BlackRock, Inc.

Good morning. My name is Katie, and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the BlackRock Incorporated Second Quarter 2023 Earnings Teleconference. Our hosts for today will be Chairman and Chief Executive Officer Lawrence D. Fink, Chief Financial Officer Martin S. Small, President Robert S. Capito, and General Counsel Christopher J. Meade. 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 two. Thank you. Mr. Meade, you may begin your conference.

Good morning, everyone. I'm Chris Meade, 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 lists 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 Martin.

Thanks, Chris, and good morning, everyone. It's my pleasure to present results for the second quarter of 2023. Before I turn it over to Larry, I'll review our financial performance and business results. Our earnings release discloses both GAAP and as-adjusted financial results. I'll be focusing primarily on our as-adjusted results. As a reminder, beginning in the first quarter of 2023, we updated our definitions of as-adjusted operating income, operating margin, non-operating income, and net income. The adjustments exclude the compensation expense impact of mark-to-market volatility associated with certain deferred cash compensation plans and the non-operating impact of an economic hedge, which the company began in 2023. Clients entrusted BlackRock with an industry-leading $190 billion of net inflows in the first half of 2023. Our $9.4 trillion in assets, $9.4 trillion units of trust, are up over $830 billion since year end. This increase reflects continued strong organic growth and ongoing client confidence in the work that BlackRock's doing on their behalf as markets evolve. Clients choose BlackRock for performance. We deliver durable long-term investment performance by executing on alpha opportunities, sourcing unique deals, and managing risk. The foundation of a market-leading asset management platform is comprehensive, high-quality investment products with strong long-term investment performance. Investors and asset owners choose portfolio goals, and BlackRock enables them through our investment products and solutions. This is BlackRock's platform as a service in action. We bring together the entire firm to combine investment technology and portfolio servicing capabilities to meet clients' specific business needs. Our diversified platform strategy, backed by strong performance, is powering our differentiated, industry-leading organic growth. It's widening our growth premium as clients choose to do more with BlackRock while much of the asset management sector faces continued outflows. Clients are coming to BlackRock for performance and scale, using our platform as a service to streamline and support the growth and commercial agility of their own businesses. This is leading to clients consolidating more of their portfolios with BlackRock in both first half and second quarter net inflows were positive across regions, client types, and active and index. In the second quarter, BlackRock generated total net inflows of $80 billion, representing 4% annualized organic asset growth and 2% annualized organic base fee growth. Second quarter revenue of $4.5 billion was 1% lower year over year, primarily driven by the impact of market movements over the last 12 months on average AUM mix. Operating income of $1.7 billion was down 3% year-over-year, while earnings per share of $9.28 was up 26%, reflecting meaningfully higher non-operating income compared to a year ago. Non-operating results for the quarter included $158 million of debt investment gains, driven primarily by non-cash mark-to-market gains and the value of our private equity co-investment portfolio. Our as-adjusted tax rate for the second quarter was approximately 25%. We continue to estimate that 25% is a reasonable projected tax run rate for the remainder of 2023. The actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. Second quarter base fee and securities lending revenue of $3.6 billion was down 2% year-over-year and reflected the impact of underperformance on non-U.S. equity markets and fixed income market movements on our average AUM, partially offset by higher securities lending revenue. Sequentially, base fee and securities lending revenue was up 3%, reflecting higher average AUM and securities lending revenue and the impact of one additional day in the second quarter. On an equivalent day count basis, our annualized effective fee rate was 0.2 basis points lower compared to the first quarter, mainly due to divergent equity data and changing client risk preferences. Performance fees of $118 million increased from a year ago, primarily reflecting higher revenue from illiquid alternatives. Business momentum remains strong across our technology platform, with clients turning to Aladdin for business transformation and scale enablement. Clients are increasingly partnering with BlackRock for integrated technology solutions, and approximately half of our year-to-date mandates have been across multiple technology offerings, such as combining eFront with Core Aladdin. Quarterly technology services revenue was up 8% compared to a year ago, reflecting this demand, but also the impact of negative fixed income market movements over the last 12 months on client positions on Aladdin. Sequential technology revenue reflected the successful completion of integrations for several large clients that went live on Aladdin in the second quarter. Annual contract value, or ACV, increased 8% year over year. We remain committed to low to mid-teens ACV growth over the long term driven by demand for Aladdin's broadening technology capabilities and the growing value proposition it represents for clients. Total expense was modestly lower year over year. Lower incentive compensation and distribution and servicing costs were partially offset by higher direct fund expense. Employee compensation and benefit expense was flat year over year, primarily reflecting lower incentive compensation due to lower operating income offset by higher base compensation. Direct fund expense increased 13% year over year and 9% sequentially as a result of higher rebates in the prior year quarter and higher average index AUM. G&A expense was flat year over year, partially due to timing of planned investment spent. Our second quarter as adjusted operating margin of 42.5% was down 120 basis points from a year ago, reflecting the negative impact of market movements on quarterly revenue. Our platform strategy has delivered scale and operating leverage through time, with 240 basis points of margin expansion in the last 10 years. Markets have improved since the end of 2022, and we aim to be disciplined in driving profitable growth by prioritizing investments to repel our differentiated organic growth and operating leverage. In line with our guidance in January at present, we would expect our headcount to be broadly flat in 2023. We would also expect a mid to high single digit percentage increase in 2023 core G&A expense. Our capital management strategy remains first to invest in our business and then to return excess cash to shareholders through a combination of dividends and share repurchases. We continue to invest in prudent use of our balance sheet to best position BlackRock for sustained success, primarily through seed and co-investments to support organic growth. At times, we may make inorganic investments where we see an opportunity to accelerate growth and support our strategic initiatives. Consistent with this inorganic strategy, last month we announced a private markets acquisition and a minority investment as part of a technology partnership. We expect our acquisition of Creos Capital to close in the third quarter of this year, adding venture debt capabilities and further bolstering BlackRock's global credit franchise. Through our technology partnership with Avalok, we aim to link Aladdin Wealth and Avalok's core banking system, which will ultimately scale both businesses and better serve joint clients. We repurchased $375 million worth of common shares in the second quarter. At present, based on our capital spending plans for the year and subject to market conditions, we still anticipate repurchasing at least 375 million of shares per quarter for the balance of the year, consistent with our previous guidance in January. In May, we capitalized on the improved conditions for debt issuance, issuing 1.25 billion of 10-year debt at a coupon of 4.75%. We expect to invest the proceeds of the offering at substantially the same rate as the cost of borrowing, effectively eliminating incremental costs of carrying additional debt in 2023. Our ambition is to be the cloud of investment management and technology. We organize around three key principles, access, expertise, and service to deliver value to our clients. Our platform strategy backed by these three principles drove 80 billion of total net inflows in the second quarter. Broadening adoption of iShares ETFs by asset managers, insurance companies, and wealth managers fueled net inflows of $48 billion in the second quarter, led by fixed income ETF net inflows of $35 billion. Our iShares range to unlocking client demand by providing efficient and expanded access to broad swaths and finer slices of the bond market. Retail net inflows of $4 billion were led by strength in index SMAs through Aperio and broad-based net inflows into active fixed incomes. BlackRock's institutional franchise generated $5 billion of net inflows in the second quarter. We're partnering with clients across their whole portfolio, and our clients are leveraging our scaled advisory, asset allocation, OCIO, and technology services. Institutional active net inflows of $9 billion included demand for customized life path target date mandates and illiquid alternatives. Private markets continue to scale in the quarter. Net inflows of $3 billion represented 10% annualized organic asset growth and were led by private credit and infrastructure. We have approximately $30 billion of non-fee paying committed capital to deploy in a variety of alternative strategies, representing a significant source of future base and performance fees. Finally, cash management net inflows of $23 billion in the second quarter were led by U.S. government money market funds. We're actively working with clients on their liquidity management strategy. providing technology, market, and operational insights, and, of course, a full range of cash management capabilities. Looking ahead, we see significant opportunity to grow our market share and consolidate our position with clients as they choose to do more with BlackRock. We're the only asset manager delivering platform as a service. We believe our platform strategy will continue to deliver for both our clients and shareholders, resulting in sustained market-leading organic growth and differentiated operating leverage over time. With that, I'll turn it over to Larry.