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Oct 25, 2018

T. Rowe Price Group Reports Third Quarter 2018 Results

Assets Under Management End Quarter at $1.084 Trillion

BALTIMORE, Oct. 25, 2018 /PRNewswire/ -- T. Rowe Price Group, Inc. (NASDAQ-GS: TROW) today reported its third quarter of 2018 results, including net revenues of $1.4 billion, net income of $583.0 million, and diluted earnings per common share of $2.30. The firm's U.S. GAAP results for the third quarter of 2018 include a realized gain of $.27 in diluted earnings per share from the sale of its 10% holding in Daiwa SB Investments Ltd. For the third quarter of 2017, net revenues were $1.2 billion, net income was $390.9 million, and diluted earnings per share was $1.56. On a non-GAAP basis, diluted earnings per share for the third quarter of 2018 was $1.99, compared with $1.45 in the 2017 quarter.

Financial Highlights
The table below presents financial results on a U.S. GAAP basis, as well as a non-GAAP basis that adjusts, among other items, for the impact of consolidated T. Rowe Price investment products, the impact of market movements on the supplemental savings plan liability and related economic hedges, investment income related to certain other investments, and certain nonrecurring charges and gains. The firm believes the non-GAAP financial measures below provide relevant and meaningful information to investors about its core operating results.

 

               

Nine months ended

(in millions, except per-share data)

 

Q3 2017(1)

 

Q3 2018

 

%
change

   

Q2 2018

 

Q3 2018
vs.
Q2 2018

   

9/30/2017(1)

 

9/30/2018

 

%
change

                                     

U.S. GAAP basis

                                   

Investment advisory fees

 

$

1,098.9

   

$

1,263.3

   

15.0

%

   

$

1,214.4

   

4.0

%

   

$

3,137.6

   

$

3,666.9

   

16.9

%

Net revenues

 

$

1,238.7

   

$

1,394.6

   

12.6

%

   

$

1,345.0

   

3.7

%

   

$

3,557.3

   

$

4,067.6

   

14.3

%

Operating expenses

 

$

690.2

   

$

754.0

   

9.2

%

   

$

750.3

   

0.5

%

   

$

1,979.5

   

$

2,248.5

   

13.6

%

Net operating income

 

$

548.5

   

$

640.6

   

16.8

%

   

$

594.7

   

7.7

%

   

$

1,577.8

   

$

1,819.1

   

15.3

%

Non-operating income(2)

 

$

67.3

   

$

124.9

   

n/m

     

$

34.1

   

n/m

     

$

294.3

   

$

175.1

   

n/m

 

Net income attributable to T. Rowe
Price Group

 

$

390.9

   

$

583.0

   

49.1

%

   

$

448.9

   

29.9

%

   

$

1,150.7

   

$

1,485.6

   

29.1

%

Diluted earnings per common share

 

$

1.56

   

$

2.30

   

47.4

%

   

$

1.77

   

29.9

%

   

$

4.60

   

$

5.85

   

27.2

%

Weighted average common shares
outstanding assuming dilution

 

244.4

   

247.5

   

1.3

%

   

247.4

   

%

   

244.3

   

248.2

   

1.6

%

                                     

Adjusted-non-GAAP basis(3)

                                 

Operating expenses

 

$

682.7

   

$

744.5

   

9.1

%

   

$

745.3

   

(.1)%

     

$

2,018.5

   

$

2,230.8

   

10.5

%

Net income attributable to T. Rowe
Price Group

 

$

362.1

   

$

505.0

   

39.5

%

   

$

472.8

   

6.8

%

   

$

977.2

   

$

1,423.4

   

45.7

%

Diluted earnings per common share

 

$

1.45

   

$

1.99

   

37.2

%

   

$

1.87

   

6.4

%

   

$

3.91

   

$

5.60

   

43.2

%

                                     

Assets under Management (in billions)

                               

Average AUM

 

$

927.4

   

$

1,072.4

   

15.6

%

   

$

1,036.5

   

3.5

%

   

$

886.3

   

$

1,045.0

   

17.9

%

Ending AUM

 

$

947.9

   

$

1,083.8

   

14.3

%

   

$

1,044.1

   

3.8

%

   

$

947.9

   

$

1,083.8

   

14.3

%

 

(1)

Results for 2017 were recast to reflect the adoption of the new revenue recognition accounting guidance on January 1, 2018. For further information, refer to the Form 10-Q for the period-ended September 30, 2018, filed with the SEC on October 25, 2018.

(2)

The percentage change in non-operating income is not meaningful (n/m).

(3)

See the reconciliation to the comparable U.S. GAAP measures at the end of this earnings release.

 

Assets Under Management
Assets under management increased $39.7 billion in the third quarter of 2018 to $1.084 trillion at September 30, 2018. The firm's net cash inflows were $2.7 billion in the third quarter of 2018. Clients transferred $3.2 billion in net assets from the U.S. mutual funds to other investment products, including the retirement date trusts, in the third quarter of 2018. The components of the change in assets under management, by vehicle and asset class, are shown in the tables below.

 

 

Quarter ended 9/30/2018

 

Nine months ended 9/30/2018

(in billions)

U.S.
mutual
funds

 

Subadvised
and separate
accounts

 

Other
investment
products

 

Total

 

U.S.
mutual
funds

 

Subadvised
and separate
accounts

 

Other
investment
products

 

Total

Assets under management
at beginning of period

$

626.1

   

$

268.8

   

$

149.2

   

$

1,044.1

   

$

606.3

   

$

255.2

   

$

129.6

   

$

991.1

 
                               

Net cash flows before client
transfers

(.5)

   

1.5

   

1.7

   

2.7

   

11.6

   

2.0

   

8.0

   

21.6

 

Client transfers

(3.2)

   

   

3.2

   

   

(16.8)

   

2.6

   

14.2

   

 

Net cash flows after client
transfers

(3.7)

   

1.5

   

4.9

   

2.7

   

(5.2)

   

4.6

   

22.2

   

21.6

 

Net market appreciation
and income

22.5

   

11.0

   

3.6

   

37.1

   

44.5

   

21.5

   

5.9

   

71.9

 

Distributions not reinvested

(.1)

   

   

   

(.1)

   

(.8)

   

   

   

(.8)

 

Change during the period

18.7

   

12.5

   

8.5

   

39.7

   

38.5

   

26.1

   

28.1

   

92.7

 
                               

Assets under management
at September 30, 2018

$

644.8

   

$

281.3

   

$

157.7

   

$

1,083.8

   

$

644.8

   

$

281.3

   

$

157.7

   

$

1,083.8

 

 

 

Quarter ended 9/30/2018

 

Nine months ended 9/30/2018

(in billions)

Equity

 

Fixed
income,
including
money
market

 

Multi-
asset(1)

 

Total

 

Equity

 

Fixed
income,
including
money
market

 

Multi-
asset(1)

 

Total

Assets under management
at beginning of period

$

603.6

   

$

136.4

   

$

304.1

   

$

1,044.1

   

$

564.1

   

$

134.4

   

$

292.6

   

$

991.1

 
                               

Net cash flows

(.7)

   

1.0

   

2.4

   

2.7

   

5.9

   

4.3

   

11.4

   

21.6

 

Net market
appreciation/(depreciation)
and income(2)

28.8

   

.5

   

7.7

   

37.0

   

61.7

   

(.8)

   

10.2

   

71.1

 

Change during the period

28.1

   

1.5

   

10.1

   

39.7

   

67.6

   

3.5

   

21.6

   

92.7

 

Assets under management
at September 30, 2018

$

631.7

   

$

137.9

   

$

314.2

   

$

1,083.8

   

$

631.7

   

$

137.9

   

$

314.2

   

$

1,083.8

 
 

(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.

(2) 

Reported net of distributions not reinvested.

 

The assets under management in the firm's target date retirement products, which are reported as part of the multi-asset column in the table above, were $252.1 billion at September 30, 2018, compared with $244.2 billion at June 30, 2018, and $233.8 billion at December 31, 2017. Net cash flows into these portfolios were $1.7 billion in the third quarter of 2018 and $10.2 billion for the nine months ended September 30, 2018.

Investors domiciled outside the United States accounted for about 6% of the firm's assets under management at September 30, 2018 and December 31, 2017.

Financial Results
Investment advisory revenues earned in the third quarter of 2018 from the firm's U.S. mutual funds were $877.3 million, an increase of 11.6% from the comparable 2017 quarter. Average assets under management in these funds increased 11.4% to $641.5 billion.

Investment advisory revenues earned in the third quarter of 2018 from subadvised and separate accounts as well as other investment products were $386.0 million, an increase of 23.4% from the comparable 2017 quarter. Average assets under management for these products increased 22.7% to $430.9 billion.

Administrative, distribution, and servicing fees in the third quarter of 2018 were $131.3 million, a decrease of $8.5 million from the comparable 2017 quarter. The decrease was primarily attributable to lower transfer agent and distribution servicing revenue earned from the T. Rowe Price U.S. mutual funds due to client transfers among vehicles and share classes.

Operating expenses were $754.0 million in the third quarter of 2018 compared with $690.2 million in the third quarter of 2017, and $750.3 million in the second quarter of 2018. On a non-GAAP basis, the firm's operating expenses in the third quarter of 2018 increased 9.1% to $744.5 million compared to the 2017 quarter and were lower than the $745.3 million recognized in the second quarter of 2018. The 9.1% increase in non-GAAP operating expenses from the third quarter of 2017 was due primarily to higher market driven expenses and continued strategic investments. The firm continues to expect its 2018 non-GAAP operating expenses to grow in the range of 8% to 11%. This expense growth range factors in the firm's cost optimization efforts and any contemplated uses of its expected U.S. tax reform benefits.

Compensation and related costs were $454.3 million in the third quarter of 2018, an increase of 8.8% over the third quarter of 2017, due primarily to an increase in average headcount, the interim accrual of the annual bonus, and stock-based compensation expense. The firm's average staff size increased 4.2% from the third quarter of 2017. The firm employed 6,946 associates at September 30, 2018.

Advertising and promotion expense was $20.2 million in the third quarter of 2018, an increase of 44.3% over the $14.0 million recognized in the third quarter of 2017. The increase was primarily driven by the launch of the firm's new media advertising campaign in the third quarter of 2018.

Technology, occupancy, and facility costs were $96.5 million in the third quarter of 2018, an increase of 11.8% compared to the $86.3 million recognized in the third quarter of 2017. The increase was due primarily to incremental investment in the firm's technology capabilities, including related depreciation, hosted solution licenses, and maintenance programs.

General, administrative, and other costs were $73.7 million in the third quarter of 2018, an increase of 9.7% compared to the $67.2 million recognized in the third quarter of 2017. The increase reflects growing operational and regulatory business demands.

Non-operating income was $124.9 million in the third quarter of 2018, an increase of $57.6 million from the third quarter of 2017. The increase is due primarily to the gain the firm realized from the sale of its 10% holding in Daiwa SB Investments Ltd. This realized gain was partially offset by a decrease in net investment gains from the consolidated T. Rowe Price sponsored investment products. The components of non-operating income for the third quarter and the first nine months of 2017 and 2018, are included in the tables at the back of this release.

The firm's effective tax rate for the third quarter of 2018 was 24.0%, compared with 34.4% in the 2017 quarter, as U.S. tax reform reduced the U.S. federal corporate tax rate from 35% to 21% on January 1, 2018. The third quarter rate of 24.0% contributes to an effective tax rate for nine months ended September 30, 2018 of 24.9%. The following reconciles the statutory federal income tax rate to the firm's effective tax rate for the nine months ended September 30, 2018:

Statutory U.S. federal income tax rate

21.0

%

Impact of nonrecurring charge related to U.S. tax reform recognized in the second quarter

1.0

%

Impact of nonrecurring charge related to new Maryland state tax legislation recognized in the second quarter

.4

%

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

4.6

%

Net income attributable to redeemable non-controlling interests

(.2)

%

Net excess tax benefits from stock-based compensation plans activity

(1.8)

%

Other items

(.1)

%

Effective income tax rate

24.9

%

 

(1)

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

 

The firm estimates its effective tax rate for the full-year 2018 will be in the range of 24% to 26%.

Capital Management
T. Rowe Price remains debt-free with ample liquidity, including cash and investments in T. Rowe Price products as follows:

(in millions)

 

12/31/2017

 

9/30/2018

Cash and cash equivalents

 

$

1,902.7

   

$

2,090.6

 

Discretionary investments

 

780.3

   

1,636.4

 

Total cash and discretionary investments

 

2,683.0

   

3,727.0

 

Redeemable seed capital investments

 

1,188.9

   

1,204.5

 

Investments used to hedge the supplemental savings plan liability

 

268.2

   

294.6

 

Total cash and investments in T. Rowe Price products

 

$

4,140.1

   

$

5,226.1

 

 

The firm's common shares outstanding were 242.6 million at September 30, 2018, compared with 245.1 million at the end of 2017. During the third quarter of 2018, the firm expended $124.5 million to repurchase 1.1 million shares of its common stock at an average price of $110.76. These repurchases bring the total amount expended for the nine months ended September 30, 2018, to $574.8 million, representing 5.4 million shares, or 2.2%, of outstanding common shares at an average price of $107.38. The firm invested $121.5 million during the first nine months of 2018 in capitalized facilities and technology, and expects capital expenditures for 2018 to be about $170 million, of which about 70% is planned for technology initiatives. These expenditures are expected to continue to be funded from operating resources.

Management Commentary
William J. Stromberg, the company's president and chief executive officer, commented: "In the third quarter, the combination of strong stock returns and solid net client inflows helped increase our assets under management by 3.8%. We are pleased with the pace and diversity of new sales across geographies and channels, and with our organic growth through the third quarter.

"Our long-term investment performance versus our peers remains strong, and we remain highly focused on delivering for our clients. We also continue to execute on our strategic plan across investment capabilities, distribution, and technology, including creating operational efficiency gains. Recent highlights include:

  • Investment Capabilities - We continue to build out our investment professional staff globally, including additions to our equity research and dedicated multi-asset investment teams. We filed to launch the Dynamic Credit Fund and also expect to launch several other new products in 2019.
  • Americas Distribution - In our U.S. intermediary segment, continued hiring across our sales and relationship management teams is deepening client engagement and generating net inflows, particularly in the broker-dealer and DCIO channels. We remain pleased with the traction we have gained on no transaction fee platforms. We also continue to build out our managed accounts program with the launch of dual contracts and the addition of clients and assets to our model portfolios and retail separately managed accounts.
  • EMEA and APAC Distribution - Supporting client interest in our investment strategies, we added new sub-funds and share classes to our SICAV lineup. We also extended the lineup of SICAV funds available for distribution in Hong Kong, with more planned, and remain on track for the upcoming launch of locally domiciled Japan Investment Trusts. Our progress in these regions is also underpinned by continued improvement in brand recognition with intermediaries and institutions.
  • Technology and Client Experience - We are growing our technology teams outside the U.S., building on progress being made to transform our clients' digital experiences, and further expanding innovation resources and activities in Maryland and New York.

"While our business is very competitive, our positioning remains strong. With the continued hard work of our associates around the world we are confident in our ability to add significant value for our clients and stockholders over time."

Investment Performance(1)
The percentage of the firm's U.S. mutual funds (across primary share classes) that outperformed their comparable Morningstar median on a total return basis and that are in the top Morningstar quartile for the one-, three-, five-, and 10-years ended September 30, 2018, were:

   

1 year

 

3 years

 

5 years

 

10 years

Outperformed Morningstar median

               

    All funds

 

47%

 

70%

 

81%

 

79%

    Multi-asset funds

 

42%

 

81%

 

88%

 

89%

                 

Top Morningstar quartile

               

    All funds

 

22%

 

39%

 

45%

 

53%

    Multi-asset funds

 

15%

 

53%

 

53%

 

84%

 

(1)

Source: © 2018 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Historically, the firm has disclosed the percentage of U.S. mutual funds (across all share classes) that outperformed their comparable Lipper averages on a total return basis and that are in the top Lipper quartile for the same periods. Investment performance results using the new measures are similar to the Lipper results.

 

In addition, 81% of the firm's rated U.S. mutual funds' assets under management ended the quarter with an overall rating of four or five stars from Morningstar. The performance of the firm's institutional strategies against their benchmarks remains competitive, especially over longer time periods.

Other Matters
The financial results presented in this release are unaudited. The firm expects that it will file its Form 10-Q Quarterly Report for the third quarter of 2018 with the U.S. Securities and Exchange Commission later today. The Form 10-Q will include additional information on the firm's unaudited financial results at September 30, 2018.

Certain statements in this earnings release may represent "forward-looking information," including information relating to anticipated changes in revenues, net income and earnings per common share, anticipated changes in the amount and composition of assets under management, anticipated expense levels, estimated tax rates, and expectations regarding financial results, future transactions, new products and services, investments, capital expenditures, dividends, stock repurchases, and other market conditions. For a discussion concerning risks and other factors that could affect future results, see the firm's 2017 Form 10-K and Form 10-Q for the third quarter of 2018.

Founded in 1937, Baltimore-based T. Rowe Price (troweprice.com) is a global investment management organization that provides a broad array of mutual funds, subadvisory services, and separate account management for individual and institutional investors, retirement plans, and financial intermediaries. The organization also offers a variety of sophisticated investment planning and guidance tools. T. Rowe Price's disciplined, risk-aware investment approach focuses on diversification, style consistency, and fundamental research.

 

Unaudited Consolidated Statements of Income

                           

(in millions, except per-share amounts)

                           
   

Three months ended

   

Three months ended

   

Nine months ended

Revenues

9/30/2017(1)

 

9/30/2018

 

Q3 2018
vs. 
Q3 2017(2)

   

6/30/2018

 

Q3 2018
vs. 
Q2 2018(2)

   

9/30/2017(1)

 

9/30/2018

 

% change(2)

 

Investment advisory fees

$

1,098.9

   

$

1,263.3

   

15.0

%

   

$

1,214.4

   

4.0

%

   

$

3,137.6

   

$

3,666.9

   

16.9

%

 

Administrative, distribution, and
servicing fees

139.8

   

131.3

   

(6.1)%

     

130.6

   

0.5

%

   

419.7

   

400.7

   

(4.5)

%

 

Net revenues

1,238.7

   

1,394.6

   

12.6

%

   

1,345.0

   

3.7

%

   

3,557.3

   

4,067.6

   

14.3

%

                                     

Operating expenses(3)

                                 
 

Compensation and related costs

417.4

   

454.3

   

8.8

%

   

456.0

   

(0.4)%

     

1,218.6

   

1,351.7

   

10.9

%

 

Distribution and servicing

67.4

   

71.4

   

5.9

%

   

71.6

   

(0.3)%

     

192.0

   

213.3

   

11.1

%

 

Advertising and promotion

14.0

   

20.2

   

44.3

%

   

19.0

   

6.3

%

   

58.4

   

63.8

   

9.2

%

 

Product-related costs

37.9

   

37.9

   

%

   

37.1

   

2.2

%

   

110.9

   

117.1

   

5.6

%

 

Technology, occupancy, and
facility costs

86.3

   

96.5

   

11.8

%

   

93.2

   

3.5

%

   

254.7

   

283.8

   

11.4

%

 

General, administrative, and
other

67.2

   

73.7

   

9.7

%

   

73.4

   

0.4

%

   

194.9

   

218.8

   

12.3

%

 

Nonrecurring insurance
recoveries related to Dell
appraisal rights matter

   

   

     

   

     

(50.0)

   

   

n/m

 
 

Total operating expenses

690.2

   

754.0

   

9.2

%

   

750.3

   

.5

%

   

1,979.5

   

2,248.5

   

13.6

%

                                     

Net operating income

548.5

   

640.6

   

16.8

%

   

594.7

   

7.7

%

   

1,577.8

   

1,819.1

   

15.3

%

                                   

Non-operating income

                                 

Net gains on investments

28.9

   

116.1

   

n/m

     

17.4

   

n/m

     

165.1

   

147.9

   

n/m

 

Net gains on consolidated
investment products

37.5

   

8.7

   

n/m

     

19.1

   

n/m

     

125.8

   

28.6

   

n/m

 

Other income (loss)

.9

   

.1

   

n/m

     

(2.4)

   

n/m

     

3.4

   

(1.4)

   

n/m

 

   Total non-operating income

67.3

   

124.9

   

n/m

     

34.1

   

n/m

     

294.3

   

175.1

   

n/m

 
                                   

Income before income taxes

615.8

   

765.5

   

24.3

%

   

628.8

   

21.7

%

   

1,872.1

   

1,994.2

   

6.5

%

Provision for income taxes

211.6

   

183.9

   

(13.1)%

     

169.2

   

8.7

%

   

677.5

   

497.5

   

(26.6)

%

Net income

404.2

   

581.6

   

43.9

%

   

459.6

   

26.5

%

   

1,194.6

   

1,496.7

   

25.3

%

 

Less: net income attributable to
redeemable non-controlling
interests

13.3

   

(1.4)

   

(110.5)%

     

10.7

   

(113.1)%

     

43.9

   

11.1

   

(74.7)

%

Net income attributable to
T. Rowe Price Group

390.9

   

583.0

   

49.1

%

   

448.9

   

29.9

%

   

1,150.7

   

1,485.6

   

29.1

%

 

Less: net income allocated to
outstanding restricted stock and
stock unit holders

8.8

   

13.7

   

55.7

%

   

10.5

   

30.5

%

   

26.0

   

34.8

   

33.8

%

Net income allocated to T.
Rowe Price Group common
stockholders

$

382.1

   

$

569.3

   

49.0

%

   

$

438.4

   

29.9

%

   

$

1,124.7

   

$

1,450.8

   

29.0

%

                                     

Earnings per share

                                 
 

Basic

$

1.59

   

$

2.34

   

47.2

%

   

$

1.81

   

29.3

%

   

$

4.67

   

$

5.97

   

27.8

%

 

Diluted

$

1.56

   

$

2.30

   

47.4

%

   

$

1.77

   

29.9

%

   

$

4.60

   

$

5.85

   

27.2

%

                                     

Weighted-average common
shares

                                 
 

Outstanding

240.3

   

242.8

   

1.0

%

   

242.2

   

.2

%

   

240.7

   

243.1

   

1.0

%

 

Outstanding assuming dilution

244.4

   

247.5

   

1.3

%

   

247.4

   

%

   

244.3

   

248.2

   

1.6

%

                                     

Dividends declared per share

$

.57

   

$

.70

   

22.8

%

   

$

.70

   

%

   

$

1.71

   

$

2.10

   

22.8

%

 

(1)

Results for 2017 were recast to reflect the adoption of the new revenue recognition accounting guidance on January 1, 2018. For further information, refer to the Form 10-Q for the period ended September 30, 2018 filed with the SEC on October 25, 2018.

(2)

The percentage change in non-operating income and nonrecurring insurance recoveries is not meaningful (n/m).

(3)

Certain 2017 amounts have been reclassified to conform to the firm's new income statement presentation. For a recast of 2017 quarterly financial results, refer to the Form 10-Q for the period ended September 30, 2018, filed with the SEC on October 25, 2018.

 

 

 

Investment Advisory Revenues (in millions)

Three months ended

 

Nine months ended

 

9/30/2017

 

9/30/2018

 

9/30/2017

 

9/30/2018

U.S. mutual funds

             

Equity and blended assets

$

657.0

   

$

745.5

   

$

1,880.1

   

$

2,169.0

 

Fixed income, including money market

129.1

   

131.8

   

379.8

   

388.1

 
 

786.1

   

877.3

   

2,259.9

   

2,557.1

 

Subadvised and separate accounts and other investment products

             

Equity and blended assets

259.6

   

326.0

   

727.8

   

931.0

 

Fixed income, including money market

53.2

   

60.0

   

149.9

   

178.8

 
 

312.8

   

386.0

   

877.7

   

1,109.8

 

Total

$

1,098.9

   

$

1,263.3

   

$

3,137.6

   

$

3,666.9

 

 

 

Assets Under Management (in billions)

Average during

       
 

Three months ended

 

Nine months ended

 

As of

 

9/30/2017

 

9/30/2018

 

9/30/2017

 

9/30/2018

 

12/31/2017

 

9/30/2018

U.S. mutual funds

                     

Equity and blended assets

$

452.9

   

$

511.6

   

$

438.2

   

$

500.8

   

$

480.5

   

$

515.1

 

Fixed income, including money market

123.2

   

129.9

   

119.6

   

128.6

   

125.8

   

129.7

 
 

576.1

   

641.5

   

557.8

   

629.4

   

606.3

   

644.8

 
                       

Subadvised and separate accounts and other
investment products

                     

Equity and blended assets

264.6

   

331.8

   

247.0

   

318.4

   

291.9

   

338.8

 

Fixed income, including money market

86.7

   

99.1

   

81.5

   

97.2

   

92.9

   

100.2

 
 

351.3

   

430.9

   

328.5

   

415.6

   

384.8

   

439.0

 

Total

$

927.4

   

$

1,072.4

   

$

886.3

   

$

1,045.0

   

$

991.1

   

$

1,083.8

 

 

Net Cash Flows After Client Transfers (by investment vehicle and underlying asset class)(1)(2)

 

Three
months
ended

 

Nine months
ended

(in billions)

 

9/30/2018

 

9/30/2018

U.S. mutual funds

       

Equity and blended assets

 

$

(4.6)

   

$

(10.2)

 

Fixed income, including money market

 

.9

   

5.0

 
   

(3.7)

   

(5.2)

 

Subadvised and separate accounts and other investment products

       

Equity and blended assets

 

4.0

   

18.6

 

Fixed income, including money market

 

2.4

   

8.2

 
   

6.4

   

26.8

 

Total net cash flows after client transfers

 

$

2.7

   

$

21.6

 
 

(1)

The asset class net cash flows above include, in addition to net client flows, rebalancing within the target date portfolios in order to maintain their targeted asset allocations.

(2) 

The underlying assets of the multi-asset portfolios that invest in T. Rowe Price products have been broken out and included in their respective vehicle and asset class amounts.

 

 

Non-Operating Income (in millions)

Three months ended

 

Nine months ended

 

9/30/2017

 

9/30/2018

 

9/30/2017

 

9/30/2018

Net gains from non-consolidated T. Rowe Price investment products

             

Net realized gains on dispositions of available-for-sale investments

$

.1

   

$

   

$

78.0

   

$

 

Ordinary and capital gain dividend distributions

5.3

   

14.4

   

11.2

   

33.7

 

Market gains (losses) on equity method and other investments at fair value

(16.3)

   

7.1

   

26.0

   

(6.5)

 

Gains reclassified from accumulated other comprehensive income upon
transfer of an available-for-sale sponsored investment portfolio to sponsored
investment portfolios held as trading

23.6

   

   

23.6

   

 

Net gain recognized upon deconsolidation

.1

   

   

.1

   

3.6

 

Dividends and market gains on investment products used to hedge the
supplemental savings plan liability

6.1

   

6.3

   

6.1

   

14.2

 

Total net gains from non-consolidated T. Rowe Price investment products

18.9

   

27.8

   

145.0

   

45.0

 

Other investment income

10.0

   

88.3

   

20.1

   

102.9

 

Net gains on investments

28.9

   

116.1

   

165.1

   

147.9

 

Net gains (losses) on consolidated sponsored investment portfolios

37.5

   

8.7

   

125.8

   

28.6

 

Other income, including foreign currency gains and losses

.9

   

.1

   

3.4

   

(1.4)

 

Non-operating income

$

67.3

   

$

124.9

   

$

294.3

   

$

175.1

 

 

 

Unaudited Condensed Consolidated Cash Flows Information (in millions)

 

Nine months ended

 

9/30/2017

 

9/30/2018

 

Cash flow
attributable
to T. Rowe
Price Group

 

Cash flow
attributable to
consolidated
T. Rowe Price
investment
products, net
of eliminations

 

As
reported
on
statement
of cash
flows

 

Cash flow
attributable
to T. Rowe
Price Group

 

Cash flow
attributable to
consolidated
T. Rowe Price
investment
products, net
of eliminations

 

As
reported
on
statement
of cash
flows

Cash provided by (used in) operating
activities, including $135.3 of stock-based
compensation expense and $114.9 of
depreciation expense in 2018

$

1,462.4

   

$

(1,109.6)

   

$

352.8

   

$

2,060.9

   

$

(574.5)

   

$

1,486.4

 

Cash provided by (used in) investing activities
attributable to T. Rowe Price Group in 2018,
including ($121.5) for additions to property
and equipment and ($1,118.7) of additions to
T. Rowe Price investment products

(63.2)

   

138.6

   

75.4

   

(923.7)

   

93.3

   

(830.4)

 

Cash provided by (used in) financing activities,
including T. Rowe Price Group common stock
repurchases of ($543.0) and dividends paid of
($522.3) in 2018

(734.7)

   

1,005.3

   

270.6

   

(949.3)

   

486.2

   

(463.1)

 

Effect of exchange rate changes on cash and
cash equivalents

   

6.9

   

6.9

   

   

(2.4)

   

(2.4)

 

Net change in cash and cash equivalents
during period

$

664.5

   

$

41.2

   

$

705.7

   

$

187.9

   

$

2.6

   

$

190.5

 

 

 

Unaudited Condensed Consolidated Balance Sheet Information (in millions)

 

As of

   

12/31/2017

 

9/30/2018

Cash and cash equivalents

 

$

1,902.7

   

$

2,090.6

 

Accounts receivable and accrued revenue

 

565.3

   

583.1

 

Investments

 

1,477.3

   

2,414.4

 

Assets of consolidated T. Rowe Price investment products

 

2,048.4

   

1,917.8

 

Property and equipment, net

 

652.0

   

657.0

 

Goodwill

 

665.7

   

665.7

 

Other assets

224.0

   

202.0

 

Total assets

 

7,535.4

   

8,530.6

 

Total liabilities, includes $55.9 at December 31, 2017, and $74.7 at September 30, 2018, from consolidated 
T. Rowe Price investment products

 

718.2

   

1,209.5

 

Redeemable non-controlling interests

 

992.8

   

860.6

 

Stockholders' equity, 242.6 common shares outstanding at September 30, 2018

 

$

5,824.4

   

$

6,460.5

 

 

Cash, Cash Equivalents, and Investments Information (in millions)

   

Cash and cash
equivalents

 

Investments

 

Net assets of
consolidated T.
Rowe Price
investment
products

 

9/30/2018

Cash and discretionary investments

 

$

2,090.6

   

$

1,607.7

   

$

28.7

   

$

3,727.0

 

Seed capital investments

 

   

250.7

   

953.8

   

1,204.5

 

Investment products used to hedge supplemental savings plan

 

   

294.6

   

   

294.6

 

Total cash and investments in T. Rowe Price products attributable
to T. Rowe Price Group

 

2,090.6

   

2,153.0

   

982.5

   

5,226.1

 

 Investment in UTI and other investments

 

   

261.4

   

   

261.4

 

Total cash and investments attributable to T. Rowe Price Group

 

2,090.6

   

2,414.4

   

982.5

   

5,487.5

 

Redeemable non-controlling interests

 

   

   

860.6

   

860.6

 

As reported on unaudited condensed consolidated balance sheet
at September 30, 2018

 

$

2,090.6

   

$

2,414.4

   

$

1,843.1

   

$

6,348.1

 

 

 

Non-GAAP Information and Reconciliation

The firm believes the non-GAAP financial measures below provide relevant and meaningful information to investors about its core operating results. These measures have been established in order to increase transparency for the purpose of evaluating the firm's core business, for comparing current results with prior period results, and to enable more appropriate comparison with industry peers. However, non-GAAP financial measures should not be considered as a substitute for financial measures calculated in accordance with U.S. GAAP and may be calculated differently by other companies. The following schedule reconciles U.S. GAAP financial measures to non-GAAP financial measures for the three- and nine-month periods ended September 30, 2017 and 2018.

 

   

Three months ended

 

Nine months ended

 

(in millions, except for per-share amounts)

9/30/2017

 

9/30/2018

 

9/30/2017

 

9/30/2018

 

Operating expenses, GAAP basis

$

690.2

   

$

754.0

   

$

1,979.5

   

$

2,248.5

 
 

Non-GAAP adjustments:

             
 

Expenses of consolidated T. Rowe Price investment products, net of
elimination of its related management and administrative fees(1)

(1.8)

   

(2.1)

   

(5.3)

   

(4.6)

 
 

Compensation expense related to market valuation changes in the
supplemental savings plan liability(2)

(5.7)

   

(7.4)

   

(5.7)

   

(13.1)

 
 

Insurance recoveries related to Dell appraisal rights matter(4)

   

   

50.0

   

 
 

Adjusted operating expenses

$

682.7

   

$

744.5

   

$

2,018.5

   

$

2,230.8

 
                 
 

Net income attributable to T. Rowe Price Group, GAAP basis

$

390.9

   

$

583.0

   

$

1,150.7

   

$

1,485.6

 
 

Non-GAAP adjustments:

             
 

Net income of consolidated T. Rowe Price investment products, net of
redeemable non-controlling interests(1)

(21.0)

   

(6.5)

   

(73.4)

   

(8.3)

 
 

Non-operating income of investments designated as an economic hedge of
the supplemental savings plan liability less related compensation expense(2)

(.4)

   

1.1

   

(.4)

   

(1.1)

 
 

Other non-operating income(3)

(23.7)

   

(92.2)

   

(162.4)

   

(106.6)

 
 

Insurance recoveries related to Dell appraisal rights matter(4)

   

   

(50.0)

   

 
 

Income tax impacts of non-GAAP adjustments(5)

16.3

   

19.6

   

112.7

   

25.1

 
 

Nonrecurring charge related to enactment of U.S. tax reform(6)

   

   

   

20.8

 
 

Nonrecurring charge related to enactment of Maryland state tax legislation(7)

   

   

   

7.9

 
 

Adjusted net income attributable to T. Rowe Price Group

$

362.1

   

$

505.0

   

$

977.2

   

$

1,423.4

 
                 
 

Diluted earnings per common share, GAAP basis

$

1.56

   

$

2.30

   

$

4.60

   

$

5.85

 
 

Non-GAAP adjustments:

             
 

Consolidated T. Rowe Price investment products(1)

(.05)

   

(.02)

   

(.18)

   

(.03)

 
 

Other non-operating income(3)

(.06)

   

(.29)

   

(.39)

   

(.33)

 
 

Insurance recoveries related to Dell appraisal rights matter(4)

   

   

(.12)

   

 
 

Nonrecurring charge related to enactment of U.S. tax reform(6)

   

   

   

.08

 
 

Nonrecurring charge related to enactment of Maryland state tax legislation(7)

$

   

$

   

$

   

$

.03

 
 

Adjusted diluted earnings per common share(8)

$

1.45

   

$

1.99

   

$

3.91

   

$

5.60

 
         

(1)

The non-GAAP adjustments add back the management and administrative fees that the firm earns from the consolidated T. Rowe Price investment products and subtract the investment income and operating expenses of these products that have been included in the firm's U.S. GAAP consolidated statements of income. Management believes the consolidated T. Rowe Price investment products may impact the reader's ability to understand the firm's core operating results. The following table details the calculation of operating expenses of consolidated T. Rowe Price investment products, net of elimination of its related management and administrative fees.

   
         
   

Three months ended

 

Nine months ended

   

9/30/2017

 

9/30/2018

 

9/30/2017

 

9/30/2018

 

Operating expenses before eliminations

$

3.2

   

$

3.6

   

$

8.5

   

$

9.2

 
 

Operating expenses eliminated in consolidation

(1.4)

   

(1.5)

   

(3.2)

   

(4.6)

 
 

Total operating expenses, net of eliminations

$

1.8

   

$

2.1

   

$

5.3

   

$

4.6

 
   
   
 

The following table details the calculation of net income of consolidated T. Rowe Price investment products, net of redeemable non-controlling interests:

         
   

Three months ended

 

Nine months ended

   

9/30/2017

 

9/30/2018

 

9/30/2017

 

9/30/2018

 

Net investment gains

$

37.5

   

$

8.7

   

$

125.8

   

$

28.6

 
 

Operating expenses

(3.2)

   

(3.6)

   

(8.5)

   

(9.2)

 
 

Net income

34.3

   

5.1

   

117.3

   

19.4

 
 

Less: net income attributable to redeemable non-controlling interests

13.3

   

(1.4)

   

43.9

   

11.1

 
 

T. Rowe Price Group's portion of net income

$

21.0

   

$

6.5

   

$

73.4

   

$

8.3

 
         
   

(2)

This non-GAAP adjustment removes the impact of market movements on the supplemental savings plan liability and related economic hedges of the liability beginning July 1, 2017. Amounts deferred under the supplemental savings plan are adjusted for appreciation (depreciation) of hypothetical investments chosen by the employees. Since the firm economically hedges the exposure to these market movements, management believes it is useful to offset the non-operating investment income earned on the hedges against the related compensation expense to increase comparability period to period. The following table details the supplemental savings plan related items:

   
   

Three months ended

 

Nine months ended

   

9/30/2017

 

9/30/2018

 

9/30/2017

 

9/30/2018

 

Non-operating income of investments designated as an economic hedge of
supplemental savings plan liability

$

6.1

   

$

6.3

   

$

6.1

   

$

14.2

 
 

Compensation expense from market valuation changes in supplemental
savings plan liability

(5.7)

   

(7.4)

   

(5.7)

   

(13.1)

 
 

Non-operating income of investments designated as an economic hedge of
supplemental savings plan liability less compensation expense

$

.4

   

$

(1.1)

   

$

.4

   

$

1.1

 
         

(3)

This non-GAAP adjustment removes the non-operating income that remains after backing out the portion related to the consolidated T. Rowe Price investment products and the investments designated as an economic hedge of our supplemental savings plan liability. Beginning in the second quarter of 2018, management modified the non-GAAP adjustment to no longer adjust for the investment gains recognized on its cash and discretionary investments, as the income earned on these assets are considered part of the firm's core operations. The impact on previously reported non-GAAP measures is immaterial. Management believes adjusting for the remaining non-operating income helps the reader's ability to understand the firm's core operating results and increases comparability to prior years. Additionally, management does not emphasize the impact of the portion of non-operating income removed when managing and evaluating the firm's performance.

   
         
   

Three months ended

 

Nine months ended

   

9/30/2017

 

9/30/2018

 

9/30/2017

 

9/30/2018

 

Total non-operating income

$

67.3

   

$

124.9

   

$

294.3

   

$

175.1

 
 

Less: net investment gains of consolidated T. Rowe Price investment products

37.5

   

8.7

   

125.8

   

28.6

 
 

Less: non-operating income from investments designated as an economic
hedge of supplemental savings plan liability

6.1

   

6.3

   

6.1

   

14.2

 
 

Less: investment gains earned on cash and discretionary investments

   

17.7

   

   

25.7

 
 

Total other non-operating income

$

23.7

   

$

92.2

   

$

162.4

   

$

106.6

 
   

(4)

In the first quarter of 2017, the firm recognized insurance recoveries of $50.0 million related to the Dell appraisal rights matter as a reduction in operating expenses. Management believes it is useful to readers of the firm's condensed consolidated statements of income to adjust for these insurance recoveries given the nonrecurring nature of the initial charge and related insurance recoveries.

   

(5)

The income tax impacts were calculated in order to achieve an overall year-to-date non-GAAP effective tax rate of 36.6% for 2017 and 23.8% for 2018. As such, the non-GAAP effective tax rate for the third quarter was 35.0% for 2017 and 24.5% for 2018. The firm estimates its effective tax rate for the full-year 2018 on a non-GAAP basis will be in the range of 23% to 25%.

   

(6)

During the second quarter of 2018, the firm recognized a nonrecurring charge of $20.8 million for an adjustment made to the charge taken in 2017 related to the enactment of U.S. tax reform. Management believes it is useful to readers of our consolidated statements of income to adjust for this nonrecurring charge in arriving at net income attributable to T. Rowe Price Group and diluted earnings per share.

   

(7)

During the second quarter of 2018 the firm recognized a nonrecurring charge of $7.9 million for the remeasurement of the firm's deferred tax assets and liabilities to reflect the effect of Maryland state tax legislation enacted on April 24, 2018. Management believes it is useful to readers of our consolidated statements of income to adjust for this nonrecurring charge in arriving at net income attributable to T. Rowe Price Group and diluted earnings per share.

   

(8)

This non-GAAP measure was calculated by applying the two-class method to adjusted net income attributable to T. Rowe Price Group divided by the weighted-average common shares outstanding assuming dilution.

 

 

 

Cision View original content:http://www.prnewswire.com/news-releases/t-rowe-price-group-reports-third-quarter-2018-results-300737832.html

SOURCE T. Rowe Price Group, Inc.

Public Relations, Brian Lewbart, 410-345-2242, brian_lewbart@troweprice.com; Investor Relations, Teresa Whitaker, 410-345-6586, teresa_whitaker@troweprice.com

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