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Item 2. Management’s Discussion and Analysis

2024-04-26 compared with 2023-10-27 · 185 added, 333 removed, 461 unchanged (53% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Our revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in U.S.

mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other sponsored products.

The other sponsored products include:

open-ended investment products offered to investors outside the U.S., products offered through variable annuity life insurance plans in the U.S., affiliated private investment funds, and collateralized loan obligations.

Our revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in a broad range of investment solutions across equity, fixed income, multi-asset, and alternative capabilities.

We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services;

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and non-discretionary advisory services through model delivery.

Additionally, we derive revenue from our interests in general partners of certain affiliated private investment funds that are entitled to a disproportionate allocation of income through capital allocation-based arrangements also known as carried interest.

We manage a broad mix of equity, fixed income, multi-asset, alternative and money market asset classes and solutions that meet the varied needs and objectives of individual and institutional investors.

Investment advisory revenues depend largely on the total value and composition of assets under our management.

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These efforts often involve costs that precede any future revenues that we may recognize from an increase to our assets under management.

The general trend to passive investing has been persistent and accelerated in recent years, which has negatively impacted our new client inflows.

However, over the long term we expect well-executed active management to play an important role for investors.

The investment management industry has been evolving and industry participants are facing several challenging trends including passive investments taking market share from traditional active strategies;

continued downward fee pressure;

demand for new investment vehicles to meet client needs;

and an ever-changing regulatory landscape.

In this regard, we have ample liquidity and resources that allow us to take advantage of attractive growth opportunities.

We are investing in key capabilities, including investment professionals, distribution professionals, technologies, and new product offerings in order to provide our clients with strong investment management expertise and service.

On April 20, 2023, we completed our acquisition of Retiree, Inc., a fintech firm that offers innovative retirement income planning software.

The terms of the transaction are not material.

MARKET TRENDS.

stocks declined in the third quarter of 2023.

Although the U.S.

economy remained resilient and second-quarter corporate earnings reports were mostly favorable, the equity market was affected by higher energy costs and U.S.

Treasury yields rising to multi-year highs amid concerns that elevated inflation could force the Federal Reserve to maintain a restrictive monetary policy for some time.

The central bank raised the Fed Funds target rate in late July, but not at its September policy meeting.

However, investors reacted negatively to policymakers’ projections in September that one more interest rate increase is likely before the end of the year, and that there could be fewer rate cuts in 2024 than previously expected.

stocks produced strong first-quarter gains that lifted several broad indexes to all-time highs.

The market was driven by investors’ optimism about the corporate profit potential stemming from advances in artificial intelligence (AI).

Investors were also encouraged by the outcome of the Federal Reserve’s most recent monetary policy meeting.

Although the central bank kept short-term interest rates steady throughout the quarter, policymakers in March maintained their December 2023 projections for three quarter-point interest rate cuts by the end of 2024 despite recent upticks in inflation readings.

Developed non-U.S.

equity markets fell in U.S.

dollar terms, as the U.S dollar strengthened versus major non-U.S.

In Europe, equity markets were largely negative in dollar terms.

Developed Asian markets declined but generally held up better.

Japanese shares fell slightly in dollar terms but rose slightly in local currency terms, as the yen weakened and central bank officials kept interest rates very low.

Emerging equity markets generally declined, but outperformed equities in developed non-U.S.

markets in dollar terms.

In the emerging Europe, Middle East, and Africa (EMEA) region, market performance was widely mixed.

Turkish stocks led the region, surging as the central bank raised interest rates to fight elevated inflation and took other steps to gradually return to more orthodox policymaking.

Markets in emerging Asia and Latin America were largely negative.

Returns of several major equity market indexes were as follows:

Three months ended Nine months ended

equity markets appreciated in U.S.

dollar terms, but total returns to U.S.

investors were hurt by a stronger dollar versus other major currencies.

In Europe, equity markets were mostly positive, as investors hoped that easing inflation pressures would enable major central banks to begin reducing short-term interest rates later this year.

Asian markets were widely mixed:

Japanese shares led the region with a gain exceeding 11%, while Hong Kong stocks dropped almost 12%.

Emerging equity markets generally rose but trailed stocks in developed markets in dollar terms.

In Europe, Turkish shares advanced as investors were encouraged that the central bank continued to raise interest rates to fight elevated inflation.

In Asia, several markets produced gains, but Chinese stocks fell slightly, as the property market remained in distress.

In Latin America, a few markets rose sharply, but stocks in regional heavyweight Brazil fell 7%.

Returns of several major equity market indexes were as follows for the three months ended:

Index 3/31/2024

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(1) Returns exclude dividends

Global bond returns were mostly negative in U.S.

dollar terms in the third quarter.

In the U.S., Treasury bill yields increased as the Federal Reserve lifted the Fed Funds target rate to the 5.25% to 5.50% range in late July and as investors prepared for possibly one more Fed interest rate increase by the end of the year.

Intermediate- and long-term U.S.

Treasury yields rose more significantly due in part to a U.S.

sovereign credit rating downgrade from Fitch Ratings in August, increased Treasury Department borrowing in the third quarter, and concerns about a possible October 1 federal government shutdown, which was narrowly averted.

Global bond returns were mixed in U.S.

dollar terms in the first quarter of 2024.

In the U.S., Treasury bill yields increased, even though the fed funds target rate remained in the 5.25% to 5.50% range.

Yields of Treasuries with intermediate- and long-term maturities rose to a greater degree due in part to some recent upticks in inflation readings.

The 10-year U.S.

Treasury note yield increased from 3.81% to 4.59% during the quarter, reaching its highest levels in about 16 years.

investment-grade bond universe, sector performance was mostly negative.

Mortgage-backed securities performed worst.

Corporate bonds and U.S.

Treasury securities also fared poorly.

Asset-backed securities outperformed with a slight positive total return.

Tax-free municipal bonds fared worse than the broad taxable bond market, as municipal yields generally increased more than U.S.

Treasury yields.

High yield corporate bonds produced slight positive total returns and strongly outperformed the investment-grade market.

Treasury note yield increased from 3.88% to 4.20% during the quarter.

investment-grade bond universe, sector performance was mixed.

Mortgage-backed and Treasury securities performed worst.

Corporate bonds held up somewhat better but still posted mild losses.

Asset-backed securities rose slightly, while non-agency commercial mortgage-backed securities produced a solid gain.

Tax-free municipal bonds held up slightly better than the broad taxable bond market.

High yield corporate bonds produced gains and outperformed the broad investment-grade market.

Bonds in developed non-U.S.

markets declined in U.S.

dollar terms;

returns to U.S.

investors were hurt by rising interest rates in various countries as well as weaker non-U.S.

currencies versus the greenback.

In Europe, government bond yields rose in parallel with U.S.

Treasury yields and were also pressured higher by signs that the rate of inflation, while decreasing, remains elevated.

In Japan, government bond yields remained very low, as the Bank of Japan continued its highly stimulative monetary policy.

However, long-term yields rose to levels unseen in about 10 years as policymakers expressed a willingness to conduct “with greater flexibility” their yield curve control policy.

Emerging markets bonds also depreciated in U.S.

dollar terms.

Bonds denominated in local currencies generally fared worse than dollar-denominated issues, as most emerging markets currencies declined versus the greenback.

Returns for several major bond market indexes were as follows:

Three months ended Nine months ended

markets declined in dollar terms.

In Europe, longer-term bond yields generally increased while major European currencies weakened versus the dollar.

While the European Central Bank and the Bank of England held short-term interest rates steady, Switzerland’s central bank surprised investors in March with a quarter-point rate cut.

In Japan, long-term government bond yields increased and the yen fell to 34-year lows versus the dollar, even though the Bank of Japan decided in March to lift its benchmark interest rate out of negative territory.

Emerging markets bonds were mixed:

Dollar-denominated issues produced gains, but bonds denominated in local currencies declined, as many developing markets currencies depreciated versus the U.S.

Returns for several major bond market indexes were as follows for the three months ended:

Index 3/31/2024

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ASSETS UNDER MANAGEMENT.

Assets under management ended the third quarter of 2023 at $1,346.5 billion, a decrease of $52.9 billion from June 30, 2023 and an increase of $71.8 billion from the end of 2022.

The decrease in assets under management during the third quarter of 2023 was driven by market depreciation, net of distributions not reinvested, of $35.5 billion and net cash outflows of $17.4 billion.

For the nine months ended September 30, 2023, the increase in assets under management was driven by market appreciation, net of distributions not reinvested, of $125.3 billion, offset by net cash outflows of $53.5 billion.

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

Three months ended 9/30/2023

Nine months ended 9/30/2023

Assets under management ended the first quarter of 2024 at $1,542.2 billion, an increase of $97.7 billion from December 31, 2023.

The increase in assets under management during the first quarter of 2024 was driven by market appreciation and income, net of distributions not reinvested, of $105.7 billion, offset by net cash outflows of $8.0 billion.

The following tables detail changes in our assets under management, by asset class, during the first quarter of 2024:

(in billions) Equity Fixed income, including money market Multi-asset (1)

Alternatives (2)

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

Alternatives (3)

Assets under management at beginning of period $ 743.6 $ 170.0 $ 483.0 $ 47.9 $ 1,444.5

Net cash flows prior to manager-driven distributions (12.8) 0.2 5.5 0.1 (7.0)

Manager-driven distributions — — — (1.0) (1.0)

Net cash flows (12.8) 0.2 5.5 (0.9) (8.0)

(19.7) 1.0 0.4 0.9 (17.4) (62.7) (0.8) 9.1 0.9 (53.5)

Net market appreciation (depreciation) and gains(losses (5)

Net market appreciation (depreciation) and income (3)

72.1 0.7 32.1 0.8 105.7

Change during the period 59.3 0.9 37.6 (0.1) 97.7

Assets under management at September 30, 2023 $ 690.0 $ 169.3 $ 440.5 $ 46.7 $ 1,346.5 $ 690.0 $ 169.3 $ 440.5 $ 46.7 $ 1,346.5

(1) Includes fee basis assets under management.

Assets under management at March 31, 2024 $ 802.9 $ 170.9 $ 520.6 $ 47.8 $ 1,542.2

(1) The underlying assets under management of the multi-asset portfolios have been aggregated and presented in this category and not reported in the equity and fixed income columns.

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

Unfunded capital commitments as of September 30, 2023 were $12.3 billion and are not reflected in fee basis AUM above.

(4) Alternatives net cash flows for the three- and nine-month periods ended September 30, 2023 includes $0.8 billion and $1.6 billion, respectively, in outflows that represent investment manager-driven distributions.

(5) Includes net distributions not reinvested for the three- and nine-month periods ended September 30, 2023 of $0.2 billion and $0.6 billion, respectively.

Investment advisory clients outside the United States account for 9.2% of our assets under management at September 30, 2023, 8.9% at June 30, 2023, and 9.1% at December 31, 2022.

Assets under management in our target date retirement products, which are included in the multi-asset totals shown above, were $371.8 billion at September 30, 2023, compared with $380.0 billion at June 30, 2023 and $334.2 billion at December 31, 2022.

Net flows into these portfolios were $2.9 billion and $12.8 billion in the three- and nine-month periods ended September 30, 2023.

Unfunded capital commitments as of March 31, 2024 were $12.0 billion and are not reflected in fee basis AUM above.

(3) Includes net distributions not reinvested for the first quarter of 2024 of $0.2 billion.

Investment advisory clients outside the United States account for 8.5% of our assets under management at March 31, 2024 and 8.6% at December 31, 2023.

Assets under management in our target date retirement products, which are included in the multi-asset totals shown above, were $443.0 billion at March 31, 2024, compared with $408.4 billion at December 31, 2023.

Net flows into these portfolios were $6.8 billion in the first quarter of 2024.

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 September 30, 2023, total assets in these solutions were $453 billion, of which $444 billion are included in our reported assets under management in the tables above.

As of March 31, 2024, total assets in these solutions were $537 billion, of which $525 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 September 30, 2023, our assets under administration were $234 billion, of which nearly $141 billion are assets we manage.

As of March 31, 2024, our assets under administration were $266 billion, of which nearly $156 billion are assets we manage.

INVESTMENT PERFORMANCE.

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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 September 30, 2023.

The following tables present investment performance for the one-, three-, five-, and 10-years ended March 31, 2024.

Past performance is no guarantee of future results.

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All Composites 59% 33% 41% 60%

As of September 30, 2023, 74 of 125 (59.2%) of the firm's rated U.S.

As of March 31, 2024, 69 of 130 (53.1%) 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, 65% (6) of AUM in the firm's rated U.S.

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

mutual funds (across primary share classes) ended March 31, 2024 with an overall rating of 4 or 5 stars.

(1) The investment performance reflects that of T.

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Rowe Price funds AUM that has outperformed for the time periods indicated.

Total AUM included for this analysis includes $303B for 1 year, $303B for 3 years, $302B for 5 years, and $300B for 10 years.

Total AUM included for this analysis includes $327B for 1 year,

$326B for 3 years, $326B for 5 years, and $323B for 10 years.

(4) Passive Peer Median was created by T.

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RESULTS OF OPERATIONS.

The following table and discussion sets forth information regarding our consolidated financial results for the three- and nine-month periods ended September 30, 2023 and 2022 on a U.S.

The following table and discussion sets forth information regarding our consolidated financial results for the first quarter of 2024 and 2023 on a U.S.

GAAP basis and a non-GAAP basis.

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Three months ended Q1 2024 vs.

Q3 2022 Nine months ended YTD 2023 vs.

(in millions, except per-share data) 3/31/2024 3/31/2023 $ change % change (1)

9/30/2023 9/30/2022 $ change % change (1)

Investment advisory fees $ 1,554.0 $ 1,391.8 $ 162.2 11.7 %

Capital allocation-based income (2)

$ 66.1 $ 1.1 $ 65.0 n/m $ 121.7 $ (80.8) $ 202.5 n/m

$ 47.1 $ 16.9 $ 30.2 n/m

Net revenues $ 1,750.2 $ 1,537.6 $ 212.6 13.8 %

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Net operating income $ 586.6 $ 484.2 $ 102.4 21.1 %

Non-operating income (loss) $ 2.8 $ (82.8) $ 85.6 n/m $ 244.4 $ (561.2) $ 805.6 n/m

Non-operating income (loss) $ 188.9 $ 135.4 $ 53.5 n/m

Net income attributable to T.

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Net operating income $ 692.4 $ 528.0 $ 164.4 31.1 %

Non-operating income (loss) $ 28.7 $ (3.7) $ 32.4 n/m $ 91.3 $ (58.1) $ 149.4 n/m

Non-operating income (loss) $ 28.5 $ 30.8 $ (2.3) n/m

Net income attributable to T.

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

Results Overview - Quarter ended September 30, 2023

Results Overview - Quarter ended March 31, 2024

Net revenues consist of investment advisory revenues;

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

Total net revenues were $1,670.7 million in the third quarter of 2023, a 5.2% increase compared with $1,588.2 million in the third quarter of 2022.

The increase was primarily driven by a $65.0 million increase in accrued carried interest from investments in affiliated investment funds and a 1.5% increase in investment advisory fee revenue as higher overall markets increased average assets under management by 3.4%.

Total net revenues were $1,750.2 million in the first quarter of 2024, a 13.8% increase compared with $1,537.6 million in the first quarter of 2023.

The increase was primarily driven by an 11.7% increase in investment advisory fee revenue as higher overall markets increased average assets under management by 12.2% and a $30.2 million increase in accrued carried interest from investments in affiliated funds.

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.

As our average assets under management increase or decrease in a given period, the level of our investment advisory fee revenue for that same period generally fluctuates in a similar manner.

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-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.

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

Capital allocation-based income will fluctuate quarter-to-quarter to reflect the adjustment to accrued carried interest for the change in value of certain 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 $1,089.4 million in the third quarter of 2023, a 7.5% increase over over the comparable 2022 period.

GAAP basis were $1,163.6 million in the first quarter of 2024, a 10.5% increase over the comparable 2023 period.

On a non-GAAP basis, operating expenses were $1,071.4 million, a 4.8% increase over the comparable 2023 period.

In comparison to the third quarter of 2022, about 50% of the increase in U.S.

GAAP operating expenses is driven by no change in the contingent consideration liability and a smaller decrease in supplemental savings plan liability in the third quarter of 2023, compared to a decrease in the contingent consideration liability and a more significant decline in the supplemental savings plan liability in the 2022 period.

In comparison to the first quarter of 2023, about 45% of the increase in U.S.

GAAP operating expenses were driven by the remeasurement of the contingent consideration liability, as the 2023 quarter reflected a $49.6 million reduction in the liability compared to no change in the first quarter of 2024.

Also contributing to the increase in U.S.

GAAP operating expenses and the primary drivers of non-GAAP operating expenses were higher salaries and related benefits, including severance related to the July work-force action, and an increase in accrued carried interest-related compensation along with higher costs associated with ongoing investments in our technology capabilities.

These increases were partially offset by lower general, administrative and other costs due to a non-recurring recovery of costs that were incurred in Q3 2022.

Operating margin in the third quarter of 2023 was 34.8% on a U.S.

GAAP operating expenses and the primary drivers of the increase in non-GAAP operating expenses over the prior year were higher compensation and related benefits along with higher accrued carried interest related compensation.

Operating margin in the first quarter of 2024 was 33.5% on a U.S.

GAAP basis, compared to 31.5% earned in the 2023 quarter.

The decrease in our U.S.

GAAP operating margin for the third quarter of 2023 compared to the 2022 period was primarily driven by operating expense growth outpacing net revenue growth.

The drivers of operating expense growth are further discussed above.

Diluted earnings per share was $1.97 for the third quarter of 2023 as compared to $1.66 for the third quarter of 2022.

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

These gains were partially offset by higher tax rate.

On a non-GAAP basis, diluted earnings per share was $2.17 for the third quarter of 2023 as compared to $1.86 for the third quarter of 2022.

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

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

Results Overview - Year-to-Date ended September 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 nine months ended September 30, 2023 are related to investment advisory fees.

Total net revenues were $4,818.5 million in the nine months ended September 30, 2023, a 2.9% decrease compared with $4,964.2 million in the 2022 period.

The decrease was primarily driven by a 6.8% decline in investment advisory fee revenue as average assets under management declined by 5.5%.

This decrease was partially offset by a $202.5 million increase in accrued carried interest from investments in affiliated investment funds.

The change in accrued carried interest in the nine months ended September 30, 2023 increased net revenues by $121.7 million compared with an $80.8 million reduction in the 2022 period.

Operating expenses were $3,219.5 million in the nine months ended September 30, 2023 compared with $2,843.6 million in the 2022 period.

On a non-GAAP basis, our operating expenses for the nine months ended September 30, 2023 increased 3.2% to $3,110.0 million compared to the 2022 period.

In comparison to the nine months ended September 30, 2022, about 60% of the increase in U.S.

GAAP operating expenses was due to the increase in the supplemental savings plan liability in the nine months ended September 30, 2023, compared to a significant decrease in the supplemental savings plan liability in the 2022 period.

Also contributing to the increase in U.S GAAP operating expenses and the primary drivers of non-GAAP operating expenses were higher accrued carried interest-related compensation along with higher salaries and related benefits including severance and higher costs related to the ongoing investments in our technology capabilities.

These increases were partially offset by lower distribution and servicing costs due to lower average assets under management, lower employee-related costs, including stock-based compensation expense and lower general, administrative and other costs.

Operating margin in the nine months ended September 30, 2023 was 33.2%, compared to 42.7% earned in the 2022 period.

The decrease in our operating margin for the nine months ended September 30, 2023 compared to the 2022 period was primarily driven by operating expense growth outpacing net revenue growth.

The drivers of operating expense growth are discussed above.

Diluted earnings per share was $5.86 for the nine months ended September 30, 2023 as compared to $5.54 for the nine months ended September 30, 2022.

The 5.8% increase was primarily driven by net investment gains of $244.4 million recognized in the nine months ended September 30, 2023, as compared to net investment losses of $561.2 million recognized in the comparable 2022 period, as market returns in the 2023 year-to-date period were stronger than those in the 2022 period.

Lower average shares outstanding also contributed to the increase.

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

On a non-GAAP basis, adjusted diluted earnings per share was $5.88 for the nine months ended September 30, 2023 as compared to $6.28 for the 2022 period.

The 6.4% decrease was largely attributable to lower adjusted operating income as well as a higher effective tax rate in the nine months ended September 30, 2023.

These decreases were offset slightly by net investment gains recognized on our cash investment strategy compared to net losses in the 2022 period.

The increase in our U.S.

GAAP operating margin for the first quarter of 2024 compared to the 2023 period was driven by net revenue growth outpacing operating expense growth.

Diluted earnings per share was $2.49 for the first quarter of 2024 as compared to $1.83 for the first quarter of 2023.

The increase was primarily driven by higher operating income, higher net investment gains, and a lower effective tax rate compared to the 2023 period.

On a non-GAAP basis, diluted earnings per share was $2.38 for the first quarter of 2024 as compared to $1.69 for the first quarter of 2023.

The increase was primarily due to higher adjusted operating income and a lower effective tax rate compared to the 2023 period.

Three months ended Q1 2024 vs.

Q3 2022 Nine months ended YTD 2023 vs.

(in millions) 9/30/2023 9/30/2022 $ change % change 9/30/2023 9/30/2022 $ change % change

(in millions) 3/31/2024 3/31/2023 $ change % change

Investment advisory fees

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1,554.0 1,391.8 162.2 11.7 %

Capital allocation-based income 66.1 1.1 65.0 n/m 121.7 (80.8) 202.5 n/m

Capital allocation-based income 47.1 16.9 30.2 n/m

Administrative, distribution, and servicing fees

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Average assets under management $ 1,484.4 $ 1,322.9 $ 161.5 12.2 %

Investment advisory annualized effective fee rate

(in bps) 41.7 42.5 (0.8) (1.9) % 42.2 42.8 (0.6) (1.4) %

Investment advisory fees

Investment advisory revenues earned in the third quarter of 2023 increased 1.5% over the comparable 2022 quarter as average assets under management increased $46.1 billion or 3.4%, to $1,393.6 billion.

For the nine months ended September 30, 2023, investment advisory revenues decreased 6.8% over the comparable 2022 period as average assets under management decreased $78.9 billion, or 5.5%, to $1,358.2 billion.

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

We have not waived money market investment advisory fees since second quarter of 2022.

The decline in our investment advisory average annualized effective fee rate to 41.7 bps in Q3 2023 and 42.2 bps for year-to-date 2023 was primarily driven by a mix shift in assets under management toward lower fee asset classes and vehicles as a result of net equity outflows over the last twelve months.

For Q3 2023, the impact of net equity outflows was offset slightly by higher market returns during the same period.

Administrative, distribution, and servicing fees in the third quarter of 2023 were $140.7 million, a decrease of $4.4 million, or 3.0%, from the comparable 2022 quarter.

The decrease in the third quarter of 2023 is primarily due to lower transfer agent servicing activities provided to the T.

Investment advisory effective fee rate (bps) 42.1 42.7 (0.6) (1.4) %

Investment advisory fees in the first quarter of 2024 increased 11.7% over the comparable 2023 quarter as average assets under management increased $161.5 billion or 12.2%, to $1,484.4 billion.

Our investment advisory average annualized effective fee rate of 42.1 bps in the first quarter of 2024 declined compared with 42.7 basis points earned in the 2023 quarter and 42.2 basis points earned during the fourth quarter of 2023.

In comparison to the first quarter of 2023, net outflows and client transfers over the past year drove a mix shift in assets under management toward lower fee vehicles leading to an unfavorable impact on the annualized effective fee rate.

These unfavorable impacts were slightly offset by strong market returns over the last year and $17.6 million in performance-based fees earned predominantly on certain U.S.

equity strategies in the 2024 quarter.

Administrative, distribution, and servicing fees in the first quarter of 2024 were $149.1 million, an increase of $20.2 million, or 15.7%, from the comparable 2023 quarter.

The increase in the first quarter of 2024 is primarily driven by higher fees related to transfer agent services provided to the T.

Rowe Price mutual funds.

For the nine months ended September 30, 2023, these fees were $410.3 million, a decrease of $33.9 million, or 7.6%, from the 2022 period.

The decrease in the nine months ended September 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 in the related U.S.

mutual fund share classes.

These lower 12b-1 revenues are offset by decreases in the costs incurred with third-party intermediaries who distribute these share classes.

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 third quarter, we eliminated net revenue of $0.7 million in 2023 and $0.5 million in 2022.

For the nine months ended September 30, we eliminated net revenue of $1.6 million in 2023 and $2.1 million in 2022.

Capital allocation-based income in the third quarter of 2023 increased net revenues by $66.1 million.

The third quarter of 2023 amount represents an increase of $91.9 million in accrued carried interest from investments in affiliated investment funds, partially offset by $25.8 million in non-cash acquisition-related amortization and impairments.

Comparatively, capital allocation-based income in the third quarter of 2022 increased net revenues by $1.1 million, which consists of market-related increases of accrued carried interest from investments in affiliated investment funds of $14.3 million offset by $13.2 million in non-cash amortization.

The increase in accrued carried interest in the 2023 quarter as compared to the 2022 quarter was largely driven by stronger absolute and relative performance.

For the nine months ended September 30, 2023, capital allocation-based income increased net revenues by $121.7 million.

This amount represents an increase of $172.1 million in accrued carried interest from investments in affiliated investment funds, partially offset by $50.4 million in non-cash acquisition-related amortization and impairments.

Comparatively, capital allocation-based income reduced net revenues for the nine months ended September 30, 2022 by $80.8 million.

This amount represents $41.1 million in market-related reductions of accrued carried interest from investments in affiliated investment funds plus $39.7 million in non-cash acquisition-related amortization.

For the first quarter, we eliminated net revenue of $1.2 million in 2024 and $0.6 million in 2023.

Capital allocation-based income in the first quarter of 2024 increased net revenues by $47.1 million.

The first quarter of 2024 amount represents an increase of $59.5 million in accrued carried interest from investments in affiliated investment funds, partially offset by $12.4 million in non-cash acquisition-related amortization.

Comparatively, capital allocation-based income in the first quarter of 2023 increased net revenues by $16.9 million, which consists of an increase in accrued carried interest from investments in affiliated investment funds of $29.2 million, partially offset by $12.3 million in non-cash amortization.

The increase in accrued carried interest in the 2024 quarter compared to the 2023 quarter was largely driven by stronger relative performance.

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.

1 unchanged sentence

Three months ended Q1 2024 vs.

Q3 2022 Nine months ended YTD 2023 vs.

(in millions) 9/30/2023 9/30/2022 $ change % change 9/30/2023 9/30/2022 $ change % change

(in millions) 3/31/2024 3/31/2023 $ change % change

Compensation, benefits and related costs $ 629.3 $ 593.3 $ 36.0 6.1 %

Acquisition-related retention agreements 13.5 14.2 (0.7) (4.9) %

Capital allocation-based income compensation 19.9 0.1 19.8 n/m 34.0 (33.3) 67.3 n/m

Capital allocation-based income compensation 13.2 3.5 9.7 n/m

Supplemental savings plan (1)

(14.2) (24.7) 10.5 n/m 61.3 (169.2) 230.5 n/m

53.0 42.5 10.5 n/m

Total compensation and related costs 709.0 653.5 55.5 8.5 %

5 unchanged sentences

Change in fair value of contingent consideration — (49.6) 49.6 (100.0) %

Acquisition-related amortization 38.5 27.1 11.4 42.1 % 93.1 81.4 11.7 14.4 %

Acquisition-related amortization and impairment costs 29.9 26.0 3.9 15.0 %

Total operating expenses $ 1,163.6 $ 1,053.4 $ 110.2 10.5 %

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

Compensation, benefits, and related costs were $617.0 million in the third quarter of 2023, an increase of $21.4 million, or 3.6%, compared to the 2022 quarter.

The increase was primarily due to higher salaries and related benefits, including severance related to the July work-force action in the third quarter of 2023.

These increases were partially offset by higher labor capitalization and lower stock-based compensation in the third quarter of 2023.

For the nine months ended September 30, 2023, these costs were $1,801.3 million, an increase of $20.0 million, or 1.1%, compared to the 2022 period.

The increase in the nine months ended September 30, 2023 was primarily due to higher salaries and related benefits, resulting from base salary increases in July 2022 and January 2023, and severance related to the July work-force actions.

These increases were offset by lower stock-based compensation expense, lower temporary personnel, and higher labor capitalization.

The firm employed 7,842 associates at September 30, 2023, a decrease of 0.3% from the end of 2022, and a decrease of 1.9% from September 30, 2022.

Distribution and servicing costs were $74.9 million for the third quarter of 2023, an increase of $5.0 million, or 7.2%, from the $69.9 million recognized in the 2022 quarter.

The increase from 2022 was primarily driven by higher costs incurred to distribute certain products through certain U.S.

intermediaries.

For the nine months ended September 30, 2023, these costs were $214.2 million, a decrease of $17.3 million, or 7.5%, compared with the 2022 period.

The decrease in the nine months ended September 30, 2023 was primarily driven by lower average assets under management in certain U.S.

mutual fund and SICAV share classes.

Compensation, benefits, and related costs were $629.3 million in the first quarter of 2024, an increase of $36.0 million, or 6.1%, compared to the 2023 quarter.

The increase was primarily due to a higher interim bonus accrual and higher salaries and related benefits, primarily due to base salary increases in January 2024.

These increases were partially offset by higher labor capitalization in the first quarter of 2024.

The firm employed 7,878 associates at March 31, 2024, a decrease of 0.4% from the end of 2023, and an increase of 0.5% from March 31, 2023.

Distribution and servicing costs were $81.9 million for the first quarter of 2024, an increase of $10.4 million, or 14.5%, from the $71.5 million recognized in the 2023 quarter.

The increase from 2023 was primarily driven by higher costs incurred to distribute products through U.S.

intermediaries and higher average assets under management.

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.

mutual funds and our international products, such as our Japanese ITMs and SICAVs.

These costs are offset entirely by the distribution revenue we earn and report in net revenues:

These costs were offset entirely by the distribution revenue we earn and report in net revenues:

12b-1 revenue is recognized in administrative, distribution, and servicing fees for the Advisor and R share classes of the U.S.

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

Advertising and promotion costs were $21.1 million in the third quarter of 2023, a decrease of $3.2 million, or 13.2%, compared to the $24.3 million recognized in the 2022 quarter.

For the nine months ended September 30, 2023, these costs were $69.8 million, an increase of $0.7 million, or 1.0%, compared with the 2022 period.

Product and recordkeeping related costs were $73.1 million in the third quarter of 2023, a decrease of $2.5 million, or 3.3%, compared to the $75.6 million in the 2022 quarter.

For the nine months ended September 30, 2023, these costs were $222.9 million, a decrease of $9.4 million, or 4.0%, compared with the 2022 period.

The decrease in both periods were primarily due to lower recordkeeping related costs.

Technology, occupancy, and facility costs were $159.7 million in the third quarter of 2023, an increase of $16.1 million, or 11.2%, compared to the $143.6 million recognized in the 2022 quarter.

For the nine months ended September 30, 2023, these costs were $461.0 million, an increase of $49.2 million, or 11.9%, compared with the 2022 period.

The increase for both periods was primarily related to higher costs from the firm's ongoing investment in its technology capabilities, including hosted solution licenses and depreciation.

The nine months ended was also impacted by increased office facility costs, mainly related to rent expense associated with a new London office that has been recognizing throughout the year, and that we began occupying in late September.

General, administrative, and other expenses were $85.7 million in the third quarter of 2023, a decrease of $29.2 million, or 25.4%, compared to the $114.9 million recognized in the 2022 quarter.

For the nine months ended September 30, 2023, these costs were $293.2 million, a decrease of $16.9 million, or 5.4%, compared with the 2022 period.

The decrease in both periods were primarily due to a non-recurring recovery of costs that were incurred in Q3 2022 that more than offset increases in professional fees and information services.

Technology, occupancy, and facility costs were $149.9 million in the first quarter of 2024, an increase of $3.3 million, or 2.3%, compared to the $146.6 million recognized in the 2023 quarter.

The increase was primarily related to higher costs from the firm's ongoing investment in its technology capabilities, including depreciation and hosted solution licenses, slightly offset by a non-recurring cost benefit realized in the first quarter of 2024 related to the firm's new UK facility.

General, administrative, and other expenses were $92.6 million in the first quarter of 2024, a decrease of $14.9 million, or 13.9%, compared to the $107.5 million recognized in the 2023 quarter.

The decrease was primarily due to lower research fee expense as the firm changed its approach to paying for research, consistent with regulations and general industry practice.

Change in fair value of contingent consideration.

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.

The contingent consideration represents the earnout arrangement related to 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.

For the three months ended, there was no change in the fair value of the contingent consideration liability at September 30, 2023, while in 2022 the liability was reduced by $29.9 million.

During the nine months ended September 30, 2023 and 2022, we recognized reductions in the fair value of the contingent consideration liability of $72.8 million and $125.7 million, respectively.

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

During the first quarter of 2024, there was no change in the fair value of the contingent consideration liability.

During the first quarter of 2023, the liability was reduced by $49.6 million.

Acquisition-related amortization and impairment costs.

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

During the third quarter of 2023 and 2022, we recognized $38.5 million and $27.1 million, respectively, in amortization related to the definite-lived intangible assets.

During the nine months ended September 30, 2023 and 2022, we recognized $93.1 million and $81.4 million, respectively, in amortization.

Immaterial impairment costs were recognized during Q3 2023.

During the first quarter of 2024 and 2023,

we recognized $29.9 million and $26.0 million, respectively, in amortization related to the definite-lived intangible assets.

Immaterial impairment costs were recognized during the first quarter of 2024 and 2023.

Should conditions that led us to recognize the impairment charges deteriorate, additional impairments may be recognized in future periods.

Non-operating income (loss)

Non-operating income for the third quarter of 2023 was $2.8 million as compared to non-operating loss of $82.8 million in the 2022 quarter.

The following table details the components of non-operating income (loss) for both the three- and nine-month periods ended September 30, 2023 and 2022.

Three months ended Nine months ended

Non-operating income for the first quarter of 2024 was $188.9 million compared to $135.4 million in the 2023 quarter.

The following table details the components of non-operating income for both the first quarter of 2024 and 2023.

Three months ended

(in millions) 3/31/2024 3/31/2023

8 unchanged sentences

Market-related gains (losses) and equity in earnings (losses) 23.5 15.1

Net gains recognized upon deconsolidation 0.7 — 0.7 6.8

Investments used to hedge the supplemental savings plan liability 49.7 44.7

3 unchanged sentences

Net gains (losses) on investments 121.5 93.9

Net gains (losses) on consolidated sponsored investment portfolios (24.4) (41.7) 45.4 (247.7)

Other income (losses), including foreign currency losses (3.5) 0.4 (14.7) (12.2)

Net gains (losses) on consolidated sponsored investment products 72.3 45.4

Other gains (losses), including foreign currency gains (losses) (4.9) (3.9)

Non-operating income (loss) $ 188.9 $ 135.4

Our investment portfolio recognized gains during the three- and nine-month periods ended September 30, 2023 primarily due to market activity that resulted in higher valuations at the end of the third quarter of 2023 and higher dividends earned on our cash equivalents.

Our investment portfolio recognized losses in the third 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 third quarter of 2022.

The investment gains recognized by our investment portfolio during the first quarter of 2024 and 2023 were primarily due to strong market returns over both periods.

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

Rowe Price investment products and not just the net investment income related to our ownership interest in the products.

sponsored investment products and not just the net investment income related to our ownership interest in the products.

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 Nine months ended

Three months ended

(in millions) 3/31/2024 3/31/2023

8 unchanged sentences

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- and nine-months ended September 30, 2023 and 2022:

Three months ended Nine months ended

GAAP basis for both the three months ended March 31, 2024 and 2023:

Three months ended

3/31/2024 3/31/2023

2 unchanged sentences

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

3.3 3.4 3.0 3.5

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

0.1 2.5 (0.2) 1.6

Net excess tax benefits from stock-based compensation plans activity (0.3) (0.4)

Valuation allowance 0.5 4.3

Other items, including valuation allowances 0.3 1.2

3 unchanged sentences

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 24.8% in the third quarter of 2023 compared with 24.4% in third quarter of 2022.

For the nine months ended September 30, 2023, our non-GAAP effective tax rate was 26.8%, compared with 24.2% 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 nine months ended September 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 not to be realized.

Our non-GAAP effective tax rate was 23.9% in the first quarter of 2024 compared with 30.3% in first quarter of 2023.

The first quarter of 2024 U.S.

GAAP and non-GAAP effective tax rates decreased compared to the first quarter of 2023 due to lower valuation allowances recognized.

In the first quarter of 2023, valuation allowances were recognized against cumulative UK-based deferred tax assets.

The 2024 rate was also favorably impacted by changes in state income apportionment rules in certain jurisdictions.

We currently estimate that our effective tax rate for the full year 2024, on a U.S.

11 unchanged sentences

GAAP financial measures for the three months ended

September 30, 2023 and 2022.

March 31, 2024 and 2023.

Three months ended 3/31/2024

4 unchanged sentences

Non-GAAP adjustments:

Acquisition-related non-GAAP adjustments:

Acquisition-related:

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

4 unchanged sentences

(29.9) 29.9 — 8.3 21.6 0.10

Total acquisition-related non-GAAP adjustments (41.6) 67.4 — 20.5 46.9 0.20

Total acquisition-related (38.1) 50.5 — 14.1 36.4 0.16

Supplemental savings plan liability (2) (Compensation and related costs)

12 unchanged sentences

Non-GAAP adjustments:

Acquisition-related non-GAAP adjustments:

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

5.6 7.6 — 1.4 6.2 0.03

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

(17.1) 17.1 — 3.0 14.1 0.06

Contingent consideration (1)

29.9 (29.9) — (3.8) (26.1) (0.11)

Intangible assets amortization and impairments (1)

(27.1) 27.1 — 5.1 22.0 0.09

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

(0.1) 0.1 — — 0.1 —

Total acquisition-related non-GAAP adjustments (8.8) 22.0 — 5.7 16.3 0.07

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

24.7 (24.7) 26.3 0.1 1.5 0.01

Consolidated T.

Rowe Price investment products (4)

(1.3) 1.8 41.7 (0.3) 17.2 0.07

Other non-operating income (5)

— — 11.1 (0.1) 11.2 0.05

Adjusted Non-GAAP Basis $ 1,028.2 $ 573.7 $ (3.7) $ 139.4 $ 430.6 $ 1.86

The following schedules reconcile certain U.S.

GAAP financial measures for the nine months ended September 30, 2023 and 2022.

Nine months ended 9/30/2023

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) $ 3,219.5 $ 1,599.0 $ 244.4 $ 481.3 $ 1,351.1 $ 5.86

Non-GAAP adjustments:

Acquisition-related non-GAAP adjustments:

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

20.8 29.6 — 6.2 23.4 0.10

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

(41.5) 41.5 — 7.2 34.3 0.15

Contingent consideration (1)

72.8 (72.8) — (8.0) (64.8) (0.28)

Intangible assets amortization and impairments (1)

(93.1) 93.1 — 17.7 75.4 0.33

Total acquisition-related non-GAAP adjustments (41.0) 91.4 — 23.1 68.3 0.30

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

(61.3) 61.3 (58.6) 1.4 1.3 0.01

Consolidated T.

Rowe Price investment products (4)

(7.2) 8.8 (45.4) (0.5) (25.1) (0.11)

Other non-operating income (5)

— — (49.1) (8.9) (40.2) (0.18)

Adjusted Non-GAAP Basis $ 3,110.0 $ 1,760.5 $ 91.3 $ 496.4 $ 1,355.4 $ 5.88

Nine months ended 9/30/2022

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) $ 2,843.6 $ 2,120.6 $ (561.2) $ 399.4 $ 1,291.9 $ 5.54

Non-GAAP adjustments:

Acquisition-related non-GAAP adjustments:

Acquisition-related:

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

6 unchanged sentences

(26.0) 26.0 — 5.6 20.4 0.09

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

(0.9) 0.9 — 0.2 0.7 —

Total acquisition-related non-GAAP adjustments 6.0 33.7 — 9.5 24.2 0.09

Total acquisition-related 14.5 (2.2) — (0.3) (1.9) (0.01)

Supplemental savings plan liability (2) (Compensation and related costs)

6 unchanged sentences

Adjusted Non-GAAP Basis $ 1,022.5 $ 528.0 $ 30.8 $ 169.4 $ 389.4 $ 1.69

(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 acquisition-related transactions costs.

(1) These non-GAAP adjustments remove the impact of acquisition-related amortization and costs including intangible assets and acquired assets amortization and impairments, contingent consideration liability fair value remeasurements, amortization and impairments of acquired investments 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.

1 unchanged sentence

Amounts deferred under the supplemental savings plan are adjusted for appreciation (depreciation) of hypothetical investments chosen by participants.

Rowe Price investment products to economically hedge the exposure to these market movements.

Rowe Price investment products to economically hedge the exposure to

these market movements.

Management believes it is useful to offset the non-operating investment income (loss) realized on the economic hedges against the related compensation expense and remove the net impact to help the reader's ability to understand our core operating results and to increase comparability period to period.

2 unchanged sentences

GAAP consolidated statements of income.

Specifically, we add back the operating expenses and subtracts the investment income of the consolidated T.

Specifically, we add back the operating expenses and subtract the investment income of the consolidated T.

Rowe Price investment products.

4 unchanged sentences

Rowe Price investment products may impact the reader’s ability to understand our core operating results.

(5) This non-GAAP adjustment represents the other non-operating income (loss) and the net gains (losses) earned on our non-consolidated investment portfolio that are not designated as economic hedges of the supplemental savings plan liability, and that are not part of the cash and discretionary investment portfolio.

Management retains the investment gains recognized on the non-consolidated cash and discretionary investments as these assets and related income (loss) are considered part of our core operations.

(4) This non-GAAP adjustment represents the other non-operating income (loss) and the net gains (losses) earned on our investment portfolio that are not designated as economic hedges of the supplemental savings plan liability, and that are not part of the cash and discretionary investment portfolio.

We retain in our non-GAAP measures the investment gains recognized on the cash and discretionary investments as these assets and related income (loss) are considered part of our core operations.

Management believes adjusting for these non-operating income (loss) items helps the reader’s ability to understand our core operating results and increases comparability to prior years.

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 year-to-date non-GAAP effective tax rate of 26.8% in 2023 and 24.2% in 2022.

As such, the non-GAAP effective tax rate for the three months ended September 30, 2023 and 2022 was 24.8% and 24.4%, 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%.

(5) The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate for the three months ended March 31, 2024 and 2023 was 23.9% and 30.3%, respectively.

(6) This non-GAAP measure was calculated by applying the two-class method to adjusted net income attributable to T.

1 unchanged sentence

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

Three months ended Nine months ended

Three months ended

3/31/2024 3/31/2023

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

Our subsidiaries outside the United States held cash and discretionary investments of $789.3 million at September 30, 2023 and $809.1 million at December 31, 2022.

Our subsidiaries outside the United States held cash and discretionary investments of $708.0 million at March 31, 2024 and $699.0 million at December 31, 2023.

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.

2 unchanged sentences

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 September 30, 2023.

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, 2024.

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

13 unchanged sentences

Redeemable non-controlling interests — — 676.7 676.7

As reported on unaudited condensed consolidated balance sheet at September 30, 2023 $ 2,578.7 $ 2,503.6 $ 1,694.5 $ 6,776.8

As reported on unaudited condensed consolidated balance sheet at March 31, 2024

$ 2,416.5 $ 2,588.7 $ 2,046.1 $ 7,051.3

(1) The consolidated T.

2 unchanged sentences

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

The $1,134.3 million represents the total value at September 30, 2023 of our interest in the consolidated T.

The $1,369.4 million represents the total value at March 31, 2024 of our interest in the consolidated T.

Rowe Price investment products.

The total net assets of the T.

Rowe Price investment products at September 30, 2023 of $1,694.5 million includes assets of $1,778.3 million, less liabilities of $83.8 million as reflected in our unaudited condensed consolidated balance sheets.

Rowe Price investment products at March 31, 2024 of $2,046.1 million includes assets of $2,117.2 million, less liabilities of $71.1 million as reflected in our unaudited condensed consolidated balance sheets.

(2) Includes $205.4 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.

interests for the portion of these sponsored investment products that are held by unrelated third-party investors.

Our unaudited condensed consolidated balance sheet reflects the cash and cash equivalents, investments, other assets and liabilities of those sponsored investment products we consolidate, as well as redeemable non-controlling interests for the portion of these sponsored investment products that are held by unrelated third-party investors.

Although we can redeem our net interest in these sponsored investment products at any time, we cannot directly access or sell the assets held by the products to obtain cash for general operations.

Additionally, the assets of these sponsored investment products are not available to our general creditors.

Our interest in these sponsored investment products was used as initial seed capital and is recategorized as discretionary when it is determined by management that the seed capital is no longer needed.

Our interest in these sponsored investment products was generally used as initial seed capital and is recategorized as discretionary when it is determined by management that the seed capital is no longer needed.

We assess the discretionary investment products and, when we decide to liquidate our interest, we seek to do so in a way as to not impact the product and, ultimately, the unrelated third-party investors.

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We increased our quarterly recurring dividend per common share in February 2024 by 1.6% to $1.24 per common share from $1.22 per common share.

Further, we expended $151.4 million in the first nine months of 2023 to repurchase 1,398 thousand shares of our outstanding common stock, at an average price of $107.78 per share.

Further, we expended $80.1 million in the first quarter of 2024 to repurchase 717 thousand shares of our outstanding common stock, at an average price of $111.11 per share.

These dividends and repurchases were expended using existing cash balances and cash generated from operations.

While opportunistic in our approach to stock buybacks, we will generally repurchase our common stock over time to offset the dilution created by our equity-based compensation plans.

Since the end of 2020, we have returned nearly $5.8 billion to stockholders through stock repurchases, regular quarterly dividends, and a special dividend, as follows:

(in millions) Recurring dividend Special dividend Stock repurchases Total cash returned to stockholders

Since the end of 2021, we have returned nearly $3.7 billion to stockholders through stock repurchases and regular quarterly dividends, as follows:

(in millions) Recurring dividend Stock repurchases Total cash returned to stockholders

2022 $ 1,108.8 $ 855.3 $ 1,964.1

2023 1,121.9 254.3 1,376.2

Nine months ended 9/30/2023

Three months ended 3/31/2024

285.0 80.1 365.1

Total $ 2,515.7 $ 1,189.7 $ 3,705.4

We anticipate property, equipment, software and other capital expenditures, including internal labor capitalization, for the full-year 2023 to be about $332 million of which approximately 60% is planned for technology initiatives.

We anticipate property, equipment, software and other capital expenditures, including internal labor capitalization, for the full-year 2024 to be about $485 million of which approximately 50% is planned for technology initiatives with the remaining primarily related to the build out of our new Baltimore headquarters.

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 nine months ended September 30, 2023 and 2022, that are attributable to T.

The following table summarizes the cash flows for the three months ended March 31, 2024 and 2023, that are attributable to T.

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

Nine months ended

Three months ended

3/31/2024 3/31/2023

12 unchanged sentences

Net (gains) losses recognized on investments (197.4) — 50.4 (147.0) (123.9) — 21.6 (102.3)

Total non-cash adjustments (25.6) — 50.4 24.8 (7.7) — 21.6 13.9

Net redemptions in sponsored investment products used to economically hedge supplemental savings plan liability 15.1 — — 15.1 18.4 — — 18.4

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Operating activities attributable to T.

Rowe Price during the first nine months of 2023 provided cash flows of $2,117.3 million, a decrease of $335.5 million from the $2,452.8 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 $326.0 million compared with net investment losses of $506.6 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 $310.7 million.

Additionally, in 2023, we had net proceeds of $101.3 million from certain investment products that economically hedge our supplemental savings plan liability compared to net proceeds of $33.8 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, and to change in fair value of the contingent consideration liability.

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.

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.

Rowe Price Group during the first quarter of 2024 provided cash flows of $739.5 million, an increase of $66.8 million from $672.7 million during the 2023 period.

The increase was primarily driven by a $152.3 million increase in net income.

This was offset in part by a higher reduction of operating cash flows of $17.9 million from non-cash items and by a $64.3 million decrease in timing differences related to the cash settlement of our assets and liabilities.

The details of our non-cash adjustments are detailed in the table above.

Additionally, in 2024, we made $3.3 million in more net investments in certain investment products that economically hedge our supplemental savings plan liability.

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

Investing Activities

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

Rowe Price totaled $333.3 million in the first nine months of 2023, an increase of $278.6 million from the the 2022 period.

During the 2023 period, we reinvested the majority of $370.7 million in net proceeds from the sale of certain of our discretionary investments along with additional operating cash to make $442.8 million into new investments in order to rebalance the asset allocation of our discretionary investment portfolio.

This resulted in net new investment activity in the 2023 period of $72.1 million compared with $119.2 million in proceeds from net dispositions in the comparable 2022 period.

The majority of the net new investments were seed capital provided to sponsored investment products that we consolidate.

We eliminate our our investments in those sponsored investment products we consolidate in preparing our unaudited condensed consolidated statements of cash flows.

In addition, we increased our property, equipment and software expenditures by $48.8 million and had higher other investing activities of $38.5 million.

The remaining $26.9 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.

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

Rowe Price Group totaled $34.4 million in 2024 compared with $52.0 million in 2023.

During 2024, net proceeds from the sale of investments of $65.3 million were higher compared to $9.3 million during the 2023 period.

In 2024, we increased our property and equipment expenditures by $41.8 million and decreased our other investing activity by $3.4 million.

We eliminate our capital in those sponsored investment products we consolidate in preparing our consolidated statements of cash flows.

The remaining change in reported cash flows from investing activities of $2.4 million is primarily related to the net cash removed from our balance sheet from consolidating and deconsolidating investment products.

Financing Activities

Net cash used in financing activities attributable to T.

Rowe Price were $960.9 million in the first nine months of 2023 compared with $1,554.9 million in the 2022 period.

During the first nine months of 2023, we repurchased 1.4 million shares for $151.4 million compared to 5.7 million shares for $744.0 million in the comparable 2022 period.

The remaining decrease in reported cash flows used from financing activities is primarily attributable to $343.7 million in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first nine months of 2023 as compared to $61.8 million in net redemptions in the comparable 2022 period.

Rowe Price Group totaled $355.2 million in 2024 compared with $282.2 million in 2023.

During 2024, we used $83.1 million to repurchase 0.7 million shares compared to $8.2 million to repurchase 25 thousand shares in 2023.

The $4.3 million increase in dividends paid in 2024 is a result of the 1.6% increase in our quarterly dividend per share in 2024.

In addition, cash flow related to common stock issued under stock compensation plans increased by $6.2 million during 2024 compared to 2023.

The remaining change in reported cash flows from financing activities is primarily attributable to a $50.6 million increase in net subscriptions from redeemable non-controlling interest holders of our consolidated investment products during 2024.

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

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

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

our expenses;

our expense levels;

our tax rate;

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interest rates and currency fluctuations;

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.

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.

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

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Such changes result from many factors, including, among other things:

cash inflows and outflows in the U.S.

mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other investment products, performance fees, capital allocation-based income, fluctuations in global financial markets that result in appreciation or depreciation of the assets under our management, our introduction of new mutual funds and investment products, changes in retirement savings trends relative to participant-directed investments and defined contribution plans, and the impact of the coronavirus outbreak.

client-related cash inflows and outflows in our products, performance fees, capital allocation-based income, fluctuations in global financial markets that result in appreciation or depreciation of the assets under our management, our introduction of new investment products, and changes in retirement savings trends relative to participant-directed investments and defined contribution plans.

The ability to attract and retain investors’ assets under our management is dependent on investor sentiment and confidence;

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competitive conditions in the mutual fund, asset management, and broader financial services sectors;

our level of success in implementing our strategy to expand our business, including our establishment of T.

Rowe Price Investment Management as a separate registered investment adviser;

our level of success in implementing our strategy to expand our business;

and our ability to attract and retain key personnel.

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and to further penetrate our distribution channels within the U.S.;

the pace and level of spending to support key strategic priorities, including the integration of OHA with and into our business;

the pace and level of spending to support key strategic priorities;

variations in the level of total compensation expense due to, among other things, bonuses, restricted stock units and other equity grants, other incentive awards, our supplemental savings plan, changes in our employee count and mix, and competitive factors;

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the timing of the assumption of all third party research payments, unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients;

and disruptions of services, including those provided by third parties, such as fund and product recordkeeping, facilities, communications, power, and the mutual fund transfer agent and accounting systems.

limited to, effects on costs that we incur and effects on investor interest in T.

Rowe Price investment products and investing in general or in particular classes of mutual funds or other investments.

Our business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax, and compliance requirements may have a substantial effect on our operations and results, including, but not limited to, effects on costs that we incur and effects on investor interest in sponsored investment products and investing in general or in particular classes of mutual funds or other investments.

Quantitative and Qualitative Disclosures About Market Risk.

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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