T Rowe Price Group 2026 Q2 Earnings Call

Hello. Thank you for joining us today for our second quarter earnings call. The press release and the supplemental materials document can be found on our IR website at investors.troweprice.com. Today's call will last approximately 45 minutes. We'll start the call with our Chair and CEO, Rob Sharps, CFO, Jen Dardis, and President, Co-Head of Global Investments and CIO, Eric Veiel, discussing the company's results. We'll open it up to your questions. We ask that you limit it to one question per participant. I'd like to remind you that during the course of this call, we may make a number of forward-looking statements and reference certain non-GAAP financial measures. Please refer to the forward-looking statement language and the reconciliations to GAAP and the supplemental materials, as well as in our press release in 10-Q.

Discussions related to the funds is intended to demonstrate their contribution to the organization's results and are not recommendations. All investment performance references to peer groups on today's call are using Morningstar peer groups and for the quarter that ended June 30, 2026. I'll turn it over to Rob.

Thank you, Linsley. I'm joined today by Jen Dardis, Chief Financial Officer, and Eric Veiel, Co-Head of Global Investments, Chief Investment Officer, and newly named President of T. Rowe Price. Before Jen and Eric provide an overview of our financials and investment performance, I'd like to share a few thoughts on the quarter and the progress we are seeing across the business. Markets rebounded in the second quarter after a difficult start to the year. We ended the quarter with $1.9 trillion in assets under management and $6.5 billion in Q2 net outflows. Fundamental active equity remains under pressure. We expect that to continue in the second half of the year. Positive flows in May and June, including a large sub-advisory win, reflect client demand in areas where we are investing and gaining traction.

For example, we are seeing growing demand for strategies that integrate our fundamental and quantitative platforms and directly leverage our equity research platform. Our integrated equity and fixed income strategies combine fundamental research, quantitative insights, and aim to generate differentiated, consistent returns. Earlier this year, we extended this franchise with 2 lower tracking error active core equity ETFs. We have also expanded our long-standing equity research franchise, applying our analyst-driven fundamental investment approach across a broader set of markets and asset classes. In addition to our flagship U.S. strategy, the platform now includes international, global, emerging markets, U.S. mid-cap, and SMID strategies. We believe these integrated and risk-controlled active approaches, offered through a variety of investment vehicles, appeal to clients seeking the benefits of active management with lower tracking error.

Together, these approaches account for about $200 billion of our assets under management and have added $16 billion of net inflows year to date. We are also seeing momentum in active ETFs and SMAs, where we're expanding to meet the evolving needs of clients, primarily in the wealth channel. In June, we launched the T. Rowe Price Capital Appreciation Market Opportunities ETF, further extending one of our well-established investment suites. In mid-July, we launched the T. Rowe Price Active Crypto ETF, which is an actively managed multi-token exchange-traded product and our first non-investment company ETF. With these launches, our ETF business has grown to 34 funds and $30 billion in assets under management. In addition, we celebrated the 3-year anniversary of our first 4 fully transparent ETFs. Our SMA platform now includes 43 products and $20 billion in assets under management. We're also advancing our strategic alliance with Goldman Sachs.

On the 1st of July, we launched the T. Rowe Price Goldman Sachs Private Markets Fund, our first interval fund in collaboration with Goldman Sachs. We completed the first filing for the second fund, a public-private equity interval fund that we expect to launch later this year. We are hearing positive client feedback on the target date sister series and are operationally ready to launch as a CIT when client demand materializes. Finally, we continue to see strong interest in our T. Rowe Price Managed Late-Stage Venture Fund and expect to exceed our target fund size later this year, providing a foundation to build on this platform with a second fund anticipated in 2027. We are making meaningful progress in how we use artificial intelligence across the firm.

We are moving beyond isolated use cases and tools and embedding AI directly into end-to-end business workflows with more than 130 AI solutions deployed across the firm and over 70% associate adoption. We are scaling advanced agent-driven capabilities from AI-powered investment research and portfolio insights to sales and client workflows, enhancing decision-making speed and consistency while keeping investment judgment and fiduciary responsibility firmly with our associates. Importantly, this progress is supported by a robust governance framework, strong controls, and ongoing associate upskilling so we can scale AI responsibly. Before I turn to Jen, I want to highlight several recent leadership appointments. As I mentioned, Eric Veiel has been named President. In his expanded role, Eric will help drive enterprise execution of our most critical initiatives and strengthen connection across investments, global distribution, and technology data and operations. He will retain his leadership responsibilities in global investments.

Sébastien Page, head of Global Multi-Asset, is now Co-head of Global Investments. With his deep multi-asset experience, Seb is well-positioned to advance our work on solutions and outcomes. As we approach our 90th anniversary next year, these changes will sharpen execution across our highest priority initiatives and position the firm for continued growth in the years ahead. I want to thank our associates for their focus, teamwork, and commitment to our clients. Their work is building momentum and strengthening the firm for the long term. With that, I will ask Jen to cover our financials.

Thank you, Rob, and hello, everyone. I'll review our second quarter financial results before turning it over to Eric for comments on investment performance. Our adjusted diluted earnings per share for Q2 2026 was $2.57, up from $2.52 in Q1 2026 and $2.24 in Q2 2025. The increase over both prior periods was driven primarily by higher average AUM and higher investment advisory revenue, coupled with lower share count, offset in part by higher expenses. As previously reported, we had $6.5 billion in net outflows in Q2. While we experienced elevated outflows in April, we saw positive flows in both May and June. May flows were driven by a large defined contribution investment-only win into our hybrid target date series, and June flows benefited from a large sub-advisory win into two of the research and integrated equity strategies that Rob discussed.

We also saw positive flows from clients in both EMEA and APAC during the quarter. Fixed income, multi-asset, and alternatives each delivered positive net flows in Q2, continuing to demonstrate the breadth of client demand across several areas of our business. Within our growing ETF business, we had $4.4 billion in net inflows. We also continue to see success in our hybrid and blend retirement strategies, which now account for about 25% of our overall target date assets. Our Q2 adjusted net revenue was $1.9 billion, up 2.7% from Q1 2026 and up 8.5% from Q2 2025. The increase was driven by higher AUM, partially offset by a lower change in accrued carried interest, which now includes the carry earned on our late stage venture fund, in addition to the private credit strategies.

Investment advisory revenue for the quarter was $1.7 billion, up from both the prior quarter and the prior year quarter on higher AUM levels. Our annualized effective fee rate, excluding performance-based fees, was 38.1 basis points, compared with 38.4 basis points in Q1 2026. The ongoing trend in our effective fee rate continues to reflect changes in asset and vehicle mix, including client demand for lower fee strategies and vehicles, as well as continued pressure from redemptions in higher fee equity strategies and mutual funds. Turning to expenses, Q2 adjusted operating expenses were $1.2 billion, up 4.2% from Q1 2026 and up 4.9% from Q2 2025. Compared to both prior periods, higher market-driven expenses, product and record keeping, and non-recurring G&A costs were primary drivers of the increase.

As a reminder, market-driven expenses correlate to changes in AUM or revenue and include variable compensation and costs related to assets distributed through third-party intermediaries. The increase in product and record-keeping costs is largely related to costs reimbursed from our products and offset in administrative fee revenue. Also contributing to the increase from Q2 last year were higher technology occupancy and facilities expenses, partially offset by cost savings initiatives. As we noted in Q1 2026, to better reflect technology spend executed by third parties, we began reporting technology-related professional fees in technology occupancy and facilities, and we adjusted all prior periods presented. Based on the sustained average AUM and revenue trend in the first half of the year, we now expect full year adjusted operating expenses, excluding carried interest expense, to be up 4%-7% over 2025's $4.6 billion.

This increase, coupled with ongoing savings efforts, will allow us to continue to invest in areas of future growth, including ETFs and SMAs, delivering outcome-oriented solutions for clients, enhancing our advice-led offerings, and investing in AI to improve research, decision-making, and operational efficiency. Turning to capital management, during Q2, we bought back $157 million worth of shares, bringing year-to-date buybacks to over $497 million, or nearly 2.5% of our outstanding shares. This brought our share count at the end of Q2 to 213.3 million shares. Our balance sheet remains strong with $4.4 billion of cash and discretionary investments. Our ample cash position gives us the ability to invest in the business and also pursue opportunities that strengthen our long-term competitive position. Now I'll turn it over to Eric for comments on investment performance.