01—Abstract
Summary
Summary of the 10-K filed February 11, 2021. Cited figures are marked; the original filing is the authoritative source.
T.
Rowe Price Group, Inc. reported that assets under management ended 2020 at $1,470.5 billiona, up $263.7 billion from the end of 2019. The increase was driven by market appreciation and income of $256.9 billion and net cash inflows of $5.6 billion, plus $1.2 billion of stable value assets acquired from PNC Bank. Target date retirement products had net cash outflows of $6.5 billion and represented 22.6% of managed assets at year-end, versus 24.2% at the end of 2019.
Financially, net revenues rose 10.5% to $6,206.7 millionb, net operating income rose 15.0% to $2,745.7 million, and diluted earnings per share were $9.98, up 14.7% from $8.70. Operating expenses rose 7.1% to $3,461.0 million, driven by a $38.6 million increase in supplemental savings plan expense from higher market returns, higher compensation and continued strategic investments. On a non-GAAP basis, diluted earnings per share were $9.58.
Management raised its 2021 non-GAAP operating expense growth range to 8%-12%, from 6%-9% previously. The company stated it remains debt-free, held $4,247.4 millionc in cash and discretionary investments, and returned $2,038.2 million to stockholders in 2020 through dividends and repurchases.
The filing also flags structural headwinds: passive investing has taken market share from active strategies, investor flows into lower-fee products have pressured the average fee rate (45.6 basis points in 2020 versus 46.1 in 2019), and the company plans to establish T. Rowe Price Investment Management as a separate SEC-registered adviser, expected to begin operations in the second half of 2022.
02—Key points
Key Highlights
- Assets under management reached $1,470.5 billion at December 31, 2020, up from $1,206.8 billion, with net cash inflows of only $5.6 billion, so growth was driven mainly by $256.9 billion of market appreciation.
- Net revenues increased 10.5% to $6,206.7 million and net operating income increased 15.0% to $2,745.7 million; operating margin was 44.2% versus 42.5% in 2019.
- Diluted earnings per share were $9.98 on a U.S. GAAP basis (up 14.7%) and $9.58 on an adjusted non-GAAP basis (up 18.7%).
- The average annualized fee rate fell to 45.6 basis points from 46.1 basis points, due to client transfers to lower-fee vehicles and money market fee waivers of $20.4 million.
- 2021 non-GAAP operating expense growth guidance was raised to 8%-12% from 6%-9%, citing higher AUM-driven expenses.
- Target date retirement products had net cash outflows of $6.5 billion in 2020, and their share of managed assets fell to 22.6% from 24.2%.
- The company remains debt-free and returned $2,038.2 million to stockholders in 2020 through dividends and share repurchases, with 10.9 million shares repurchased.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 11, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $6.21B$5.62B | +10.5% |
| Operating Expenses | $3.46B$3.23B | +7.1% |
| Operating Income | $2.75B$2.39B | +15.0% |
| Net Income | $2.37B$2.13B | +11.3% |
| EPS (Basic) | $10.08$8.82 | +14.3% |
| EPS (Diluted) | $9.98$8.70 | +14.7% |
| Shares Outstanding (Basic) | 228.80M235.40M | −2.8% |
| Shares Outstanding (Diluted) | 231.20M238.60M | −3.1% |
05—Questions
Frequently Asked Questions
How did assets under management change in 2020 and what drove it?
AUM rose $263.7 billion to $1,470.5 billion. Market appreciation and income, net of distributions not reinvested, contributed $256.9 billion, net cash inflows contributed $5.6 billion, and acquired PNC Bank stable value contracts added $1.2 billion. Equity AUM rose to $895.8 billion from $698.9 billion.
Why did profits grow faster than revenue in 2020?
Net revenues grew 10.5% while operating expenses grew 7.1%, lifting operating margin to 44.2% from 42.5%. Diluted EPS also benefited from lower weighted-average shares, a lower effective tax rate of 22.2% versus 23.2%, and net non-operating income of $496.5 million.
What are the main risks to revenue that the filing highlights?
Revenue depends on AUM value and mix, so market declines or outflows reduce fees. Investors continue to favor passive products, which have taken market share from active managers. Fees are under downward pressure, and most U.S. mutual fund advisory contracts can be terminated on 60 days' notice.
What is T. Rowe Price Investment Management and when will it start?
It is a planned separate SEC-registered investment adviser announced in November 2020. The company anticipates it will begin operations in the second half of 2022.
What expense outlook did management provide for 2021?
Management raised its 2021 non-GAAP operating expense growth range to 8%-12%, up from 6%-9% given in October 2020. It cited sharp fourth-quarter market returns and current AUM levels, which increase AUM-driven expenses. It also expects a GAAP effective tax rate of 22% to 25% for 2021.
06—Continue