BlackRock, Inc.

2024 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'd like to ask a question during this time, Simply press star, then the number one on your telephone keypad. If you'd like to withdraw your questions, 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 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. Good morning and Happy New Year to everyone. It's my pleasure to present results for the fourth quarter and full year 2024. 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. With over $600 billion in net new assets entrusted to BlackRock, 2024 was a milestone year of programmatic, organic, and inorganic actions rooted in client needs, investment capability expansion, technology, and scale. We executed breakthrough investment offerings and industry-leading partnerships. 2024 marked a quantum leap forward for BlackRock against our long-term value creation objectives and an invigoration of the future of asset management and technology services for our clients. We've spoken all year about how organic growth momentum and overall client sentiment has been improving. BlackRock saw record net inflows in 2024, powered by two back-to-back record flows quarters in the second half. Our annual revenue, operating income, and earnings per share each grew double digits. We made disciplined investments for profitable growth, delivering 280 basis points of margin expansion as our AUM grew to a new high of nearly 11.6 trillion. We entered 2025 from a position of strength, having generated 7% annualized organic base fee growth in the fourth quarter, our highest in three years. Our record client activity and the accelerating organic revenue growth we saw in 2024, they're independent of the lift that we believe will come from GIP, HPS, and Prequin. Our structural growth businesses, ETFs, Aladdin, outsourcing, fixed income, they're the strong foundations to serve clients and deliver on our through-the-cycle 5% organic growth objectives. We didn't need M&A to achieve and rise above our organic base fee growth targets. Our expansions are about more deeply serving clients in high-growth segments that can exceed our 5% goals. We enter 2025 on a new trajectory, with record AUM in operating income and having increased our effective fee rate by seven-tenths of a basis point. Over the course of 2025, we'll be integrating and adding the high growth and earnings power of GIP, HPS, and PreQIN, Clients have embraced our strategy. Our track record of successful acquisitions and integrations is bringing clients into deeper relationships with BlackRock. We finished 2024 with sequential quarters of at or above target organic growth. More importantly, that organic growth is broad-based across institutional, wealth, and technology and across regions. Clients want to consolidate more of their portfolios with a partner that's with them for the long term. They want portfolios that are seamlessly integrated across public and private markets, that are dynamic, and that are underpinned by data, risk management, and technology. BlackRock's now truly in a category of one. We've built a unique asset management and FinTech platform that's integrated across public and private markets. With the close of the GIP transaction this past October and our planned acquisition of HPS, BlackRock's private markets and alternatives platform is expected to be $600 billion in client assets, a top five provider, and over $3 billion in revenues, or about 15% of 2024 revenues. BlackRock houses whole portfolio solutions for clients, the world's number one ETF franchise by assets, flows, and breadth of exposures, a $3 trillion fixed income platform across active and index, $700 billion managed for insurance companies, over $350 billion in models, direct indexing, and SMAs for wealth managers, over $900 billion in cash management AUM, leading advisory services, and our proven Aladdin technology with $1.6 billion in revenues. Aladdin's powering a whole portfolio ecosystem across public and private markets with eFront and our planned acquisition of Prequin. On a pro forma basis for HPS and Prequin, Private markets and technology are expected to make up over 20% of BlackRock's overall revenue. That's an ecosystem we feel wins with client needs and results in over 20% of our revenue base in long-dated, less market-sensitive products and services. Our mix continues to evolve towards higher secular growth areas with clients. We believe this will translate to higher and more durable organic growth, greater resilience through market cycles, and multiple expansions. In 2024, BlackRock generated a record $641 billion of total net inflows and delivered 4% organic base fee growth. We finished the year strong in the fourth quarter with $281 billion of total net inflows and 7% annualized organic base fee growth. Full year revenue of $20.4 billion was up 14% year over year. Operating income of $8.1 billion was up 23% and earnings per share of $43.61 increased 15%. Fourth quarter revenue of 5.7 billion was 23% higher year over year, driven by the impact of higher markets on average AUM and higher performance fees. Quarterly operating income of 2.3 billion was up 36%, while earnings per share of $11.93 was 23% higher versus a year ago. EPS also reflected a lower tax rate, partially offset by lower non-operating income, and a higher share count in the current quarter. The higher share count included 6.9 million shares issued and delivered at the closing of the GIP transaction. Non-operating results for the quarter included 7 million of net investment losses, primarily due to changes in co-investment valuations. Lower interest income in the current quarter reflected the delivery of cash at the closing of the GIP transaction, which was raised through our debt offering in March 2024. Our as-adjusted tax rate for the fourth quarter was approximately 21% and benefited from discrete items. We currently estimate that 25% is a reasonable projected tax run rate for 2025. The actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. Fourth quarter base fees and securities lending revenue of $4.4 billion was up 23% year over year and up 10% sequentially. driven by the positive impact of market beta on average AUM, organic base fee growth, and approximately $230 million of base fees from GIP. Our annualized effective fee rate was approximately seven-tenths of a basis point higher compared to the third quarter. Over time and with continued growth in infrastructure strategies and the successful closing of the HPS acquisition, we would expect to see positive leverage to base fee revenue, average fee rates, and organic growth, as we grow private markets with clients. This is evidenced by this quarter's fee rate increase, primarily reflecting the onboarding of higher fee rate private markets assets following the GIP closing. Fourth quarter and full year performance fees of $451 million and $1.2 billion, respectively, increased from a year ago, led by higher revenue from alternatives. We saw strong broad-based performance across hedge funds. Quarterly technology services revenue increased 13% year-over-year, and full-year revenue of $1.6 billion increased 8%, reflecting the successful onboarding of a number of new clients and expanding relationships with existing clients. Full-year technology services revenue growth also reflects the prior-year revenue impact of several clients' renewals of eFront on-premises licenses. Annual contract value, or ACV, increased 12% year-over-year. On a constant currency basis, we estimate ACV would have increased 13% from a year ago. The need for integrated risk analytics and whole portfolio views across public and private markets is driving strong demand for Aladdin. We signed some of our largest clients ever in 2024. We remain committed to low to mid-teens ACV growth over the long term. Total expense increased 9% in 2024, primarily due to higher incentive compensation gna and sales asset and account expense full-year employee compensation and benefit expense was up 11 reflecting higher incentive compensation as a result of higher performance fees and operating income recall that year-over-year and sequential comparisons of fourth quarter compensation expense are less relevant because we finalized full-year compensation in the fourth quarter full-year gna expense was up five percent primarily from planned technology investment spend higher professional fees, and GIP's G&A expense. During the year, we made disciplined investments in business to drive operating leverage and profitable growth. Our fourth quarter as-adjusted operating margin of 45.5% increased 390 basis points year over year, and our full year as-adjusted operating margin of 44.5% was up 280 basis points. Looking ahead, we aim to maintain our systematic approach to investing for profitable growth on the budgeting principles we've consistently articulated for the last 12 to 18 months. We'll continue to be disciplined in prioritizing our hiring and overall investments with the ambition of delivering market-leading organic growth and operating margin. At present, subject to regulatory approvals and other customary closing conditions, we expect our planned acquisitions of Prequin and HPS to close in the first quarter of 2025 and in mid-2025, respectively. Based on these closing timelines, we'd expect BlackRock's headcount to be higher in 2025. Our planned acquisitions of Prequin and HPS are expected to bring approximately 2,300 new colleagues to BlackRock. Additionally, excluding HPS, we would expect a mid to high single-digit percentage increase in 2025 core G&A expense. Most of the core G&A expense growth should come from consolidating the G&A expense of GIP and Prequin and continued investment in technology as we look to operate more efficiently and better serve our clients. Our capital management strategy remains consistent. We invest first, both organically and inorganically, either to scale strategic growth initiatives or drive operational efficiency. We then return cash to our shareholders through a combination of dividends and share repurchases. After investing for growth, we returned over $4.7 billion to our shareholders through a combination of dividends and share repurchases in 2024. This includes open market repurchases of approximately $375 million and $1.6 billion for fourth quarter and full year, respectively. Share repurchases have been a consistent element of our capital management strategy. In the last 10 years, we've repurchased 28 million shares at an average price of $510 per share. Today, we're trading at almost double that. This represents a more than 15% annualized return for our shareholders. For both the GIP and HPS transactions, BlackRock Equity proved a valuable currency in consummating these transactions and structuring them for alignment with our shareholders. At present, based on capital spending plans for the year and subject to market and other conditions, we're targeting the purchase of 1.5 billion of shares during 2025. In addition, and also subject to market and other conditions, We expect to seek Board approval later this month for an increase to our first quarter 2025 dividend, consistent with our track record of continued dividend growth. Record full-year total net inflows of $641 billion were diversified across active, index, and cash, as well as by region, led by $385 billion of net inflows from clients in the United States. BlackRock generated industry-leading ETF net inflows of $390 billion in 2024, representing 11% organic asset and 7% organic base fee growth. Record annual net inflows into our ETFs included $41 billion into our digital assets ETPs that were just launched in 2024. Fourth quarter ETF net inflows of $143 billion reflected significant momentum into year-end, helped by seasonal portfolio reallocations. As US equity indices and spot Bitcoin prices reached new highs in the quarter, clients used iShares products to re-risk and add these investment exposures to their portfolios. BlackRock's institutional platform generated net inflows of $74 billion in 2024, led by active net inflows of $64 billion, including the funding of several large outsourcing mandates from a variety of client types. Index net inflows of $9 billion were driven by $43 billion into fixed incomes. This was partially offset by $31 billion of net redemptions from low-fee index equity strategies. Several large clients, mostly outside the United States, rebalanced their portfolios amid record equity market levels. Full-year retail net inflows of $24 billion were led by continued strength in Appurio and inflows into active fixed-income mutual funds. Appirio had another record year in 2024, with net inflows of $14 billion, and active fixed income added $12 billion of net inflows. Demand for private markets remained strong, with $9 billion of net inflows during the year driven by infrastructure and private credit. BlackRock's full-year net inflows also included the impact of successful realizations of $13 billion, primarily from private equity, private credit, and infrastructure strategies. Distributions are a key metric for measuring performance in the private markets. GIP has a strong track record of operating portfolio companies and ultimately returning capital to investors through exits with strong uplift. At present, we expect to recognize approximately $5 billion of realizations in the first quarter from older GIP fund vintages executing on successful exits. Starting this quarter, we've updated our earnings supplement to provide additional transparency into organic growth drivers and realizations activity for our private markets assets. We expect to make disclosure enhancements, particularly around private markets, beginning in the first quarter of 2025. Finally, BlackRock Cash Management saw 81 billion of net inflows in the fourth quarter and 153 billion in 2024. Flows were driven by both U.S. government and international prime funds and included multiple large new client mandates. We continue to see strong growth in our cash and liquidity platform built on our scale and integrated offerings, with AUM up 20% year over year. BlackRock's platform delivered record results in 2024, and the consistency of our results stands out even more over the long term, with over $2 trillion of client net inflows over the last five years. While 2024 was a watershed year for BlackRock, it's just the start of our next growth story. We're better positioned than ever to build with clients and create value for our shareholders. BlackRock's a meaningful outperformer when assets are in motion and investors are re-risking. We're optimistic about market opportunities for our clients into 2025. I'm going to pass to Larry in a minute, but for those of you keeping score at home, this is Larry's 100th earnings call. We did a little research and counted only 15 current CEOs in the S&P 500 that have been celebrated 100 earnings calls as the CEO. Larry, congratulations on a century of earnings calls. How does it feel?