T. Rowe Price(TROW) - 2024 Q1 - Quarterly Report

FORM 10-Q General Information Registrant Information Key identification details for T. Rowe Price Group, Inc., confirming its filing status and outstanding common stock - T. Rowe Price Group, Inc. filed its quarterly report (Form 10-Q) for the period ended March 31, 2024[2] Registrant Details: | Detail | Value | | :--- | :--- | | Exact Name | T. ROWE PRICE GROUP, INC. | | State of Incorporation | Maryland | | Commission File Number | 000-32191 | | Trading Symbol | TROW | | Exchange | The NASDAQ Stock Market LLC | | Filer Status | Large accelerated filer | | Common Stock Outstanding (as of April 23, 2024) | 223,299,903 shares | PART I – FINANCIAL INFORMATION Item 1. Financial Statements. Unaudited condensed consolidated financial statements and accompanying notes for the quarter ended March 31, 2024 Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in millions): | Metric | 3/31/2024 | 12/31/2023 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $12,854.0 | $12,278.8 | +$575.2 | | Total Liabilities | $2,187.8 | $1,987.6 | +$200.2 | | Total Stockholders' Equity | $9,989.5 | $9,697.1 | +$292.4 | | Cash and cash equivalents | $2,416.5 | $2,066.6 | +$349.9 | | Accounts receivable and accrued revenue | $883.0 | $807.9 | +$75.1 | | Assets of consolidated sponsored investment products | $2,117.2 | $1,959.3 | +$157.9 | Unaudited Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income Highlights (in millions, except per-share amounts): | Metric | 3/31/2024 | 3/31/2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $1,750.2 | $1,537.6 | +$212.6 | +13.8% | | Net Operating Income | $586.6 | $484.2 | +$102.4 | +21.1% | | Total Non-Operating Income (Loss) | $188.9 | $135.4 | +$53.5 | n/m | | Net Income Attributable to T. Rowe Price Group | $573.8 | $421.5 | +$152.3 | +36.1% | | Diluted EPS | $2.49 | $1.83 | +$0.66 | +36.1% | Unaudited Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income Highlights (in millions): | Metric | 3/31/2024 | 3/31/2023 | Change | | :--- | :--- | :--- | :--- | | Net Income | $593.4 | $441.7 | +$151.7 | | Total Other Comprehensive Income (Loss) | $(3.7) | $7.4 | -$11.1 | | Total Comprehensive Income Attributable to T. Rowe Price Group | $571.7 | $422.8 | +$148.9 | Unaudited Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (in millions): | Metric | 3/31/2024 | 3/31/2023 | Change | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $637.3 | $511.7 | +$125.6 | | Net Cash Used in Investing Activities | $(8.6) | $(57.5) | +$48.9 | | Net Cash Used in Financing Activities | $(267.8) | $(144.2) | -$123.6 | | Cash and Cash Equivalents at End of Period | $2,503.9 | $2,186.2 | +$317.7 | Unaudited Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity Highlights (in millions): | Metric | 3/31/2024 | 12/31/2023 | Change | | :--- | :--- | :--- | :--- | | Total Stockholders' Equity Attributable to T. Rowe Price Group, Inc. | $9,784.1 | $9,505.1 | +$279.0 | | Redeemable Non-controlling Interests | $676.7 | $594.1 | +$82.6 | | Net Income Attributable to T. Rowe Price Group | $573.8 | N/A | N/A | | Dividends Declared | $(285.0) | N/A | N/A | | Common Shares Repurchased | $(80.1) | N/A | N/A | NOTE 1 – The Company and Basis of Preparation - Primary revenue source is investment advisory services for individual and institutional investors across various asset classes[16] - Investment solutions are provided through U.S. mutual funds, subadvised funds, separately managed accounts, and other products[17] - New accounting guidance on Segment Reporting (ASU 2023-07) and Income Tax Disclosures (ASU 2023-09) will be adopted in 2025[21][22] NOTE 2 – Information About Receivables, Revenues, and Services Net Revenues and Average AUM by Asset Class (in millions/billions): | Metric | 3/31/2024 | 3/31/2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Revenues: | | | | | | Investment advisory fees | $1,554.0 | $1,391.8 | +$162.2 | +11.7% | | Equity advisory fees | $949.6 | $833.9 | +$115.7 | +13.9% | | Multi-asset advisory fees | $429.7 | $386.0 | +$43.7 | +11.3% | | Capital allocation-based income | $47.1 | $16.9 | +$30.2 | n/m | | Total net revenues | $1,750.2 | $1,537.6 | +$212.6 | +13.8% | | Average AUM: | | | | | | Average AUM | $1,484.4 | $1,322.9 | +$161.5 | +12.2% | | Equity AUM | $770.4 | $687.0 | +$83.4 | +12.1% | | Multi-asset AUM | $497.0 | $422.2 | +$74.8 | +17.7% | - Accounts receivable from sponsored products aggregated to $582.2 million at March 31, 2024, up from $533.9 million at December 31, 2023[25] - Investment advisory clients outside the U.S. account for 8.5% of assets under management at March 31, 2024[26] NOTE 3 – Investments Investment Carrying Values (in millions): | Category | 3/31/2024 | 12/31/2023 | Change | | :--- | :--- | :--- | :--- | | Total Investments | $2,588.7 | $2,554.7 | +$34.0 | | Investments held at fair value (T. Rowe Price investment products) | $1,402.9 | $1,372.5 | +$30.4 | | Equity method investments | $1,006.3 | $1,006.4 | -$0.1 | | Held to maturity | $115.3 | $118.4 | -$3.1 | - Net gains on investments included $64.5 million of net unrealized gains related to investments held at fair value for Q1 2024[29] - The company has debt associated with affiliated CLOs totaling $84.3 million at March 31, 2024[32] NOTE 4 – Fair Value Measurements Fair Value Measurements (in millions) at 3/31/2024: | Category | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | | Cash equivalents held in money market funds | $1,997.4 | $— | $— | | T. Rowe Price investment products (Discretionary, Seed capital, Supplemental savings plan hedges) | $1,097.3 | $50.7 | $— | | Investments in affiliated CLOs | $— | $7.9 | $— | | Contingent consideration liability | $— | $— | $13.4 | - The contingent consideration liability related to the OHA acquisition was $13.4 million at March 31, 2024, with no unrealized gains recognized in Q1 2024[41] NOTE 5 – Consolidated Sponsored Investment Products Consolidated Sponsored Investment Products Net Assets (in millions): | Metric | 3/31/2024 | 12/31/2023 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $2,117.2 | $1,959.3 | +$157.9 | | Total Liabilities | $71.1 | $54.2 | +$16.9 | | Net Assets Attributable to T. Rowe Price Group | $1,369.4 | $1,311.0 | +$58.4 | | Net Assets Attributable to Redeemable Non-controlling Interests | $676.7 | $594.1 | +$82.6 | Impact on Income Statement (in millions): | Metric | 3/31/2024 | 3/31/2023 | Change | | :--- | :--- | :--- | :--- | | Impact on Income Before Taxes | $70.0 | $41.8 | +$28.2 | | Net Income Attributable to T. Rowe Price Group | $50.4 | $21.6 | +$28.8 | | Net Income Attributable to Redeemable Non-controlling Interests | $19.6 | $20.2 | -$0.6 | - The assets of these consolidated investment products are not available to the company's general creditors[46] NOTE 6 – Goodwill and Intangible Assets Goodwill and Intangible Assets (in millions): | Asset Type | 3/31/2024 | 12/31/2023 | Change | | :--- | :--- | :--- | :--- | | Goodwill | $2,642.8 | $2,642.8 | $0.0 | | Indefinite-lived intangible assets | $182.7 | $182.7 | $0.0 | | Definite-lived intangible assets | $299.1 | $324.6 | -$25.5 | | Total | $3,124.6 | $3,150.1 | -$25.5 | - Amortization and impairment expense for definite-lived intangible assets was $25.5 million for Q1 2024[55] Estimated Amortization Expense for Definite-Lived Intangible Assets (in millions): | Year | Amount | | :--- | :--- | | Remaining 2024 | $64.5 | | 2025 | $84.7 | | 2026 | $67.6 | | 2027 | $46.0 | | 2028 | $14.3 | NOTE 7 – Stock-Based Compensation Stock Options Status (as of 3/31/2024): | Metric | Options | Weighted average exercise price | | :--- | :--- | :--- | | Outstanding at 12/31/2023 | 1,476,104 | $75.39 | | Exercised | (348,728) | $76.47 | | Expired | (1,768) | $76.75 | | Outstanding at 3/31/2024 | 1,125,608 | $75.06 | Nonvested Restricted Shares and Stock Units Status (as of 3/31/2024): | Metric | Restricted shares | Restricted stock units | Weighted average fair value | | :--- | :--- | :--- | :--- | | Nonvested at 12/31/2023 | 56,740 | 6,485,253 | $127.74 | | Vested | — | (40,241) | $98.65 | | Forfeited | — | (30,035) | $127.15 | | Nonvested at 3/31/2024 | 56,740 | 6,429,086 | $127.89 | Estimated Future Stock-Based Compensation Expense (in millions): | Period | Amount | | :--- | :--- | | Second quarter 2024 | $58.2 | | Third quarter 2024 | $57.2 | | Fourth quarter 2024 | $50.2 | | 2025 | $118.8 | | 2026 through 2029 | $88.4 | | Total | $372.8 | NOTE 8 – Earnings Per Share Calculations Earnings Per Share Calculations (in millions, except per-share amounts): | Metric | 3/31/2024 | 3/31/2023 | Change | | :--- | :--- | :--- | :--- | | Net income attributable to T. Rowe Price | $573.8 | $421.5 | +$152.3 | | Net income allocated to common stockholders | $558.0 | $411.0 | +$147.0 | | Basic EPS | $2.50 | $1.83 | +$0.67 | | Diluted EPS | $2.49 | $1.83 | +$0.66 | | Weighted-average common shares outstanding assuming dilution | 224.2 | 225.2 | -1.0 | NOTE 9 – Other Comprehensive Income and Accumulated Other Comprehensive Loss Changes in Currency Translation Adjustments (in millions): | Metric | 3/31/2024 | 3/31/2023 | Change | | :--- | :--- | :--- | :--- | | Balances at beginning of period | $(47.5) | $(53.0) | +$5.5 | | Other comprehensive income (loss) before reclassifications and income taxes | $(2.9) | $1.9 | -$4.8 | | Total other comprehensive income (loss) | $(2.1) | $1.3 | -$3.4 | | Balances at end of period | $(49.6) | $(51.7) | +$2.1 | NOTE 10 – Commitments and Contingencies - T. Rowe Price has committed $397 million to fund OHA products over the next three years[66] - Management assesses the likelihood of a material adverse effect from ordinary course business claims as remote[67] Report of Independent Registered Public Accounting Firm KPMG LLP's review concludes no material modifications are needed for the interim financial statements to conform with U.S. GAAP - KPMG LLP reviewed the interim financial information and found no material modifications needed for conformity with U.S. GAAP[69] - The consolidated balance sheet as of December 31, 2023, is fairly stated in all material respects[70] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on financial condition, operational results, market trends, AUM, and capital resources Overview - Revenues and net income are primarily from investment advisory services across equity, fixed income, multi-asset, and alternatives[74] - Investment advisory revenues are largely dependent on the total value and composition of assets under management (AUM)[75] - The company is investing in key capabilities to address industry challenges like passive investment growth and fee pressure[77] Market Trends - U.S. stocks achieved strong first-quarter gains, driven by optimism about AI and projected Federal Reserve interest rate cuts[78] Major Equity Market Index Returns (3 months ended 3/31/2024): | Index | Return | | :--- | :--- | | S&P 500 Index | 10.6% | | NASDAQ Composite Index | 9.1% | | MSCI EAFE Index | 5.9% | | MSCI Emerging Markets Index | 2.4% | Major Bond Market Index Returns (3 months ended 3/31/2024): | Index | Return | | :--- | :--- | | Bloomberg U.S. Aggregate Bond Index | (0.8)% | | JPMorgan Global High Yield Index | 2.2% | | Bloomberg Municipal Bond Index | (0.4)% | | Bloomberg Global Aggregate Ex-U.S. Dollar Bond Index | (3.2)% | | JPMorgan Emerging Markets Bond Index Plus | 2.3% | | ICE Bank of America U.S. High Yield Index | 1.5% | | Credit Suisse Leveraged Loan Index | 2.5% | Assets Under Management Assets Under Management (AUM) (in billions): | Metric | 3/31/2024 | 12/31/2023 | Change | | :--- | :--- | :--- | :--- | | Ending AUM | $1,542.2 | $1,444.5 | +$97.7 | | Market appreciation and income (Q1 2024) | $105.7 | N/A | N/A | | Net cash outflows (Q1 2024) | $(8.0) | N/A | N/A | AUM by Asset Class (in billions) at 3/31/2024: | Asset Class | AUM | | :--- | :--- | | Equity | $802.9 | | Multi-asset | $520.6 | | Fixed income, including money market | $170.9 | | Alternatives | $47.8 | - Assets under management in target date retirement products reached $443.0 billion, with net inflows of $6.8 billion in Q1 2024[87] Investment Performance % of U.S. Mutual Funds Outperforming Morningstar Median (as of 3/31/2024): | Category | 1 year | 3 years | 5 years | 10 years | | :--- | :--- | :--- | :--- | :--- | | Equity | 55% | 45% | 53% | 68% | | Fixed Income | 53% | 51% | 56% | 65% | | Multi-Asset | 84% | 50% | 72% | 78% | | All Funds | 65% | 48% | 60% | 70% | % of Composites Outperforming Benchmarks (as of 3/31/2024): | Category | 1 year | 3 years | 5 years | 10 years | | :--- | :--- | :--- | :--- | :--- | | Equity | 58% | 31% | 51% | 64% | | Fixed Income | 55% | 31% | 52% | 69% | | All Composites | 57% | 31% | 51% | 66% | - As of March 31, 2024, 65% of AUM in the firm's rated U.S. mutual funds had a 4 or 5-star overall rating from Morningstar[95] Results of Operations Key Financial Results (U.S. GAAP, in millions, except per-share data): | Metric | 3/31/2024 | 3/31/2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $1,750.2 | $1,537.6 | +$212.6 | +13.8% | | Operating Expenses | $1,163.6 | $1,053.4 | +$110.2 | +10.5% | | Net Operating Income | $586.6 | $484.2 | +$102.4 | +21.1% | | Net Income Attributable to T. Rowe Price | $573.8 | $421.5 | +$152.3 | +36.1% | | Diluted EPS | $2.49 | $1.83 | +$0.66 | +36.1% | - The increase in net revenues was primarily driven by an 11.7% increase in investment advisory fee revenue due to higher average AUM[99] - Operating margin improved to 33.5% in Q1 2024 from 31.5% in Q1 2023[104] Operating Expenses Breakdown (in millions): | Expense Category | 3/31/2024 | 3/31/2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Compensation, benefits and related costs | $629.3 | $593.3 | +$36.0 | +6.1% | | Distribution and servicing | $81.9 | $71.5 | +$10.4 | +14.5% | | Technology, occupancy, and facility costs | $149.9 | $146.6 | +$3.3 | +2.3% | | General, administrative, and other | $92.6 | $107.5 | -$14.9 | -13.9% | | Change in fair value of contingent consideration | $— | $(49.6) | +$49.6 | -100.0% | Provision for Income Taxes Effective Income Tax Rate Reconciliation: | Metric | 3/31/2024 | 3/31/2023 | | :--- | :--- | :--- | | Statutory U.S. federal income tax rate | 21.0 % | 21.0 % | | State income taxes, net of federal benefits | 2.5 % | 3.0 % | | Valuation allowance | 0.5 % | 4.3 % | | Effective income tax rate | 23.5 % | 28.7 % | - The decrease in the effective tax rate was due to lower valuation allowances and favorable changes in state income apportionment rules[127] - Estimated full-year 2024 U.S. GAAP effective tax rate is in the range of 23% to 27%[128] Non-GAAP Information and Reconciliation Adjusted Non-GAAP Financial Results (in millions, except per-share data): | Metric | 3/31/2024 | 3/31/2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Operating Expenses | $1,071.4 | $1,022.5 | +$48.9 | +4.8% | | Net Operating Income | $692.4 | $528.0 | +$164.4 | +31.1% | | Net Income Attributable to T. Rowe Price | $548.5 | $389.4 | +$159.1 | +40.9% | | Diluted EPS | $2.38 | $1.69 | +$0.69 | +40.8% | - Non-GAAP adjustments remove the impact of acquisition-related costs and consolidated investment products for a clearer view of core results[130][133][134] - The non-GAAP effective tax rate was 23.9% in Q1 2024, down from 30.3% in Q1 2023[126] Capital Resources and Liquidity Total Cash and Investments in T. Rowe Price Products (in millions): | Metric | 3/31/2024 | 12/31/2023 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $2,416.5 | $2,066.6 | +$349.9 | | Discretionary investments | $477.5 | $463.7 | +$13.8 | | Redeemable seed capital investments | $1,418.7 | $1,370.9 | +$47.8 | | Investments used to hedge supplemental savings plan liability | $929.0 | $894.6 | +$34.4 | | Total | $5,241.7 | $4,795.8 | +$445.9 | - The company increased its quarterly recurring dividend by 1.6% to $1.24 per common share in February 2024[140] - Repurchased 717 thousand shares of common stock for $80.1 million in Q1 2024[140][142] - Anticipated capital expenditures for full-year 2024 are about $485 million[142] Cash Flows Cash Flows Attributable to T. Rowe Price (in millions): | Activity | 3/31/2024 | 3/31/2023 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $739.5 | $672.7 | +$66.8 | | Net cash used in investing activities | $(34.4) | $(52.0) | +$17.6 | | Net cash used in financing activities | $(355.2) | $(282.2) | -$73.0 | - The increase in operating cash flows was primarily driven by a $152.3 million increase in net income[146] - Net cash used in financing activities increased due to $83.1 million in common stock repurchases[149] Critical Accounting Policies - The preparation of financial statements requires significant estimates and judgments[150] - No material changes have occurred in the critical accounting policies since the 2023 Annual Report on Form 10-K[151] Newly-Issued But Not Yet Adopted Accounting Guidance - Refer to Note 1 for details on newly issued accounting guidance (ASU 2023-07 and ASU 2023-09), effective in 2025[152][21][22] Forward-Looking Information - Forward-looking information is not a guarantee of future performance, and actual results may differ materially[153] - Future results are primarily influenced by changes in assets under management, client cash flows, and market movements[154] - Other factors include investor sentiment, investment performance, fee levels, competition, and regulation[155][156][157] Item 3. Quantitative and Qualitative Disclosures About Market Risk - No material changes in market risks from those provided in the Form 10-K Annual Report for 2023[158] Item 4. Controls and Procedures - Disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2024[159] - No material changes to internal control over financial reporting occurred during the first quarter of 2024[160] PART II – OTHER INFORMATION Item 1. Legal Proceedings Information regarding legal proceedings is referenced in the Commitments and Contingencies footnote (Note 10) - Legal proceedings information is detailed in Note 10 – Commitments and Contingencies[162] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the 2023 Form 10-K Annual Report - No material changes in risk factors from those provided in the Form 10-K Annual Report for 2023[163] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 808,962 shares of common stock during Q1 2024 at an average price of $110.84 per share Common Stock Repurchase Activity (Q1 2024): | Month | Total Shares Purchased | Average Price Paid per Share | Shares Purchased Under Public Program | | :--- | :--- | :--- | :--- | | January | 320,712 | $108.26 | 274,914 | | February | 274,732 | $108.84 | 231,120 | | March | 213,518 | $117.28 | 210,600 | | Total | 808,962 | $110.84 | 716,634 | - As of March 31, 2024, 5,631,883 shares may yet be purchased under the March 2020 board authorization program[166] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - Not applicable[167] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - Not applicable[168] Item 5. Other Information This item is not applicable to the company for the reporting period - Not applicable[169] Item 6. Exhibits This section lists the exhibits furnished with the Form 10-Q report - Exhibits include corporate charter and by-laws, KPMG LLP's report, certifications, and XBRL-formatted financial documents[170][171] Signatures - Report signed by Jennifer B. Dardis, Vice President, Chief Financial Officer and Treasurer, on April 26, 2024[173]