What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-28 compared with 2023-05-02 · 288 added, 165 removed, 513 unchanged (47% of the section changed)

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MARKET TRENDS.

stock indexes rose in the first quarter of 2023.

Large-cap shares surpassed their smaller-cap peers, and growth stocks outperformed value stocks across all market classes.

After a strong January, the market surrendered some of its gains in February due to concerns that the Federal Reserve—which raised short-term interest rates on February 1—would continue ramping up rates to combat elevated inflation.

Equities fell sharply in the first half of March, as two of the largest bank failures in U.S.

history raised concerns about the stability of the U.S.

banking industry.

Although financial regulators acted quickly to protect all Silicon Valley Bank and Signature Bank depositors from losses and to restore confidence in other banks, investors had lingering concerns—following a year of aggressive interest rate increases—that other regional banks could be toppled by losses from their bond holdings or a flight of depositors’ capital.

As investors’ concerns diminished in the second half of March, however, equities rebounded strongly.

stock indexes rose in the second quarter of 2023, adding to first-quarter gains.

Large-cap and growth stocks outperformed.

Thanks in part to generally favorable corporate earnings and a resilient economy, equities overcame lingering uncertainty about regional banks’ health;

uncertainty about Congress agreeing to raise the federal debt ceiling—the statutory limit on U.S.

government borrowing—before the U.S.

government ran out of money;

and continued monetary policy tightening due to elevated inflation.

The Federal Reserve raised short-term interest rates in early May but kept rates unchanged when policymakers met in mid-June.

However, Fed officials projected two more rate increases by the end of the year.

Developed non-U.S.

equity markets outperformed U.S.

equities, as a weaker dollar versus some currencies enhanced returns to U.S.

In Europe, equity markets were mostly positive in dollar terms, though financials sector concerns centered on Switzerland’s Credit Suisse, which was acquired by UBS Group in a government-brokered deal, rocked the markets in March.

Developed Asian market returns were mostly positive but lagged European markets.

Stocks in emerging markets underperformed equities in developed non-U.S.

markets in dollar terms.

Markets in the major emerging regions were widely mixed.

In Latin America, for example, Mexican shares surged more than 20%,

while Colombian shares slumped 13%.

In Asia, stocks in Taiwan and South Korea outperformed with gains of about 15% and 10%, respectively, while Indian shares fell more than 6%.

In emerging Europe, Turkish shares slipped 9%, as the country recovered from a massive early-February earthquake and continued to struggle with elevated inflation, while Greek shares jumped about 16%.

equity markets rose but underperformed U.S.

equities in the second quarter, even though the U.S.

dollar weakened versus major European currencies.

In dollar terms, European equity markets were mostly positive, whereas returns in several developed Asian markets were negative.

Japanese shares, however, rose more than 6% in dollar terms, as central bank officials kept interest rates very low and as a weakening Yen supported Japan’s export-oriented businesses.

Emerging equity markets in aggregate rose slightly and underperformed equities in developed markets in U.S.

dollar terms.

In commodity-rich Latin America, many markets rose due in part to hopes that China, a major consumer of commodities, would take measures to help stimulate its economy.

Markets in the emerging Europe, Middle East, and Africa (EMEA) region were mostly positive, though Turkish shares dropped more than 10% in dollar terms.

Markets in emerging Asia were widely mixed, with Chinese shares falling almost 10% amid concerns that China’s economic growth was weakening.

Indian shares climbed 12%.

Returns of several major equity market indexes were as follows:

Three months ended

Three months ended Six months ended

Index 6/30/2023 6/30/2023

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(1) Returns exclude dividends

Global bonds produced mostly positive returns in dollar terms in the first quarter.

In the U.S., three- and six-month U.S.

Treasury bill yields rose as the Federal Reserve raised the fed funds target rate by 25 basis points in February and in March.

The fed funds target rate range at the end of the quarter was 4.75% to 5.00%.

However, U.S.

Treasury note and bond yields declined roughly 30 to 40 basis points for the quarter, as regional bank distress resulted in a flight to safety in mid-March and raised expectations that the Fed would temper future interest rate increases.

Global bond returns were mixed in U.S.

dollar terms in the second quarter.

In the U.S., Treasury bill yields increased as the Fed lifted the fed funds target rate to the 5.00% to 5.25% range in early May and as investors prepared for possibly two more Fed interest rate increases by the end of the year due to persistent inflation.

Intermediate-term Treasury yields climbed amid hawkish rhetoric from Fed officials and continued economic strength.

Long-term yields rose to a lesser extent.

The 10-year U.S.

Treasury note yield fell from 3.88% to 3.48% during the quarter.

investment-grade universe, corporate bonds and Treasuries performed best.

Mortgage-backed securities also did well, but asset-backed and commercial mortgage-backed securities trailed with milder gains.

Tax-free municipal bonds rose but slightly lagged the taxable investment-grade bond market.

High yield issues outperformed higher-quality fixed income securities.

Treasury note yield increased from 3.48% to 3.81% during the quarter.

investment-grade universe, Treasury securities performed worst.

Mortgage-backed and commercial mortgage-backed securities fell to a lesser extent.

Corporate bonds and asset-backed securities edged lower.

Tax-free municipal bonds edged lower but outperformed the broad taxable investment-grade bond market.

High yield corporate bonds, which are less sensitive to interest rate movements, strongly outperformed the high-quality fixed income market.

Bonds in developed non-U.S.

markets appreciated in dollar terms, thanks to strength in March amid falling yields in various countries.

Returns to U.S.

investors were lifted by stronger European currencies versus the dollar.

The Japanese yen, however, fell close to 1% versus the dollar, as Japanese monetary authorities kept monetary policy very stimulative.

Emerging markets bonds produced positive returns in dollar terms, as various central banks continued raising short-term rates to fight inflation.

Bonds denominated in local currencies fared better than dollar-denominated issues, as the U.S.

dollar retreated versus many emerging markets currencies.

markets declined in U.S.

dollar terms.

In Europe, bond yields pressed higher as several central banks raised short-term interest rates.

However, major European currencies strengthened versus the U.S.

dollar, which reduced local losses in dollar terms.

In Japan, government bond yields remained very low, contained by the continuation of the central bank’s yield curve control policy, but the Yen declined nearly 8% versus the dollar.

Emerging markets bonds appreciated in dollar terms.

Bonds denominated in local currencies fared marginally better than dollar-denominated issues, as some emerging markets currencies appreciated versus the greenback.

The Turkish Lira, however, plunged more than 26%.

Returns for several major bond market indexes were as follows:

Three months ended

Three months ended Six months ended

Index 6/30/2023 6/30/2023

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ASSETS UNDER MANAGEMENT.

Assets under management ended the first quarter of 2023 at $1,341.7 billion, an increase of $67.0 billion from December 31, 2022.

The increase in assets under management during the first quarter of 2023 was driven by market appreciation, including net distributions not reinvested, of $83.1 billion, offset by net cash outflows of $16.1 billion.

The following tables detail changes in our assets under management, by asset class, during the first quarter of 2023:

Three months ended 3/31/2023

Assets under management ended the second quarter of 2023 at $1,399.4 billion, an increase of $57.7 billion from March 31, 2023 and $124.7 million from the end of 2022.

The increase in assets under management during the second quarter of 2023 was driven by market appreciation, net of distributions not reinvested, of $77.7 billion, offset by net cash outflows of $20.0 billion.

For the six months ended June 30, 2023, the increase in assets under management was driven by market appreciation, net of distributions not reinvested, of $160.8 billion, offset by net cash outflows of $36.1 billion.

The following tables detail changes in our assets under management, by asset class, during the three- and six-month periods ended June 30, 2023:

Three months ended 6/30/2023 Six months ended 6/30/2023

(in billions) Equity Fixed income, including money market Multi-asset (2)

Alternatives (3)

Total Equity Fixed income, including money market Multi-asset (2)

Alternatives (3)

Assets under management at beginning of period $ 695.1 $ 170.4 $ 431.9 $ 44.3 $ 1,341.7 $ 664.2 $ 167.0 $ 400.1 $ 43.4 $ 1,274.7

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Change during the period 37.1 (1.1) 21.3 0.4 57.7 68.0 2.3 53.1 1.3 124.7

Assets under management at March 31, 2023 $ 695.1 $ 170.4 $ 431.9 $ 44.3 $ 1,341.7

Assets under management at June 30, 2023 $ 732.2 $ 169.3 $ 453.2 $ 44.7 $ 1,399.4 $ 732.2 $ 169.3 $ 453.2 $ 44.7 $ 1,399.4

(1) Includes fee basis assets under management.

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Generally, only those strategies with longer than daily liquidity are included.

Unfunded capital commitments as of March 31, 2023 were $11.8 billion and are not reflected in fee basis AUM above.

(4) Alternatives net cash flows includes $0.4 billion in outflows that represent investment manager-driven distributions.

(5) Includes net distributions not reinvested of $0.2 billion.

Investment advisory clients outside the United States account for 8.9% of our assets under management at March 31, 2023 and 9.1% at December 31, 2022.

Unfunded capital commitments as of June 30, 2023 were $12.2 billion and are not reflected in fee basis AUM above.

(4) Alternatives net cash flows for the three- and six-month periods ended June 30, 2023 includes $0.4 billion and $0.8 billion, respectively, in outflows that represent investment manager-driven distributions.

(5) Includes net distributions not reinvested for the three- and six-month periods ended June 30, 2023 of $0.2 billion and $0.4 billion, respectively.

Investment advisory clients outside the United States account for 8.9% of our assets under management at June 30, 2023, 8.9% at March 31, 2023, and 9.1% at December 31, 2022.

Our target date retirement products, which are included in the multi-asset totals shown above, continue to be a significant part of our assets under management.

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Net cash inflows (outflows)

Assets under management Three months ended

Assets under management Three months ended Six months ended

(in billions) 6/30/2023 3/31/2023 12/31/2022 6/30/2023 6/30/2022 6/30/2023 6/30/2022

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$ 380.0 $ 360.8 $ 334.2 $ 2.4 $ 0.5 $ 9.9 $ 7.8

Certain accounts were reclassified from subadvised and separately managed accounts to collective investment trusts in Q2 2023 and prior period amounts were adjusted to reflect this change.

We also provide strategic investment advice solutions for certain portfolios.

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We also offer advice solutions through retail separately managed accounts and separately managed accounts model delivery.

As of March 31, 2023, total assets in these solutions were $443 billion, of which $435 billion are included in our reported assets under management in the tables above.

We provide participant accounting and plan administration for defined contribution retirement plans that invest in the firm's U.S.

As of June 30, 2023, total assets in these

solutions were $465 billion, of which $456 billion are included in our reported assets under management in the tables above.

We provide participant accounting and plan administration for retirement plans that invest in the firm's U.S.

mutual funds, collective investment trusts and funds outside of the firm's complex.

As of March 31, 2023, our assets under administration were $229 billion, of which nearly $140 billion are assets we manage.

As of June 30, 2023, our assets under administration were $243 billion, of which nearly $147 billion are assets we manage.

INVESTMENT PERFORMANCE.

S trong investment performance and brand awareness is a key driver to attracting and retaining assets—and to our long-term success.

Our performance disclosures include specific asset classes, assets under management weighted performance, mutual fund performance against passive peers and composite performance against

The following tables present investment performance for the one-, three-, five-, and 10-years ended March 31, 2023.

Our performance disclosures include specific asset classes, assets under management weighted performance, mutual fund performance against passive peers and composite performance against benchmarks.

The following tables present investment performance for the one-, three-, five-, and 10-years ended June 30, 2023.

Past performance is no guarantee of future results.

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All Composites 38% 41% 36% 64%

As of March 31, 2023, 61 of 125 (48.8%) of the firm's rated U.S.

As of June 30, 2023, 66 of 125 (52.8%) of the firm's rated U.S.

mutual funds (across primary share classes) received an overall rating of 4 or 5 stars.

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In addition, 72% (5) of AUM in the firm's rated U.S.

mutual funds (across primary share classes) ended March 31, 2023 with an overall rating of 4 or 5 stars.

mutual funds (across primary share classes) ended June 30, 2023 with an overall rating of 4 or 5 stars.

(1) The investment performance reflects that of T.

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RESULTS OF OPERATIONS.

The following table and discussion sets forth information regarding our consolidated financial results for the three months ended March 31, 2023 and 2022 on a U.S.

The following table and discussion sets forth information regarding our consolidated financial results for the three and six months ended June 30, 2023 and 2022 on a U.S.

GAAP basis as well as a non-GAAP basis.

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Three months ended Q2 2023 vs.

Q2 2022 Six months ended YTD 2023 vs.

(in millions, except per-share data) 6/30/2023 6/30/2022 $ change % change (1)

6/30/2023 6/30/2022 $ change % change (1)

Investment advisory fees $ 1,430.8 $ 1,496.7 $ (65.9) (4.4) % $ 2,822.6 $ 3,158.8 $ (336.2) (10.6) %

Capital allocation-based income (2)

$ 38.7 $ (126.3) $ 165.0 n/m $ 55.6 $ (81.9) $ 137.5 n/m

Net revenues $ 1,610.2 $ 1,513.0 $ 97.2 6.4 % $ 3,147.8 $ 3,376.0 $ (228.2) (6.8) %

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Net operating income $ 533.5 $ 668.6 $ (135.1) (20.2) % $ 1,017.7 $ 1,546.0 $ (528.3) (34.2) %

Non-operating income (loss) (1)

$ 135.4 $ (198.5) $ 333.9 n/m

Non-operating income (loss) $ 106.2 $ (279.9) $ 386.1 n/m $ 241.6 $ (478.4) $ 720.0 n/m

Net income attributable to T.

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Net operating income $ 596.6 $ 579.7 $ 16.9 2.9 % $ 1,124.6 $ 1,417.7 $ (293.1) (20.7) %

Non-operating income (loss) (1)

$ 30.8 $ (23.8) $ 54.6 n/m

Non-operating income (loss) $ 31.8 $ (30.6) $ 62.4 n/m $ 62.6 $ (54.4) $ 117.0 n/m

Net income attributable to T.

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Ending assets under management $ 1,399.4 $ 1,309.7 $ 89.7 6.8 % $ 1,399.4 $ 1,309.7 $ 89.7 6.8 %

(1) The percentage change is not meaningful (n/m).

(1) n/m - The percentage change is not meaningful.

(2) Capital allocation-based income represents the change in accrued carried interest.

(3) See the reconciliation to the comparable U.S.

GAAP measures at the end of the Results of Operations section of this Management’s Discussion and Analysis.

Results Overview - Quarter ended March 31, 2023

Results Overview - Quarter ended June 30, 2023

Net revenues consist of investment advisory revenues;

1 unchanged sentence

and capital allocation-based income.

More than 90% of our net revenues are related to investment advisory fees.

Total net revenues were $1,537.6 million in the first quarter of 2023, a 17.5% decline compared with $1,863.0 million in the first quarter of 2022.

The decline was primarily due to a 16.3% decrease in investment advisory fee revenue as average assets under management declined 15.2%.

Approximately 90% of our net revenues are related to investment advisory fees.

Total net revenues were $1,610.2 million in the second quarter of 2023, a 6.4% increase compared with $1,513.0 million in the second quarter of 2022.

The increase was primarily driven by a $165.0 million increase in accrued carried interest from investments in affiliated investment funds as the change in accrued carried interest was negative in the second quarter of 2022 and reduced net revenues.

The increase in accrued carried interest in 2023 was partially offset by a 4.4% decrease in investment advisory fee revenue as lower overall markets and net outflows reduced average assets under management by 3.5%.

Investment advisory fees are generally earned based on the value and composition of our assets under management, which change based on fluctuations in financial markets and net cash flows.

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Our annualized effective fee rates can be impacted by market or cash flow related shifts among asset and share classes, price changes in existing products, and asset level changes in products with tiered-fee structures.

Capital allocation income will fluctuate quarter-to-quarter to reflect the adjustment to accrued carried interest for the change in value of the affiliated funds assuming the funds’ underlying investments were realized as of March 31, 2023, regardless of whether the funds’ underlying investments have been realized.

Capital allocation-based income will fluctuate quarter-to-quarter to reflect the adjustment to accrued carried interest for the change in value of the affiliated funds assuming the funds’ underlying investments were realized as of the end of the period, regardless of whether the funds’ underlying investments have been realized.

Operating expenses on a U.S.

GAAP basis were $1,053.4 million in the first quarter of 2023 compared with $985.6 million in the first quarter of 2022.

On a non-GAAP basis, operating expenses were $1,022.5 million, a 1.6% decrease over the comparable 2022 period.

In comparison to the first quarter of 2022, higher salaries and related benefits, along with higher costs related to the ongoing investments in our technology capabilities, were more than offset by lower distribution and servicing costs due to lower average assets under management, a lower interim bonus accrual, and lower stock-based compensation expense.

Operating margin in the first quarter of 2023 was 31.5% on a U.S.

GAAP basis were $1,076.7 million in the second quarter of 2023 compared with $844.4 million in the second quarter of 2022.

On a non-GAAP basis, operating expenses were $1,026.2 million, a 8.3% increase over the comparable 2022 period.

In comparison to the second quarter of 2022, more than 50% of the increase in U.S.

GAAP operating expenses is due to the increase in the supplemental savings plan liability in the second quarter of 2023, compared to a decrease in the supplemental savings plan liability in the 2022 period.

Higher accrued carried interest-related compensation and salaries and related benefits along with higher costs associates with ongoing investments in our technology capabilities also contributed to the increase in both U.S.

GAAP operating expense and non-GAAP operating expenses.

These increases were partially offset by lower distribution and servicing costs due to lower average assets under management, and a lower interim bonus accrual.

Accrued carried interest-related compensation reduced operating expenses in the comparable 2022 period.

Operating margin in the second quarter of 2023 was 33.1% on a U.S.

GAAP basis, compared to 44.2% earned in the 2022 quarter.

The decrease in our U.S.

GAAP operating margin for the first quarter of 2023 compared to the 2022 period was primarily driven by the decrease in investment advisory fee revenue and the increase in operating expenses, primarily due to the increase in the supplemental savings plan liability, which increased expenses.

Diluted earnings per share was $1.83 for the first quarter of 2023 as compared to $2.41 for the first quarter of 2022.

The decrease was primarily driven by lower operating income and a higher effective tax rate, partially offset by net investment gains recognized in the first quarter of 2023 as compared to net investment losses recognized in the first quarter of 2022, as market returns in the first quarter of 2023 were stronger than those in 2022.

On a non-GAAP basis, diluted earnings per share was $1.69 for the first quarter of 2023 as compared to $2.62 for the first quarter of 2022.

Similar to our U.S.

GAAP diluted earnings per share, the decrease is largely attributable to lower operating income and a higher effective tax rate compared to the 2022 period.

GAAP operating margin for the second quarter of 2023 compared to the 2022 period was primarily driven by the increase in operating expenses, primarily due to the increase in the supplemental savings plan liability, which increased expenses.

For the comparable 2022 period, the supplemental savings plan decreased, which lowered expenses in that period.

This increase was partially offset by an increase in net revenues.

Diluted earnings per share was $2.06 for the second quarter of 2023 as compared to $1.46 for the second quarter of 2022.

The increase was primarily driven by net investment gains recognized in the second quarter of 2023 as compared to net investment losses recognized in the second quarter of 2022, as market returns in the second quarter of 2023 were stronger than those in the 2022 period.

These gains were partially offset by lower operating income.

On a non-GAAP basis, diluted earnings per share was $2.02 for the second quarter of 2023 as compared to $1.79 for the second quarter of 2022.

The increase is largely attributable to net investment gains on our cash investment strategy recognized in the second quarter of 2023 as compared to net investment losses recognized in the second quarter of 2022 as well as higher operating income.

These increases were partially offset by a higher effective tax rate compared to the 2022 period.

Results Overview - Year-to-Date ended June 30, 2023

Net revenues consist of investment advisory revenues;

administrative, distribution, and servicing fees;

and capital allocation-based income.

Approximately 90% of our net revenues for the six months ended June 30, 2023 are related to investment advisory fees.

Total net revenues were $3,147.8 million in the six months ended June 30, 2023, a 6.8% decline compared with $3,376.0 million in the 2022 period.

The decline was primarily driven by a 10.6% decrease in investment advisory fee revenue as average assets under management declined by 9.6%.

This decrease was partially offset by a $137.5 million increase in accrued carried interest from investments in affiliated investment funds.

The change in accrued carried interest in the six months ended June 30, 2022 reduced net revenues.

Operating expenses were $2,130.1 million in the six months ended June 30, 2023 compared with $1,830.0 million in the 2022 period.

On a non-GAAP basis, our operating expenses for the six months ended June 30, 2023 increased 3.1% to $2,048.7 million compared to the 2022 period.

In comparison to the six months ended June 30, 2022, more than two-thirds of the increase in U.S.

GAAP operating expenses is due to the increase in the supplemental savings plan liability in the six months ended June 30, 2023, compared to a decrease in the supplemental savings plan liability in the 2022 period.

Additionally, higher salaries and related benefits along with higher accrued carried interest-related compensation and higher costs related to the ongoing investments in our technology capabilities also contributed to the increase.

These increases were partially offset by lower distribution and servicing costs due to lower average assets under management, a lower interim bonus accrual, lower recordkeeping costs, and lower employee-related costs, including stock-based compensation expense.

Operating margin in the six months ended June 30, 2023 was 32.3%, compared to 45.8% earned in the 2022 period.

The decrease in our operating margin for the six months ended June 30, 2023 compared to the 2022 period was primarily driven by the decrease in investment advisory fee revenue and the higher market-driven compensation expense related to the change in the supplemental savings plan liability.

Diluted earnings per share was $3.89 for the six months ended June 30, 2023 as compared to $3.88 for the six months ended June 30, 2022.

The 0.3% increase was primarily driven by net investment gains recognized in the six months ended June 30, 2023 as compared to net investment losses recognized in the six months ended June 30, 2022, as market returns in the six months ended June 30, 2023 were stronger than those in the 2022 period as well as lower shares outstanding.

These increases were almost entirely offset by lower operating income and a higher effective tax rate.

On a non-GAAP basis, diluted earnings per share was $3.71 for the six months ended June 30, 2023 as compared to $4.42 for the 2022 period.

The decrease is largely attributable to lower operating income and a higher effective tax rate compared to the 2022 period.

These declines were partially offset by net investment gains on our cash investment strategy recognized in the six months ended June 30, 2023 as compared to net investment losses recognized in the six months ended June 30, 2022 as well as lower shares outstanding.

Three months ended Q2 2023 vs.

(in millions) 3/31/2023 3/31/2022 $ change % change

Q2 2022 Six months ended YTD 2023 vs.

(in millions) 6/30/2023 6/30/2022 $ change % change 6/30/2023 6/30/2022 $ change % change

Investment advisory fees

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140.7 142.6 (1.9) (1.3) % 269.6 299.1 (29.5) (9.9) %

Capital allocation-based income 16.9 44.4 (27.5) (61.9) %

Capital allocation-based income 38.7 (126.3) 165.0 n/m 55.6 (81.9) 137.5 n/m

Net revenues $ 1,610.2 $ 1,513.0 $ 97.2 6.4 % $ 3,147.8 $ 3,376.0 $ (228.2) (6.8) %

Average assets under management (in billions)

Average assets under management

(in billions)

Equity $ 703.4 $ 769.6 $ (66.2) (8.6) % $ 695.2 $ 827.7 $ (132.5) (16.0) %

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Average assets under management $ 1,357.4 $ 1,407.1 $ (49.7) (3.5) % $ 1,340.2 $ 1,483.0 $ (142.8) (9.6) %

Investment advisory effective fee rate

(in bps) 42.3 42.7 (0.4) (0.9) % 42.5 43.0 (0.5) (1.2) %

Investment advisory fees

Investment advisory revenues earned in the first quarter of 2023 decreased over the comparable 2022 quarter as average assets under management decreased $237.0 billion or 15.2%, to $1,322.9 billion.

In the first quarter of 2022, we voluntarily waived $9.2 million, or less than 1%, of our investment advisory fees.

We did not waive money market investment advisory fees in the first quarter of 2023.

The total average annualized effective fee rate earned during the first quarter of 2023 was 42.7 basis points, compared with 43.2 basis points earned during the first quarter of 2022 and 42.3 basis points earned during the fourth quarter of 2022.

In comparison to the first quarter of 2022, the annualized effective fee rate was impacted by a mix shift to lower fee asset classes and vehicles as a result of overall market declines and net outflows over the last twelve months.

Administrative, distribution, and servicing fees in the first quarter of 2023 were $128.9 million, a decrease of $27.6 million, or 17.6%, from the comparable 2022 quarter.

The decrease was primarily due to lower transfer agent servicing activities provided to the T.

Rowe Price mutual funds and lower 12b-1 revenue earned primarily on the Advisor and R share classes of the U.S.

mutual funds as a result of lower assets under management in these share classes.

Investment advisory revenues earned in the second quarter of 2023 decreased over the comparable 2022 quarter as average assets under management decreased $49.7 billion or 3.5%, to $1,357.4 million.

For the six months ended June 30, 2023, investment advisory revenues decreased over the comparable 2022 period as average assets under management decreased $142.8 million, or 9.6%, to $1,340.2 million.

In the six months ended June 30, 2022, we voluntarily waived $9.3 million, or less than 1%, of our investment advisory fees.

We did not waive a significant level of money market investment advisory fees in the second quarter of 2022.

We also have not waived money market investment advisory fees in the six months ended June 30, 2023.

The total average annualized effective fee rate earned during the second quarter of 2023 declined compared to the three- and six-month periods ended June 30, 2022 due to a mix shift to lower fee asset classes and products as a result of overall market declines and net outflows over the last twelve months.

Administrative, distribution, and servicing fees in the second quarter of 2023 were $140.7 million, a decrease of $1.9 million, or 1.3%, from the comparable 2022 quarter.

The decrease in the second quarter of 2023 is primarily due to lower 12b-1 fees earned on the Advisor and R share classes of the U.S.

mutual funds.

The decrease in 12b-1 revenue is offset entirely by a decrease in the costs paid to third-party intermediaries that source these assets and are reported in distribution and servicing expense.

Capital allocation-based income in the first quarter of 2023 increased net revenues by $16.9 million.

The first quarter of 2023 amount represents an increase of $29.2 million in accrued carried interest from investments in affiliated investment funds, partially offset by $12.3 million in non-cash acquisition-related amortization.

Comparatively, capital allocation-based income in the first quarter of 2022 increased net revenues by $44.4 million, which consists of an increase of $57.6 million in accrued carried interest, partially offset by $13.2 million in non-cash amortization.

A portion of the capital allocation-based income is passed through to certain associates as compensation and the related expense is recognized in compensation and related costs with the unpaid amount reported as non-controlling interest on the consolidated balance sheet.

For the six months ended June 30, 2023, these fees were $269.6 million, a decrease of $29.5 million, or 9.9%, from the 2022 period.

The decrease in the six months ended June 30, 2023 was primarily due to lower transfer agent servicing activities provided to the T.

Rowe Price mutual funds and lower 12b-1 revenue as a result of lower assets under management.

Our net revenues reflect the elimination of advisory and administrative fee revenue earned from our consolidated

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The corresponding expenses recognized by these products, and consolidated in our financial statements, were also eliminated from operating expenses.

For the first quarter, we eliminated net revenue of $.6 million in 2023 and $.9 million in 2022.

For the second quarter, we eliminated net revenue of $0.3 million in 2023 and $0.6 million in 2022.

For the six months ended June 30, we eliminated net revenue of $0.9 million in 2023 and $1.5 million in 2022.

Capital allocation-based income in the second quarter of 2023 increased net revenues by $38.7 million.

The second quarter of 2023 amount represents an increase of $51.0 million in accrued carried interest from investments in affiliated investment funds, partially offset by $12.3 million in non-cash acquisition-related amortization.

Comparatively, capital allocation-based income in the second quarter of 2022 reduced net revenues by $126.3 million, which consists of market-related reductions of accrued carried interest from investments in affiliated investment funds of $113.0 million and $13.3 million in non-cash amortization.

For the six months ended June 30, 2023, capital allocation-based income increased net revenues by $55.6 million.

This amount represents an increase of $80.2 million in accrued carried interest from investments in affiliated investment funds, partially offset by $24.6 million in non-cash acquisition-related amortization.

Comparatively, capital allocation-based income reduced net revenues for the six months ended June 30, 2022 by $81.9 million.

This amount represents $55.4 million in market-related reductions of accrued carried interest from investments in affiliated investment funds and $26.5 million in non-cash acquisition-related amortization.

Operating expenses

Three months ended Q2 2023 vs.

(in millions) 3/31/2023 3/31/2022 $ change % change

Q2 2022 Six months ended YTD 2023 vs.

(in millions) 6/30/2023 6/30/2022 $ change % change 6/30/2023 6/30/2022 $ change % change

Compensation, benefits and related costs $ 591.0 $ 589.8 $ 1.2 0.2 % $ 1,184.3 $ 1,185.7 $ (1.4) (0.1) %

Acquisition-related retention agreements 13.6 18.0 (4.4) (24.4) % 27.8 37.2 (9.4) (25.3) %

Capital allocation-based income compensation 3.5 17.5 (14.0) (80.0) %

Capital allocation-based income compensation 10.6 (50.9) 61.5 n/m 14.1 (33.4) 47.5 n/m

Supplemental savings plan (1)

42.5 (51.0) 93.5 n/m

33.0 (93.5) 126.5 n/m 75.5 (144.5) 220.0 n/m

Total compensation and related costs 648.2 463.4 184.8 39.9 % 1,301.7 1,045.0 256.7 24.6 %

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(1) The impact of the market on the supplemental savings plan liability drives the expense recognized each period.

Compensation, benefits, and related costs were $593.3 million in the first quarter of 2023, a decrease of $2.6 million, or .4%, compared to the 2022 quarter, as a lower interim bonus accrual and stock-based compensation expense were partially offset by $28.0 million in higher salaries and related benefits, primarily due to base salary increases in January 2023, and higher headcount.

The firm employed 7,837 associates at March 31, 2023, a decrease of .4% from the end of 2022 and an increase of 3.5% from March 31, 2022.

Distribution and servicing costs were $71.5 million for the first quarter of 2023, a decrease of $14.4 million, or 16.8%, from the $85.9 million recognized in the 2022 quarter.

The decrease was primarily driven by lower average assets under management in certain share classes of the U.S.

mutual funds that earn 12(b)-1 fees.

Additionally, lower AUM in our international products, including our Japanese Investment Trusts (ITMs), and certain SICAV share classes, contributed to lower distribution costs.

Compensation, benefits, and related costs were $591.0 million in the second quarter of 2023, an increase of $1.2 million, or 0.2%, compared to the 2022 quarter.

Higher salaries and related benefits in the second quarter of 2023 were almost entirely offset by a lower interim bonus accrual and other employee-related costs in the second quarter of 2023.

For the six months ended June 30, 2023, these costs were $1,184.3 million, a decrease of $1.4 million, or 0.1%, compared to the 2022 period.

The decrease in the six months ended June 30, 2023 was primarily due to a lower interim bonus accrual and stock-based compensation expense.

These decreases were almost entirely offset by higher salaries and related benefits, primarily due to base salary increases in July 2022 and January 2023, and higher headcount.

The firm employed 7,903 associates at June 30, 2023, an increase of 0.4% from the end of 2022, and an increase of 1.7% from June 30, 2022.

Distribution and servicing costs were $67.8 million for the second quarter of 2023, a decrease of $7.9 million, or 10.4%, from the $75.7 million recognized in the 2022 quarter.

The decrease from 2022 was primarily driven by lower average assets under management in certain SICAV share classes.

For the six months ended June 30, 2023, these costs were $139.3 million, a decrease of $22.3 million, or 13.8%, compared with the 2022 period.

The decrease in the six months ended June 30, 2023 was primarily driven by lower average assets under management in certain share classes of the U.S.

mutual funds that earn 12(b)-1 fees and certain SICAV share classes.

The costs in this expense category primarily include amounts paid to third-party intermediaries that source the assets of certain share classes of our U.S.

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mutual funds and investment advisory fee revenue for our international products.

Advertising and promotion costs were $25.8 million in the first quarter of 2023, an increase of $2.4 million, or 10.3%, compared to the $23.4 million recognized in the 2022 quarter.

The increase was driven primarily by an increase in digital advertising costs.

Product and recordkeeping related costs were $72.1 million in the first quarter of 2023, a decrease of $8.3 million, or 10.3%, compared to the $80.4 million in the 2022 quarter.

The decrease was driven primarily due to lower recordkeeping related costs.

Technology, occupancy, and facility costs were $146.6 million in the first quarter of 2023, an increase of $12.7 million, or 9.5%, compared to the $133.9 million recognized in the 2022 quarter.

The increase was primarily due to higher depreciation from our ongoing investment in our technology capabilities, including hosted solution licenses, and increased office facility costs, mainly related to higher rent expense associated with a new UK facility we expect to occupy later this year.

General, administrative, and other expenses were $107.5 million in the first quarter of 2023, an increase of $8.7 million, or 8.8%, compared to the $98.8 million recognized in the 2022 quarter.

The increase was primarily related to higher travel and information services expenses as well as certain nonrecurring costs that were incurred during the 2022 quarter.

These increases were partially offset by lower external research costs.

Advertising and promotion costs were $22.9 million in the second quarter of 2023, an increase of $1.5 million, or 7.0%, compared to the $21.4 million recognized in the 2022 quarter.

For the six months ended June 30, 2023, these costs were $48.7 million, an increase of $3.9 million, or 8.7%, compared with the 2022 period.

The increase in both periods was driven primarily by an increase in promotional and digital advertising costs.

Product and recordkeeping related costs were $77.7 million in the second quarter of 2023, an increase of $1.4 million, or 1.8%, compared to the $76.3 million in the 2022 quarter.

The increase is primarily due to the timing of certain printing and mailing services.

For the six months ended June 30, 2023, these costs were $149.8 million, a decrease of $6.9 million, or 4.4%, compared with the 2022 period.

The decrease in the six months ended June 30, 2023 was driven primarily due to lower recordkeeping related costs.

Technology, occupancy, and facility costs were $154.7 million in the second quarter of 2023, an increase of $20.4 million, or 15.2%, compared to the $134.3 million recognized in the 2022 quarter.

For the six months ended June 30, 2023, these costs were $301.3 million, an increase of $33.1 million, or 12.3%, compared with the 2022 period.

The increase in both periods was primarily due to increased office facility costs, mainly related to rent expense associated with a new UK facility we expect to occupy later this year, and higher costs from the firm's ongoing investment in its technology capabilities, including hosted solution licenses and depreciation.

General, administrative, and other expenses were $100.0 million in the second quarter of 2023, an increase of $3.6 million, or 3.7%, compared to the $96.4 million recognized in the 2022 quarter.

Higher professional fees and external research costs were partially offset by certain nonrecurring costs that were incurred during the 2022 quarter.

For the six months ended June 30, 2023, these costs were $207.5 million, an increase of $12.3 million, or 6.3%, compared with the 2022 period.

The increase was primarily related to higher travel, professional and legal fees, and information services expenses.

These increases were partially offset by lower external research costs and certain nonrecurring costs that were incurred during the 2022 period.

Change in fair value of contingent consideration.

Our contingent consideration consists of an earnout arrangement as part of our acquisition of OHA in December 2021 in which additional purchase price may be due to certain employees of OHA upon satisfying or exceeding certain defined revenue targets.

The change in our contingent consideration relates to an earnout arrangement as part of our acquisition of OHA in which additional purchase price may be due upon satisfying or exceeding certain defined revenue targets.

Every reporting period, we record the potential amount due under this arrangement at fair value.

During the first quarter of 2023 and 2022, we recognized reductions in the fair value of the contingent consideration liability of $49.6 million and $45.5 million, respectively, as the challenging market conditions have reduced revenue expectations used in the fair value determinations.

During the second quarter of 2023 and 2022, we recognized reductions in the fair value of the contingent consideration liability of $23.2 million and $50.3 million, respectively.

During the six months ended June 30, 2023 and 2022, we recognized reductions in the fair value of the contingent consideration liability of $72.8 million and $95.8 million, respectively.

Challenging market conditions in all periods have reduced revenue expectations used in the fair value determinations.

Acquisition-related amortization and impairment costs.

As part of the purchase accounting for the acquisition of OHA in December 2021, we identified and separately recognized at fair value certain intangible assets.

During the first quarter of 2023 and 2022, we recognized $26.0 million and $27.1 million, respectively, in amortization related to the definite-lived intangible assets.

No impairment costs were recognized during either period.

As part of the purchase accounting for our acquisitions, we identified and separately recognized at fair value certain intangible assets.

During the second quarter of 2023 and 2022, we recognized $28.6 million and $27.2 million, respectively, in amortization related to the definite-lived intangible assets.

During the six months ended June 30, 2023 and 2022, we recognized $54.6 million and $54.3 million, respectively, in amortization.

No impairment costs were recognized during any period presented.

However, should conditions deteriorate, impairments may be recognized in future periods.

Non-operating income (loss)

Non-operating income for the first quarter of 2023 was $135.4 million as compared to non-operating loss of $198.5 million in the 2022 quarter.

The following table details the components of non-operating income (loss) for the three months ended March 31, 2023 and 2022.

Three months ended

Non-operating income for the second quarter of 2023 was $106.2 million as compared to non-operating loss of $279.9 million in the 2022 quarter.

The following table details the components of non-operating income (loss) for both the second quarter and six months ended June 30, 2023 and 2022.

Three months ended Six months ended

(in millions) 6/30/2023 6/30/2022 6/30/2023 6/30/2022

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Rowe Price investment products 80.2 (162.2) 171.3 (262.3)

Other investment income 2.8 10.2

Other investment income (losses) 8.9 (7.7) 11.7 2.5

Net gains (losses) on investments 89.1 (169.9) 183.0 (259.8)

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Non-operating income (loss) $ 106.2 $ (279.9) $ 241.6 $ (478.4)

Our investment portfolio recognized gains during the first quarter of 2023 primarily due to market activity that resulted in higher valuations at the end of the first quarter of 2023 and higher dividends earned on our cash equivalents.

Our investment portfolio recognized losses in the first quarter of 2022 as the Russian invasion of Ukraine, inflation fears, and Federal Reserve interest rate increases weighed on the global economy and markets resulting in lower valuations at the end of the first quarter of 2022.

Our investment portfolio recognized gains during the second quarter and six months ended June 30, 2023 primarily due to market activity that resulted in higher valuations at the end of the second quarter of 2023 and higher dividends earned on our cash equivalents.

Our investment portfolio recognized losses in the second quarter of 2022 as the fear of inflation, the continued Russian invasion of Ukraine, and Federal Reserve interest rate increases weighed on the global economy and markets resulting in lower valuations at the end of the second quarter of 2022.

The table above includes the net investment income of the underlying portfolios included in the consolidated

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The table below shows the impact that the consolidated sponsored investment products had on the individual lines of our unaudited condensed consolidated statements of income and the portion attributable to our interest:

Three months ended

Three months ended Six months ended

(in millions) 6/30/2023 6/30/2022 6/30/2023 6/30/2022

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The following table reconciles the statutory federal income tax rate to our effective tax rate on a U.S.

GAAP basis for both the three months ended March 31, 2023 and 2022:

Three months ended

GAAP basis for both the three- and six- months ended June 30, 2023 and 2022:

Three months ended Six months ended

6/30/2023 6/30/2022 6/30/2023 6/30/2022

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State income taxes for current year, net of federal income tax benefits (1)

2.8 3.9 2.9 3.5

Net (income) losses attributable to redeemable non-controlling interests (2)

(0.3) 2.7 (0.3) 1.1

Net excess tax benefits from stock-based compensation plans activity (0.2) (0.5) (0.3) (0.5)

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(1) State income tax benefits are reflected in the total benefits for net income attributable to redeemable non-controlling interests and stock-based compensation plans activity.

GAAP effective tax rate for the first quarter of 2023 was 28.7%, compared with 24.2% in the 2022 quarter.

The effective tax rate for the first quarter of 2023 was unfavorably impacted by increases in valuation allowances recognized against foreign-based deferred tax assets, primarily net operating losses, as it was determined that, as of the first quarter of 2023, it was not more-likely-than not to be realized.

This unfavorable impact was partially offset by a lower state effective tax rate as a result of favorable state tax liability settlements and net gains attributable to redeemable non-controlling interests held in our consolidated investment products.

The non-GAAP tax rate primarily adjusts for the impact of the consolidated investment products, including the net income attributable to the redeemable non-controlling interests.

Our non-GAAP effective tax rate was 30.3% in the first quarter of 2023 compared with 24.2% in first quarter of 2022.

The increase in the non-GAAP effective tax rates for the first quarter of 2023, like our GAAP effective tax rate, was also unfavorably impacted by the increases in the valuation allowances.

This unfavorable impact was partially offset by a lower state effective tax rate as a result of favorable state tax liability settlements.

Our effective tax rate will continue to experience volatility in future periods as the tax benefits recognized from stock-based compensation are impacted by market fluctuations in our stock price, the timing of option exercises, the remeasurement of the contingent consideration liability, as well as changes in deferred tax asset valuation allowances, primarily in foreign jurisdictions, based on the sufficiency of taxable income in future periods.

GAAP rate will also be impacted by changes in the proportion of net income that is attributable to our redeemable non-controlling interests and non-controlling interests reflected in permanent equity.

(2) Net income attributable to redeemable non-controlling interests represents the portion of earnings held in the firm's consolidated investment products, which are not taxable to the firm despite being included in pre-tax income.

The non-GAAP effective tax rate primarily adjusts for the impact of the consolidated investment products, including the net income attributable to the redeemable non-controlling interests.

Our non-GAAP effective tax rate was 25.8% in the second quarter of 2023 compared with 23.9% in second quarter of 2022.

For the six months ended June 30, 2023, our non-GAAP effective tax rate was 27.9%, compared with 24.1% in the 2022 period.

Our 2023 U.S.

GAAP and non-GAAP effective tax rates were unfavorably impacted by losses in certain foreign jurisdictions in which no associated tax benefit was recognized in the income tax provision.

The effective tax rate for the six months ended June 30, 2023 was also unfavorably impacted by increases in valuation allowances recognized against certain foreign-based deferred tax assets, as it was determined in the first quarter of 2023 that these deferred tax assets were more likely to not be realized.

We currently estimate that our effective tax rate for the full year 2023, on a U.S.

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On a non-GAAP basis, the range is 26.5% to 29.5% .

The rate also experiences volatility from the remeasurement of the contingent consideration liability, as well as changes in deferred tax asset valuation allowances, primarily in foreign jurisdictions, based on the sufficiency of taxable income in future periods.

NON-GAAP INFORMATION AND RECONCILIATION.

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GAAP financial measures for the three months ended

March 31, 2023 and 2022.

June 30, 2023 and 2022.

Three months ended 6/30/2023

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Adjusted Non-GAAP Basis $ 947.3 $ 579.7 $ (30.6) $ 131.4 $ 417.7 $ 1.79

The following schedules reconcile certain U.S.

GAAP financial measures for the six months ended June 30, 2023 and 2022.

Six months ended 6/30/2023

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes (6)

Net income attributable to T.

Rowe Price Diluted earnings per share (7)

GAAP Basis (FS line item) $ 2,130.1 $ 1,017.7 $ 241.6 $ 336.4 $ 897.9 $ 3.89

Non-GAAP adjustments:

Acquisition-related non-GAAP adjustments:

Investment and NCI amortization and impairments (1) (Capital allocation-based income and Compensation and related costs)

10.2 14.4 — 1.6 12.8 0.06

Acquisition-related retention arrangements (1) (Compensation and related costs)

(27.8) 27.8 — 3.0 24.8 0.11

Contingent consideration (1)

72.8 (72.8) — (8.0) (64.8) (0.28)

Intangible assets amortization and impairments (1)

(54.6) 54.6 — 6.0 48.6 0.21

Total acquisition-related non-GAAP adjustments 0.6 24.0 — 2.6 21.4 0.10

Supplemental savings plan liability (3) (Compensation and related costs)

(75.5) 75.5 (78.3) (0.3) (2.5) (0.01)

Consolidated T.

Rowe Price investment products (4)

(6.5) 7.4 (69.8) (4.1) (33.3) (0.14)

Other non-operating income (5)

— — (30.9) (3.3) (27.6) (0.13)

Adjusted Non-GAAP Basis $ 2,048.7 $ 1,124.6 $ 62.6 $ 331.3 $ 855.9 $ 3.71

Six months ended 6/30/2022

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes (6)

Net income attributable to T.

Rowe Price Diluted earnings per share (7)

GAAP Basis (FS line item) $ 1,830.0 $ 1,546.0 $ (478.4) $ 265.4 $ 907.5 $ 3.88

Non-GAAP adjustments:

Acquisition-related non-GAAP adjustments:

Investment and NCI amortization and impairments (1) (Capital allocation-based income and Compensation and related costs)

11.3 15.2 — 7.3 7.9 0.04

Acquisition-related retention arrangements (1) (Compensation and related costs)

(37.2) 37.2 — 10.0 27.2 0.11

Contingent consideration (1)

95.8 (95.8) — (31.7) (64.1) (0.28)

Intangible assets amortization and impairments (1)

(54.3) 54.3 — 18.0 36.3 0.16

Transaction costs (2) (General, admin and other)

(0.8) 0.8 — 0.3 0.5 —

Total acquisition-related non-GAAP adjustments 14.8 11.7 — 3.9 7.8 0.03

Supplemental savings plan liability (3) (Compensation and related costs)

144.5 (144.5) 151.7 2.3 4.9 0.02

Consolidated T.

Rowe Price investment products (4)

(2.9) 4.5 206.0 35.0 70.2 0.30

Other non-operating income (5)

— — 66.3 22.1 44.2 0.19

Adjusted Non-GAAP Basis $ 1,986.4 $ 1,417.7 $ (54.4) $ 328.7 $ 1,034.6 $ 4.42

(1) These non-GAAP adjustments remove the impact of acquisition-related amortization and costs including amortization of intangible assets, the recurring fair value remeasurements of the contingent consideration liability, amortization of acquired investment and non-controlling interest basis differences and amortization of compensation-related arrangements.

Management believes adjusting for these charges helps the reader's ability to understand our core operating results and to increase comparability period to period.

(2) This non-GAAP adjustment removes the transactions costs incurred related to the acquisition of OHA.

(2) This non-GAAP adjustment removes acquisition-related transactions costs.

Management believes adjusting for these charges helps the reader's ability to understand our core operating results and to increase comparability period to period.

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Additionally, management does not emphasize the impact of the portion of non-operating income (loss) removed when managing and evaluating our performance.

(6) The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate for three months ended March 31, 2023 and 2022 was 30.3% and 24.2%, respectively.

(6) The income tax impacts were calculated in order to achieve an overall year-to-date non-GAAP effective tax rate of 27.9% and 24.1%, respectively.

As such, the non-GAAP effective tax rate for the three months ended June 30, 2023 and 2022 was 25.8% and 23.9%, respectively.

We estimate that our effective tax rate for the full-year 2023 on a non-GAAP basis will be in the range of 26.5% to 29.5%.

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The calculation of adjusted net income allocated to common stockholders is as follows:

Three months ended

Three months ended Six months ended

6/30/2023 6/30/2022 6/30/2023 6/30/2022

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Our discretionary investment portfolio is comprised of short duration bond funds, which typically yield higher than money market rates, and asset allocation products.

Cash and discretionary investments experienced market gains of $30.8 million in the three months ended March 31, 2023 compared to market losses of $23.8 million in the three months ended March 31, 2022.

Our subsidiaries outside the United States held cash and discretionary investments of $792.4 million at March 31, 2023 and $809.1 million at December 31, 2022.

Cash and discretionary investments experienced market gains of $31.8 million and $62.6 million in the three- and six- months ended June 30, 2023 compared to market losses of $30.6 million and $54.4 million in the three- and six- months ended June 30, 2022.

Our subsidiaries outside the United States held cash and discretionary investments of $795.8 million at June 30, 2023 and $809.1 million at December 31, 2022.

Given the availability of our financial resources and cash expected to be generated through future operations, we do not maintain an available external source of additional liquidity.

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The following table details how T.

Rowe Price’s interests in cash and investments relate to where they are presented on the unaudited condensed consolidated balance sheet as of March 31, 2023.

Rowe Price’s interests in cash and investments relate to where they are presented on the unaudited condensed consolidated balance sheet as of June 30, 2023.

(in millions) Cash and cash equivalents Investments Net assets of consolidated T.

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Redeemable non-controlling interests — — 985.2 985.2

As reported on unaudited condensed consolidated balance sheet at March 31, 2023 $ 2,094.1 $ 2,606.2 $ 1,709.5 $ 6,409.8

As reported on unaudited condensed consolidated balance sheet at June 30, 2023 $ 2,249.7 $ 2,718.4 $ 1,874.4 $ 6,842.5

(1) The consolidated T.

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mutual funds as well as those funds regulated outside the U.S.

The $12.1 million and the $812.5 million represent the total value at March 31, 2023 of our interest in the consolidated T.

The $27.7 million and the $861.5 million represent the total value at June 30, 2023 of our interest in the consolidated T.

Rowe Price investment products.

The total net assets of the T.

Rowe Price investment products at March 31, 2023 of $1,709.5 million includes assets of $1,820.9 million, less liabilities of $111.4 million as reflected in our unaudited condensed consolidated balance sheets.

Rowe Price investment products at June 30, 2023 of $1,874.4 million includes assets of $1,946.1 million, less liabilities of $71.7 million as reflected in our unaudited condensed consolidated balance sheets.

(2) Includes $202.1 million of non-controlling interests in consolidated entities and represents the portion of these investments, held by third parties, that we cannot sell in order to obtain cash for general operations.

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We increased our quarterly recurring dividend per common share in February 2023 by 1.7% to $1.22 per common share from $1.20 per common share.

Further, we expended $2.7 million in the first quarter of 2023 to repurchase

Further, we expended $45.2 million in the first half of 2023 to repurchase

420 thousand shares of our outstanding common stock, at an average price of $107.22 per share.

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2022 1,108.8 — 855.3 1,964.1

Three months ended 3/31/2023 280.7 — 2.7 283.4

Six months ended 6/30/2023 561.2 — 45.0 606.2

Total $ 2,673.7 $ 699.8 $ 2,036.3 $ 5,409.8

We anticipate property, equipment, software and other capital expenditures, including internal labor capitalization, for the full-year 2023 to be about $370 million, of which approximately two-thirds is planned for technology initiatives.

We anticipate property, equipment, software and other capital expenditures, including internal labor capitalization, for the full-year 2023 to be about $365 million, of which approximately 60% is planned for technology initiatives.

We expect to fund our anticipated capital expenditures with operating cash flows and other available resources.

The following table summarizes the cash flows for the three months ended March 31, 2023 and 2022, that are attributable to T.

The following table summarizes the cash flows for the six months ended June 30, 2023 and 2022, that are attributable to T.

Rowe Price, our consolidated sponsored investment products, and the related eliminations required in preparing the statement.

Three months ended

Six months ended

6/30/2023 6/30/2022

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Operating activities attributable to T.

Rowe Price during the first quarter of 2023 provided cash flows of $672.7 million as compared to $1,018.2 million during the first quarter of 2022.

Operating cash flows attributable to T.

Rowe Price decreased $345.5 million, including a $146.4 million decrease in net income from the first quarter of 2022 and a lower add back of $222.9 million in non-cash adjustments, including unrealized investment gains/losses, depreciation, amortization of acquisition-related assets and retention arrangements, the fair value remeasurement of the contingent consideration liability, stock-based compensation expense, and other noncash items.

These decreases were partially offset by an increase in timing differences primarily on the cash settlement of our assets and liabilities of $11.5 million.

The non-cash adjustments were primarily driven by $123.9 million in net investment gains in the first quarter of 2023 compared with $88.7 million in net investment losses in the first quarter of 2022.

Rowe Price during the first half of 2023 provided cash flows of $1,261.0 million, a decrease of $398.8 million from the $1,659.8 million provided during the comparable 2022 period.

The decrease is primarily attributable to lower non-cash adjustments as the 2023 period included net investment gains of $253.0 million compared with net investment losses of $443.9 million in the 2022 period.

The reduction in non-cash adjustments was offset in part by timing differences related to the cash settlement of our assets and liabilities, which increased our net cash flow provided by operating activities by $277.8 million.

Additionally, in 2023, we had net proceeds of $18.4 million from certain investment products that economically hedge our supplemental savings plan liability compared to net proceeds of $3.9 million in the same period of 2022.

The remaining change in reported cash flows from operating activities was primarily attributable to the net change in trading securities held in our consolidated investment products’ underlying portfolios.

Our interim operating cash flows do not include the cash impact of variable compensation that is accrued throughout the year before being substantially paid out in December.

The remaining change in reported cash flows from operating activities was attributable to the net change in trading securities held in our consolidated investment products’ underlying portfolios.

Our non-cash adjustments include unrealized investment gain/losses, depreciation and amortization, fair value remeasurement of the contingent consideration liability remeasurement, and other non-cash items.

Investing Activities

Net cash used in investing activities that are attributable to T.

Rowe Price totaled $52.0 million in the first quarter of 2023 compared with $44.4 million of cash provided by investing activities in the 2022 period.

Rowe Price totaled $163.5 million in the first half of 2023 compared with $1.6 million of cash used in investing activities in the 2022 period.

During 2023, net proceeds from the sale of certain of our discretionary investments of $46.5 million were lower compared to $110.2 million during 2022.

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Rowe Price investment products we consolidate in preparing our unaudited condensed consolidated statement of cash flows.

In addition, we increased our property, equipment and software expenditures by $5.8 million.

In addition, we increased our property, equipment and software expenditures by $9.6 million and had higher other investing activities of $32.6 million.

The remaining $4.3 million change in reported cash flows from investing activities is related to the net cash removed from our balance sheet from consolidating and deconsolidating investment products.

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Net cash used in financing activities attributable to T.

Rowe Price were $282.2 million in the first quarter of 2023 compared with $588.2 million in the 2022 period.

During the first quarter of 2023, we repurchased 25 thousand shares ($2.7 million) compared to 2.1 million shares ($320.1 million) in the first quarter of 2022.

The remaining decrease in reported cash flows used from financing activities is primarily attributable to $138.0 million in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first quarter of 2023 as compared to $55.9 million in net redemptions from redeemable non-controlling interest holders of our consolidated investment products during the first quarter of 2022.

Rowe Price were $603.4 million in the first half of 2023 compared with $1,065.3 million in the 2022 period.

During the first half of 2023, we repurchased 420 thousand shares for $45.2 million compared to 3.8 million shares for $519.6 million in the first half of 2022.

The remaining decrease in reported cash flows used from financing activities is primarily attributable to $283.4 million in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first half of 2023 as compared to $65.7 million in net redemptions during the first half of 2022.

CRITICAL ACCOUNTING POLICIES.

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Rowe Price, including those within this report, may contain certain forward-looking information, including information or anticipated information relating to:

our operations, revenues, net income, and earnings per share of common stock;

our operations, revenues, liquidity, net income, and earnings per share of common stock;

changes in the amount and composition of our assets under management;

our expense levels;

our expenses;

our tax rate;

the timing and expense related to the integration of OHA with and into our business;

legal or regulatory developments;

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interest rates and currency fluctuations;

and our expectations regarding financial markets, future transactions, dividends, stock repurchases, investments, new products and services, capital expenditures, changes in our effective fee rate, and other industry or market conditions.

and our expectations regarding financial markets, future transactions, strategic initiatives, dividends, stock repurchases, investments, new products and services, capital expenditures, changes in our effective fee rate, and other industry or market conditions.

Readers are cautioned that any forward-looking information provided by or on behalf of T.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis