BlackRock, Inc.

Good morning. My name is Maria, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated Second Quarter 2020 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer Lawrence D. Fink, Chief Financial Officer Gary S. Shetland, President Robert S. Capito, and General Counsel Christopher J. Mead. 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, thank you. Mr. Mead, you may begin your conference.

Thank you. Good morning, everyone. BlackRock. Before we begin 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 FCC, which lists some of the factors that may cause peer relief for 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.

Thank you, Chris, and good morning, everyone. It's my pleasure to present results for the second quarter of 2020. I hope everyone and their families are remaining safe and healthy in the current environment. 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 both GAAP and As Adjusted financial results, I will be focusing primarily on As Adjusted results. BlackRock's ability to deliver for clients, employees, the communities in which we operate, and our shareholders, no matter the market environment, is a targeted business model which has been purposely built with a mindset of consistently investing for the long term. Our performance throughout the COVID-19 crisis, including the strength of these second quarter results, is a direct result of this scaled business model supported by diverse global investment capabilities, best-in-class technology, and rigorous risk management. Our whole portfolio approach is fostering deeper partnerships and now, more than ever, clients want to hear from BlackRock. BlackRock generated one second quarter, reflecting 6% and 10% organic risk and once again turned to BlackRock for solutions-oriented advice to meet their long-term investment needs. Organic growth Both reflected record flows into iShares fixed income ETFs and active equity, our fifth consecutive quarter of positive flows in this product category, and continued leadership in cash management solutions. Momentum also continued in sustainable strategies and illiquid alternatives. Second quarter revenue of $3.6 billion increased 4% year over year, and operating income of $1.4 billion rose by 10%. Earnings per share of $7.85 was up 22% compared to a year ago, also reflecting higher non-operating income, a lower effective tax rate, and a lower diluted share count in the current quarter. Non-operating results for the quarter included $210 million of net investment income, driven primarily by mark-to-market gains on unhedged seed capital investments and our minority stake an incremental interest expense associated with the successful pre-refinancing of our May 2021 debt maturity. The second quarter was approximately 23%. We continue to estimate the projected tax rate for the remainder of 2020, though the actual effective tax rate may differ as a consequence of non-recurring or discrete items and issuance of additional guidance on previously enacted tax legislation. Second quarter base fees of $3 billion were up 2% year-over-year, primarily driven by organic growth and higher securities lending revenue, partially offset by the negative impact of equity beta and foreign exchange movements on average AUM and strategic pricing changes to certain products. Securities lending revenue increased 40% year-over-year and 33% sequentially, primarily driven by higher average on-loan balances and as hedge fund leverage recovered from March lows and higher cash spreads. Sequentially, base fees were down 3%, despite higher securities lending revenue and positive organic growth in the quarter due to the significant impact of first quarter and foreign exchange movements on our second quarter entry rate and average AUM. The impact was also the primary reason we saw a decline of 0.2 basis points sequentially in our second quarter effective fee rate. Performance fees of $112 million increased 75% from a year ago, reflecting higher revenue from alternative and long-only equity this quarter. We have seen strong performance from this quarter, which better positions us to generate performance. year over year, reflecting continued momentum in Aladdin and the impact of the eFront acquisition, which closed in May. Requiring eFront, we have executed on our integration plan, and feedback from current and prospective clients, as well as our own alternatives team, has been overwhelmingly positive. We remain committed to low- to mid-teens growth in technology services revenue over the long term. driven by new clients, deeper relationships with existing clients, and expansion of Aladdin's functionality. The operational and financial impacts of this crisis underscore more than ever the need for robust enterprise operating and risk management technology solutions. However, as mentioned last quarter, and despite successfully implementing over 18 Aladdin Go lives since the pandemic began, near-term revenue growth may be impacted by extended sales and contracting cycles in the current environment. Advisory and other revenue of $39 million was down $25 million sequentially, primarily reflecting the absence of PennyMac equity method earnings following the charitable contribution of our remaining equity stake in the first quarter, as well as lower transition management assignments. Total expense was essentially flat year-over-year, driven in part by higher compensation and lower G&A expense. Employee compensation and benefit expense was up 6% year-over-year, reflecting higher base fee and incentive compensation driven in part by higher performance fees. G&A expense was down 82 million euro per year and $165 million sequentially, primarily due to significant amounts of non-core G&A expense, including contingent consideration fair value adjustments, foreign exchange remeasurement, and product launch deal and legal costs in prior periods. Second quarter G&A expense of $388 million, which asset impairment and several million dollars of incremental costs associated with COVID-19 also reflected meaningfully lower T&A expense versus pre-pandemic levels. In January, we communicated an expectation for an approximate 5% increase in 2020 core G&A expense versus comparable 2019 levels, driven by continued investment in technology and market data, including sustainability initiatives and the full-year impact At present, given reduced levels of T&E in the current environment, we would expect core G&A expense for the year to be closer to 2% higher than comparable 2019 levels. Our second quarter, as adjusted operating margin of 43.7%, was up 60 basis points from a year ago, primarily reflecting lower G&A expense in the current quarter. We remain margin aware and committed to optimizing organic growth in the most efficient way possible. Our long-term strategic growth plan continues to be focused on iShares, illiquid alternatives and technology, as well as driving sustainable investing and creating whole portfolio solutions. As you will hear more from Larry, we have never been better positioned to deliver for clients and to continue generating differentiated organic growth. With that in mind, we expect to restart selective hiring in the second half of this year. Our capital management strategy remains first to invest in our business and then return excess cash to shareholders through a combination of dividends and share repurchases. During our first quarter earnings call, we re-end share repurchase plans for the year. We completed the debt issuance to increase liquidity in the current environment, take advantage of historically low interest rates, and pre-refinance our $750 million 4.25% notes due May 2021. $25 billion of new 10-year notes with a 1.9% coupon, which was the lowest U.S. dollar coupon in BlackRock's debt stack and the second lowest 10-year coupon ever from a financial issuer. And in May, PNC successfully monetized its entire 22% position in BlackRock to a secondary stock offering, culminating a 25-year partnership with our firm. This transaction effectively completes BlackRock's evolution to a 100% publicly held company and and we are humbled by the commitment of many of our largest and longest-tenured shareholders who participated in the offering and welcome a number of significant new investors to our company. In connection with the secondary sale, BlackRock repurchased $1.1 billion at a price of $415 per share. In total, we've now repurchased $1.5 billion worth of common shares during 2020, completing our targeted level of but will remain opportunistic should attractive relative valuation opportunities arise. BlackRock has been more connected to clients than ever before, offering differentiated advice and solutions that are unique to our globally integrated and scaled investment and technology platform. A billion dollars in the second quarter suggests that these clients want to hear from us now more than ever. iShares net inflows of $51 billion, representing 11% annualized organic asset growth and 13% annualized organic base fee growth, reflected continued growth in fixed income and sustainable ETFs, partially offset by outflows from precision international equity exposures, as institutions continue to use these instruments for tactical allocation decisions. Year-to-date iShares net inflows are now in line with a year ago, despite a more challenging first quarter, led by strong growth in the second quarter. Many of the trends that favor the growth of ETFs have been further catalyzed as a result of recent market disruption, and coupled with the performance and resilience of iShares during this period, has strengthened our conviction in the overall growth outlook for ETFs. iShares fixed income ETFs generated record quarterly net inflows of $57 billion in the second quarter, driven by renewed investor appetite for fixed income, and acceleration in long-term secular growth trends and even stronger investor confidence in fixed-income ETFs following their strong performance amid market stress earlier this year. Momentum in sustainable iShares also continued, with $8 billion of net inflows in the second quarter. iShares remains committed to its goal of increasing investor access to sustainable investing through ETFs, and we now lead the market globally in this high-growth strategic product category. Retail net inflows of $16 billion, representing 11% annualized organic asset growth, were positive in both the U.S. and internationally. Inflows were led by high-yield bond, active equity, and event-driven liquid alternatives funds. Institutional net outflows of $5 billion reflected approximately $3 billion of active inflows, primarily driven by fixed income, life path target date funds, OCIO, systematic active equity, and illiquid alternative strategies offset by nearly $8 billion of net index outflows, primarily in fixed income. Institutional and retail demand for alternatives continued in the second quarter, with approximately $3 billion of net inflows across liquid and illiquid strategies driven by infrastructure, private equity solutions, and our event-driven hedge funds. We currently have approximately $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. BlackRock's cash management platform crossed $600 billion of AUM during the quarter, driven by $24 billion of net inflows. A significant portion of that growth was driven by corporate clients who acted to reinforce balance sheets and strengthen liquidity in the current environment, And we also witnessed strong flows back into institutional prime funds have remained above relevant thresholds. We have not waived fees on flagship government funds to date. May be implemented during the second half of the year. Finally, second quarter advisory net inflows of $14 billion were primarily linked to asset purchases managed by our financial markets advisory group. Revenue linked to these assignments is primarily reflected in the advisory and other revenue line item of our income statement. BlackRock's second quarter results once again demonstrate the resilience of our platform, underscore the importance of our deep, longstanding partnerships with clients, and highlight the value of investments we have made over time. The diversification and breadth of our business positions us to serve stakeholders in a variety of environments and to continue playing offense. so we are able to deliver for clients, employees, and shareholders, both during and after this crisis. With that, I'll turn it over to Larry.