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T. Rowe Price(TROW) - 2023 Q2 - Quarterly Report

Part I – Financial Information Financial Statements Presents unaudited condensed consolidated financial statements, including balance sheets, income, and cash flow, detailing key financial changes Unaudited Condensed Consolidated Financial Statements Provides core unaudited financial statements, highlighting increases in total assets and stockholders' equity, with stable diluted EPS Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | 6/30/2023 | 12/31/2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,249.7 | $1,755.6 | | Investments | $2,718.4 | $2,539.2 | | Total assets | $12,621.4 | $11,643.3 | | Total liabilities | $2,170.3 | $1,956.4 | | Total stockholders' equity | $9,465.9 | $9,030.2 | Condensed Consolidated Statements of Income Highlights (in millions, except per-share) | Income Statement Item | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $1,610.2 | $1,513.0 | $3,147.8 | $3,376.0 | | Net operating income | $533.5 | $668.6 | $1,017.7 | $1,546.0 | | Net income attributable to T. Rowe Price Group | $476.4 | $339.6 | $897.9 | $907.5 | | Diluted EPS | $2.06 | $1.46 | $3.89 | $3.88 | Condensed Consolidated Statements of Cash Flows Highlights (in millions) | Cash Flow Item (Six months ended) | 6/30/2023 | 6/30/2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $906.5 | $1,727.0 | | Net cash used in investing activities | ($135.9) | ($25.7) | | Net cash used in financing activities | ($320.0) | ($1,131.0) | | Net change in cash and cash equivalents | $451.5 | $563.0 | Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations of accounting policies and financial data, covering revenue, investments, goodwill, and contingent consideration liability Investment Advisory Fees by Asset Class (in millions) | Asset Class | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Equity | $862.3 | $941.0 | $1,696.2 | $2,027.0 | | Fixed income | $100.0 | $109.9 | $202.4 | $216.5 | | Multi-asset | $391.3 | $377.5 | $777.3 | $782.1 | | Alternatives | $77.2 | $68.3 | $146.7 | $133.2 | | Total | $1,430.8 | $1,496.7 | $2,822.6 | $3,158.8 | - The fair value of the contingent consideration liability related to the OHA acquisition decreased to $23.0 million at the end of Q2 2023, down from $95.8 million at the beginning of the year, due to unrealized gains (reductions in liability) of $72.8 million44 - As of June 30, 2023, Goodwill remained stable at $2.64 billion, while definite-lived intangible assets decreased to $394.7 million from $447.1 million at year-end 2022 due to amortization56 - The company has committed $481.5 million to fund OHA products over the next four years71 Management's Discussion and Analysis (MD&A) Management discusses financial condition and operations, covering market trends, AUM changes, investment performance, operating results, and liquidity Overview and Market Trends Discusses the AUM-based business model, noting passive investing trends and reviewing Q2 2023 market performance - The general trend to passive investing has been persistent and has negatively impacted the company's new client inflows82 Key Index Returns (Q2 and YTD 2023) | Index | Three months ended 6/30/2023 | Six months ended 6/30/2023 | | :--- | :--- | :--- | | S&P 500 Index | 8.7% | 16.9% | | NASDAQ Composite Index | 12.8% | 31.7% | | Bloomberg U.S. Aggregate Bond Index | (0.8)% | 2.1% | Assets Under Management (AUM) AUM increased to $1.40 trillion in Q2 2023 due to market appreciation, despite continued net outflows - Ending AUM was $1,399.4 billion at June 30, 2023, an increase of $57.7 billion from March 31, 202392 AUM Change in Q2 2023 (in billions) | Component | Amount | | :--- | :--- | | Market appreciation | +$77.7 | | Net cash outflows | -$20.0 | | Total Change | +$57.7 | AUM Change by Asset Class - Q2 2023 (in billions) | Asset Class | Beginning AUM (3/31/23) | Net Cash Flows | Net Market Appreciation | Ending AUM (6/30/23) | | :--- | :--- | :--- | :--- | | Equity | $695.1 | ($19.5) | $56.6 | $732.2 | | Fixed income | $170.4 | ($1.9) | $0.8 | $169.3 | | Multi-asset | $431.9 | $1.6 | $19.7 | $453.2 | | Alternatives | $44.3 | ($0.2) | $0.6 | $44.7 | Investment Performance Presents investment performance across various time horizons, showing strong long-term outperformance with mixed shorter-term results % of U.S. Mutual Funds Outperforming Morningstar Median | Period | Equity | Fixed Income | Multi-Asset | All Funds | | :--- | :--- | :--- | :--- | :--- | | 1 year | 57% | 49% | 61% | 56% | | 3 years | 52% | 59% | 56% | 55% | | 5 years | 62% | 68% | 75% | 67% | | 10 years | 78% | 65% | 86% | 75% | % of Composites Outperforming Benchmarks | Period | Equity | Fixed Income | All Composites | | :--- | :--- | :--- | :--- | | 1 year | 42% | 32% | 38% | | 3 years | 32% | 61% | 44% | | 5 years | 49% | 51% | 50% | | 10 years | 71% | 76% | 73% | Results of Operations Details financial results, noting a 6.4% YoY net revenue increase driven by capital allocation income, despite higher GAAP operating expenses Q2 2023 vs. Q2 2022 Financial Highlights (in millions) | Metric | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | $1,610.2 | $1,513.0 | 6.4% | | Investment Advisory Fees | $1,430.8 | $1,496.7 | (4.4)% | | Capital Allocation-based Income | $38.7 | ($126.3) | n/m | | GAAP Operating Expenses | $1,076.7 | $844.4 | 27.5% | | GAAP Net Operating Income | $533.5 | $668.6 | (20.2)% | Operating Expenses Breakdown - Q2 2023 vs Q2 2022 (in millions) | Expense Category | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Total compensation and related costs | $648.2 | $463.4 | 39.9% | | Technology, occupancy, and facility costs | $154.7 | $134.3 | 15.2% | | Change in fair value of contingent consideration | ($23.2) | ($50.3) | (53.9)% | - The effective tax rate on a U.S. GAAP basis was 24.8% for Q2 2023, compared to 26.0% for Q2 2022149 Capital Resources and Liquidity Discusses the company's strong liquidity position, with increased cash and investments, and details capital returns and anticipated expenditures Sources of Liquidity (in millions) | Item | 6/30/2023 | 12/31/2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,249.7 | $1,755.6 | | Discretionary investments | $484.8 | $449.7 | | Total cash and discretionary investments | $2,734.5 | $2,205.3 | - In the first half of 2023, the company expended $45.2 million to repurchase 420,000 shares of common stock and paid $562.4 million in dividends16613 - Anticipated capital expenditures for full-year 2023 are about $365 million, with approximately 60% planned for technology initiatives167 Market Risk and Controls & Procedures States no material changes to market risk disclosures or internal control over financial reporting, with effective disclosure controls and procedures - There has been no material change in the company's market risks from those provided in the Form 10-K Annual Report for 2022182 - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of June 30, 2023183 - No change occurred during Q2 2023 that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting184 Part II – Other Information Other Information (Items 1-6) Covers other required disclosures, including legal proceedings, risk factors, and detailed share repurchase activity for the quarter - There have been no material changes in risk factors from the Form 10-K Annual Report for 2022187 Share Repurchase Activity - Q2 2023 | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April | — | $— | | May | 193,350 | $105.33 | | June | 214,866 | $108.87 | | Total | 408,216 | $107.20 | - As of June 30, 2023, the maximum number of shares that may yet be purchased under the publicly announced program is 8,354,638190