BlackRock, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: Generated $221 billion of net inflows, the highest net flows quarter ever. Recorded record levels of quarterly revenue and operating income. Achieved a 5% annualized organic base fee growth, the highest quarter in three years. As-adjusted operating margin was 45.8%, up 350 basis points year-over-year.
• Business Segments: iShares, Aladdin, fixed income, and private markets all delivered strong performance. The acquisition of Global Infrastructure Partners added $116 billion of client AUM and $70 billion of fee-paying AUM, with an expectation of approximately $250 million of management fees in the fourth quarter of 2024.
• Technology: Quarterly technology services revenue was down 1% year-over-year due to prior-year impacts, but excluding that, it would have increased ~9% YOY. Annual contract value (ACV) of Aladdin increased 15% YOY, driven by sustained demand for its technology offerings.
• Client Inflows: Diversified net inflows across client types, product types, active and indexed, and regions. ETFs saw $97 billion of net inflows, fixed income and core equity led inflows, and cash management had $61 billion of net inflows.

Segment Performance

• iShares: Led the industry in global flows with approximately $250 billion through the third quarter. Fixed income ETF assets stand at over $1 trillion, nearly 40% higher than at year-end 2021. Revenue contribution from iShares is significant due to its leading position in ETF flows.
• Aladdin: Logged 15% annual contract value (ACV) growth, consistent with the long-term low to mid-teens target. It benefits from excellent momentum and key wins with growing clients, contributing to revenue through its technology services.
• Fixed income: Delivered over $60 billion of net inflows. The firm believes continued central bank normalization will support sustained inflows across bond funds, ETFs, and institutional accounts. Fixed income is a compelling organic growth opportunity.
• Private markets: On October 1st, BlackRock closed the acquisition of Global Infrastructure Partners, tripling infrastructure AUM and doubling private markets run rate management fees. The partnership with Microsoft and NGX aims to realize infrastructure investment potential for AI innovation. The planned acquisition of Preqin accelerates private markets data and analytics. A model portfolio solution with Partners Group is set to revolutionize private market access for wealth managers.

Guidance

• The acquisition of Global Infrastructure Partners is expected to add approximately $250 million of management fees in the fourth quarter of 2024. Full-year core G&A expense growth is expected to be closer to the high end of the previously communicated range.
• Anticipates repurchasing at least $375 million of common shares in the fourth quarter consistent with previous guidance.
• The planned acquisition of Preqin is expected to close around year-end 2024, subject to regulatory approvals and other customary closing conditions.

Risks

• Integration risks related to recent acquisitions (Global Infrastructure Partners and planned acquisition of Preqin), including challenges in realizing synergies and potential disruptions during integration.
• Dependence on market conditions, such as fluctuations in capital markets and client sentiment, which can impact net inflows and revenue.
• Regulatory risks associated with acquisitions and ongoing compliance requirements, which could affect the timing and success of transactions.

Question and Answer Q: On net flow trajectory and re-risking activity post-election.

A: Martin S. Small noted strong inflows, a healthy trajectory, and BlackRock's historical outperformance in re-risking periods, citing that the firm has had positive active flows in 18 of 23 quarters since 2019 and expects a strong Q4.

Q: Appetite for additional M&A and integration.

A: Martin S. Small stated the focus is on integrating Global Infrastructure Partners and closing the acquisition of Preqin, emphasizing the need to deliver a great integration experience for clients and employees, and that inorganic investments are a tool to optimize organic growth but are currently focused on integrating recent deals.

Q: Fee rate growth potential and model portfolios.

A: Martin S. Small discussed that organic base fee growth was 5% annualized, and while fee rate is an output affected by market beta and FX, the growth in private markets is expected to have positive leverage on base fee revenue. The model portfolio solution with Partners Group is aimed at revolutionizing private market access for wealth managers.