BlackRock, Inc.

Good morning. My name is Lori, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated Fourth Quarter and Full Year 2019 Earnings Teleconference. Our hosts for today's call will be Chairman and Chief Executive Officer Lawrence D. Fink, Chief Financial Officer Gary S. Shedlin, President Robert S. Capito, and General Counsel Christopher J. Mead. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you. Mr. Mead, you may begin your conference.

Good morning, everyone. I'm Chris Mead, the General Counsel of BlackRock. Before we begin, I'd like to remind you that during the course of this call, we may make a number of forward-looking statements. We call your attention to the fact that BlackRock's actual results may, of course, differ from these statements. As you know, BlackRock has filed reports with the SEC which list some of the factors that may cause the results of BlackRock to differ materially from what we see today. BlackRock assumes no duty and does not undertake to update any forward-looking statements. So with that,

I'll turn it over to Gary. Thanks, Chris. Good morning and Happy New Year to everyone. It's my pleasure to present results for the fourth quarter and full year of 2019. Before I turn it over to Larry to offer his comments, I'll review our financial performance and business results. While our earnings release discloses growth gap and as-adjusted financial results, I will be focusing primarily on our as-adjusted results. For many years, BlackRock's differentiated globally integrated asset management and technology business, including our risk management and portfolio construction tools, has proven its ability to deliver for clients and shareholders in different market environments. That continued in 2019. A difficult fourth quarter of 2018 created a challenging start to the year. But as we noted a year ago, volatile market environments create opportunities for growth at BlackRock. as long as we remain disciplined to continue playing offense. BlackRock achieved both revenue and earnings growth during 2019. Investment performance across our active products was excellent, with 86%, 76%, and 84% of taxable fixed income, fundamental, and systematic active equity assets, respectively, above benchmark or pure median for the trailing three-year period. We generated record net inflows of $429 billion, representing 7% organic asset growth and 5% organic-based fee growth, enabling us to once again meet our aspirational organic growth target for the fifth time in the last seven years. And we finished the year with strong momentum, recording over $129 billion in total flows in the fourth quarter. The financial strength and stability of our operating model allows us to continuously invest through market cycles and capture growth in areas of highest client demand, like technology, illiquid alternatives, and iShares, especially higher growth strategic ETF segments, such as factors, fixed income, sustainable, and megatrends. These investments position BlackRock to offer clients not simply products, but comprehensive whole portfolio solutions and to generate consistent long-term growth for shareholders. Full-year revenue of $14.5 billion was up 2%, while operating income of $5.6 billion increased marginally. Earnings per share of $28.48 was up 6% versus 2018. For the fourth quarter, BlackRock generated revenue of $4 billion and operating income of $1.5 billion, of 16% and 17%, respectively, from a year ago, when results were impacted by significant market volatility. Quarterly earnings per share of $8.34 was up 37% versus 2018, also reflecting higher non-operating income, a lower effective tax rate, and a reduced diluted share count in the current quarter. Non-operating results for the quarter reflected $85 million of net investment income, primarily driven by the mark-to-market valuation of our minority stake in InvestNet and higher marks on unhedged seed capital investments. Our as-adjusted tax rate for the fourth quarter was approximately 18%, driven in part by discrete benefits linked to additional guidance on U.S. tax reform. We currently estimate that 23% is a reasonable projected tax run rate for 2020, The actual effect of tax rate may differ as a consequence of non-recurring or discrete items and issuance of additional guidance on recently enacted tax legislation. Fourth quarter base fees of $3.1 billion were up $310 million year over year, primarily driven by the positive impact of marked beta, organic growth, and higher securities lending revenue, partially offset by certain strategic pricing investments. Year-over-year quarterly base fee growth of 11% lagged growth in average AUM of 16%, however, due to the ongoing impact of divergent equity beta and client preference for lower risk fixed income and cash assets in 2019. In addition, while fourth quarter base fees were up 4% sequentially, our overall fee rate declined 0.1 basis points versus the third quarter. Full-year base fees ended up 2 percent, notwithstanding the impact of a significant global equity market decline in last year's fourth quarter. As a reminder, we entered 2019 with an annualized base fee run rate approximately 6 percent lower than 2018. Fourth quarter performance fees of $239 million more than doubled versus a year ago, reflecting strong alpha generation from liquid and illiquid alternative products. Full-year performance fees of $450 million were up 9% compared to 2018, despite a significant number of liquid alternative products entering the year below their high watermarks. Importantly, recognized performance fees from illiquid alternatives were up significantly in 2019 and represented approximately 30% of total performance fees for the year. Portally, technology services revenue increased 35% year-over-year, and full-year revenue of $974 million increased 24%, reflecting the impact of the eFront acquisition and continued growth in Aladdin. Excluding eFront, technology services revenue grew 12% for the full year, and we continue to target low- to mid-teens growth going forward. Demand remains strong for our full range of technology solutions and digital distribution tools, including institutional Aladdin, eFront, and Aladdin Wealth. Fourth quarter advisory and other revenue increased 30% year-over-year, reflecting higher transition management and advisory assignments. Total expense increased 4% in 2019, driven primarily by higher compensation and G&A expense and the acquisition of eFront. For the full year, compensation expense increased $164 million, or 4%, primarily reflecting higher headcount, higher performance fees, and higher deferred compensation expense. Our full-year comp to revenue ratio of 34.8% was moderately higher than 2018 as a result of the mark-to-market impact of certain deferred compensation programs in 2019 and the full-year impact of retention awards related to recent acquisition activity. Recall that year-over-year comparisons of fourth quarter compensation expense are less relevant because we determine compensation on a full-year basis. Fourth quarter G&A expense was up $130 million sequentially due to seasonally higher levels of marketing and promotional spend, higher technology expense, and the aggregate impact of $48 million of quarterly expense related to contingent consideration fair value adjustments and foreign exchange remeasurement. Overall, G&A expense increased 7% in 2019, reflecting higher levels of technology spend, the impact of the eFront acquisition, and $59 million of fund launch costs related to the successful second quarter close of the $1.4 billion BlackRock Science and Technology Trust II. Excluding the impact of eFront and various non-core items such as contingent consideration for value adjustments, product launch costs, and FX remeasurement expense, we estimate that our full year core G&A spend increased 2% versus 2018. While we continually focus on managing our entire discretionary expense base, we would currently expect 2020 core G&A expense to increase approximately 5% relative to comparable 2019 levels, driven by continued investment in technology and market data, including sustainability initiatives, and the full year impact of the eFront acquisition. Our full year as adjusted operating margin of 43.7% was down 60 basis points versus 2018, reflecting our strategic decision to continue investing responsibly in 2019, despite the more challenging overall revenue capture environment created by last year's fourth quarter market volatility. We continue to see strong performance in our future drivers of differentiated growth, including ETFs, alternatives, technology, and portfolio construction, and remain deeply committed to investing responsibly for the long term and optimizing growth in the most efficient way possible. And we are prudently using our balance sheet to best position BlackRock to achieve this success. During 2019, we allocated over $750 million of new seed and co-investment capital to support our growth, with our investment portfolio now exceeding $3 billion for the first time. We also closed the strategic acquisition of eFront, which in combination with Aladdin will provide clients with an ability to seamlessly manage portfolios and risk across public and private asset classes on a single platform. And we remain committed to systematically returning excess cash to shareholders through a combination of dividends and share repurchases, returning an aggregate of $3.8 billion to shareholders in 2019. We repurchased approximately $1.7 billion worth of shares and an average share price of $414 per share, taking advantage of attractive relative valuation opportunities that arose during the year. Since inception of our current capital management strategy in 2013, we have now repurchased approximately $8.7 billion of BlackRock stock, reducing our outstanding total shares by 9% and generating an unlevered compound annual return of 14% for our shareholders. At present, based on our capital spending plans for the year, and subject to market conditions, including the relative valuation of our stock price, we would anticipate repurchasing at least $1.2 billion of shares during 2020, consistent with our guidance a year ago. In addition, and also subject to market conditions, we expect to seek board approval later this month for an increase to our first quarter 2020 dividend. BlackRock's globally diversified investment platform combined with industry-leading risk management and portfolio construction technology, enables us to bring together the entire firm to partner with clients in order to meet their evolving needs. Fourth quarter total net inflows of $129 billion, representing 7% annualized organic AUM growth and 10% annualized organic ASB growth, were led by flows into strategic focus areas, including iShares and illiquid alternatives. Full-year flows of $429 billion were positive, across active and index, all asset classes, client types, and regions, and reflected significant strength in fixed income and cash, which accounted for approximately 85% of organic growth. Globalized shares generated $183 billion of net inflows for the year, representing 11% organic growth. Importantly, we saw momentum into year-end, driven by a resurgence in equity ETFs. Fourth quarter iShares net inflows of $75 billion represented an annualized organic asset growth rate of 15%. Notably, in 2019, over 80% of iShares flows were driven by strategic product segments, which saw 28% organic growth. We also saw continued strength in the core segment, with 15% organic growth, partially offset by volatility-driven outflows from precision exposure ETFs, primarily in May and August. Within the higher fee strategic segment, it was a record year for fixed income ETFs, where iShares is the market leader. We generated $112 billion of net inflows into iShares fixed income ETFs, representing 26% organic growth. Demand remains exceptionally strong as investors seek more efficient market access, portfolio construction evolves in wealth management, and technology accelerates the modernization and electronification of the bond market. We achieved the number one share of industry factor ETF flows with $34 billion across a diverse range of factor iShares. During 2019, U.S. Minval, or USMV, was our largest and the industry's fourth highest asset-gathering ETF, capturing over $12 billion in net inflows. This is the first time a factor exposure outpaced every market cap-weighted iShares ETF in terms of aggregate flows. Our iShares sustainable ETF lineup represents the fastest growing of our strategic segments, generating $12 billion in net inflows and ending the year with $22 billion of AUM, more than any other active or index firm. During 2019, the iShares ESG Leaders Fund raised over $1 billion, representing the largest equity ETF launch in the past 15 years. BlackRock generated full-year retail net inflows of $16 billion, outperforming the broader active mutual fund industry. Inflows were led by our suite of active fixed income products and liquid alternatives, partially offset by outflows from multi-asset world allocation products. Fourth quarter retail net inflows of $8 billion reflected similar trends, but also included the seasonal impact of capital gains reinvestment. BlackRock's institutional franchise generated record long-term net inflows of $136 billion in 2019, representing 4% organic base fee growth. Institutional flows reflected strength in fixed income, illiquid alternatives, and multi-asset solutions. Active net inflows of $2 billion were primarily into quantitative strategies where long-term performance remains strong. Momentum in our illiquid alternatives franchise accelerated, and we saw $14 billion of net inflows in 2019. We also have $24 billion of committed capital to deploy for institutional clients in a variety of alternative strategies, representing a significant source of future base and performance fees. Finally, BlackRock's cash management platforms continue to increase share by leveraging scale for clients and delivering innovative digital distribution and risk management solutions. In 2019, we saw $93 billion of cash management net inflows across the platform, including prime, sustainable, government, and muni funds. Our innovative Liquid Environmentally Aware Fund, or LEAF, continues to see strong momentum with $1 billion of net inflows since launch earlier this year. In summary, our 2019 results demonstrate the resilience of our platform, which allows us to invest through market cycles and drive consistent and differentiated growth in a variety of markets. Our strategy is working. We will continue to invest responsibly during 2020, including in key growth areas like iShares, alternatives, and technology, to deliver the solutions our clients need, to best position our employees for professional growth, and to generate long-term returns for our shareholders. With that, I'll turn it over to Larry.