- $55 billion of quarterly long-term net inflows, positive across active and index, reflect strength of diversified business model
- 16% growth in revenue year-over-year driven by base fees and technology and risk management revenue
- 20% increase in operating income year-over-year reflects operating margin expansion
- 28% growth in diluted EPS year-over-year, driven in part by lower tax rate
- 15% increase in quarterly cash dividend to $2.88 per share and $335 million of share repurchases
BlackRock, Inc. BLK:
|
FINANCIAL RESULTS REFLECT NEW REVENUE RECOGNITION STANDARD (PRIOR PERIODS HAVE BEEN RECAST) |
|||||||||||||||||||
| Q1 | Q1 | Q4 | |||||||||||||||||
| (in millions, except per share data) | 2018 | 2017(a) | Change | 2017(a) | Change | ||||||||||||||
| AUM | $ | 6,316,984 | $ | 5,420,477 | 17 | % | $ | 6,288,195 | - | % | |||||||||
| Total net flows | $ | 56,946 | $ | 64,599 | $ | 102,929 | |||||||||||||
|
GAAP basis: |
|||||||||||||||||||
| Revenue | $ | 3,583 | $ | 3,092 | 16 | % | $ | 3,764 | (5 | )% | |||||||||
| Operating income | $ | 1,375 | $ | 1,143 | 20 | % | $ | 1,485 | (7 | )% | |||||||||
| Operating margin | 38.4 | % | 37.0 | % | 140 |
bps |
39.5 | % | (110 | ) bps | |||||||||
| Net income(1) (2) | $ | 1,089 | $ | 859 | 27 | % | $ | 2,295 | (53 | )% | |||||||||
| Diluted EPS | $ | 6.68 | $ | 5.21 | 28 | % | $ | 14.01 | (52 | )% | |||||||||
| Weighted average diluted shares | 162.9 | 164.9 | (1 | )% | 163.8 | (1 | )% | ||||||||||||
|
As Adjusted: |
|||||||||||||||||||
| Operating income(3) | $ | 1,378 | $ | 1,147 | 20 | % | $ | 1,488 | (7 | )% | |||||||||
| Operating margin(3) | 44.1 | % | 42.6 | % | 150 |
bps |
44.7 | % | (60 | ) bps | |||||||||
| Net income(1) (3) | $ | 1,092 | $ | 862 | 27 | % | $ | 1,013 | 8 | % | |||||||||
| Diluted EPS(3) | $ | 6.70 | $ | 5.23 | 28 | % | $ | 6.19 | 8 | % | |||||||||
| (a) | Financial results for 2017 were recast to reflect the adoption of the new revenue recognition standard. For further information, refer to the Current Report on Form 8-K furnished on March 22, 2018. | |
| (1) | Net income represents net income attributable to BlackRock, Inc. | |
| (2) | GAAP net income for fourth quarter 2017 reflects $1.2 billion of net tax benefit related to the Tax Cuts and Jobs Act. | |
| (3) |
See notes (1) through (3) to the condensed consolidated statements of income and supplemental information for more information on as adjusted items and the reconciliation to GAAP. |
BlackRock, Inc. BLK today reported financial results for the three months ended March 31, 2018.
"Paced by a strong January, long-term net inflows of $55 billion, representing 5% annualized organic base fee growth, were positive across active and index strategies," commented Laurence D. Fink, Chairman and CEO of BlackRock. "Momentum continued in technology and risk management, with 19% year-over-year revenue growth, further highlighting the strength and diversity of our global platform.
"Investors experienced a spike in market volatility during the quarter, driven by concerns over global trade policies, a heightened focus on rates and inflation, and headlines in the technology sector. Institutional investors, in particular, reacted to these factors, by de-risking and re-balancing. At the same time, we also saw many corporate clients adapting to U.S. tax reform by seeking liquidity to fund future capital investment or more aggressive share repurchases. As a result of these various crosscurrents, BlackRock experienced a significant number of both large inflows and large outflows from institutional clients in the first quarter. Total institutional net inflows were $3 billion, but reflected active net outflows from multi-asset strategies, primarily related to the loss of a single client from M&A activity, and from active fixed income strategies, linked to profit-taking and cash repatriation planning.
"Driven by strong flows in our retail channels, BlackRock saw continued demand for a diverse range of fixed income strategies, including unconstrained, total return, short duration and emerging market debt, as well as alpha-seeking equity strategies. Our top performing fixed income platform saw $27 billion of net inflows across active and index. Active equities generated $1 billion of net inflows as performance improved, with 78% of fundamental equities and 90% of systematic active equity assets above benchmark or peer median for the five-year period.
"iShares® saw quarterly net inflows of $35 billion, as clients continued to use iShares at the core of their portfolios to drive active returns and as simple, efficient tools to manage risk exposure amid market volatility.
"Growth in technology and risk management revenue was powered by demand for institutional Aladdin® and expansion of our digital wealth and distribution technologies, including Aladdin Risk for Wealth Management and Cachematrix. We continue to invest in technology to enhance our distribution capabilities and help partners efficiently scale their businesses and construct better portfolios.
"In a challenging environment, BlackRock continued to perform well. Building on a strong start to 2018, we remain committed to investing for growth and delivering the benefits of our scale to both clients and shareholders."
| RESULTS BY CLIENT TYPE | ||||||||||||||||||
| March 31, 2018 | Q1 2018 | |||||||||||||||||
| Q1 2018 | March 31, 2018 | Q1 2018 | AUM | Base fees(1) | ||||||||||||||
| (in millions), (unaudited) | Net flows | AUM | Base fees(1) | % of Total | % of Total | |||||||||||||
| Retail | $ | 16,686 | $ | 638,363 | $ | 855 | 10 | % | 29 | % | ||||||||
| iShares ETFs | 34,649 | 1,767,925 | 1,158 | 28 | % | 39 | % | |||||||||||
| Institutional: | ||||||||||||||||||
| Active | (7,088 | ) | 1,130,446 | 527 | 18 | % | 18 | % | ||||||||||
| Index | 10,378 | 2,324,327 | 256 | 37 | % | 9 | % | |||||||||||
| Total institutional | 3,290 | 3,454,773 | 783 | 55 | % | 27 | % | |||||||||||
| Long-term | 54,625 | 5,861,061 | 2,796 | 93 | % | 95 | % | |||||||||||
| Cash management | 2,674 | 454,784 | 151 | 7 | % | 5 | % | |||||||||||
| Advisory | (353 | ) | 1,139 | - | - | - | ||||||||||||
| Total | $ | 56,946 | $ | 6,316,984 | $ | 2,947 | 100 | % | 100 | % | ||||||||
| RESULTS BY INVESTMENT STYLE | ||||||||||||||||||
| March 31, 2018 | Q1 2018 | |||||||||||||||||
| Q1 2018 | March 31, 2018 | Q1 2018 | AUM | Base fees(1) | ||||||||||||||
| (in millions), (unaudited) | Net flows | AUM | Base fees(1) | % of Total | % of Total | |||||||||||||
| Active | $ | 5,513 | $ | 1,693,883 | $ | 1,365 | 27 | % | 46 | % | ||||||||
| Index and iShares ETFs | 49,112 | 4,167,178 | 1,431 | 66 | % | 49 | % | |||||||||||
| Long-term | 54,625 | 5,861,061 | 2,796 | 93 | % | 95 | % | |||||||||||
| Cash management | 2,674 | 454,784 | 151 | 7 | % | 5 | % | |||||||||||
| Advisory | (353 | ) | 1,139 | - | - | - | ||||||||||||
| Total | $ | 56,946 | $ | 6,316,984 | $ | 2,947 | 100 | % | 100 | % | ||||||||
| RESULTS BY PRODUCT TYPE | ||||||||||||||||||
| March 31, 2018 | Q1 2018 | |||||||||||||||||
| Q1 2018 | March 31, 2018 | Q1 2018 | AUM | Base fees(1) | ||||||||||||||
| (in millions), (unaudited) | Net flows | AUM | Base fees(1) | % of Total | % of Total | |||||||||||||
| Equity | $ | 26,514 | $ | 3,363,237 | $ | 1,540 | 53 | % | 52 | % | ||||||||
| Fixed income | 26,683 | 1,886,523 | 757 | 30 | % | 26 | % | |||||||||||
| Multi-asset | (1,987 | ) | 476,697 | 296 | 8 | % | 10 | % | ||||||||||
| Alternatives | 3,415 | 134,604 | 203 | 2 | % | 7 | % | |||||||||||
| Long-term | 54,625 | 5,861,061 | 2,796 | 93 | % | 95 | % | |||||||||||
| Cash management | 2,674 | 454,784 | 151 | 7 | % | 5 | % | |||||||||||
| Advisory | (353 | ) | 1,139 | - | - | - | ||||||||||||
| Total | $ | 56,946 | $ | 6,316,984 | $ | 2,947 | 100 | % | 100 | % | ||||||||
| (1) | Base fees include investment advisory, administration fees and securities lending revenue. |
BUSINESS HIGHLIGHTS
Long-term net inflows of $57.3 billion and $3.2 billion from clients in the Americas and Asia-Pacific regions, respectively, were partially offset by net outflows of $5.9 billion from clients in EMEA. At March 31, 2018, BlackRock managed 63% of its long-term AUM for clients in the Americas, 29% for clients in EMEA and 8% for clients in Asia-Pacific.
The Company's net flows by client type for the first quarter of 2018 are presented below.
- Retail long-term net inflows of $16.7 billion reflected net inflows of $8.7 billion in the United States and $8.0 billion internationally. Fixed income net inflows of $10.0 billion were diversified across the Company's top-performing active platform, led by net inflows into unconstrained, emerging market and municipals categories. Equity net inflows of $4.2 billion reflected inflows into index mutual funds and international active equities. Multi-asset net inflows of $2.0 billion were largely due to inflows into the Multi-asset Income fund family.
- iShares ETFs long-term net inflows of $34.6 billion reflected strength in iShares Core ETFs. Equity net inflows of $29.7 billion were driven by both U.S. and international equity market exposures. Fixed income and commodity iShares generated $3.2 billion and $1.7 billion of net inflows, respectively.
- Institutional active long-term net outflows of $7.1 billion were driven by fixed income outflows of $4.1 billion linked to profit-taking and cash repatriation planning, and multi-asset net outflows of $4.1 billion resulting from a single redemption associated with client M&A activity. Alternatives net inflows of $1.4 billion were led by inflows into hedge funds, private equity solutions and infrastructure offerings.
- Institutional index long-term net inflows of $10.4 billion included fixed income net inflows of $17.5 billion, led by demand for liability-driven solutions, partially offset by equity net outflows of $7.2 billion.
Cash management AUM increased 1% from the prior quarter to $454.8 billion.
|
INVESTMENT PERFORMANCE AT MARCH 31, 2018(1) |
||||||
| One-year period | Three-year period | Five-year period | ||||
| Fixed income: | ||||||
| Actively managed AUM above benchmark or peer median | ||||||
| Taxable | 83% | 72% | 90% | |||
| Tax-exempt | 63% | 58% | 74% | |||
| Index AUM within or above applicable tolerance | 96% | 99% | 100% | |||
| Equity: | ||||||
| Actively managed AUM above benchmark or peer median | ||||||
| Fundamental | 66% | 77% | 78% | |||
| Systematic | 84% | 89% | 90% | |||
| Index AUM within or above applicable tolerance | 96% | 98% | 98% | |||
| (1) |
Past performance is not indicative of future results. The performance information shown is based on preliminary available data. Please refer to the performance notes for performance disclosure detail. |
TELECONFERENCE, WEBCAST AND PRESENTATION INFORMATION
Chairman and Chief Executive Officer, Laurence D. Fink, and Chief Financial Officer, Gary S. Shedlin, will host a teleconference call for investors and analysts on Thursday, April 12, 2018 at 8:30 a.m. (Eastern Time). Members of the public who are interested in participating in the teleconference should dial, from the United States, (800) 374-0176, or from outside the United States, (706) 679-8281, shortly before 8:30 a.m. and reference the BlackRock Conference Call (ID Number 9486699). A live, listen-only webcast will also be available via the investor relations section of www.blackrock.com.
Both the teleconference and webcast will be available for replay by 12:30 p.m. (Eastern Time) on Thursday, April 12, 2018 and ending at midnight on Thursday, April 26, 2018. To access the replay of the teleconference, callers from the United States should dial (855) 859-2056 and callers from outside the United States should dial (404) 537-3406 and enter the Conference ID Number 9486699. To access the webcast, please visit the investor relations section of www.blackrock.com.
About BlackRock
BlackRock helps investors build better financial futures. As a fiduciary to our clients, we provide the investment and technology solutions they need when planning for their most important goals. As of March 31, 2018, the firm managed approximately $6.317 trillion in assets on behalf of investors worldwide. For additional information on BlackRock, please visit www.blackrock.com | Twitter: @blackrock | Blog: www.blackrockblog.com | LinkedIn: www.linkedin.com/company/blackrock.
|
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION (in millions, except shares and per share data), (unaudited) |
||||||||||||||||||||
| Three Months | ||||||||||||||||||||
| Three Months Ended | Ended | |||||||||||||||||||
| March 31, | December 31, | |||||||||||||||||||
| 2018 | 2017(a) | Change | 2017(a) | Change | ||||||||||||||||
| Revenue | ||||||||||||||||||||
|
Investment advisory, administration fees and |
$ | 2,947 | $ | 2,523 | $ | 424 | $ | 2,897 | $ | 50 | ||||||||||
| Investment advisory performance fees | 70 | 70 | - | 285 | (215 | ) | ||||||||||||||
| Technology and risk management revenue | 184 | 154 | 30 | 176 | 8 | |||||||||||||||
| Distribution fees | 311 | 287 | 24 | 306 | 5 | |||||||||||||||
| Advisory and other revenue | 71 | 58 | 13 | 100 | (29 | ) | ||||||||||||||
| Total revenue | 3,583 | 3,092 | 491 | 3,764 | (181 | ) | ||||||||||||||
| Expense | ||||||||||||||||||||
| Employee compensation and benefits | 1,121 | 1,021 | 100 | 1,147 | (26 | ) | ||||||||||||||
| Distribution and servicing costs | 432 | 401 | 31 | 433 | (1 | ) | ||||||||||||||
| Direct fund expense | 261 | 206 | 55 | 237 | 24 | |||||||||||||||
| General and administration | 383 | 296 | 87 | 450 | (67 | ) | ||||||||||||||
| Amortization of intangible assets | 11 | 25 | (14 | ) | 12 | (1 | ) | |||||||||||||
| Total expense | 2,208 | 1,949 | 259 | 2,279 | (71 | ) | ||||||||||||||
| Operating income | 1,375 | 1,143 | 232 | 1,485 | (110 | ) | ||||||||||||||
| Nonoperating income (expense) | ||||||||||||||||||||
| Net gain (loss) on investments | 15 | 51 | (36 | ) | 33 | (18 | ) | |||||||||||||
| Interest and dividend income | 15 | 7 | 8 | 14 | 1 | |||||||||||||||
| Interest expense | (46 | ) | (65 | ) | 19 | (46 | ) | - | ||||||||||||
| Total nonoperating income (expense) | (16 | ) | (7 | ) | (9 | ) | 1 | (17 | ) | |||||||||||
| Income before income taxes | 1,359 | 1,136 | 223 | 1,486 | (127 | ) | ||||||||||||||
| Income tax expense (benefit) | 265 | 268 | (3 | ) | (815 | ) | 1,080 | |||||||||||||
| Net income | 1,094 | 868 | 226 | 2,301 | (1,207 | ) | ||||||||||||||
| Less: | ||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | 5 | 9 | (4 | ) | 6 | (1 | ) | |||||||||||||
| Net income attributable to BlackRock, Inc. | $ | 1,089 | $ | 859 | $ | 230 | $ | 2,295 | $ | (1,206 | ) | |||||||||
| Weighted-average common shares outstanding | ||||||||||||||||||||
| Basic | 161,250,018 | 163,016,599 | (1,766,581 | ) | 161,272,950 | (22,932 | ) | |||||||||||||
| Diluted | 162,918,961 | 164,856,183 | (1,937,222 | ) | 163,777,534 | (858,573 | ) | |||||||||||||
|
Earnings per share attributable to BlackRock, Inc.
common stockholders (3) |
||||||||||||||||||||
| Basic | $ | 6.75 | $ | 5.27 | $ | 1.48 | $ | 14.23 | $ | (7.48 | ) | |||||||||
| Diluted | $ | 6.68 | $ | 5.21 | $ | 1.47 | $ | 14.01 | $ | (7.33 | ) | |||||||||
| Cash dividends declared and paid per share | $ | 2.88 | $ | 2.50 | $ | 0.38 | $ | 2.50 | $ | 0.38 | ||||||||||
|
Supplemental information: |
||||||||||||||||||||
| AUM (end of period) | $ | 6,316,984 | $ | 5,420,477 | $ | 896,507 | $ | 6,288,195 | $ | 28,789 | ||||||||||
| Shares outstanding (end of period) | 161,275,008 | 162,868,647 | (1,593,639 | ) | 161,046,825 | 228,183 | ||||||||||||||
| GAAP: | ||||||||||||||||||||
| Operating margin | 38.4 | % | 37.0 | % | 140 | bps | 39.5 | % | (110 | ) bps | ||||||||||
| Effective tax rate | 19.6 | % | 23.8 | % | (420 | ) bps | (55.1 | )% | 7,470 | bps | ||||||||||
| As adjusted: | ||||||||||||||||||||
| Operating income (1) | $ | 1,378 | $ | 1,147 | $ | 231 | $ | 1,488 | $ | (110 | ) | |||||||||
| Operating margin (1) | 44.1 | % | 42.6 | % | 150 | bps | 44.7 | % | (60 | ) bps | ||||||||||
|
Nonoperating income (expense), less net income
(loss) attributable to noncontrolling interests |
$ | (21 | ) | $ | (16 | ) | $ | (5 | ) | $ | (5 | ) | $ | (16 | ) | |||||
| Net income attributable to BlackRock, Inc. (2) | $ | 1,092 | $ | 862 | $ | 230 | $ | 1,013 | $ | 79 | ||||||||||
|
Diluted earnings attributable to BlackRock, Inc.
common stockholders per share (2) (3) |
$ | 6.70 | $ | 5.23 | $ | 1.47 | $ | 6.19 | $ | 0.51 | ||||||||||
| Effective tax rate | 19.6 | % | 23.8 | % | (420 | ) bps | 31.7 | % | (1,210 | ) bps | ||||||||||
|
See the reconciliation to GAAP and notes (1) through (3) for more information on as adjusted items. |
||||||||||||||||||||
|
(a) |
Financial results for 2017 were recast to reflect the adoption of the new revenue recognition standard. For further information, refer to the Current Report on Form 8-K furnished on March 22, 2018. | |
|
ASSETS UNDER MANAGEMENT (in millions), (unaudited) |
|||||||||||||||||||||||||||||
| Current Quarter Component Changes by Client Type and Product Type | |||||||||||||||||||||||||||||
| Net | |||||||||||||||||||||||||||||
| December 31, | inflows | Market | March 31, | ||||||||||||||||||||||||||
| 2017 | (outflows) | change | FX impact (1) | 2018 | Average AUM (2) | ||||||||||||||||||||||||
| Retail: | |||||||||||||||||||||||||||||
| Equity | $ | 233,218 | $ | 4,248 | $ | (6,711 | ) | $ | 2,200 | $ | 232,955 | $ | 237,553 | ||||||||||||||||
| Fixed income | 257,571 | 10,065 | (2,188 | ) | 1,123 | 266,571 | 262,506 | ||||||||||||||||||||||
| Multi-asset | 120,855 | 2,035 | (1,556 | ) | 267 | 121,601 | 122,671 | ||||||||||||||||||||||
| Alternatives | 16,733 | 338 | 63 | 102 | 17,236 | 17,131 | |||||||||||||||||||||||
| Retail subtotal | 628,377 | 16,686 | (10,392 | ) | 3,692 | 638,363 | 639,861 | ||||||||||||||||||||||
| iShares ETFs: | |||||||||||||||||||||||||||||
| Equity | 1,329,610 | 29,714 | (17,345 | ) | 2,585 | 1,344,564 | 1,366,390 | ||||||||||||||||||||||
| Fixed income | 395,252 | 3,210 | (5,754 | ) | 1,483 | 394,191 | 394,856 | ||||||||||||||||||||||
| Multi-asset | 3,761 | 48 | (40 | ) | (3 | ) | 3,766 | 3,792 | |||||||||||||||||||||
| Alternatives | 23,616 | 1,677 | 91 | 20 | 25,404 | 24,852 | |||||||||||||||||||||||
| iShares ETFs subtotal | 1,752,239 | 34,649 | (23,048 | ) | 4,085 | 1,767,925 | 1,789,890 | ||||||||||||||||||||||
| Institutional: | |||||||||||||||||||||||||||||
| Active: | |||||||||||||||||||||||||||||
| Equity | 137,185 | (296 | ) | (1,739 | ) | 1,320 | 136,470 | 139,478 | |||||||||||||||||||||
| Fixed income | 570,050 | (4,069 | ) | (7,134 | ) | 4,725 | 563,572 | 567,142 | |||||||||||||||||||||
| Multi-asset | 347,825 | (4,110 | ) | (3,161 | ) | 2,790 | 343,344 | 346,649 | |||||||||||||||||||||
| Alternatives | 84,248 | 1,387 | 673 | 752 | 87,060 | 85,908 | |||||||||||||||||||||||
| Active subtotal | 1,139,308 | (7,088 | ) | (11,361 | ) | 9,587 | 1,130,446 | 1,139,177 | |||||||||||||||||||||
| Index: | |||||||||||||||||||||||||||||
| Equity | 1,671,628 | (7,152 | ) | (29,307 | ) | 14,079 | 1,649,248 | 1,687,392 | |||||||||||||||||||||
| Fixed income | 632,592 | 17,477 | (2,987 | ) | 15,107 | 662,189 | 643,857 | ||||||||||||||||||||||
| Multi-asset | 7,837 | 40 | (112 | ) | 221 | 7,986 | 8,456 | ||||||||||||||||||||||
| Alternatives | 4,750 | 13 | 43 | 98 | 4,904 | 4,910 | |||||||||||||||||||||||
| Index subtotal | 2,316,807 | 10,378 | (32,363 | ) | 29,505 | 2,324,327 | 2,344,615 | ||||||||||||||||||||||
| Institutional subtotal | 3,456,115 | 3,290 | (43,724 | ) | 39,092 | 3,454,773 | 3,483,792 | ||||||||||||||||||||||
| Long-term | 5,836,731 | 54,625 | (77,164 | ) | 46,869 | 5,861,061 | 5,913,543 | ||||||||||||||||||||||
| Cash management | 449,949 | 2,674 | 85 | 2,076 | 454,784 | 453,629 | |||||||||||||||||||||||
| Advisory (3) | 1,515 | (353 | ) | (14 | ) | (9 | ) | 1,139 | 1,323 | ||||||||||||||||||||
| Total | $ | 6,288,195 | $ | 56,946 | $ | (77,093 | ) | $ | 48,936 | $ | 6,316,984 | $ | 6,368,495 | ||||||||||||||||
| Current Quarter Component Changes by Investment Style and Product Type (Long-term) | |||||||||||||||||||||||||||||
| Net | |||||||||||||||||||||||||||||
| December 31, | inflows | Market | March 31, | ||||||||||||||||||||||||||
| 2017 | (outflows) | change | FX impact (1) | 2018 | Average AUM (2) | ||||||||||||||||||||||||
| Active: | |||||||||||||||||||||||||||||
| Equity | $ | 311,209 | $ | 1,005 | $ | (6,458 | ) | $ | 2,611 | $ | 308,367 | $ | 316,310 | ||||||||||||||||
| Fixed income | 815,135 | 4,858 | (9,222 | ) | 5,503 | 816,274 | 816,757 | ||||||||||||||||||||||
| Multi-asset | 468,679 | (2,075 | ) | (4,716 | ) | 3,057 | 464,945 | 469,320 | |||||||||||||||||||||
| Alternatives | 100,982 | 1,725 | 736 | 854 | 104,297 | 103,039 | |||||||||||||||||||||||
| Active subtotal | 1,696,005 | 5,513 | (19,660 | ) | 12,025 | 1,693,883 | 1,705,426 | ||||||||||||||||||||||
| Index and iShares ETFs: | |||||||||||||||||||||||||||||
| iShares ETFs: | |||||||||||||||||||||||||||||
| Equity | 1,329,610 | 29,714 | (17,345 | ) | 2,585 | 1,344,564 | 1,366,390 | ||||||||||||||||||||||
| Fixed income | 395,252 | 3,210 | (5,754 | ) | 1,483 | 394,191 | 394,856 | ||||||||||||||||||||||
| Multi-asset | 3,761 | 48 | (40 | ) | (3 | ) | 3,766 | 3,792 | |||||||||||||||||||||
| Alternatives | 23,616 | 1,677 | 91 | 20 | 25,404 | 24,852 | |||||||||||||||||||||||
| iShares ETFs subtotal | 1,752,239 | 34,649 | (23,048 | ) | 4,085 | 1,767,925 | 1,789,890 | ||||||||||||||||||||||
| Non-ETF Index: | |||||||||||||||||||||||||||||
| Equity | 1,730,822 | (4,205 | ) | (31,299 | ) | 14,988 | 1,710,306 | 1,748,113 | |||||||||||||||||||||
| Fixed income | 645,078 | 18,615 | (3,087 | ) | 15,452 | 676,058 | 656,748 | ||||||||||||||||||||||
| Multi-asset | 7,838 | 40 | (113 | ) | 221 | 7,986 | 8,456 | ||||||||||||||||||||||
| Alternatives | 4,749 | 13 | 43 | 98 | 4,903 | 4,910 | |||||||||||||||||||||||
| Non-ETF Index subtotal | 2,388,487 | 14,463 | (34,456 | ) | 30,759 | 2,399,253 | 2,418,227 | ||||||||||||||||||||||
| Index & iShares ETFs subtotal | 4,140,726 | 49,112 | (57,504 | ) | 34,844 | 4,167,178 | 4,208,117 | ||||||||||||||||||||||
| Long-term | $ | 5,836,731 | $ | 54,625 | $ | (77,164 | ) | $ | 46,869 | $ | 5,861,061 | $ | 5,913,543 | ||||||||||||||||
| Current Quarter Component Changes by Product Type (Long-term) | |||||||||||||||||||||||||||||
| Net | |||||||||||||||||||||||||||||
| December 31, | inflows | Market | March 31, | ||||||||||||||||||||||||||
| 2017 | (outflows) | change | FX impact (1) | 2018 | Average AUM (2) | ||||||||||||||||||||||||
| Equity | $ | 3,371,641 | $ | 26,514 | $ | (55,102 | ) | $ | 20,184 | $ | 3,363,237 | $ | 3,430,813 | ||||||||||||||||
| Fixed income | 1,855,465 | 26,683 | (18,063 | ) | 22,438 | 1,886,523 | 1,868,361 | ||||||||||||||||||||||
| Multi-asset | 480,278 | (1,987 | ) | (4,869 | ) | 3,275 | 476,697 | 481,568 | |||||||||||||||||||||
| Alternatives: | |||||||||||||||||||||||||||||
| Core | 98,533 | 1,533 | 750 | 747 | 101,563 | 100,438 | |||||||||||||||||||||||
| Currency and commodities(4) | 30,814 | 1,882 | 120 | 225 | 33,041 | 32,363 | |||||||||||||||||||||||
| Alternatives subtotal | 129,347 | 3,415 | 870 | 972 | 134,604 | 132,801 | |||||||||||||||||||||||
| Long-term | $ | 5,836,731 | $ | 54,625 | $ | (77,164 | ) | $ | 46,869 | $ | 5,861,061 | $ | 5,913,543 | ||||||||||||||||
| (1) | Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes. | |
| (2) | Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing four months. | |
| (3) | Advisory AUM represents long-term portfolio liquidation assignments. | |
| (4) |
Amounts include commodity iShares ETFs. |
|
|
ASSETS UNDER MANAGEMENT (in millions), (unaudited) |
||||||||||||||||||||||||||||||||||
| Year-over-Year Component Changes by Client Type and Product Type | ||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||
| March 31, | inflows | Market | March 31, | |||||||||||||||||||||||||||||||
| 2017 | (outflows) | Acquisition(1) | change | FX impact (2) | 2018 | Average AUM (3) | ||||||||||||||||||||||||||||
| Retail: | ||||||||||||||||||||||||||||||||||
| Equity | $ | 208,181 | $ | 6,564 | $ | - | $ | 10,628 | $ | 7,582 | $ | 232,955 | $ | 225,294 | ||||||||||||||||||||
| Fixed income | 230,003 | 29,775 | - | 1,974 | 4,819 | 266,571 | 249,258 | |||||||||||||||||||||||||||
| Multi-asset | 110,702 | 4,921 | - | 4,874 | 1,104 | 121,601 | 117,752 | |||||||||||||||||||||||||||
| Alternatives | 15,447 | 693 | - | 609 | 487 | 17,236 | 16,964 | |||||||||||||||||||||||||||
| Retail subtotal | 564,333 | 41,953 | - | 18,085 | 13,992 | 638,363 | 609,268 | |||||||||||||||||||||||||||
| iShares ETFs: | ||||||||||||||||||||||||||||||||||
| Equity | 1,052,409 | 159,538 | - | 117,376 | 15,241 | 1,344,564 | 1,233,739 | |||||||||||||||||||||||||||
| Fixed income | 337,904 | 50,358 | - | (3,217 | ) | 9,146 | 394,191 | 377,467 | ||||||||||||||||||||||||||
| Multi-asset | 2,890 | 747 | - | 123 | 6 | 3,766 | 3,466 | |||||||||||||||||||||||||||
| Alternatives | 20,132 | 4,866 | - | 236 | 170 | 25,404 | 22,397 | |||||||||||||||||||||||||||
| iShares ETFs subtotal | 1,413,335 | 215,509 | - | 114,518 | 24,563 | 1,767,925 | 1,637,069 | |||||||||||||||||||||||||||
| Institutional: | ||||||||||||||||||||||||||||||||||
| Active: | ||||||||||||||||||||||||||||||||||
| Equity | 124,817 | (9,214 | ) | - | 16,067 | 4,800 | 136,470 | 132,135 | ||||||||||||||||||||||||||
| Fixed income | 543,782 | (3,477 | ) | - | 10,299 | 12,968 | 563,572 | 559,731 | ||||||||||||||||||||||||||
| Multi-asset | 290,729 | 11,736 | - | 25,551 | 15,328 | 343,344 | 325,522 | |||||||||||||||||||||||||||
| Alternatives | 77,905 | 799 | 3,264 | 2,806 | 2,286 | 87,060 | 83,120 | |||||||||||||||||||||||||||
| Active subtotal | 1,037,233 | (156 | ) | 3,264 | 54,723 | 35,382 | 1,130,446 | 1,100,508 | ||||||||||||||||||||||||||
| Index: | ||||||||||||||||||||||||||||||||||
| Equity | 1,480,108 | (44,286 | ) | - | 174,294 | 39,132 | 1,649,248 | 1,600,091 | ||||||||||||||||||||||||||
| Fixed income | 518,880 | 95,441 | - | 5,605 | 42,263 | 662,189 | 590,625 | |||||||||||||||||||||||||||
| Multi-asset | 7,244 | (611 | ) | - | 1,062 | 291 | 7,986 | 7,952 | ||||||||||||||||||||||||||
| Alternatives | 7,673 | (3,328 | ) | - | 243 | 316 | 4,904 | 6,374 | ||||||||||||||||||||||||||
| Index subtotal | 2,013,905 | 47,216 | - | 181,204 | 82,002 | 2,324,327 | 2,205,042 | |||||||||||||||||||||||||||
| Institutional subtotal | 3,051,138 | 47,060 | 3,264 | 235,927 | 117,384 | 3,454,773 | 3,305,550 | |||||||||||||||||||||||||||
| Long-term | 5,028,806 | 304,522 | 3,264 | 368,530 | 155,939 | 5,861,061 | 5,551,887 | |||||||||||||||||||||||||||
| Cash management | 388,935 | 56,639 | - | 1,104 | 8,106 | 454,784 | 427,375 | |||||||||||||||||||||||||||
| Advisory (4) | 2,736 | (1,561 | ) | - | (190 | ) | 154 | 1,139 | 2,159 | |||||||||||||||||||||||||
| Total | $ | 5,420,477 | $ | 359,600 | $ | 3,264 | $ | 369,444 | $ | 164,199 | $ | 6,316,984 | $ | 5,981,421 | ||||||||||||||||||||
| Year-over-Year Component Changes by Investment Style and Product Type (Long-term) | ||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||
| March 31, | inflows | Market | March 31, | |||||||||||||||||||||||||||||||
| 2017 | (outflows) | Acquisition(1) | change | FX impact (2) | 2018 | Average AUM (3) | ||||||||||||||||||||||||||||
| Active: | ||||||||||||||||||||||||||||||||||
| Equity | $ | 285,716 | $ | (10,682 | ) | $ | - | $ | 23,688 | $ | 9,645 | $ | 308,367 | $ | 301,969 | |||||||||||||||||||
| Fixed income | 763,020 | 24,338 | - | 12,173 | 16,743 | 816,274 | 796,760 | |||||||||||||||||||||||||||
| Multi-asset | 401,431 | 16,657 | - | 30,425 | 16,432 | 464,945 | 443,274 | |||||||||||||||||||||||||||
| Alternatives | 93,352 | 1,491 | 3,264 | 3,415 | 2,775 | 104,297 | 100,084 | |||||||||||||||||||||||||||
| Active subtotal | 1,543,519 | 31,804 | 3,264 | 69,701 | 45,595 | 1,693,883 | 1,642,087 | |||||||||||||||||||||||||||
| Index and iShares ETFs: | ||||||||||||||||||||||||||||||||||
| iShares ETFs | ||||||||||||||||||||||||||||||||||
| Equity | 1,052,409 | 159,538 | - | 117,376 | 15,241 | 1,344,564 | 1,233,739 | |||||||||||||||||||||||||||
| Fixed income | 337,904 | 50,358 | - | (3,217 | ) | 9,146 | 394,191 | 377,467 | ||||||||||||||||||||||||||
| Multi-asset | 2,890 | 747 | - | 123 | 6 | 3,766 | 3,466 | |||||||||||||||||||||||||||
| Alternatives | 20,132 | 4,866 | - | 236 | 170 | 25,404 | 22,397 | |||||||||||||||||||||||||||
| iShares ETFs subtotal | 1,413,335 | 215,509 | - | 114,518 | 24,563 | 1,767,925 | 1,637,069 | |||||||||||||||||||||||||||
| Non-ETF Index | ||||||||||||||||||||||||||||||||||
| Equity | 1,527,390 | (36,254 | ) | - | 177,301 | 41,869 | 1,710,306 | 1,655,551 | ||||||||||||||||||||||||||
| Fixed income | 529,645 | 97,401 | - | 5,705 | 43,307 | 676,058 | 602,854 | |||||||||||||||||||||||||||
| Multi-asset | 7,244 | (611 | ) | - | 1,062 | 291 | 7,986 | 7,952 | ||||||||||||||||||||||||||
| Alternatives | 7,673 | (3,327 | ) | - | 243 | 314 | 4,903 | 6,374 | ||||||||||||||||||||||||||
| Non-ETF Index subtotal | 2,071,952 | 57,209 | - | 184,311 | 85,781 | 2,399,253 | 2,272,731 | |||||||||||||||||||||||||||
| Index & iShares ETFs subtotal | 3,485,287 | 272,718 | - | 298,829 | 110,344 | 4,167,178 | 3,909,800 | |||||||||||||||||||||||||||
| Long-term | $ | 5,028,806 | $ | 304,522 | $ | 3,264 | $ | 368,530 | $ | 155,939 | $ | 5,861,061 | $ | 5,551,887 | ||||||||||||||||||||
| Year-over-Year Component Changes by Product Type (Long-term) | ||||||||||||||||||||||||||||||||||
| Net | ||||||||||||||||||||||||||||||||||
| March 31, | inflows | Market | March 31, | |||||||||||||||||||||||||||||||
| 2017 | (outflows) | Acquisition(1) | change | FX impact (2) | 2018 | Average AUM (3) | ||||||||||||||||||||||||||||
| Equity | $ | 2,865,515 | $ | 112,602 | $ | - | $ | 318,365 | $ | 66,755 | $ | 3,363,237 | $ | 3,191,259 | ||||||||||||||||||||
| Fixed income | 1,630,569 | 172,097 | - | 14,661 | 69,196 | 1,886,523 | 1,777,081 | |||||||||||||||||||||||||||
| Multi-asset | 411,565 | 16,793 | - | 31,610 | 16,729 | 476,697 | 454,692 | |||||||||||||||||||||||||||
| Alternatives: | ||||||||||||||||||||||||||||||||||
| Core | 90,914 | 1,309 | 3,264 | 3,379 | 2,697 | 101,563 | 97,643 | |||||||||||||||||||||||||||
| Currency and commodities(5) | 30,243 | 1,721 | - | 515 | 562 | 33,041 | 31,212 | |||||||||||||||||||||||||||
| Alternatives subtotal | 121,157 | 3,030 | 3,264 | 3,894 | 3,259 | 134,604 | 128,855 | |||||||||||||||||||||||||||
| Long-term | $ | 5,028,806 | $ | 304,522 | $ | 3,264 | $ | 368,530 | $ | 155,939 | $ | 5,861,061 | $ | 5,551,887 | ||||||||||||||||||||
| (1) | Amount represents AUM acquired in the First Reserve Infrastructure business transaction in June 2017. | |
| (2) | Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes. | |
| (3) | Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months. | |
| (4) | Advisory AUM represents long-term portfolio liquidation assignments. | |
| (5) |
Amounts include commodity iShares ETFs. |
|
|
SUMMARY OF REVENUE |
|||||||||||||||||||||||||
| Three Months | |||||||||||||||||||||||||
| Three Months Ended | Ended | ||||||||||||||||||||||||
| March 31, | December 31, | ||||||||||||||||||||||||
| (in millions), (unaudited) | 2018 | 2017(a) | Change | 2017(a) | Change | ||||||||||||||||||||
|
Investment advisory, administration fees
and securities lending revenue: |
|||||||||||||||||||||||||
| Equity: | |||||||||||||||||||||||||
| Active | $ |
438 |
$ | 400 | $ |
38 |
$ | 425 | $ |
13 |
|||||||||||||||
| iShares ETFs |
926 |
721 |
205 |
888 |
38 |
||||||||||||||||||||
| Non-ETF Index | 176 | 160 | 16 | 177 | (1 | ) | |||||||||||||||||||
| Equity subtotal |
1,540 |
1,281 |
259 |
1,490 |
50 |
||||||||||||||||||||
| Fixed income: | |||||||||||||||||||||||||
| Active |
456 |
407 |
49 |
449 |
7 |
||||||||||||||||||||
| iShares ETFs |
208 |
185 |
23 |
213 |
(5 |
) | |||||||||||||||||||
| Non-ETF Index |
93 |
85 |
8 |
87 |
6 |
||||||||||||||||||||
| Fixed income subtotal |
757 |
677 |
80 |
749 |
8 |
||||||||||||||||||||
| Multi-asset | 296 | 272 | 24 | 314 | (18 | ) | |||||||||||||||||||
| Alternatives: | |||||||||||||||||||||||||
| Core | 178 | 144 | 34 | 170 | 8 | ||||||||||||||||||||
| Currency and commodities | 25 | 22 | 3 | 24 | 1 | ||||||||||||||||||||
| Alternatives subtotal | 203 | 166 | 37 | 194 | 9 | ||||||||||||||||||||
| Long-term | 2,796 | 2,396 | 400 | 2,747 | 49 | ||||||||||||||||||||
| Cash management | 151 | 127 | 24 | 150 | 1 | ||||||||||||||||||||
| Total base fees | 2,947 | 2,523 | 424 | 2,897 | 50 | ||||||||||||||||||||
| Investment advisory performance fees: | |||||||||||||||||||||||||
| Equity | 18 | 15 | 3 | 95 | (77 | ) | |||||||||||||||||||
| Fixed income | 3 | 10 | (7 | ) | 14 | (11 | ) | ||||||||||||||||||
| Multi-asset | 5 | 5 | - | 19 | (14 | ) | |||||||||||||||||||
| Alternatives | 44 | 40 | 4 | 157 | (113 | ) | |||||||||||||||||||
| Total performance fees | 70 | 70 | - | 285 | (215 | ) | |||||||||||||||||||
| Technology and risk management revenue | 184 | 154 | 30 | 176 | 8 | ||||||||||||||||||||
| Distribution fees: | |||||||||||||||||||||||||
| Retrocessions | 192 | 155 | 37 | 185 | 7 | ||||||||||||||||||||
| 12b-1 fees (U.S. mutual funds distribution fees) | 108 | 122 | (14 | ) | 110 | (2 | ) | ||||||||||||||||||
| Other | 11 | 10 | 1 | 11 | - | ||||||||||||||||||||
| Total distribution fees | 311 | 287 | 24 | 306 | 5 | ||||||||||||||||||||
| Advisory and other revenue: | |||||||||||||||||||||||||
| Advisory | 21 | 24 | (3 | ) | 54 | (33 | ) | ||||||||||||||||||
| Other | 50 | 34 | 16 | 46 | 4 | ||||||||||||||||||||
| Advisory and other revenue | 71 | 58 | 13 | 100 | (29 | ) | |||||||||||||||||||
| Total revenue | $ | 3,583 | $ | 3,092 | $ | 491 | $ | 3,764 | $ | (181 | ) | ||||||||||||||
|
(a) |
Financial results for 2017 were recast to reflect the adoption of the new revenue recognition standard. For further information, refer to the Current Report on Form 8-K furnished on March 22, 2018. | |
Highlights
-
Investment advisory, administration fees and securities lending
revenue increased $424 million from the first quarter of 2017,
reflecting the impact of higher markets and organic growth on average
AUM and the impact of foreign exchange movements, partially offset by
previously announced pricing changes to select investment
products. Securities lending revenue of $155 million in the current
quarter compared with $141 million in the first quarter of 2017.
Investment advisory, administration fees and securities lending revenue increased $50 million from the fourth quarter of 2017, driven by higher average AUM and foreign exchange movements, partially offset by the effect of two less days in the current quarter. Securities lending revenue of $155 million in the current quarter compared with $150 million in the fourth quarter of 2017. - Performance fees decreased $215 million from the fourth quarter of 2017, primarily due to seasonally higher fees from funds with a performance measurement period that ended in the fourth quarter of 2017.
- Technology and risk management revenue increased $30 million from the first quarter of 2017 and $8 million from the fourth quarter of 2017, reflecting ongoing demand for institutional Aladdin and expansion of digital wealth and distribution technologies, including Aladdin Risk for Wealth Management and Cachematrix.
-
Advisory and other revenue increased $13 million from the first
quarter of 2017, primarily reflecting higher earnings from strategic
minority investments and decreased $29 million from the fourth quarter
of 2017, primarily reflecting lower fees from advisory assignments.
|
SUMMARY OF OPERATING EXPENSE |
|||||||||||||||||||||||||
| Three | Three | ||||||||||||||||||||||||
| Months Ended | Months Ended | ||||||||||||||||||||||||
| March 31, | December 31, | ||||||||||||||||||||||||
| (in millions), (unaudited) | 2018 | 2017(a) | Change | 2017(a) | Change | ||||||||||||||||||||
| Operating expense | |||||||||||||||||||||||||
| Employee compensation and benefits | $ | 1,121 | $ | 1,021 | $ | 100 | $ | 1,147 | $ | (26 | ) | ||||||||||||||
| Distribution and servicing costs: | |||||||||||||||||||||||||
| Retrocessions | 192 | 155 | 37 | 185 | 7 | ||||||||||||||||||||
| 12b-1 costs | 106 | 119 | (13 | ) | 106 | - | |||||||||||||||||||
| Other | 134 | 127 | 7 | 142 | (8 | ) | |||||||||||||||||||
| Total distribution and servicing costs | 432 | 401 | 31 | 433 | (1 | ) | |||||||||||||||||||
| Direct fund expense | 261 | 206 | 55 | 237 | 24 | ||||||||||||||||||||
| General and administration: | |||||||||||||||||||||||||
| Marketing and promotional | 85 | 69 | 16 | 102 | (17 | ) | |||||||||||||||||||
| Occupancy and office related | 74 | 65 | 9 | 73 | 1 | ||||||||||||||||||||
| Portfolio services | 70 | 57 | 13 | 76 | (6 | ) | |||||||||||||||||||
| Technology | 53 | 43 | 10 | 58 | (5 | ) | |||||||||||||||||||
| Professional services | 32 | 25 | 7 | 50 | (18 | ) | |||||||||||||||||||
| Communications | 10 | 8 | 2 | 10 | - | ||||||||||||||||||||
| Foreign exchange remeasurement | 1 | (11 | ) | 12 | 8 | (7 | ) | ||||||||||||||||||
| Contingent consideration fair value adjustments | 6 | (4 | ) | 10 | 9 | (3 | ) | ||||||||||||||||||
| Product launch costs | 11 | 4 | 7 | - | 11 | ||||||||||||||||||||
| Other general and administration | 41 | 40 | 1 | 64 | (23 | ) | |||||||||||||||||||
| Total general and administration expense | 383 | 296 | 87 | 450 | (67 | ) | |||||||||||||||||||
| Amortization of intangible assets | 11 | 25 | (14 | ) | 12 | (1 | ) | ||||||||||||||||||
| Total operating expense | $ | 2,208 | $ | 1,949 | $ | 259 | $ | 2,279 | $ | (71 | ) | ||||||||||||||
|
(a) |
Financial results for 2017 were recast to reflect the adoption of the new revenue recognition standard. For further information, refer to the Current Report on Form 8-K furnished on March 22, 2018. | |
Highlights
-
Employee compensation and benefits expense increased $100 million from
the first quarter of 2017, primarily reflecting higher incentive
compensation, driven primarily by higher operating income and
headcount, partially offset by approximately $20 million of severance
and accelerated compensation expense associated with the repositioning
of the active equity platform during the first quarter of 2017.
Employee compensation and benefits expense decreased $26 million from the fourth quarter of 2017, primarily reflecting lower incentive compensation, driven primarily by lower performance fees and operating income, partially offset by higher seasonal payroll taxes, and an increase in stock-based compensation expense related to the effect of additional grants at the end of January 2018. - Direct fund expense increased $55 million from the first quarter of 2017 and $24 million from the fourth quarter of 2017, reflecting higher average AUM.
|
INCOME TAX EXPENSE (BENEFIT) |
|||||||||||||||||||||||||||
| Three | Three | ||||||||||||||||||||||||||
| Months Ended | Months Ended | ||||||||||||||||||||||||||
| March 31, | December 31, | ||||||||||||||||||||||||||
| (in millions), (unaudited) | 2018 | 2017(a) | Change | 2017(a) | Change | ||||||||||||||||||||||
| Income tax expense (benefit) | $ | 265 | $ | 268 | $ | (3 | ) | $ | (815 | ) | $ | 1,080 | |||||||||||||||
| Effective tax rate | 19.6 | % | 23.8 | % | (420 | ) bps | (55.1 | )% | 7,470 | bps | |||||||||||||||||
| (a) | Financial results for 2017 were recast to reflect the adoption of the new revenue recognition standard. For further information, refer to the Current Report on Form 8-K furnished on March 22, 2018. | |
Highlights
- First quarter 2018 income tax expense reflected a reduced tax rate associated with the Tax Cuts and Jobs Act (the "2017 Act") enacted in the United States and included a $56 million discrete tax benefit related to stock-based compensation awards that vested in the first quarter of 2018.
- First quarter 2017 income tax expense included an $81 million discrete tax benefit related to stock-based compensation awards that vested in the first quarter of 2017.
- Fourth quarter 2017 income tax benefit included $1.2 billion of net tax benefit related to the 2017 Act and included an $84 million discrete tax benefit, primarily related to stock-based compensation awards.
|
SUMMARY AND RECONCILIATION OF U.S. GAAP NONOPERATING INCOME (EXPENSE) TO NONOPERATING INCOME (EXPENSE), AS ADJUSTED |
|||||||||||||||||||||||||
| Three Months | Three Months | ||||||||||||||||||||||||
| Ended | Ended | ||||||||||||||||||||||||
| March 31, | December 31, | ||||||||||||||||||||||||
| (in millions), (unaudited) | 2018 | 2017 | Change | 2017 | Change | ||||||||||||||||||||
| Nonoperating income (expense), GAAP basis | $ | (16 | ) | $ | (7 | ) | $ | (9 | ) | $ | 1 | $ | (17 | ) | |||||||||||
|
Less: Net income (loss) attributable to
noncontrolling interests ("NCI") |
5 | 9 | (4 | ) | 6 | (1 | ) | ||||||||||||||||||
| Nonoperating income (expense), as adjusted(1)(2) | $ | (21 | ) | $ | (16 | ) | $ | (5 | ) | $ | (5 | ) | $ | (16 | ) | ||||||||||
| Three Months | Three Months | ||||||||||||||||||||||||
| Ended | Ended | ||||||||||||||||||||||||
| March 31, | December 31, | ||||||||||||||||||||||||
| (in millions), (unaudited) | 2018 | 2017 | Change | 2017 | Change | ||||||||||||||||||||
| Net gain (loss) on investments(1)(2) | |||||||||||||||||||||||||
| Private equity | $ | 1 | $ | 6 | $ | (5 | ) | $ | - | $ | 1 | ||||||||||||||
| Real assets | 5 | 1 | 4 | 15 | (10 | ) | |||||||||||||||||||
| Other alternatives(3) | 3 | 14 | (11 | ) | 4 | (1 | ) | ||||||||||||||||||
| Other investments(4) | 1 | 21 | (20 | ) | 8 | (7 | ) | ||||||||||||||||||
| Total net gain (loss) on investments(1)(2) | 10 | 42 | (32 | ) | 27 | (17 | ) | ||||||||||||||||||
| Interest and dividend income | 15 | 7 | 8 | 14 | 1 | ||||||||||||||||||||
| Interest expense | (46 | ) | (65 | ) | 19 | (46 | ) | - | |||||||||||||||||
| Net interest expense | (31 | ) | (58 | ) | 27 | (32 | ) | 1 | |||||||||||||||||
| Nonoperating income (expense), as adjusted(1)(2) | $ | (21 | ) | $ | (16 | ) | $ | (5 | ) | $ | (5 | ) | $ | (16 | ) | ||||||||||
| (1) | Net of net income (loss) attributable to NCI. | |
| (2) |
Management believes nonoperating income (expense), as adjusted, is an effective measure for reviewing BlackRock's nonoperating contribution to results. For more information on other as adjusted items and the reconciliation to GAAP see notes (1) through (3) to the condensed consolidated statements of income and supplemental information. |
|
| (3) | Amounts primarily include net gains (losses) related to direct hedge fund strategies and hedge fund solutions. | |
| (4) | Amounts primarily include net gains (losses) related to equity and fixed income investments. | |
Highlights
- First quarter 2017 interest expense included a make-whole redemption premium of $14 million related to the refinancing of $700 million of 6.25% notes, which were called prior to their September 2017 maturity.
| RECONCILIATION OF U.S. GAAP OPERATING INCOME AND OPERATING MARGIN TO OPERATING INCOME AND OPERATING MARGIN, AS ADJUSTED | |||||||||||||||
| Three Months Ended | |||||||||||||||
| March 31, | December 31, | ||||||||||||||
| (in millions), (unaudited) | 2018 | 2017(a) | 2017(a) | ||||||||||||
| Operating income, GAAP basis | $ | 1,375 | $ | 1,143 | $ | 1,485 | |||||||||
| Non-GAAP expense adjustment: | |||||||||||||||
| PNC LTIP funding obligation | 3 | 4 | 3 | ||||||||||||
| Operating income, as adjusted | 1,378 | 1,147 | 1,488 | ||||||||||||
| Product launch costs and commissions | 12 | - | - | ||||||||||||
| Operating income used for operating margin measurement | $ | 1,390 | $ | 1,147 | $ | 1,488 | |||||||||
| Revenue, GAAP basis | $ | 3,583 | $ | 3,092 | $ | 3,764 | |||||||||
| Non-GAAP adjustment: | |||||||||||||||
| Distribution and servicing costs | (432 | ) | (401 | ) | (433 | ) | |||||||||
| Revenue used for operating margin measurement | $ | 3,151 | $ | 2,691 | $ | 3,331 | |||||||||
| Operating margin, GAAP basis | 38.4 | % | 37.0 | % | 39.5 | % | |||||||||
| Operating margin, as adjusted | 44.1 | % | 42.6 | % | 44.7 | % | |||||||||
|
See note (1) to the condensed consolidated statements of income and supplemental information for more information on as adjusted items and the reconciliation to GAAP. |
|
(a) Financial results for 2017 were recast to reflect the adoption of the new revenue recognition standard. For further information, refer to the Current Report on Form 8-K furnished on March 22, 2018. |
| RECONCILIATION OF U.S. GAAP NET INCOME ATTRIBUTABLE TO BLACKROCK TO NET INCOME ATTRIBUTABLE TO BLACKROCK, AS ADJUSTED | |||||||||||||||
| Three Months Ended | |||||||||||||||
| March 31, | December 31, | ||||||||||||||
| (in millions, except per share data), (unaudited) | 2018 | 2017(a) | 2017(a) | ||||||||||||
| Net income attributable to BlackRock, Inc., GAAP basis | $ | 1,089 | $ | 859 | $ | 2,295 | |||||||||
| Non-GAAP adjustments: | |||||||||||||||
| PNC LTIP funding obligation, net of tax | 3 | 3 | 2 | ||||||||||||
| The 2017 Act: | |||||||||||||||
| Deferred tax revaluation (noncash) | - | - | (1,758 | ) | |||||||||||
| Deemed repatriation tax | - | - | 477 | ||||||||||||
| Other income tax matters | - | - | (3 | ) | |||||||||||
| Net income attributable to BlackRock, Inc., as adjusted | $ | 1,092 | $ | 862 | $ | 1,013 | |||||||||
| Diluted weighted-average common shares outstanding(3) | 162.9 | 164.9 | 163.8 | ||||||||||||
| Diluted earnings per common share, GAAP basis(3) | $ | 6.68 | $ | 5.21 | $ | 14.01 | |||||||||
| Diluted earnings per common share, as adjusted(3) | $ | 6.70 | $ | 5.23 | $ | 6.19 | |||||||||
|
See notes (2) and (3) to the condensed consolidated statements of income and supplemental information for more information on as adjusted items and the reconciliation to GAAP. |
|
(a) Financial results for 2017 were recast to reflect the adoption of the new revenue recognition standard. For further information, refer to the Current Report on Form 8-K furnished on March 22, 2018.
|
NOTES TO CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION (unaudited)
BlackRock reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP"); however, management believes evaluating the Company's ongoing operating results may be enhanced if investors have additional non-GAAP financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and considers them to be helpful, for both management and investors, in evaluating BlackRock's financial performance over time. Management also uses non-GAAP financial measures as a benchmark to compare its performance with other companies and to enhance the comparability of this information for the reporting periods presented. Non-GAAP measures may pose limitations because they do not include all of BlackRock's revenue and expense. BlackRock's management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Non-GAAP measures may not be comparable to other similarly titled measures of other companies.
Management uses both GAAP and non-GAAP financial measures in evaluating BlackRock's financial performance. Adjustments to GAAP financial measures ("non-GAAP adjustments") include certain items management deems nonrecurring or that occur infrequently, transactions that ultimately will not impact BlackRock's book value or certain tax items that do not impact cash flow.
Computations for all periods are derived from the condensed consolidated statements of income as follows:
(1) Operating income, as adjusted, and operating margin, as adjusted: Management believes operating income, as adjusted, and operating margin, as adjusted, are effective indicators of BlackRock's financial performance over time and, therefore, provide useful disclosure to investors.
- Operating income, as adjusted, includes non-GAAP expense adjustments. The portion of compensation expense associated with certain long-term incentive plans ("LTIP") funded, or to be funded, through share distributions to participants of BlackRock stock held by The PNC Financial Services Group, Inc. ("PNC") has been excluded because it ultimately does not impact BlackRock's book value.
- Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of product launch costs (e.g. closed-end fund launch costs) and related commissions. Management believes the exclusion of such costs and related commissions is useful because these costs can fluctuate considerably and revenue associated with the expenditure of these costs will not fully impact BlackRock's results until future periods.
Revenue used for operating margin, as adjusted, excludes distribution and servicing costs paid to third parties. Management believes such costs represent a benchmark for the amount of revenue passed through to external parties who distribute the Company's products. BlackRock excludes from revenue used for operating margin, as adjusted, the costs related to distribution and servicing costs as a proxy for such offsetting revenue.
(2) Net income attributable to BlackRock, Inc., as adjusted: Management believes net income attributable to BlackRock, Inc., as adjusted, and diluted earnings per common share, as adjusted, are useful measures of BlackRock's profitability and financial performance. Net income attributable to BlackRock, Inc., as adjusted, equals net income attributable to BlackRock, Inc., GAAP basis, adjusted for significant nonrecurring items, charges that ultimately will not impact BlackRock's book value or certain tax items that do not impact cash flow.
See aforementioned discussion regarding operating income, as adjusted, and operating margin, as adjusted, for information on the PNC LTIP funding obligation.
For each period presented, the non-GAAP adjustment related to the PNC LTIP funding obligation was tax effected at the respective blended rates applicable to the adjustments. The fourth quarter of 2017 noncash deferred tax revaluation benefit of $1,758 million and the other income tax matters were primarily associated with the revaluation of certain deferred tax liabilities related to intangible assets and goodwill. Amounts have been excluded from the as adjusted results as these items will not have a cash flow impact and to ensure comparability among periods presented. A deemed repatriation tax expense of $477 million has been excluded from the fourth quarter of 2017 as adjusted results due to the one-time nature and to ensure comparability among periods presented.
Per share amounts reflect net income attributable to BlackRock, Inc., as adjusted divided by diluted weighted average common shares outstanding.
(3) Nonvoting participating preferred stock is considered to be a common stock equivalent for purposes of determining basic and diluted earnings per share calculations.
FORWARD-LOOKING STATEMENTS
This earnings release, and other statements that BlackRock may make, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to BlackRock's future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as "trend," "potential," "opportunity," "pipeline," "believe," "comfortable," "expect," "anticipate," "current," "intention," "estimate," "position," "assume," "outlook," "continue," "remain," "maintain," "sustain," "seek," "achieve," and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "may" and similar expressions.
BlackRock cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and BlackRock assumes no duty to and does not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.
BlackRock has previously disclosed risk factors in its Securities and Exchange Commission ("SEC") reports. These risk factors and those identified elsewhere in this earnings release, among others, could cause actual results to differ materially from forward-looking statements or historical performance and include: (1) the introduction, withdrawal, success and timing of business initiatives and strategies; (2) changes and volatility in political, economic or industry conditions, the interest rate environment, foreign exchange rates or financial and capital markets, which could result in changes in demand for products or services or in the value of assets under management; (3) the relative and absolute investment performance of BlackRock's investment products; (4) the impact of increased competition; (5) the impact of future acquisitions or divestitures; (6) the unfavorable resolution of legal proceedings; (7) the extent and timing of any share repurchases; (8) the impact, extent and timing of technological changes and the adequacy of intellectual property, information and cyber security protection; (9) the potential for human error in connection with BlackRock's operational systems; (10) the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to BlackRock or PNC; (11) changes in law and policy and uncertainty pending any such changes; (12) terrorist activities, international hostilities and natural disasters, which may adversely affect the general economy, domestic and local financial and capital markets, specific industries or BlackRock; (13) the ability to attract and retain highly talented professionals; (14) fluctuations in the carrying value of BlackRock's economic investments; (15) the impact of changes to tax legislation, including income, payroll and transaction taxes, and taxation on products or transactions, which could affect the value proposition to clients and, generally, the tax position of the Company; (16) BlackRock's success in negotiating distribution arrangements and maintaining distribution channels for its products; (17) the failure by a key vendor of BlackRock to fulfill its obligations to the Company; (18) any disruption to the operations of third parties whose functions are integral to BlackRock's ETF platform; (19) the impact of BlackRock electing to provide support to its products from time to time and any potential liabilities related to securities lending or other indemnification obligations; and (20) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions.
BlackRock's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and BlackRock's subsequent filings with the SEC, accessible on the SEC's website at www.sec.gov and on BlackRock's website at www.blackrock.com, discuss these factors in more detail and identify additional factors that can affect forward-looking statements. The information contained on the Company's website is not a part of this earnings release.
PERFORMANCE NOTES
Past performance is not indicative of future results. Except as specified, the performance information shown is as of March 31, 2018 and is based on preliminary data available at that time. The performance data shown reflects information for all actively and passively managed equity and fixed income accounts, including U.S. registered investment companies, European-domiciled retail funds and separate accounts for which performance data is available, including performance data for high net worth accounts available as of February 28, 2018. The performance data does not include accounts terminated prior to March 31, 2018 and accounts for which data has not yet been verified. If such accounts had been included, the performance data provided may have substantially differed from that shown.
Performance comparisons shown are gross-of-fees for institutional and high net worth separate accounts, and net-of-fees for retail funds. The performance tracking shown for index accounts is based on gross-of-fees performance and includes all institutional accounts and all iShares funds globally using an index strategy. AUM information is based on AUM available as of March 31, 2018 for each account or fund in the asset class shown without adjustment for overlapping management of the same account or fund. Fund performance reflects the reinvestment of dividends and distributions.
Performance shown is derived from applicable benchmarks or peer median information, as selected by BlackRock, Inc. Peer medians are based in part on data either from Lipper, Inc. or Morningstar, Inc. for each included product.
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