T. Rowe Price(TROW) - 2024 Q4 - Annual Report

Part I Business Overview T. Rowe Price is a global investment advisory firm providing diverse solutions, with revenue tied to AUM, actively addressing industry challenges through strategic initiatives - T. Rowe Price is a global financial services holding company providing investment advisory services and managing diverse investment solutions for clients worldwide[10] - The firm addresses industry challenges like passive competition and fee pressure by pursuing strategic initiatives in retirement, wealth management, global growth, and alternative markets[13][14] Assets Under Management (AUM) As of December 31, 2024, AUM reached $1,606.6 billion, primarily driven by market appreciation despite net cash outflows, with strong growth in target date retirement products AUM by Asset Class (in billions USD) | Asset Class | 2024 AUM | 2023 AUM | 2022 AUM | | :--- | :--- | :--- | :--- | | Equity | $829.7 | $743.6 | $664.2 | | Fixed Income, including money market | $188.1 | $170.0 | $167.0 | | Multi-Asset | $536.0 | $483.0 | $400.1 | | Alternatives | $52.8 | $47.9 | $43.4 | | Total | $1,606.6 | $1,444.5 | $1,274.7 | - Total AUM increased by $162.1 billion in 2024, driven by $205.3 billion in market appreciation, partially offset by $43.2 billion in net cash outflows[16][182] - Target date retirement products saw net inflows of $16.3 billion in 2024, reaching $475.6 billion in AUM, representing 29.6% of total managed assets[17][185] Investment Management Services The firm offers a comprehensive range of global investment strategies across various asset classes and vehicles, supported by seed capital and co-investments - The firm manages a broad range of investment strategies across Equity, Fixed Income, Multi-Asset, and Alternatives categories[24][27] - Products are distributed through five primary channels globally, serving clients in 54 countries, with non-U.S. investors accounting for approximately 9% of total AUM[32][33] - As of December 31, 2024, the firm held $1.3 billion in seed capital investments and $0.3 billion in co-investments in its managed products[30] Revenue Sources Revenue is primarily from AUM-based investment advisory fees, with higher rates for equity and alternatives, supplemented by performance fees, carried interest, and administrative service income - Substantially all net revenue derives from AUM-based investment advisory fees, with nearly 57% from sponsored U.S. mutual funds[36] - Fee rates are typically higher for equities and alternatives compared to multi-asset and fixed income products[37] - The firm also earns performance-based fees and capital allocation-based income (carried interest) from certain affiliated private investment funds[39][41] - Ancillary revenue is generated from administrative services, including mutual fund transfer agent, recordkeeping, brokerage, and trust services[42] Regulation The firm's business is subject to extensive and complex federal, state, and international regulations, with key oversight from bodies like the SEC and FCA, and all subsidiaries met net capital requirements - The business is subject to extensive federal, state, and foreign laws and regulations, with broad powers granted to supervisory agencies[44] - Key regulators include the SEC, U.S. Department of Labor (ERISA), and international bodies like the Financial Conduct Authority (UK) and Securities and Futures Commission (Hong Kong)[47] - Certain subsidiaries are subject to net capital requirements, all of which were met or exceeded as of December 31, 2024[50] Human Capital The company values its 8,158 associates, focusing on talent development, internal promotion, and comprehensive benefits to attract and retain skilled personnel - As of December 31, 2024, the company employed 8,158 associates, a 3.2% increase from 7,906 associates at year-end 2023[55] - The firm emphasizes internal promotion, filling approximately one-third of open positions with internal candidates, including most portfolio managers[56] - Key human capital strategies include investing in employee development, offering mentorship programs, and providing competitive benefits for health, wellness, and family needs[54][57][61][62] Risk Factors The company faces diverse risks, including AUM dependency, intense competition, operational failures, reputational damage, regulatory changes, cybersecurity threats, and alternative investment complexities Business and Industry Risks Business risks include revenue sensitivity to AUM fluctuations, intense competition, short-notice contract terminations, operational failures, reputational damage, and complexities from alternative investments - Revenues are primarily based on AUM, subject to significant fluctuation due to external factors like investment performance, market downturns, and changing investor trends[67][69][74] - The company operates in an intensely competitive industry, facing pressure from passive investment products that could lead to client loss or fee reductions[73][74] - A majority of revenues derive from collective investment fund contracts terminable on short notice, posing a risk to revenue stability[72] - Operational complexity, reliance on third-party providers, and human error create risks of financial loss, regulatory sanctions, and reputational damage[79][81] - Alternative products, including private credit and real estate, expose the firm to new risks such as illiquidity, valuation challenges, and credit risks[87][90] Human Capital Risks The firm's success depends on key personnel, and their loss could negatively impact investment performance, reputation, and AUM due to intense talent competition - The firm's success depends on highly skilled personnel, and the loss of their services could negatively affect investment performance and financial results[111] - Competition for qualified personnel is intense, and the loss of key employees could damage reputation, hinder investor attraction, and decrease AUM[111][112] Technology and Cybersecurity Risks Heavy reliance on technology exposes the firm to system failures, cyberattacks, and AI-related risks, potentially leading to data breaches, operational disruptions, and financial harm - The business depends on significant technology for trading, portfolio management, and data security; failures could lead to client loss and reputational harm[113][114] - Cyberattacks, such as ransomware and phishing, pose a significant threat to data integrity and could materially interrupt business operations[116] - Increased AI use presents risks including incorrect output, data privacy violations, and navigating an uncertain, evolving legal and regulatory environment[121] Legal and Regulatory Risks Operating in a complex, evolving regulatory environment, the firm faces risks from non-compliance, new retirement rules, ESG legislation, data privacy laws, and increased legal challenges to regulations - The business is subject to extensive, complex, and frequently changing global regulations, imposing significant financial and strategic costs[122][123] - Potential regulatory changes include new U.S. retirement system rules, evolving ESG disclosure requirements, and expanding data privacy and cybersecurity regulations[127][128] - Recent U.S. Supreme Court decisions, like Loper Bright Enterprises v. Raimondo, may increase legal challenges against federal regulations, creating greater regulatory uncertainty[131] - The firm is subject to costly, time-consuming legal proceedings, regulatory inquiries, and negative publicity that can damage its reputation[130][134][135] Cybersecurity T. Rowe Price employs a firm-wide cybersecurity risk management approach, overseen by the Board and led by executive management, with robust policies, regular assessments, and external audits, reporting no material incidents in 2024 - The firm has a holistic, firm-wide cybersecurity risk management approach, overseen by the Board and managed by executive leadership including the COO, CRO, and CISO[138][139][140] - The cybersecurity program includes documented incident management policies, regular risk assessments, employee training, phishing tests, and business continuity testing[143][144][145] - The firm undergoes annual external examinations (e.g., Sarbanes-Oxley, SOC 1, SOC 2) and engages third parties for independent evaluations and penetration testing[146] - Although targeted by cybersecurity attacks, no incident in 2024 materially impacted the firm's operations, strategy, or financial condition[148] Properties The company's headquarters will relocate to a new Baltimore leased facility in 2025, while it owns major operating campuses in Maryland and Colorado, and leases other domestic and international offices - The corporate headquarters will move to a new 553,000 sq. ft. leased space in Baltimore, Maryland in early 2025[149] - The company owns primary operating campuses in Owings Mills, MD (1.1 million sq. ft.) and Colorado Springs, CO (approx. 290,000 sq. ft.)[150] - All non-U.S. offices are leased, with the largest located in London and Hong Kong[151] Executive Officers This section lists the company's executive officers as of February 14, 2025, including Robert W. Sharps (CEO), Jennifer B. Dardis (CFO), and Kimberly H. Johnson (COO) - Robert W. Sharps, 53, is the Chair of the Board, Chief Executive Officer, and President[156] - Jennifer B. Dardis, 51, is the Chief Financial Officer and Treasurer[157] - Kimberly H. Johnson, 52, is the Chief Operating Officer[159] Part II Market for Common Equity and Shareholder Matters The company's common stock trades on NASDAQ (TROW), paid $1.24 quarterly dividends in 2024, repurchased 651,090 shares in Q4 2024, and authorized an additional 15.0 million shares for repurchase Quarterly Dividends Per Share (USD) | Year | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | | :--- | :--- | :--- | :--- | :--- | | 2024 | $1.24 | $1.24 | $1.24 | $1.24 | | 2023 | $1.22 | $1.22 | $1.22 | $1.22 | Share Repurchase Activity (Q4 2024) | Month | Total Shares Purchased | Average Price Paid (USD) | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | October | 3,951 | $110.30 | — | | November | 17,125 | $121.70 | — | | December | 630,014 | $115.36 | 623,136 | | Total | 651,090 | $115.50 | 623,136 | - In December 2024, the Board approved an increase of 15.0 million shares to the repurchase program, bringing the total remaining authorization to 18,377,353 shares as of December 31, 2024[167][169] Management's Discussion and Analysis (MD&A) This section details the company's financial condition and operations, highlighting 2024 AUM growth to $1.61 trillion, 9.8% revenue increase to $7.1 billion, and diluted EPS of $9.15, driven by higher AUM and strategic investments Market Trends In 2024, U.S. stocks saw strong gains, major indexes hit new highs, the Federal Reserve began rate reductions, and global bond returns were mostly positive - U.S. stocks produced strong gains in 2024, with the S&P 500 returning 25.0% and the NASDAQ Composite returning 28.6%[175][178] - Global bond returns were mostly positive as many central banks reduced interest rates, with the Bloomberg Barclays U.S. Aggregate Bond Index returning 1.3%[178][181] Assets Under Management (AUM) Analysis AUM reached $1,606.6 billion in 2024, increasing by $162.1 billion due to market appreciation offsetting net cash outflows, with target date products showing strong inflows Change in AUM by Asset Class (2024, in billions USD) | Asset Class | 2023 AUM | Net Cash Flows | Market Appreciation & Income | 2024 AUM | | :--- | :--- | :--- | :--- | :--- | | Equity | $743.6 | $(52.0) | $138.1 | $829.7 | | Fixed Income | $170.0 | $12.6 | $5.5 | $188.1 | | Multi-Asset | $483.0 | $(6.5) | $59.5 | $536.0 | | Alternatives | $47.9 | $2.7 | $2.2 | $52.8 | | Total | $1,444.5 | $(43.2) | $205.3 | $1,606.6 | - Net cash outflows in 2024 were $43.2 billion, an improvement from $81.8 billion of outflows in 2023[184] - Target date retirement products continued to attract assets, with net cash inflows of $16.3 billion in 2024, up from $13.1 billion in 2023[185] Investment Performance As of December 31, 2024, 54% of U.S. mutual funds outperformed their Morningstar median over one year, with 70% outperforming over ten years, and 60% holding a 4 or 5-star rating % of U.S. Mutual Funds Outperforming Morningstar Median (as of 12/31/2024) | Period | 1 Year | 3 Years | 5 Years | 10 Years | | :--- | :--- | :--- | :--- | :--- | | All Funds | 54% | 56% | 56% | 70% | % of U.S. Mutual Funds AUM Outperforming Morningstar Median (as of 12/31/2024) | Period | 1 Year | 3 Years | 5 Years | 10 Years | | :--- | :--- | :--- | :--- | :--- | | All Funds AUM | 61% | 61% | 59% | 83% | - As of December 31, 2024, 60% of the firm's rated U.S. mutual funds received an overall Morningstar rating of 4 or 5 stars, compared to 32.5% for the overall fund population[192] Results of Operations In 2024, T. Rowe Price reported strong financial results, with net revenues up 9.8% to $7.1 billion, net operating income up 17.5% to $2.3 billion, and diluted EPS up 17.9% to $9.15, driven by higher average AUM Consolidated Financial Results (U.S. GAAP, in millions USD, except per-share data) | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | $7,093.6 | $6,460.5 | 9.8% | | Operating Expenses | $4,760.3 | $4,474.3 | 6.4% | | Net Operating Income | $2,333.3 | $1,986.2 | 17.5% | | Net Income to T. Rowe Price Group | $2,100.1 | $1,788.7 | 17.4% | | Diluted EPS | $9.15 | $7.76 | 17.9% | - The increase in 2024 revenue was driven by a 14.7% rise in average AUM to $1,561.9 billion[194][196] - The annualized effective fee rate (excluding performance fees) declined from 41.9 bps in 2023 to 41.0 bps in 2024, largely due to a mix shift toward lower-fee products[197] - The firm estimates 2025 non-GAAP operating expense growth to be in the range of 4%-6% from the 2024 base of $4,456.3 million[201] Capital Resources and Liquidity The company maintains strong liquidity, with cash and investments increasing to $5.5 billion in 2024, returning $1.47 billion to stockholders, and anticipating $300 million in 2025 capital expenditures for technology Sources of Liquidity (in millions USD) | Item | 12/31/2024 | 12/31/2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,649.8 | $2,066.6 | | Discretionary investments | $457.1 | $463.7 | | Redeemable seed capital investments | $1,262.3 | $1,370.9 | | Total Cash and Key Investments | $5,480.1 | $4,795.8 | Cash Returned to Stockholders (in millions USD) | Year | Recurring Dividend | Stock Repurchases | Total | | :--- | :--- | :--- | :--- | | 2024 | $1,135.2 | $334.5 | $1,469.7 | | 2023 | $1,121.9 | $254.3 | $1,376.2 | | 2022 | $1,108.8 | $855.3 | $1,964.1 | - Anticipated property and equipment expenditures for 2025 are about $300 million, with over 75% planned for technology initiatives[261] - As part of the OHA acquisition, T. Rowe Price has a remaining commitment of $360 million to fund OHA product launches through 2026[276] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in VIE consolidation, goodwill and intangible asset impairment testing (including a $31.1 million trade name impairment in 2024), and income tax provisions - Critical policies involve significant judgment, particularly in consolidation of VIEs, impairment of goodwill and intangibles, and income tax provisions[277][278] - Goodwill is tested annually for impairment at the single reporting unit level, with fair value consistently exceeding carrying amount, resulting in no impairment[284][285] - Indefinite-lived intangible assets are tested annually for impairment; in 2024, a non-cash impairment charge of $31.1 million was recognized on the trade name intangible asset[282] - The provision for income taxes is a major expense requiring significant estimates for allocating income and expenses across multiple tax jurisdictions[286] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to equity price risk from corporate investments, with a hypothetical $304.7 million pre-tax loss from a 10-13% decline, and currency translation risk from its UTI (India) investment Potential Loss from Equity Price Risk (as of 12/31/2024, in millions USD) | Investment Category | Fair Value | Potential Lower Value | Potential Loss | | :--- | :--- | :--- | :--- | | Investments in sponsored products (non-consolidated) | $1,520.7 | $1,328.7 | $192.0 | | Direct investment in consolidated products | $1,037.9 | $925.2 | $112.7 | | Investment partnerships & other | $62.6 | $55.7 | $6.9 | | Total | $2,621.2 | $2,309.6 | $311.6 | - The most significant currency translation risk relates to the investment in UTI, denominated in Indian rupees, with a cumulative translation loss of $49.5 million (net of tax) as of December 31, 2024[302] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for the three years ended December 31, 2024, with KPMG LLP issuing an unqualified opinion on both the financials and internal controls Consolidated Financial Statements The consolidated financial statements show total assets of $13.5 billion and stockholders' equity of $10.5 billion as of December 31, 2024, with 2024 net income of $2.1 billion on $7.1 billion net revenues Key Balance Sheet Figures (in millions USD) | Account | 12/31/2024 | 12/31/2023 | | :--- | :--- | :--- | | Total Assets | $13,472.0 | $12,278.8 | | Total Liabilities | $2,021.9 | $1,987.6 | | Total Stockholders' Equity | $10,506.1 | $9,697.1 | Key Income Statement Figures (in millions USD) | Account | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net Revenues | $7,093.6 | $6,460.5 | $6,488.4 | | Net Operating Income | $2,333.3 | $1,986.2 | $2,373.7 | | Net Income | $2,135.8 | $1,835.7 | $1,449.6 | Notes to Consolidated Financial Statements Notes provide detailed accounting policies and disclosures, including a $31.1 million trade name impairment in 2024, a 24.3% effective tax rate, and $369.1 million in unrecognized stock-based compensation expense - Note 4 & 5: The firm holds $3.0 billion in corporate investments, and the contingent consideration liability from the OHA acquisition was reduced to zero as of December 31, 2024[382][396] - Note 9: Goodwill remained at $2.6 billion with no impairment, while a $31.1 million impairment charge was recognized on the indefinite-lived trade name intangible asset in 2024[413][414] - Note 10: The effective tax rate for 2024 was 24.3%, down from 26.3% in 2023, primarily due to lower valuation allowances[418][242] - Note 12: As of December 31, 2024, $369.1 million of total unrecognized compensation cost related to nonvested restricted stock units remained[436][437] Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting, identifying AUM data evaluation as a critical audit matter - KPMG LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[459][460][477] - A critical audit matter was identified regarding the completeness and accuracy of AUM data used for investment advisory fee revenue, due to the multiple IT systems involved[464][465] Controls and Procedures Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no material changes in Q4 2024, and KPMG LLP provided an unqualified attestation - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024[468] - Management's report states the company's internal control over financial reporting was effective as of December 31, 2024, based on the COSO framework[475] - KPMG LLP's attestation report expressed an unqualified opinion on the effective operation of the company's internal control over financial reporting as of December 31, 2024[476][477] Part III Part III Items 10-14, covering Directors, Executive Compensation, Security Ownership, Certain Relationships, and Principal Accountant Fees, are incorporated by reference from the 2025 proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the definitive proxy statement for the 2025 Annual Meeting of Stockholders[485][486][487][488][489] Part IV Exhibits, Financial Statement Schedules This section lists all documents filed as part of the report, confirming financial statements under Item 8 and providing a comprehensive index of exhibits - This item contains the index of all exhibits filed with the Form 10-K, including management contracts and compensatory plans[491][492]