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Item 2. Management’s Discussion and Analysis

2024-07-26 compared with 2024-04-26 · 242 added, 144 removed, 502 unchanged (43% of the section changed)

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MARKET TRENDS.

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.

stocks were mixed in the second quarter amid strength in large, high-growth companies, especially technology-oriented companies expected to benefit from artificial intelligence (AI) developments.

In contrast, stocks of smaller companies, which tend to be more sensitive than large-caps to the economy and interest rate movements, were hurt by diminished expectations for Federal (“Fed”) Reserve rate cuts this year stemming from persistent inflation.

Developed non-U.S.

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:

equity markets generally underperformed large-cap U.S.

stocks in dollar terms.

In Europe, equity markets were mixed, with French shares falling about 7%.

Developed Asian markets were mostly positive in dollar terms.

Shares in Singapore led the region with a 9% gain, but Japanese stocks fell 4%.

Emerging equity markets outperformed stocks in developed markets in U.S.

dollar terms.

Equities in the emerging Europe, Middle East, and Africa (EMEA) region were mostly positive.

Turkish shares rose more than 21%, as S&P Global Ratings upgraded its sovereign credit rating.

Emerging Asian markets were widely mixed in dollar terms, but Latin American markets were mostly negative, as regional heavyweights Mexico and Brazil tumbled 16% and 12%, respectively.

Returns of several major equity market indexes were as follows:

Three months ended Six months ended

Index 6/30/2024 6/30/2024

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(1) Returns exclude dividends

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.

bond index returns were mostly positive in the second quarter of 2024.

Treasury bill yields were little changed as the Fed kept the fed funds target rate in the 5.25% to 5.50% range, but intermediate- and long-term

Treasury yields increased and bond prices eased as Fed rate cut expectations for 2024 continued to wane.

The 10-year U.S.

Treasury note yield increased from 4.20% to 4.36% 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.

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

Asset-backed securities and non-agency commercial mortgage-backed securities performed best.

Treasuries and mortgage-backed securities rose marginally, while corporate bonds edged lower.

Tax-free municipal bonds performed mostly in line with the broad taxable bond market.

High yield corporate bonds outperformed investment-grade issues.

Bonds in developed non-U.S.

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:

markets produced negative returns in U.S.

dollar terms.

In Europe, official short-term interest rates in England were unchanged, while the European Central Bank reduced its key policy rate by 25 basis points in early June.

However, bond yields in several European countries rose late in the quarter amid political uncertainty in France.

In Japan, short-term rates were unchanged, and the yen fell 6% versus the dollar to 38-year lows by the end of June, while the 10-year Japanese government bond yield rose above 1.00% for the first time in more than a decade.

In the emerging markets universe, dollar-denominated bonds were flat, but they outperformed local currency bonds in dollar terms, as most developing markets currencies depreciated versus the U.S.

Returns for several major bond market indexes were as follows:

Three months ended Six months ended

Index 6/30/2024 6/30/2024

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ASSETS UNDER MANAGEMENT.

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:

Assets under management ended the second quarter of 2024 at $1,569.1 billion, an increase of $26.9 billion from March 31, 2024.

The increase in assets under management during the second quarter of 2024 was driven by market appreciation and income, net of distributions not reinvested, of $30.6 billion, offset by net cash outflows of $3.7 billion.

For the six months ended June 30, 2024, the increase in assets under management was driven by market appreciation, net of distributions not reinvested, of $136.3 billion, offset by net cash outflows of $11.7 billion.

The following tables detail changes in our assets under management, by asset class, during the three- and six-month periods ended June 30, 2024:

Three months ended 6/30/2024

Six months ended 6/30/2024

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

Alternatives (2)

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

Alternatives (2)

Assets under management at beginning of period $ 802.9 $ 170.9 $ 520.6 $ 47.8 $ 1,542.2 $ 743.6 $ 170.0 $ 483.0 $ 47.9 $ 1,444.5

5 unchanged sentences

Change during the period 7.4 9.0 8.5 2.0 26.9 66.7 9.9 46.1 1.9 124.6

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

Assets under management at June 30, 2024 $ 810.3 $ 179.9 $ 529.1 $ 49.8 $ 1,569.1 $ 810.3 $ 179.9 $ 529.1 $ 49.8 $ 1,569.1

(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 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.

Unfunded capital commitments were $11.3 billion at June 30, 2024, $12.0 billion at March 31, 2024, and $11.6 billion at December 31, 2023, and are not reflected in fee basis AUM above.

(3) Includes net distributions not reinvested for the three- and six-month periods ended June 30, 2024 of $0.7 billion and $0.9 billion, respectively.

Investment advisory clients outside the United States account for 8.6% of our assets under management at June 30, 2024, 8.5% 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 $452.6 billion at June 30, 2024, $443.0 billion at March 31, 2024, and $408.4 billion at December 31, 2023.

Net flows into these portfolios were $3.7 billion and $10.5 billion in the three- and six-month periods ended June 30, 2024.

We also provide strategic investment advice solutions for certain portfolios.

These advice solutions, which the vast majority is overseen by our multi-asset division, may include strategic asset allocation, and in certain portfolios, asset selection and/or tactical asset allocation overlays.

These advice solutions, primarily overseen by our multi-asset division, may include strategic asset allocation, and in certain portfolios, asset selection and/or tactical asset allocation overlays.

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

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.

As of June 30, 2024, total assets in these solutions were $549 billion, of which $534 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, 2024, our assets under administration were $266 billion, of which nearly $156 billion are assets we manage.

As of June 30, 2024, our assets under administration were $273 billion, of which nearly $157 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 March 31, 2024.

The following tables present investment performance for the one-, three-, five-, and 10-years ended June 30, 2024.

Past performance is no guarantee of future results.

mutual funds that outperformed Morningstar median (2),(3)

funds that outperformed Morningstar median (2),(3)

1 year 3 years 5 years 10 years

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All Funds 68% 54% 60% 70%

mutual funds that outperformed passive peer median (2),(4)

funds that outperformed passive peer median (2),(4)

1 year 3 years 5 years 10 years

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AUM Weighted Performance

mutual funds AUM that outperformed Morningstar median (2),(3)

funds AUM that outperformed Morningstar median (2),(3)

1 year 3 years 5 years 10 years

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All Funds 78% 53% 63% 85%

mutual funds AUM that outperformed passive peer median (2),(4)

funds AUM that outperformed passive peer median (2),(4)

1 year 3 years 5 years 10 years

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All Composites 61% 36% 41% 60%

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

As of June 30, 2024, 65 of 130 (50.0%) of the firm's rated U.S.

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

1 unchanged sentence

In addition, 65% (6) of AUM in the firm's rated U.S.

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

mutual funds (across primary share classes) ended June 30, 2024 with an overall rating of 4 or 5 stars.

(1) The investment performance reflects that of T.

Rowe Price sponsored mutual funds and composites AUM and not of OHA’s products.

Rowe Price sponsored mutual funds, ETFs and composites AUM and not of OHA’s products.

13 unchanged sentences

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

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

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

Total AUM included for this analysis includes $326B for 1 year, $323B for 3 years, $323B for 5 years, and $322B 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 first quarter of 2024 and 2023 on a U.S.

The following table and discussion sets forth information regarding our consolidated financial results for the three- and six-month periods ended June 30, 2024 and 2023 on a U.S.

GAAP basis and a non-GAAP basis.

The non-GAAP basis adjusts for the impact of our consolidated sponsored investment products, the impact of market movements on the supplemental savings plan liability and related economic hedges, investment income related to certain other investments, acquisition-related amortization and costs, impairment charges, and certain nonrecurring charges and gains.

The non-GAAP basis adjusts for the impact of our consolidated sponsored investment products, the impact of market movements on the supplemental savings plan liability and related economic hedge, investment income related to certain other investments, acquisition-related amortization and costs, impairment charges, and certain nonrecurring charges and gains.

Three months ended Q2 2024 vs.

Q2 2023 Six months ended YTD 2024 vs.

(in millions, except per-share data) 6/30/2024 6/30/2023 $ change % change (1)

6/30/2024 6/30/2023 $ change % change (1)

Investment advisory fees $ 1,585.6 $ 1,430.8 $ 154.8 10.8 % $ 3,139.6 $ 2,822.6 $ 317.0 11.2 %

Capital allocation-based income (2)

$ 47.1 $ 16.9 $ 30.2 n/m

$ 0.1 $ 38.7 $ (38.6) n/m $ 47.2 $ 55.6 $ (8.4) n/m

Net revenues $ 1,733.3 $ 1,610.2 $ 123.1 7.6 % $ 3,483.5 $ 3,147.8 $ 335.7 10.7 %

1 unchanged sentence

Net operating income $ 564.7 $ 533.5 $ 31.2 5.8 % $ 1,151.3 $ 1,017.7 $ 133.6 13.1 %

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

Non-operating income (loss) $ 80.3 $ 106.2 $ (25.9) n/m $ 269.2 $ 241.6 $ 27.6 n/m

Net income attributable to T.

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Net operating income $ 654.9 $ 596.6 $ 58.3 9.8 % $ 1,347.3 $ 1,124.6 $ 222.7 19.8 %

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

Non-operating income (loss) $ 34.7 $ 31.8 $ 2.9 9.1 % $ 63.2 $ 62.6 $ 0.6 1.0 %

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 March 31, 2024

Results Overview - Quarter ended June 30, 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 $1,750.2 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.

Total net revenues were $1,733.3 million in the second quarter of 2024, a 7.6% increase compared with $1,610.2 million in the second quarter of 2023.

The increase was primarily driven by an 10.8% increase in investment advisory fee revenue as higher overall markets increased average assets under management by 13.0%, partially offset by a $38.6 million decrease in capital allocation-based income (change in accrued carried interest) earned from investments in certain 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 classes, vehicles, price changes in existing products, and asset level changes in products with tiered-fee structures.

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 classes, and products, including those with tiered-fee structures, along with price changes we make in existing products.

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

GAAP basis were $1,168.6 million in the second quarter of 2024, a 8.5% increase over the comparable 2023 period.

On a non-GAAP basis, operating expenses were $1,105.8 million, a 7.8% increase over the comparable 2023 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.

In comparison to the second quarter of 2023, the increases in U.S.

GAAP and non-GAAP operating expenses were primarily driven by higher compensation and related benefits, including the interim bonus accrual, along with higher distribution and servicing costs and advertising and promotion costs.

GAAP operating expense increase was also impacted by intangible amortization and impairments and the remeasurement of contingent consideration liability.

Operating margin in the second quarter of 2024 was 32.6% on a U.S.

GAAP basis, compared to 33.1% earned in the second quarter of 2023.

The decrease in our U.S.

GAAP operating margin for the second quarter of 2024 compared to the 2023 period was driven by operating expense growth outpacing net revenue growth primarily due to acquisition-related amortization and impairments along with changes in the supplemental savings plan liability.

Diluted earnings per share was $2.11 for the second quarter of 2024 compared to $2.06 for the second quarter of 2023.

The increase was primarily driven by higher operating income offset slightly by lower non-operating income compared to the 2023 period.

On a non-GAAP basis, diluted earnings per share was $2.26 for the second quarter of 2024 as compared to $2.02 for the second quarter of 2023.

The increase was primarily due to higher adjusted operating income compared to the 2023 period.

Results Overview - Year-to-Date ended June 30, 2024

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, 2024 are related to investment advisory fees.

Total net revenues were $3,483.5 million in the six months ended June 30, 2024, a 10.7% increase compared with $3,147.8 million in the 2023 period.

The increase was primarily driven by a 11.2% increase in investment advisory fee revenue as average assets under management increased by 12.6%.

Operating expenses were $2,332.2 million in the six months ended June 30, 2024 compared with $2,130.1 million in the 2023 period.

On a non-GAAP basis, our operating expenses for the six months ended June 30, 2024 increased 6.3% to $2,177.2 million compared to the 2023 period.

In comparison to the six months ended June 30, 2023, more than a third of the increase in U.S.

GAAP operating expenses was driven by the remeasurement of the contingent consideration liability, as the 2023 period reflected a $72.8 million reduction in the liability compared to no change in the 2024 period.

Also contributing to the increase in 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 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.

GAAP operating expenses and the primary drivers of non-GAAP operating expenses were higher compensation and related benefits, including the interim bonus accrual;

salaries and benefits along with distribution and servicing costs, and advertising and promotion costs.

Operating margin in the six months ended June 30, 2024 was 33.1%, compared to 32.3% earned in the 2023 period.

The increase in our operating margin for the six months ended June 30, 2024 compared to the 2023 period was primarily driven by net revenue growth outpacing operating expense growth.

Diluted earnings per share was $4.60 for the six months ended June 30, 2024 compared to $3.89 for the six months ended June 30, 2023.

The 18.3% increase was driven by higher operating income, a lower effective tax rate, and higher net investment gains in the six months ended June 30, 2024, as compared to the comparable 2023 period

On a non-GAAP basis, adjusted diluted earnings per share was $4.64 for the six months ended June 30, 2024 as compared to $3.71 for the 2023 period.

The 25.1% increase was driven by higher operating income and a lower effective tax rate.

Three months ended Q2 2024 vs.

Q2 2023 Six months ended YTD 2024 vs.

(in millions) 6/30/2024 6/30/2023 $ change % change (1)

6/30/2024 6/30/2023 $ change % change (1)

Investment advisory fees

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1,585.6 1,430.8 154.8 10.8 % 3,139.6 2,822.6 317.0 11.2 %

Capital allocation-based income 47.1 16.9 30.2 n/m

Capital allocation-based income

Change in accrued carried interest 27.0 51.0 (24.0) n/m 86.5 80.2 6.3 n/m

Acquisition-related amortization and impairments (26.9) (12.3) (14.6) n/m (39.3) (24.6) (14.7) n/m

0.1 38.7 (38.6) n/m 47.2 55.6 (8.4) n/m

Administrative, distribution, and servicing fees

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Average assets under management $ 1,534.0 $ 1,357.4 $ 176.6 13.0 % $ 1,509.2 $ 1,340.2 $ 169.0 12.6 %

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.

Investment advisory annualized effective fee rate (bps) 41.6 42.3 (0.7) (1.7) % 41.8 42.5 (0.7) (1.6) %

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

Investment advisory fees in the second quarter of 2024 increased 10.8% over the comparable 2023 quarter as average assets under management increased $176.6 billion or 13.0%, to $1,534.0 billion.

For the six months ended June 30, 2024, investment advisory revenues increased 11.2% over the comparable 2023 period as average assets under management increased $169.0 billion, or 12.6%, to $1,509.2 billion.

The average annualized effective fee rate earned for the three- and six-month periods ended June 30, 2024 declined from the comparable 2023 periods due to client flows and transfers creating a mix shift in assets under management toward lower fee products and asset classes.

The 2024 year-to-date annualized effective fee rate was also favorably impacted by about 0.3 basis points in higher performance based fees within equity and alternative products compared to the 2023 year-to-date period.

Capital allocation-based income in the second quarter of 2024 increased net revenues by $0.1 million compared to an increase in net revenues of $38.7 million in the 2023 period.

For the six months ended June 30, 2024, capital allocation-based income increased net revenues by $47.2 million compared to $55.6 million for the 2023 period.

The change in accrued carried interest in the second quarter of 2024 declined $24.0 million compared to the 2023 period due to lower overall market returns and relative performance.

For the six months ended June 30, 2024, the change in accrued carried interest increased $6.3 million compared to the 2023 period due to higher overall market returns and 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.

Administrative, distribution, and servicing fees in the second quarter of 2024 were $147.6 million, an increase of $6.9 million, or 4.9%, from the comparable 2023 quarter.

For the six months ended June 30, 2024, these fees were $296.7 million, an increase of $27.1 million, or 10.1%, from the 2023 period.

The increases for both periods were primarily due to higher retail transfer agent servicing activities provided to the T.

Rowe Price mutual funds and higher average assets on which we earn administrative revenue for non-discretionary advisory services.

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 $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.

For the second quarter, we eliminated net revenue of $0.5 million in 2024 and $0.3 million in 2023.

For the six months ended June 30, we eliminated net revenue of $1.7 million in 2024 and $0.9 million in 2023.

Operating expenses

Three months ended Q2 2024 vs.

Q2 2023 Six months ended YTD 2024 vs.

(in millions) 6/30/2024 6/30/2023 $ change % change (1)

6/30/2024 6/30/2023 $ change % change (1)

Compensation, benefits and related costs $ 635.8 $ 591.0 $ 44.8 7.6 % $ 1,265.1 $ 1,184.3 $ 80.8 6.8 %

Acquisition-related retention agreements 13.1 13.6 (0.5) (3.7) % 26.6 27.8 (1.2) (4.3) %

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

Capital allocation-based income compensation (2.4) 10.6 (13.0) n/m 10.8 14.1 (3.3) n/m

Supplemental savings plan (2)

53.0 42.5 10.5 n/m

14.6 33.0 (18.4) n/m 67.6 75.5 (7.9) n/m

Total compensation and related costs 661.1 648.2 12.9 2.0 % 1,370.1 1,301.7 68.4 5.3 %

7 unchanged sentences

Total operating expenses $ 1,168.6 $ 1,076.7 $ 91.9 8.5 % $ 2,332.2 $ 2,130.1 $ 202.1 9.5 %

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

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

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.

Compensation, benefits, and related costs were $635.8 million in the second quarter of 2024, an increase of $44.8 million, or 7.6%, compared to the 2023 quarter.

For the six months ended June 30, 2024, these costs were $1,265.1 million, an increase of $80.8 million, or 6.8%, compared to the 2023 period.

The increase in both periods were primarily due to a higher interim bonus accrual, and higher salaries and related benefits, as base salary modestly increased in January 2024.

These increases were partially offset by higher labor capitalization compared to the 2023 periods.

The firm employed 7,929 associates at June 30, 2024, an increase of 0.3% from the end of 2023 and June 30, 2023.

Distribution and servicing costs were $87.7 million for the second quarter of 2024, an increase of $19.9 million, or 29.5%, from $67.8 million recognized in the 2023 quarter.

For the six months ended June 30, 2024, these costs were $169.7 million, an increase of 21.8% over $139.3 million recognized in the comparable 2023 period.

The increases in both periods were primarily driven by higher average assets under management distributed through intermediaries.

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.

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

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

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

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.

Advertising and promotion costs were $33.3 million in the second quarter of 2024, an increase of $10.4 million, or 45.4%, compared to the $22.9 million recognized in the 2023 quarter.

For the six months ended June 30, 2024, these costs were $58.6 million, an increase of $9.9 million, or 20.3%, compared to the 2023 period.

The increases for both periods were primarily driven by higher media spend and increased investment in our brand.

Technology, occupancy, and facility costs were $160.7 million in the second quarter of 2024, an increase of $6.2 million, or 4.0%, compared to the $154.7 million recognized in the 2023 quarter.

For the six months ended June

30, 2024, these costs were $310.8 million, an increase of $9.5 million, or 3.2%, compared with the 2023 period.

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

These increases were partially offset by lower office facility costs related to double rent incurred in the 2023 period until we occupied our new UK facility in the second half of 2023, and a non-recurring cost benefit related to the UK facility in the first quarter of 2024.

General, administrative, and other expenses were $108.7 million in the second quarter of 2024, an increase of $8.7 million, or 8.7%, compared to the $100.0 million recognized in the 2023 quarter.

The increase was primarily due to higher professional fees and travel and entertainment.

These increases were partially offset by lower research fee expense as the firm changed its approach to paying for research, consistent with regulations and general industry practice.

For the six months ended June 30, 2024, these costs were $201.3 million, a decrease of $6.2 million, or 3.0%, compared with the 2023 period.

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.

This decrease was partially offset by higher professional fees and information services.

Change in fair value of contingent consideration.

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

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.

In 2024, there was no change in the fair value of the contingent consideration liability.

In the three- and six-month periods ended June 30, 2023, we recognized reductions in the fair value of the contingent consideration liability of $23.2 million and $72.8 million, respectively.

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

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 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.

During the three- and six-month periods ended June 30, 2024, we recognized $43.9 million and $73.8 million, respectively, in amortization and impairments related to the definite and indefinite-lived intangible assets.

In the second quarter of 2024, we also recognized impairments charges totaling $18.0 million on definite and indefinite-lived intangible assets.

During the three- and six-month periods ended June 30, 2023, we recognized $28.6 million and $54.6 million, respectively, in amortization.

No impairment costs were recognized during the 2023 periods.

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 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

Non-operating income for the second quarter of 2024 was $80.3 million compared to $106.2 million in the 2023 quarter.

The following table details the components of non-operating income for both the three- and six-month periods ended June 30, 2024 and 2023.

Three months ended Six months ended

(in millions) 6/30/2024 6/30/2023 6/30/2024 6/30/2023

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Non-operating income (loss) $ 80.3 $ 106.2 $ 269.2 $ 241.6

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 investment gains recognized by our investment portfolio during the three- and six-month periods ended June 30, 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

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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) 6/30/2024 6/30/2023 6/30/2024 6/30/2023

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Provision for income taxes

The GAAP effective tax rate for Q2 2024 and Q2 2023 was 24.8%.

These quarterly rates were the result of an overall year-to-date rate of 24.1% for 2024 and 26.7% for 2023.

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, 2024 and 2023:

Three months ended

GAAP basis for the six months ended June 30, 2024 and 2023:

Six months ended

6/30/2024 6/30/2023

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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 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.

Our non-GAAP effective tax rate was 24.6% in the second quarter of 2024 compared with 25.8% in second quarter of 2023.

Our non-GAAP effective tax rate was 24.3% for the six months ended June 30, 2024 compared to 27.9% for the 2023 period.

The year-to-date 2024 U.S.

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

In the first half of 2023, we recognized a full valuation allowance against all UK-based deferred tax assets recorded at the time.

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

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GAAP financial measures for the three months ended

March 31, 2024 and 2023.

June 30, 2024 and 2023.

Three months ended 6/30/2024

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Adjusted Non-GAAP Basis $ 1,026.2 $ 596.6 $ 31.8 $ 161.9 $ 466.5 $ 2.02

The following schedules reconcile certain U.S.

GAAP financial measures for the six months ended June 30, 2024 and 2023.

Six months ended 6/30/2024

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes (5)

Net income attributable to T.

Rowe Price Diluted earnings per share (6)

GAAP Basis (FS line item) $ 2,332.2 $ 1,151.3 $ 269.2 $ 341.8 $ 1,057.2 $ 4.60

Non-GAAP adjustments:

Acquisition-related:

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

16.2 23.1 — 5.5 17.6 0.08

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

(26.6) 26.6 — 6.6 20.0 0.08

Intangible assets amortization and impairments (1)

(73.8) 73.8 — 18.0 55.8 0.24

Total acquisition-related (84.2) 123.5 — 30.1 93.4 0.40

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

(67.6) 67.6 (64.5) 0.8 2.3 0.01

Consolidated T.

Rowe Price investment products (3)

(3.2) 4.9 (80.8) (14.8) (39.6) (0.17)

Other non-operating income (4)

— — (60.7) (15.6) (45.1) (0.20)

Adjusted Non-GAAP Basis $ 2,177.2 $ 1,347.3 $ 63.2 $ 342.3 $ 1,068.2 $ 4.64

Six months ended 6/30/2023

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes (5)

Net income attributable to T.

Rowe Price Diluted earnings per share (6)

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

Non-GAAP adjustments:

Acquisition-related:

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 0.6 24.0 — 2.6 21.4 0.10

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

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

Consolidated T.

Rowe Price investment products (3)

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

Other non-operating income (4)

— — (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

(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.

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(2) This non-GAAP adjustment removes the compensation expense impact from market valuation changes in the supplemental savings plan liability and the related net gains (losses) on investments designated as an economic hedge against the related liability.

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.

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.

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.

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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.

(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.

(5) The income tax impacts were calculated in order to achieve an overall year-to-date non-GAAP effective tax rate of 24.3% in 2024 and 27.9% in 2023.

As such, the non-GAAP effective tax rate for the three months ended June 30, 2024 and 2023 was 24.6% and 25.8%, respectively.

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

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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

6/30/2024 6/30/2023 6/30/2024 6/30/2023

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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 $708.0 million at March 31, 2024 and $699.0 million at December 31, 2023.

Our subsidiaries outside the United States held cash and discretionary investments of $680.6 million at June 30, 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.

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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, 2024.

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, 2024.

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

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Redeemable non-controlling interests — — 689.0 689.0

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

As reported on unaudited condensed consolidated balance sheet at June 30, 2024

$ 2,714.9 $ 2,758.9 $ 1,864.5 $ 7,338.3

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These products generally represent U.S.

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

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

mutual funds, ETFs, and funds regulated outside the U.S.

The $1,175.5 million represents the total value at June 30, 2024 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, 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.

Rowe Price investment products at June 30, 2024 of $1,864.5 million includes assets of $1,929.6 million, less liabilities of $65.1 million as reflected in our unaudited condensed consolidated balance sheets.

(2) Includes $205.3 million of non-controlling interests in consolidated entities and represents the portion of these investments, held by related parties, that we cannot sell in order to obtain cash for general operations.

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.

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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 $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.

Further, we expended $192.4 million in the first half of 2024 to repurchase 1.7 million shares of our outstanding common stock, at an average price of $114.23 per share.

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

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2023 1,121.9 254.3 1,376.2

Three months ended 3/31/2024

Six months ended 6/30/2024

568.5 192.4 760.9

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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, 2024 and 2023, that are attributable to T.

The following table summarizes the cash flows for the six months ended June 30, 2024 and 2023, 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

6/30/2024 6/30/2023

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Operating activities attributable to T.

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.

Rowe Price Group during the first half of 2024 provided cash flows of $1,470.4 million, an increase of $209.4 million from $1,261.0 million during the 2023 period.

The increase was primarily driven by a $159.3 million increase in net income and an $89.8 million increase in the add-back for non-cash items.

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.

These increases to operating cash flows were offset in part by a $36.4 million decrease in cash flow due to timing differences related to the cash settlement of our assets and liabilities.

Additionally, in 2024, proceeds from net redemptions of investments that economically hedge our supplemental savings plan liability decreased $3.3 million as compared to the 2023 period.

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.

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During 2024, net proceeds from the sale of investments of $172.0 million were higher compared to $1.1 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.

In 2024, we increased our property and equipment expenditures by $73.4 million and other investing activity by $9.7 million compared to the 2023 period.

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

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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