BlackRock, Inc.

Good morning. My name is Cynthia, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated Third Quarter 2023 Earnings Teleconference. Our host for today's call 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 third 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. Rate hikes over the last 18 months mean that for the first time in nearly 20 years, clients can earn a real return in cash. In the short term, this has benefited many portfolios. Investors have been able to generate positive returns while waiting for inflation to cool and for more policy certainty from central bankers. This waiting has weighed on industry flows, including here at BlackRock, consistent with prior periods of policy uncertainty like 2013, 2016, and 2018. At September's Federal Reserve meeting, central bankers decided to pause, keeping the policy rate steady, but communicated forward guidance that interest rates will stay higher for longer. We think this is good news. It begins to offer investors more clarity about timeframes and entry points into fixed income and equities and a path to re-risking global investment portfolios. At BlackRock, we never pause. We've used this period of investor portfolio redesign to stay close to our clients. We're providing insights, advice, and solutions to help clients prepare to deploy assets following greater certainty on markets, terminal rates, and the shape of the yield curve. Clients entrusted BlackRock with $193 billion of total net inflows in the first nine months of 2023, representing 3% annualized organic asset growth. While our clients' decisions to take advantage of safe haven cash as they redesign portfolios are reflected in our third quarter flows, clients are actively engaging to do more with BlackRock. We believe the long-term trend of clients consolidating business with fewer managers will be accelerated as a result of this period. Third quarter gross fund sales were 95% of average levels over the last 12 months, and flows would have been meaningfully positive excluding a $19 billion single client index redemption and $13 billion of market-related precision ETF net outflows. So client momentum remains strong. Today, we manage $9.1 trillion in assets for our clients. These units of trust are $1.1 trillion higher than a year ago. Revenue is 5% higher. Operating income is up 7%. and earnings per share increased 14% over this time period. Powering these numbers are clients increasing use of BlackRock as a platform and staying within our ecosystem of capabilities, combining investment, technology, and portfolio servicing to meet their specific business needs. This platform approach is driving our industry-leading organic growth over the long term. Market fluctuations and client risk appetite may temporarily lift or lower our AUM and revenues. But our focus remains on delivering BlackRock's platform to clients through access to unique opportunities, expertise, and world-class client service. Our strategy is working. Clients are choosing to build bigger relationships with BlackRock. We've grown our asset base over the long term with over $1 trillion of net inflows since the start of 2021 and over $300 billion of that in just the last 12 months. We know our shareholders and clients have high expectations of BlackRock. We believe in our 5% organic base fee growth target over the long term, and we challenge ourselves to envision what it takes to rise above that target. We've said before that we don't strive to be the fastest grower in any given quarter, but we continue to drive durable, consistent organic growth well above our peer group over the long term. Third quarter total net inflows were $3 billion and included $49 billion of lower fee institutional index equity redemptions driven by client-specific index allocation changes. Institutional index equity represents less than 3% of BlackRock's total base fees. These lower fee strategies are often only a portion of our clients' overall relationships with BlackRock. For example, results included in the $19 billion redemption from a single client, but the clients working with us extend its mandates and active strategies. Total quarterly annualized organic base fee decay of 2% reflected net outflows from higher fee precision ETFs, and redemptions in active equity and retail liquid alternatives offerings. Third quarter revenue of $4.5 billion was 5% higher year over year, driven by organic growth, the impact of market and foreign exchange movements over the last 12 months on average AUM, and higher technology services revenue. Operating income of $1.7 billion was up 7% year over year. Earnings per share of $10.91 increased 14%, also reflecting a lower effective tax rate, partially offset by lower non-operating income compared to a year ago. Our as-adjusted tax rate for the third quarter was approximately 12%, reflecting $215 million of discrete tax benefits associated with the resolution of certain outstanding tax matters. 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. Non-operating results for the quarter included $127 million of net investment gains, driven primarily by non-cash mark-to-market gains in the value of our private equity co-investment portfolio. Third quarter base fee and securities lending revenue of $3.7 billion increased 4% year-over-year. reflecting the positive impact of market beta and foreign exchange movements on average AUM, positive organic base fee growth, and higher securities lending revenue. Sequentially, base fee and securities lending revenue was up 2%. On an equivalent day count basis, our annualized effective fee rate was approximately two-tenths of one basis point lower compared to the second quarter. This was due to lower securities lending revenue, underperformance of non-US equity markets, and changing client risk preferences favoring risk off lower fee exposures. As a result of continued global equity and bond market depreciation toward the end of the third quarter, including the impact of FX-related dollar appreciation, we entered the fourth quarter with an estimated base fee run rate approximately 3% lower than our total base fees for the third quarter. Performance fees of 70 million decreased from a year ago, primarily reflecting lower revenue from liquid alternatives. Quarterly technology services revenue was up 20% compared to a year ago, driven by sustained demand for our technology offerings. Current quarter technology services revenue also benefited from the impact of several large client renewals of their eFront on-premises licenses, for which accounting treatment recognizes a majority of the revenue at time of renewal. Approximately half of the year-over-year technology services revenue increase resulted from these eFront contract renewals. Annual contract value, or ACV, increased 10% 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 presents for clients. Total expense was 4% higher year-over-year. Higher compensation and direct fund expenses were partially offset by lower distribution and servicing costs and G&A. At present, we expect full year 2023 core G&A to fall on the low end of our previously communicated guidance of a mid to high single digit percentage increase. In line with this outlook, we would also expect fourth quarter core G&A to reflect seasonal increases in marketing spend and execution of planned technology investment spend. Our third quarter as adjusted operating margin of 42.3% was up 30 basis points from a year ago, benefiting in part from the favorable impact of market movements on quarterly revenue over the last year. Our platform strategy has delivered scale and operating leverage through time, and we aim to be disciplined in driving profitable growth. We're prioritizing investments to propel our differentiated organic growth and drive operating leverage. We'll look to find more opportunities to variabilize expenses, generate fixed cost scale through technology and automation, and align investment spend with organic revenue growth potential. Our capital management strategy remains consistent. We invest first, either to scale strategic growth initiatives or drive operational efficiency, and then return excess cash to our shareholders through a combination of dividends and share repurchases. During the third quarter, we closed our acquisition of Creos Capital, adding venture debt capabilities to our credit and private markets franchises. And earlier this week, we announced a minority investment as part of a strategic partnership with UpVest. Our M&A focus is on extending our capabilities in technology and private markets, tapping into revenue pools of adjacent industries, and building scale. We repurchased $375 million worth of common shares in the third 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 in the fourth quarter, consistent with our previous guidance in January. BlackRock had $3 billion of total net inflows in the third quarter, which were impacted by $49 billion of low-fee institutional index equity redemptions. BlackRock was not immune to an overall slowing of investor activity, but we once again outperformed in what has been a challenging industry environment. Momentum in our ETF business continued with $29 billion of net inflows in the third quarter, led by core equity and fixed income ETF net inflows of $34 billion and $12 billion, respectively. Overall ETF flows were impacted by redemptions concentrated in certain market-driven precision and fixed income products. The fourth quarter has historically been the strongest quarter of ETF flows for BlackRock, when we've seen on average 35% of our annual ETF net inflows. BlackRock typically has been a large beneficiary of ETF industry seasonality related to year-end rebalancing and tax planning. In line with these historical results, we'd expect to see an acceleration in iShares ETF flows as we get closer to the end of 2023. With safe haven cash providing positive returns, retail net outflows of $4 billion primarily reflected industry pressure in active equities and liquid alternatives, partially offset by continued strength in SMAs through Aperio. Institutional index net outflows of $36 billion reflected the previously mentioned low fee index equity redemptions. Our institutional active franchise experienced $1 billion of net outflows, primarily from active fixed income, which was impacted by a handful of client-specific partial redemptions, including reinsurance activity. These outflows were partially offset by continued demand for our target date, illiquid alternatives, and outsourcing capabilities. We've built our private markets capabilities across multiple years, and we continue to see strong demand for our illiquid alternative strategies. We generated nearly 3 billion of net inflows in the third quarter, driven by infrastructure and private credit. We're only seeing bigger and better private markets opportunities for BlackRock and for our clients. BlackRock's relationships across the world drive our differentiated deal flow. Deal flow alongside great teams with great tech and great data mean we can deliver differentiated investment performance and grow vintage over vintage. We're investing as we scale our private markets platform by using our financial strength to bridge successor funds, facilitate growing co-investments activity and seeding new fund launches. These investments can unlock future revenue and earnings potential for our shareholders. Finally, cash management net inflows were $15 billion in the quarter. Money market funds returned to earning yields not seen in nearly two decades. We're leveraging our scale and integrated cash offerings to engage with clients who are using cash, not only to manage liquidity, but also to earn attractive returns. The current macro environment is causing some clients to pause, slowing overall activity in the asset management industry. Nevertheless, BlackRock's delivered positive organic asset and base fee growth over the last 12 months. We see significant opportunity to deepen relationships and consolidate our share with clients as they resume actively allocating assets. We're staying connected with our clients and positioning for what we believe can be massive growth unlocks. Looking ahead, we believe our platform strategy will continue to deliver for both our clients and shareholders, resulting in sustained market-leading organic growth, differentiated operating leverage, and earnings and multiple expansion over time. With that, I'll turn it over to Larry.