AB AllianceBernstein Holding LP

NEW YORK, July 30, 2015 /PRNewswire/ -- AllianceBernstein L.P. ("AB") and AllianceBernstein Holding L.P. ("AB Holding") (NYSE: AB) today reported financial and operating results for the quarter ended June 30, 2015.

"Global markets were volatile in the second quarter of 2015, with Greece's debt crisis, China's stock market rout and rising certainty among investors about a second-half US interest rate hike," said Peter S. Kraus, Chairman and Chief Executive Officer. "Many investors were unwilling to take risk as a result, and we felt the effects across our business - yet we still were able to attract $2 billion in net new assets and grow our adjusted net revenues, operating income and margin both sequentially and year-on-year."

⁽¹⁾  The adjusted financial measures are all non-GAAP financial measures. See pages 12-17 for reconciliations of GAAP Financial Results to Adjusted Financial Results and page 18 for notes describing the adjustments.

Kraus continued: "We remain keenly focused on executing on our long-term strategy to deliver for our clients with strong investment performance, a broad and relevant array of global offerings and unique and innovative solutions to their most pressing needs. Our progress continues: As of June 30th, 87%, 90% and 94% of our fixed income assets were in services that beat their benchmarks for the 1-, 3- and 5-year periods, respectively. In active equities, our share of outperforming assets further improved in the quarter, to 87% for the 1-year period, 85% for the 3-year and 66% for the 5-year. In Institutional, we were net flow positive again this quarter, and in addition to funding a $10 billion Customized Retirement Strategies (CRS) mandate, we completed a successful second asset raise for our Real Estate Private Equity fund. We finished the quarter with a stable pipeline of $5.3 billion. In Retail, while we were not immune to the decline in industry flows precipitated by macro issues, we continued to broaden and diversify our global penetration. We raised $200 million in a local Global High Yield Fund launch in Taiwan during the quarter, taking our on-shore AUM there past the $3 billion mark. We're also participating in the shift from fixed income to equity investing in Asia, most notably in Japan, where US Large Cap Growth, US Concentrated Growth and Global Core rank among our top five funds by gross sales for the quarter and year-to-date. In Private Wealth Management, we continue to deliver for clients with our innovative solutions. Dynamic Asset Allocation (DAA) celebrated its five year anniversary during the quarter with a since-inception record of reducing client portfolio volatility by 5-6% on average with no negative impact on returns. We closed our Real Estate Equity Fund II service during the quarter with $465 million in committed capital from private clients. Today we have $880 million in committed but as yet unfunded assets across our suite of targeted services in Private Wealth. On the sell side, recognition for our differentiated research is as high as ever. In the 2015 survey of portfolio managers by a major independent US research firm, Bernstein's US research analysts ranked #1 for research product quality and knowledge of companies and industries - in each case for the 12^th consecutive year - as well as #1 for quality of analyst service, for the 13^th straight year. Finally, we're delivering for our clients and stakeholders with better firm financials. Our adjusted net revenues grew by 4.5%, and our adjusted operating income by 9.5%, from last year's second quarter, for an incremental margin of nearly 50%. Everyone here is committed to providing the utmost service to our clients, while at the same time growing our top line in a cost-effective way. I'm grateful to our AB team for all the hard work and commitment they put in each day to steering our firm toward a future of long-term, sustained growth."

The firm's cash distribution per unit of $0.48 is payable on August 27, 2015, to holders of record of AB Holding Units at the close of business on August 10, 2015.

Market Performance

US and global equity markets were positive in the second quarter, while US and global fixed income markets were negative. The S&P 500's total return was 0.3% in the second quarter, while the MSCI EAFE Index's total return was 0.8%. The Barclays US Aggregate Index returned (1.7)% during the second quarter and the Barclays Global Aggregate ex US Index's total return was (0.8)%.

Assets Under Management ($ Billions)

Total assets under management as of June 30, 2015 were $485.1 billion, down $0.8 billion, or 0.2%, from March 31, 2015, and up $4.9 billion, or 1.0%, from June 30, 2014.

Total net inflows were $2.2 billion, compared to the prior quarter's net inflows of $6.0 billion and the prior-year period's net inflows of $8.3 billion.

Net inflows to the Institutions channel were $3.5 billion, compared to net inflows of $5.4 billion in the first quarter of 2015. Institutions gross sales of $14.2 billion increased 94% from the prior quarter's $7.3 billion. The pipeline of awarded but unfunded Institutional mandates decreased sequentially from $15.8 billion to $5.3 billion at June 30, 2015. The $10 billion Customized Retirement Strategies ("CRS") mandate that was added to the pipeline during the fourth quarter of 2014 funded during the quarter.

The Retail channel experienced second quarter 2015 net outflows of $0.9 billion, compared to the prior quarter's $0.5 billion in net inflows. Retail gross sales of $9.1 billion decreased 16% sequentially from the first quarter's $10.8 billion.

In the Private Wealth channel, net outflows were $0.4 billion, compared to net inflows of $0.1 billion in the previous quarter. Private Wealth gross sales increased 6% to $1.5 billion from the prior quarter's $1.4 billion.

Second Quarter Financial Results

We are presenting both earnings information derived in accordance with accounting principles generally accepted in the United States of America ("US GAAP") and non-GAAP earnings information in this release. Management principally uses these non-GAAP financial measures in evaluating performance because they present a clearer picture of our operating performance, and allow management to see long-term trends without the distortion caused by long-term incentive compensation-related mark-to-market adjustments, real estate consolidation charges/credits and other adjustment items. Similarly, we believe that this non-GAAP earnings information helps investors better understand the underlying trends in our results and, accordingly, provides a valuable perspective for investors. AB Holding is required to distribute all of its Available Cash Flow, as defined in the AB Holding Partnership Agreement, to its Unitholders (including the General Partner). Since the third quarter of 2012, Available Cash Flow has been the adjusted diluted net income per unit for the quarter multiplied by the number of units outstanding at the end of the quarter. Management anticipates that Available Cash Flow will continue to be based on adjusted diluted net income per unit, unless management determines that one or more of the non-GAAP adjustments that are made for adjusted net income should not be made with respect to the Available Cash Flow calculation. These non-GAAP measures are provided in addition to, and not as substitutes for, any measures derived in accordance with US GAAP and they may not be comparable to non-GAAP measures presented by other companies. Management uses both US GAAP and non-GAAP measures in evaluating our financial performance. The non-GAAP measures alone may pose limitations because they do not include all of our revenues and expenses.

Non-GAAP Earnings

This section discusses our second quarter 2015 non-GAAP financial results, as compared to the second quarter of 2014 and the first quarter of 2015. The phrases "adjusted net revenues", "adjusted operating expenses", "adjusted operating income", "adjusted operating margin" and "adjusted diluted net income per Unit" are used in the following earnings discussion to identify non-GAAP information. The most directly comparable US GAAP items are reconciled to these non-GAAP items on pages 12-17 of this release.

Adjusted net revenues of $657 million were up 4% compared to the second quarter of 2014, driven by higher base fees, investment gains compared to investment losses in the prior-year period and higher Bernstein Research revenues, partly offset by lower performance-based fees and higher net distribution expense, the result of current quarter distribution payments and amortization of deferred sales commissions that exceeded distribution revenues. Sequentially, adjusted net revenues were up 4%, driven by higher base and performance-based fees and higher investment gains, partly offset by lower Bernstein Research revenues. Bernstein Research revenues increased 3% from the second quarter of 2014 due to increased client activity in the US and Asia, offsetting a decline in Europe, and declined 3% from the first quarter of 2015 due to decreased client activity in the US and Europe, partially offset by growth in Asia.

Adjusted operating expenses were $499 million for the second quarter, up 3% compared to the prior-year period, driven by higher total compensation and benefits and promotion and servicing expenses, partly offset by lower general and administrative ("G&A") expense. The year-over-year increase in total compensation and benefits expense was a result of higher base compensation, fringes and incentive compensation, partially offset by lower commissions. The increase in promotion and servicing expense was due to higher trade execution and clearance. Within G&A, the decline was primarily due to lower professional fees and occupancy expense, partly offset by higher technology expense.

Sequentially, adjusted operating expenses were up 4%, driven by higher compensation and benefits and promotion and servicing expenses, which were partly offset by slightly lower G&A. The sequential increase in total compensation and benefits expense was driven by higher incentive and base compensation and higher recruitment costs. The increase in promotion and servicing expense was driven by higher marketing and travel and entertainment expenses. The decrease in G&A was due to lower foreign exchange expense.

Adjusted operating income of $158 million increased 10% from $144 million for the second quarter of 2014, and the adjusted operating margin increased to 24.1% from 23.0%. On a sequential basis, adjusted operating income increased 4% from $152 million, and the adjusted operating margin increased from 23.9%.

Adjusted diluted net income per Unit was $0.48 compared to $0.45 in both the second quarter of 2014 and first quarter of 2015.

US GAAP Earnings

Net revenues of $793 million were up 5% compared to the second quarter of 2014, as base fees, investment gains, Bernstein Research revenues and distribution revenues were all higher, and only partly offset by lower performance-based fees. Sequentially, net revenues increased 4%, as a result of higher base and performance-based fees, investment gains and distribution revenues, partly offset by lower Bernstein Research revenues.

Operating expenses were $628 million for the second quarter, up 3% year-over-year, due to higher employee compensation and benefits, promotion and servicing and G&A expenses. Employee compensation and benefits expense increased from the prior-year period due to higher base and incentive compensation and higher fringes, partially offset by lower commissions. Promotion and servicing expense increased from the prior-year period due primarily to higher amortization of deferred sales commissions. Within G&A, higher portfolio services and technology expenses were partly offset by lower professional fees and occupancy expense. The Company recorded a $0.1 million non-cash real estate credit during the second quarter of 2015 as part of its ongoing global real estate consolidation plan compared to a $0.5 million non-cash real estate credit in the second quarter of 2014.

On a sequential basis, operating expenses were up 3% as a result of higher employee compensation and benefits, promotion and servicing, and G&A expenses. Employee compensation and benefits expense increased due to higher incentive and base compensation and higher recruitment costs. Promotion and servicing expense increased as a result of higher distribution plan payments and higher marketing and travel and entertainment expenses. Within G&A, higher portfolio services fees and technology expense were partially offset by lower foreign exchange expense. The Company's $0.1 million non-cash real estate credit in the current quarter compares to a $0.4 million non-cash real estate credit in the first quarter of 2015.

Operating income of $165 million for the second quarter of 2015 increased 15% from $143 million for the second quarter of 2014 and increased 8% from $153 million in the first quarter of 2015.

Diluted net income per Unit for the second quarter of 2015 was $0.48 compared to $0.44 in the second quarter of 2014 and $0.45 in the first quarter of 2015.

Headcount

As of June 30, 2015, we had 3,565 employees, compared to 3,411 employees as of June 30, 2014 and 3,486 employees as of March 31, 2015.

Unit Repurchases

During the second quarter and first six months of 2015, AB purchased 0.1 million and 0.8 million AB Holding Units for $4.3 million and $21.3 million, respectively (on a trade date basis). These amounts reflect open-market purchases of 0.1 million and 0.7 million  AB Holding Units for $4.0 million and $19.0 million, respectively, with the remainder relating to purchases of AB Holding Units from employees to allow them to fulfill statutory tax withholding requirements at the time of distribution of long-term incentive compensation awards. During the second quarter and first six months of 2014, AB purchased approximately 15,000 and 200,000 AB Holding Units for $0.4 million and $4.1 million, respectively (on a trade date basis). These amounts reflect purchases from employees to allow them to fulfill statutory tax withholding requirements at the time of distribution of long-term incentive compensation awards.

Second Quarter 2015 Earnings Conference Call Information

Management will review second quarter 2015 financial and operating results during a conference call beginning at 8:00 a.m. (ET) on Thursday, July 30, 2015. The conference call will be hosted by Peter S. Kraus, Chairman and Chief Executive Officer, and John C. Weisenseel, Chief Financial Officer.

Parties may access the conference call by either webcast or telephone:

1. To listen by webcast, please visit AB's Investor Relations website at http://abglobal.com/corporate/investor-relations/home.htm at least 15 minutes prior to the call to download and install any necessary audio software.
2. To listen by telephone, please dial (866) 556-2265 in the U.S. or (973) 935-8521 outside the U.S. 10 minutes before the scheduled start time. The conference ID# is 80809846.

The presentation that will be reviewed during the conference call will be available on AB's Investor Relations website shortly after the release of second quarter 2015 financial and operating results on July 30, 2015.

AB will be providing live updates via Twitter during the conference call. To access the tweets, follow AB on Twitter: @AB_insights. Also, in the future, AB may provide public disclosures to investors via Twitter and other appropriate internet-based social media.

A replay of the webcast will be made available beginning approximately one hour after the conclusion of the conference call and will be available on AB's website for one week.  An audio replay of the conference call will also be available for one week. To access the audio replay, please call (855) 859-2056 in the U.S., or (404) 537-3406 outside the U.S., and provide the conference ID #: 80809846.

Cautions Regarding Forward-Looking Statements

Certain statements provided by management in this news release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The most significant of these factors include, but are not limited to, the following: the performance of financial markets, the investment performance of sponsored investment products and separately-managed accounts, general economic conditions, industry trends, future acquisitions, competitive conditions, and current and proposed government regulations, including changes in tax regulations and rates and the manner in which the earnings of publicly-traded partnerships are taxed. AB cautions readers to carefully consider such factors. Further, such forward-looking statements speak only as of the date on which such statements are made; AB undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. For further information regarding these forward-looking statements and the factors that could cause actual results to differ, see "Risk Factors" and "Cautions Regarding Forward-Looking Statements" in AB's Form 10-K for the year ended December 31, 2014 and subsequent Forms 10-Q. Any or all of the forward-looking statements made in this news release, Form 10-K, Forms 10-Q, other documents AB files with or furnishes to the SEC, and any other public statements issued by AB, may turn out to be wrong. It is important to remember that other factors besides those listed in "Risk Factors" and "Cautions Regarding Forward-Looking Statements", and those listed below, could also adversely affect AB's financial condition, results of operations and business prospects.

The forward-looking statements referred to in the preceding paragraph include statements regarding:

• The possibility that AB will engage in open market purchases of Holding Units to help fund anticipated obligations under our incentive compensation award program:  The number of Holding Units AB may decide to buy in future periods, if any, to help fund incentive compensation awards is dependent upon various factors, some of which are beyond our control, including the fluctuation in the price of a Holding Unit and the availability of cash to make these purchases.
• The pipeline of new institutional mandates not yet funded: Before they are funded, institutional mandates do not represent legally binding commitments to fund and, accordingly, the possibility exists that not all mandates will be funded in the amounts and at the times currently anticipated.

Qualified Tax Notice

This announcement is intended to be a qualified notice under Treasury Regulation §1.1446-4(b).  Please note that 100% of AB Holding's distributions to foreign investors is attributable to income that is effectively connected with a United States trade or business. Accordingly, AB Holding's distributions to foreign investors are subject to federal income tax withholding at the highest applicable tax rate, currently 39.6%.

About AB

AB is a leading global investment management firm that offers high-quality research and diversified investment services to institutional investors, individuals and private wealth clients in major world markets.

As of June 30, 2015 AB Holding owned approximately 36.9% of the issued and outstanding AB Units and AXA, one of the largest global financial services organizations, owned an approximate 62.7% economic interest in AB.

Additional information about AB may be found on our website, www.abglobal.com.

⁽¹⁾ Includes index and enhanced index services. 
⁽²⁾ Includes multi-asset solutions and services and certain alternative investments. 
⁽³⁾ Includes Private Wealth assets that were previously netted by margin loans within an actively managed account.