T. Rowe Price Group, Inc. (NASDAQ-GS: TROW) today reported its results for the third quarter of 2019.

• Assets under management end quarter at $1.126 trillion
• Net revenues of $1.4 billion
• Diluted earnings per common share of $2.23
• Adjusted non-GAAP diluted earnings per common share of $2.13
• Long-term investment performance remains strong
• Net client inflows of $2.5 billion

Management Commentary

William J. Stromberg, president and chief executive officer, commented: "Despite a choppy market environment in the third quarter, total assets under management grew to $1.126 trillion as a result of continued solid investment performance combined with net client inflows of $2.5 billion.

“We remain pleased with our net flows, including the ongoing success of our Japanese Investment Trust (ITM) offering and strength in our U.S. Intermediaries channel. From an asset class standpoint, net flows were primarily driven by multi-asset and fixed income, while equities experienced modest outflows.

“Expense growth year-to-date has been slower than we had anticipated, primarily driven by lower than planned distribution and product-related expenses and, to a lesser extent, by a slower pace of spend related to the execution of our strategic plan. Nonetheless, our teams are executing effectively against our priorities across investments, products, distribution and technology, while driving operational efficiencies throughout. Recent highlights include:

Continued build-out of our investment teams globally. This quarter we created a Tokyo-based multi-asset team to serve local investors’ needs for solutions and diversification, in alignment with our strategic priority to ensure the continued success of our multi-asset business globally.

Launch of two new strategies—European Select Equity and Global Government Bond—as part of our SICAV lineup, and the launch of the Target Allocation Active Series Model Portfolios, which are available on Envestnet and Morningstar platforms for financial advisors.

Continued success in North American distribution, with early returns from the strategic build-out of our broker-dealer channel in the U.S. and increased traction in Canada with our intermediary clients.

Further strengthening and modernization of our operations and technology platforms. This is part of our ongoing long-term plan to make our operating platform more secure, more efficient, and more scalable.

“I remain ever-grateful to our associates for their hard work on behalf of our clients and, ultimately, our stockholders."

Assets Under Management

During Q3 2019, assets under management increased $1.3 billion to $1.126 trillion. Net cash inflows were $2.5 billion, and clients transferred $7.5 billion in net assets from the U.S. mutual funds to other investment products, primarily the target-date trusts. The components of the change in assets under management, by vehicle and asset class, are shown in the tables below.

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 $272.0 billion at September 30, 2019, compared with $268.7 billion at June 30, 2019 and $230.4 billion at December 31, 2018. Net cash inflows into these portfolios were $2.0 billion in the third quarter of 2019 and $6.6 billion for the first nine months of 2019.

Investors domiciled outside the United States accounted for 6.5% of the firm's assets under management at September 30, 2019 and 6.2% at December 31, 2018.

Financial Results

Net Revenues earned in Q3 2019 were $1.4 billion, up 2.3% from Q3 2018.

Investment advisory revenues earned in Q3 2019 from the firm's U.S. mutual funds were $881.0 million, an increase of 0.4% from Q3 2018. Average assets under management in these funds increased 1.4% to $650.5 billion in Q3 2019.

Investment advisory revenues earned in Q3 2019 from subadvised, separate accounts, and other investment products were $422.4 million, an increase of 9.4% from Q3 2018. Average assets under management for these products increased 11.3% to $479.7 billion in Q3 2019.

The effective fee rate of 45.8 basis points in Q3 2019 decreased from 46.3 basis points in Q2 2019 and was lower than the 46.7 basis points in Q3 2018. The decline in the effective fee rate from Q2 2019 is largely due to a market-driven shift of assets under management from higher fee international equity strategies to lower fee strategies. Client transfers to lower fee vehicles or share classes over the last twelve months and, to a lesser extent, fee reductions the firm has made since Q3 2018 also drove the effective fee rate lower compared to Q3 2018. Over time, the firm's effective fee rate can be impacted by market or cash flow related shifts among asset and share classes, price changes in existing products, and asset level changes in products with tiered-fee structures.

Administrative, distribution, and servicing fees in Q3 2019 were $123.3 million, a decrease of $8.0 million from Q3 2018. The decrease was primarily attributable to lower 12b-1 revenue earned on certain share classes of the U.S. mutual funds. The 12b-1 revenue decline is offset entirely by a reduction in the costs paid to third-party intermediaries that source these assets and is reported in distribution and servicing expense.

Operating expenses were $767.6 million in Q3 2019 compared with $754.0 million in Q3 2018. The increase in operating expenses for this quarter was primarily due to higher salary, annual bonus accrual, and benefits expense; and the firm's continued strategic investments. Partially offsetting these increases was lower market-related compensation expense related to the supplemental savings plan in the third quarter of 2019 as compared to the third quarter of 2018.

On a non-GAAP basis, the firm's operating expenses in Q3 2019 increased 2.8% to $765.1 million compared with Q3 2018, while non-GAAP operating expense growth for the nine months ended September 30, 2019 was 2.5%. The firm is changing its full-year 2019 non-GAAP operating expense growth guidance from a range of 4% to 7% to a range of 4% to 5% as year-to-date distribution, product-related, and professional fee expenses, as well as headcount growth, have been lower than planned. This expense guidance includes continued investments in the business, the firm's cost optimization efforts, and the phased implementation of paying for all third-party investment research. The firm currently expects that its 2020 operating expenses will reflect a full year of all third-party investment research costs.

Compensation and related costs were $466.3 million in Q3 2019, an increase of 2.6%. This increase was primarily related to a 3.3% growth in average headcount, the annual bonus accrual, and other employee- related expenses. The firm employed 7,262 associates at September 30, 2019. These increases in compensation expense were partially offset by lower market-driven compensation expenses related to the supplemental savings plan in Q3 2019 as compared to Q3 2018.

Distribution and servicing includes those costs incurred to distribute T. Rowe Price products and to provide client or shareholder servicing, recordkeeping, and administrative services. These costs were $64.5 million in Q3 2019, a decrease of 9.7% from the $71.4 million recognized in Q3 2018. The decrease was primarily driven by client transfers from U.S. mutual funds to lower fee vehicles or share classes over the last twelve months.

Technology, occupancy, and facility costs were $106.5 million in Q3 2019, an increase of 10.4% from the $96.5 million recognized in Q3 2018. The increase was due to incremental investment in the firm's technology capabilities, including related depreciation, hosted solution licenses, and maintenance programs, as well as increased office facility costs.

Non-operating income was $43.0 million in Q3 2019, a decrease of $81.9 million from the $124.9 million recognized in Q3 2018. The decrease was due primarily to the absence of the gain the firm realized in Q3 2018 from the sale of its 10% holding in Daiwa SB Investments Ltd. The components of non-operating income for the third quarter and the first nine months of 2019 and 2018 are included in the tables at the end of this release.

Income Taxes. The firm's effective tax rate was 22.4% in Q3 2019 compared with 24.0% in Q3 2018. These rates contribute to effective tax rates for the first nine months of 2019 and 2018 of 24.0% and 24.9%, respectively. The income tax provision for the first nine months of 2018 includes nonrecurring charges totaling $28.7 million related to the enactment of U.S. tax reform and Maryland state tax legislation. The components of the firm's effective tax rate for the third quarter and the first nine months of 2019 and 2018 are included in the table below.

The firm's common shares outstanding were 234.7 million at September 30, 2019, compared with 238.1 million at the end of 2018.

In the first nine months of 2019, the firm expended $566.7 million to repurchase 5.7 million shares, or 2.4%, of its outstanding common shares at an average price of $99.57, including $173.1 million to repurchase 1.6 million shares during Q3 2019.

The firm invested $148.9 million during the first nine months of 2019 in capitalized facilities and technology and expects capital expenditures for 2019 to be up to $200 million, of which about two-thirds is planned for technology initiatives. These expenditures are expected to continue to be funded from the firm's operating resources.

Investment Performance(1)

The percentage of the firm's U.S. mutual funds(2) (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, 2019, were:

In addition, 84.7% 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 2019 with the U.S. Securities and Exchange Commission later today. The Form

10-Q will include additional information on the firm's unaudited consolidated financial results at September 30, 2019.

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, the timing of the assumption of all third party research payments, changes in our effective fee rate, and other market conditions. For a discussion concerning risks and other factors that could affect future results, see the firm's 2018 Form 10-K.

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.