BlackRock, Inc.

Good morning. My name is Taryn, and I will be your conference facilitator today. Today's call is being recorded. At this time, I would like to welcome everyone to the BlackRock Incorporated 4th Quarter 2022 Earnings Teleconference. Our hosts for today's call will be Chairman and Chief Executive Officer Lawrence D. Fink, Chief Financial Officer Gary S. Shedland, 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 star, too. 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 2022. Before I turn it over to Larry, 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 our as adjusted results. As a reminder, Beginning in the first quarter of 2022, we updated our definitions of as-adjusted operating income, operating margin, and net income. Year-over-year financial comparisons referenced on this call will relate current quarter results to these recast financials. Throughout BlackRock's history, we have consistently invested in our business with a long-term focus and commitment to serving clients across market environments. We have established leadership positions in high growth areas such as ETFs, private markets, outsourced solutions, and technology. And we have integrated the industry-leading capabilities into our one BlackRock business model and culture to create a distinct and differentiated value proposition for clients. As a result of these investments, we grew organically at our fastest rate ever in 2021. And while 2022 was one of the most challenging market environments in over 50 years, clients around the world once again turn to BlackRock for advice and assistance to construct more resilient portfolios. In good times and bad times, whether adding or reducing risk, our continued industry-leading organic growth demonstrates that clients are increasingly consolidating more of their portfolios with BlackRock for long-term solutions that solve their most challenging investment needs and address their unique risk preferences and priorities. During 2022, BlackRock generated industry-leading total net inflows of over $300 billion and delivered positive organic base fee growth. Importantly, we ended the year with strong momentum, generating approximately $114 billion of total net inflows in the fourth quarter, representing 3% annualized organic base fee growth and reflecting continued momentum in iShares and significant outsourcing mandates. Full-year revenue of $17.9 billion was down 8%. Operating income of $6.7 billion and earnings per share of $35.36 both declined 13% compared to 2021. For the fourth quarter, revenue of $4.3 billion was 15% lower year over year, primarily driven by the impact of lower markets and dollar appreciation on average AUM and lower performance fees. Accordingly, operating income of $1.6 billion was down 25%, while earnings per share of $8.93 was 16% lower versus a year ago, also reflecting higher non-operating income and a lower effective tax rate in the current quarter. Non-operating results for the quarter included $159 million of net investment income, driven primarily by mark-to-market gains in our private equity co-investment and seed investment portfolios and our strategic minority investment in InvestNet. Our as-adjusted tax rate for the fourth quarter was approximately 23%, driven in part by discrete items. We currently estimate that 25% is a reasonable projected tax run rate for 2023, primarily due to an increase in UK tax rates, though the actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. Fourth quarter base fee and securities lending revenue of $3.4 billion was down 14% year over year in line with the corresponding decline in average AUM, primarily reflecting the negative revenue impact of approximately $1.7 trillion of market beta and foreign exchange movements on AUM over the last 12 months. Sequentially, fourth quarter base fee and securities lending revenue was down 4%, despite positive organic base fee growth in the quarter. Our fourth quarter annualized effective fee rate decreased by approximately one-half of the basis point from the third quarter, reflecting the previously discussed impact on our fourth quarter entry rate, continued mixed change favoring lower fee mandates and lower securities lending revenue. Fourth quarter and full year performance fees of $228 million and $514 million respectively decreased from a year ago. The declines primarily reflected lower revenue from liquid alternative and long-only mandates, partially offset by higher fees from illiquid alternatives. Notably, as our private markets business continues to scale, Full-year performance fees from liquid alternatives increased 42% year-over-year, and our unrecognized deferred carry balance, which represents a portion of our potential future carry fee revenue, exceeds $1.4 billion. Our Aladdin business delivered record net new sales in 2022, and demand for our technology solutions has never been stronger. Quarterly technology services revenue increased 4% year-over-year, and full-year revenue of $1.4 billion increased 7%. Both periods reflected significant revenue headwinds associated with the FX impact on Aladdin's non-dollar revenue and market declines on Aladdin's fixed income platform assets. Annual contract value, or ACV, increased 8% year over year. On a constant currency basis, we estimate ACV would have increased 10% from a year ago. Total expense decreased 4% in 2022, reflecting lower compensation, direct fund expense, and G&A expense. For the full year, employee compensation and benefit expense was down 5%, primarily reflecting lower incentive compensation due to lower operating income and performance fees and lower mark-to-market impact of certain deferred compensation programs, partially offset by higher base compensation. Recall that year-over-year comparisons of fourth quarter compensation expense are less relevant because we finalized full year compensation in the fourth quarter. 2022 direct fund expense decreased 7% year-over-year, primarily reflecting lower average index AUM. The sequential decline in quarterly direct fund expense also includes the impact of higher rebates that seasonally occur in the fourth quarter. Excluding product lunch costs, fourth quarter G&A expense increased 2% year-over-year, reflecting ongoing strategic investments in technology and the impact of higher foreign exchange remeasurement expense partially offset by lower occupancy and sub-advisory expense. For the full year, we estimate the core G&A expense was up 11% compared to 2021, primarily driven by higher technology spend associated with our Aladdin cloud migration and a return to more normalized levels of T&E expense. Our full year as adjusted operating margin of 42.8% was down 400 basis points from a year ago, primarily reflecting the negative impact of markets and foreign exchange movements on revenue, and the ongoing longer-term strategic investments we have been making in technology and our people. BlackRock's industry-leading organic growth is a direct result of the disciplined investments we have consistently made through market cycles. As we've shown throughout our history, it's often in times of greatest uncertainty where BlackRock's differentiated model enables us to continue playing offense and we emerge even stronger. Since July, we have been aggressively managing the pace of our discretionary spend so we would be better prepared for 2023, a year in which we will need to increasingly focus our resources on areas of greatest opportunity. In order to continue investing in our people and critical strategic priorities during the year, we recently restructured the size and shape of our workforce to free up investment capacity for our most important growth initiatives. By taking a targeted and disciplined approach to how we shape our teams, we not only increase investment capacity for these initiatives, but also create opportunities for our incredible talent. This resulted in a fourth quarter restructuring charge of $91 million, primarily comprised of severance and accelerated amortization of previously granted deferred compensation awards for approximately 500 impacted employees, or 2.5% of our global workforce. This charge appears as a single line expense item on our 2022 GAAP income statement and has been excluded from our as-adjusted results to enhance comparison to prior periods. Our business is incredibly well positioned to take advantage of the opportunities before us, and we remain deeply committed to optimizing organic growth in the most efficient way possible. At present, we would expect our headcount to be broadly flat in 2023. Optimizing the shape of our talent pyramid and growing our footprint in iHub innovation centers will continue to be central to our talent strategy, allowing us to continue to support growth at scale. In addition, we would also expect a mid-to-high single-digit increase in 2023 core G&A expense, driven by the upcoming move to our new Hudson Yards headquarters, continued investment in technology to scale our operations and support future growth, and the annualized impact of migrating Aladdin clients to the cloud, which is now substantially complete. We are also investing through prudent use of our balance sheet to best position BlackRock for continued success. During 2022, we allocated $1.2 billion of new seed and co-investment capital to support our growth, and our year-end portfolio now approximates $3.9 billion. Our strategic minority investments are reinforcing various elements of our strategy, and simultaneously generating very attractive returns for our shareholders. During the year, we invested in Circle and became the primary manager of the USDC cash reserves. And we recently made a minority investment in Human Interest, a tech-enabled end-to-end retirement plan solutions provider, which is helping Americans employed by smaller businesses access easier ways to save for their retirement. We also remain committed to systematically returning excess cash to shareholders through a combination of dividends and share repurchases and returned a record $4.9 billion to shareholders in 2022, including $1.9 billion of share repurchases, an increase of over 30% from 2021. Since inception of our current capital management strategy in 2013, we have now repurchased over $13 billion of BlackRock stock, reducing our total outstanding total shares by 13% and generating an unlevered compound annual return of approximately 15% for our shareholders. At present, based on capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price, we are targeting the repurchase of at least $1.5 billion of shares during 2023. As you will hear more from Larry, BlackRock's strategy has always been guided by our clients' needs. We are relentlessly focused on providing choice, delivering strong investment performance, and executing our fiduciary duties with excellence. This enables us to build deeper and broader relationships with more clients and drive differentiated growth across our platform. Fourth quarter long-term net inflows of $146 billion, representing 8% annualized organic asset growth, were led by flows into strategic growth areas, including ETFs, outsourced solutions, and illiquid alternatives. Full year long-term net inflows of $393 billion were positive across all regions. led by net inflows of $230 billion from clients in the United States. BlackRock generated industry-leading ETF net inflows of $220 billion in 2022, representing 7% organic asset growth and 3% organic-based fee growth, including a record $123 billion into bond ETFs. Fourth quarter ETF net inflows of $90 billion reflected some seasonality, but also reflected the diversity of our product and client segments. Surging demand for our bond ETFs, which saw $47 billion of net inflows, represented the second best quarter in our history. We also saw continued strength in core equity ETFs as well as precision exposures as clients reassessed tactical asset allocation changes during the quarter. Full-year retail net outflows of $20 billion reflected ongoing industry pressures in active fixed income and world allocation strategies, partially offset by strength and index SMAs and our systematic equity income and multi-strategy alternative funds. Fourth quarter retail net outflows of $15 billion reflected similar trends. BlackRock's institutional business generated record net inflows of $192 billion in 2022, representing 4% organic asset and 3% organic-based fee growth, paced by approximately $170 billion of active net inflows. reflecting broad-based strength across all product types and the funding of several significant outsourcing mandates. Fourth quarter institutional active net inflows of $76 billion were also positive across all product types and included the funding of the substantial remainder of the AIG core bridge fixed income mandate. We remain well positioned to be an investor demand for risk-adjusted alpha and yield, and our diversified active fixed income platform with strong three and five year performance records across total return, unconstrained, high yield and credit is especially well positioned for growth as interest rates stabilize in the latter part of the year. Demand for private markets also continued with $16 billion of net inflows into illiquid strategies during the year driven by private credit and infrastructure. In addition, as our private markets business continues to grow, we also raised significant new client commitments in 2022. We now have approximately $34 billion of committed capital deploy for institutional clients and a variety of strategies representing approximately $260 million of future annual base fees and significant potential performance fees. Finally, BlackRock's cash management platform experienced $32 billion of net outflows in the fourth quarter and $77 billion of net outflows for the year. Despite a particularly challenging year for the broader institutional liquidity industry, BlackRock became the number one international money market provider, and as rates stabilize, we are well positioned to grow market share by leveraging our scale, product breadth, technology, and risk management capabilities. Before I hand it over to Larry one last time, I'd like to take this moment to thank him for giving me the opportunity to be CFO of this amazing organization for the last 10 years. It's truly been the highlight of my career, and I'm deeply grateful for the feedback, advice, and wisdom I have garnered from our shareholders, our sell-side analysts, our board, my BlackRock colleagues, and most of all, the amazing finance team I've had the privilege to work alongside. BlackRock is incredibly well-positioned to continue generating differentiated growth and delivering for clients, employees, and shareholders, and I look forward to continuing the journey in my new role. I'm even more excited for lives ahead with Martin Small as our next CFO. I know we will be in great hands. With that, over to you, Larry.