$1.071 billion
Investing cash flow	$(16.385) billion	$(5.640) billion
Financing cash flow	$18.342 billion	$11.523 billion

All amounts are U.S. dollars. Consolidated cash flows reflect Athene and consolidated funds/VIEs, so operating cash flow is not a direct measure of Apollo’s fee-business cash generation. Apollo separately reported $638 million of operating cash flow from the Company, offset by $568 million used by consolidated funds and VIEs.

Asset Management: Fee Related Earnings (FRE) rose 16.4% to $462 million, driven mainly by higher management and fee-related performance fees. Fee-generating AUM was $506.1 billion, up from $493.0 billion at year-end; total AUM was $671.0 billion, up from $650.8 billion. Dry powder was $65 billion. Management reported FRE margin expansion of more than 150 basis points, but the filing text does not provide a clear margin percentage.
Retirement Services: Spread Related Earnings (SRE) increased 18.8% to $817 million. Net investment spread was 1.83%, unchanged year over year: a higher net investment earned rate of 4.89% was offset by a higher cost of funds of 3.10%.
Principal Investing: Principal Investing Income rose to $21 million from $8 million, as lower compensation expense more than offset reduced realized performance fees.
Balance sheet and liquidity: Total assets were $334.1 billion, total liabilities $307.0 billion and total equity $27.0 billion at quarter-end. Unrestricted cash and cash equivalents were $17.7 billion; management cited an additional $4.9 billion available under credit and liquidity facilities, all undrawn. Apollo stated liquidity should be sufficient for anticipated expenses and working capital needs for at least 12 months.
Debt: Reported debt totaled $9.596 billion ($3.856 billion Asset Management and $5.740 billion Retirement Services), versus $8.092 billion at year-end. Athene issued $1.0 billion of 6.25% senior notes due 2054 and $575 million of 7.25% junior subordinated notes due 2064 during the quarter.
Shareholder returns: Apollo paid a $0.43-per-share common dividend for the quarter and repurchased $260 million of common stock in the cash flow statement. The board authorized a new $3.0 billion repurchase program in February. A $0.4625 common dividend was declared in May for payment May 31, 2024.

Material changes and drivers

Retirement Services revenue increased 40.8% to $6.005 billion, largely reflecting higher net investment income as Athene’s portfolio grew and deployed at higher rates, plus higher investment-related gains.
Retirement Services investment-related gains were $1.677 billion versus $1.065 billion. Results included favorable equity-index hedging gains, partly offset by fair-value losses on reinsurance assets, mortgage loans and trading securities. These gains are market-sensitive and contributed to quarter-to-quarter earnings variability.
Retirement Services expenses rose 47.0% to $3.933 billion. Interest-sensitive contract benefits increased with growth in annuity and funding-agreement liabilities, higher crediting rates and changes in fixed-indexed-annuity embedded derivatives. Market risk benefit remeasurement shifted to a $154 million gain from a $346 million loss.
Asset Management GAAP revenue was essentially flat at $1.035 billion. Management fees and advisory/transaction fees grew, while investment income declined. In segment results, higher fees drove FRE growth, partly offset by higher operating expenses.
Net income attributable to common stockholders increased faster than total net income, but Q1 2024 included $24 million of preferred dividends; diluted share count also reflects the mandatory convertible preferred stock, options and warrants.
Athene’s U.S. redomicile became effective December 31, 2023, making it a U.S.-domiciled corporation and U.S. taxpayer for 2024 onward. The consolidated effective tax rate was 19.3%, compared with 14.1% in Q1 2023.

Outlook, risks and contingencies

No specific full-year earnings or revenue guidance is provided in the supplied filing text. Management describes the fundraising environment as generally accommodative, but emphasizes that results depend on markets, fund performance, capital raising and deployment, and interest rates.
Management’s targets and historical fund returns are not forecasts or guarantees; reported fund IRRs are not returns to Apollo shareholders and are generally shown before or after fund-level fees as specifically defined.
Rates, equity markets, credit conditions, foreign exchange, inflation and geopolitical events can affect asset valuations, performance fees, insurance liabilities and investment results. Athene estimated that an immediate parallel 100-basis-point rate increase would reduce point-in-time pretax income by $2.5 billion, net of offsets; a sustained 25-basis-point rate increase was estimated to raise annual SRE by approximately $30–$40 million through floating-rate positions.
Athene reported $14.823 billion of gross unrealized losses on available-for-sale securities, primarily attributed to market interest rates; it said it intended to hold the securities and did not expect to be forced to sell before cost recovery. It reported 96.9% of its AFS portfolio as investment grade by NAIC designation 1 or 2.
Athene had $24.3 billion of investment commitments, in addition to $563 million of unfunded commitments related to managed funds. Commitments may become payable upon counterparty request. Athene also reported $59.7 billion of restricted assets, primarily supporting reinsurance trusts and funding arrangements.
Performance allocations are subject to reversal if fund values decline. Apollo disclosed approximately $5.3 billion of cumulative performance-fee revenue that could be reversed if existing investments became worthless; management considered that scenario remote. Fund VIII distributions remain subject to escrow requirements because its value was below the specified return threshold.
Atlas’s deferred purchase obligation was reduced from $3.3 billion to $2.5 billion after its investment-management agreement with Credit Suisse ended. Apollo subsidiaries issued assurance letters; management said payment under the guarantee was not probable and recorded no liability.
Legal matters include an appeal in the Harbinger litigation, a proposed MPM settlement pending court approval, shareholder litigation concerning prior recapitalization payments and the stockholders agreement, and an appeal in the PlayAGS matter. Apollo also disclosed an SEC information request concerning record-retention practices for electronic business communications. The filing says potential losses for several matters cannot be reasonably estimated.
The filing added litigation risk disclosure, including four putative ERISA class actions against Athene customers over pension risk-transfer transactions. Athene is not named as a defendant, but Apollo warns of potential reputational, regulatory and business effects.

Important facts for investors to verify

How much of reported earnings growth came from recurring FRE and SRE versus fair-value gains, hedging effects and other market-sensitive items.
Whether Athene can sustain investment spreads as asset yields and liability crediting costs change, and how annuity flows, surrenders and funding-agreement growth develop.
The sensitivity and valuation assumptions behind Athene’s Level 3 assets, mortgage loans, derivatives and insurance liabilities, including the increase in delinquent or non-accrual mortgage loans disclosed in the notes.
The availability and quality of Apollo’s liquidity, including the distinction between unrestricted cash, restricted insurance assets, consolidated fund/VIE cash and undrawn facilities.
Potential effects of the Atlas obligation, investment commitments, performance-fee clawbacks, litigation and the SEC inquiry on future cash needs or reputation.
Common-share dilution from the mandatory convertible preferred stock, equity awards and warrants, alongside execution of the $3.0 billion repurchase authorization and dividend capacity.