AllianceBernstein Holding L.P. Announces Second Quarter Results

Adjusted Diluted Net Income of $0.48 per Unit

Cash Distribution of $0.48 per Unit

GAAP Diluted Net Income of $0.48 per Unit

Jul 30, 2015, 06:47 ET from AB

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."

(US $ Thousands except per Unit amounts)

2Q 2015

2Q 2014

1Q 2015

2Q 2015 vs 2Q 2014 % Change

2Q 2015 vs 1Q 2015 % Change

Adjusted Financial Measures (1)

Net revenues

$

657,360

$

629,133

$

633,995

4.5

%

3.7

%

Operating income

$

158,252

$

144,489

$

151,613

9.5

%

4.4

%

Operating margin

24.1

%

23.0

%

23.9

%

AB Holding Diluted EPU

$

0.48

$

0.45

$

0.45

6.7

%

6.7

%

AB Holding cash distribution per Unit

$

0.48

$

0.45

$

0.45

6.7

%

6.7

%

U.S. GAAP Financial Measures

Net revenues

$

792,737

$

753,648

$

762,571

5.2

%

4.0

%

Operating income

$

164,922

$

143,440

$

153,214

15.0

%

7.6

%

Operating margin

20.0

%

19.0

%

19.9

%

AB Holding Diluted EPU

$

0.48

$

0.44

$

0.45

9.1

%

6.7

%

(US $ Billions)

Assets Under Management

Ending AUM

485.1

480.2

485.9

1.0

%

(0.2)

%

Average AUM

492.6

464.2

481.0

6.1

%

2.4

%

(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 12th consecutive year - as well as #1 for quality of analyst service, for the 13th 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.

Institutions

Retail

Private Wealth Management

Total

Assets Under Management 6/30/15

$244.2

$163.0

$77.9

$485.1

Net Flows for Three Months Ended 6/30/15

$3.5

$(0.9)

$(0.4)

$2.2

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.

 

AB (The Operating Partnership)

Non-GAAP Consolidated Statement of Income (Unaudited)

(US $ Thousands)

2Q 2015

2Q 2014

1Q 2015

2Q 2015 vs. 2Q 2014% Change

2Q 2015 vs. 1Q 2015 % Change

Adjusted revenues:

Base fees

$

497,689

$

472,433

$

487,378

5.3

%

2.1

%

Performance fees

14,257

19,505

4,152

(26.9)

%

243.4

%

Bernstein research services

121,910

118,973

126,046

2.5

%

(3.3)

%

Net distribution revenues

(3,441)

(952)

(3,601)

261.4

%

(4.4)

%

Net dividends and interest

5,532

4,524

4,943

22.3

%

11.9

%

Investments gains (losses)

4,617

(2,723)

89

n/m

5,087.6

%

Other revenues

17,426

17,987

15,607

(3.1)

%

11.7

%

Total adjusted revenues

657,990

629,747

634,614

4.5

%

3.7

%

Less: interest expense

630

614

619

2.6

%

1.8

%

Total adjusted net revenues

657,360

629,133

633,995

4.5

%

3.7

%

Adjusted operating expenses:

Employee compensation and benefits

337,058

322,403

323,677

4.5

%

4.1

%

Promotion and servicing

50,764

49,830

46,285

1.9

%

9.7

%

General and administrative

103,935

105,452

104,760

(1.4)

%

(0.8)

%

Contingent payment arrangements

442

320

443

38.1

%

(0.2)

%

Interest

736

768

854

(4.2)

%

(13.8)

%

Amortization of intangible assets

6,512

6,010

6,461

8.4

%

0.8

%

Net income (loss) attributable to non-controlling interests

(339)

(139)

(98)

143.9

%

245.9

%

Total adjusted operating expenses

499,108

484,644

482,382

3.0

%

3.5

%

Adjusted operating income

158,252

144,489

151,613

9.5

%

4.4

%

Adjusted income taxes

9,153

6,886

10,448

32.9

%

(12.4)

%

Adjusted net income

$

149,099

$

137,603

$

141,165

8.4

%

5.6

%

AB Holding Adjusted diluted EPU

$

0.48

$

0.45

$

0.45

6.7

%

6.7

%

Ending headcount

3,565

3,411

3,486

4.5

%

2.3

%

Ending AUM (in billions)

$

485.1

$

480.2

$

485.9

1.0

%

(0.2)

%

Average AUM (in billions)

$

492.6

$

464.2

$

481.0

6.1

%

2.4

%

 

 

AB (The Operating Partnership)

US GAAP Consolidated Statement of Income (Unaudited)

(US $ Thousands)

2Q 2015

2Q 2014

1Q 2015

2Q 2015 vs. 2Q 2014 % Change

2Q 2015 vs. 1Q 2015 % Change

GAAP revenues:

Base fees

$

501,667

$

472,843

$

489,836

6.1

%

2.4

%

Performance fees

14,257

19,505

4,152

(26.9)

%

243.4

%

Bernstein research services

121,910

118,973

126,046

2.5

%

(3.3)

%

Distribution revenues

111,850

110,342

109,184

1.4

%

2.4

%

Dividends and interest

5,667

4,678

5,094

21.1

%

11.2

%

Investments gains (losses)

11,993

828

3,888

1,348.4

%

208.5

%

Other revenues

26,023

27,093

24,990

(3.9)

%

4.1

%

  Total revenues

793,367

754,262

763,190

5.2

%

4.0

%

Less: interest expense

630

614

619

2.6

%

1.8

%

Total net revenues

792,737

753,648

762,571

5.2

%

4.0

%

GAAP operating expenses:

Employee compensation and benefits

337,640

327,472

326,327

3.1

%

3.5

%

Promotion and servicing

   Distribution-related payments

102,578

101,968

100,386

0.6

%

2.2

%

   Amortization of deferred sales commissions

12,713

9,326

12,399

36.3

%

2.5

%

   Other

59,182

58,936

55,537

0.4

%

6.6

%

General and administrative

   General & administrative

108,092

105,913

107,333

2.1

%

0.7

%

   Real estate (credits) charges

(80)

(505)

(383)

(84.2)

%

(79.1)

%

Contingent payment arrangements

442

320

443

38.1

%

(0.2)

%

Interest on borrowings

736

768

854

(4.2)

%

(13.8)

%

Amortization of intangible assets

6,512

6,010

6,461

8.4

%

0.8

%

Total operating expenses

627,815

610,208

609,357

2.9

%

3.0

%

Operating income

164,922

143,440

153,214

15.0

%

7.6

%

Income taxes

9,153

7,008

10,470

30.6

%

(12.6)

%

Net income

155,769

136,432

142,744

14.2

%

9.1

%

Net income (loss) of consolidated entities attributable to non-controlling interests

6,675

(3)

1,275

n/m

423.5

%

Net income attributable to AB Unitholders

$

149,094

$

136,435

$

141,469

9.3

%

5.4

%

 

 

AB Holding L.P. (The Publicly-Traded Partnership)

SUMMARY STATEMENTS OF INCOME

 

(US $ Thousands)

2Q 2015

2Q 2014

1Q 2015

2Q 2015 vs. 2Q 2014 % Change

2Q 2015 vs. 1Q 2015 % Change

Equity in Net Income Attributable to AB Unitholders

$      54,409

$      48,467

$      51,616

12.3

%

5.4

%

Income Taxes

6,185

5,613

6,031

10.2

%

2.6

%

Net Income

48,224

42,854

45,585

12.5

%

5.8

%

Additional Equity in Earnings of Operating Partnership (1)

426

376

355

13.3

%

20.0

%

Net Income - Diluted

$     48,650

$     43,230

$     45,940

12.5

%

5.9

%

Diluted Net Income per Unit

$

0.48

$

0.44

$

0.45

9.1

%

6.7

%

Distribution per Unit

$

0.48

$

0.45

$

0.45

6.7

%

6.7

%

(1) To reflect higher ownership in the Operating Partnership resulting from application of the treasury stock method to outstanding options.

Units Outstanding

2Q 2015

2Q 2014

1Q 2015

2Q 2015 vs. 2Q 2014 % Change

2Q 2015 vs. 1Q 2015 % Change

AB L.P.

Period-end

272,972,925

269,114,795

272,607,593

1.4

%

0.1

%

Weighted average - basic

272,857,719

268,781,607

272,831,439

1.5

%

%

Weighted average - diluted

274,110,553

269,951,116

273,929,180

1.5

%

0.1

%

AB Holding L.P.

Period-end

100,712,572

96,811,627

100,324,540

4.0

%

0.4

%

Weighted average - basic

100,577,659

96,450,794

100,548,013

4.3

%

%

Weighted average - diluted

101,830,493

97,620,303

101,645,754

4.3

%

0.2

%

 

 

AllianceBernstein L.P.

ASSETS UNDER MANAGEMENT  |  June 30, 2015

($ billions)

Ending and Average

Three Months Ended

6/30/15

6/30/14

Ending Assets Under Management

$

485.1

$

480.2

Average Assets Under Management

$

492.6

$

464.2

 

Three-Month Changes By Distribution Channel

Institutions

Retail

Private Wealth Management

Total

Beginning of Period

$

243.7

$

164.3

$

77.9

$

485.9

Sales/New accounts

14.2

9.1

1.5

24.8

Redemption/Terminations

(9.3)

(9.7)

(0.4)

(19.4)

Net Cash Flows

(1.4)

(0.3)

(1.5)

(3.2)

Net Flows

3.5

(0.9)

(0.4)

2.2

AUM Adjustments (3)

0.2

0.2

Investment Performance

(3.0)

(0.4)

0.2

(3.2)

End of Period

$

244.2

$

163.0

$

77.9

$

485.1

 

Three-Month Changes By Investment Service

Equity Active

Equity Passive (1)

Fixed Income Taxable

Fixed Income Tax-Exempt

Fixed Income P assive (1)

Other (2)

Total

Beginning of Period

$

115.4

$

50.9

$

225.5

$

32.6

$

9.8

$

51.7

$

485.9

Sales/New accounts

4.0

0.1

8.7

1.2

0.1

10.7

24.8

Redemption/Terminations

(3.4)

(14.5)

(0.8)

(0.1)

(0.6)

(19.4)

Net Cash Flows

(2.1)

(0.5)

(0.7)

(0.4)

0.3

0.2

(3.2)

Net Flows

(1.5)

(0.4)

(6.5)

0.3

10.3

2.2

AUM Adjustments (3)

0.1

0.1

0.2

Investment Performance

1.4

(0.2)

(3.9)

(0.2)

(0.1)

(0.2)

(3.2)

End of Period (2)

$

115.4

$

50.3

$

215.1

$

32.5

$

10.0

$

61.8

$

485.1

(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.

 

By Client Domicile

Institutions

Retail

Private Wealth

Total

U.S. Clients

$

146.6

$

98.9

$

76.1

$

321.6

Non-U.S. Clients

97.6

64.1

1.8

163.5

Total

$

244.2

$

163.0

$

77.9

$

485.1

 

 

Second Quarter 2015 GAAP to Non-GAAP Reconciliation

In US $ Thousands

Adjustments

GAAP

Distribution Related Payments

Pass Through Expenses

Deferred Comp. Inv.

Venture Capital Fund

Real Estate Charges

Contingent Payment Adjust

Acquisition-Related Expenses

Other

Non-GAAP

(A)

(B)

(C)

(D)

(E)

(F)

(G)

(H)

Investment advisory and services fees

$

515,924

$

(3,978)

$

511,946

Bernstein research services

121,910

121,910

Distribution revenues

111,850

(115,291)

(3,441)

Dividend and interest income

5,667

(135)

5,532

Investment gains (losses)

11,993

(362)

(7,014)

4,617

Other revenues

26,023

(8,597)

17,426

Total revenues

793,367

(115,291)

(12,575)

(497)

(7,014)

657,990

Less: interest expense

630

630

Net revenues

792,737

(115,291)

(12,575)

(497)

(7,014)

657,360

Employee compensation and benefits

337,640

(582)

337,058

Promotion and servicing

174,473

(115,291)

(8,418)

50,764

General and administrative

108,012

(4,157)

80

103,935

Contingent payment arrangements

442

442

Interest on borrowings

736

736

Amortization of intangible assets

6,512

6,512

Net income (loss) of consolidated entities attributable to non-controlling interests

(339)

(339)

Total expenses

627,815

(115,291)

(12,575)

(582)

80

(339)

499,108

Operating income

164,922

85

(7,014)

(80)

339

158,252

Income taxes

9,153

9,153

Net income

155,769

85

(7,014)

(80)

339

149,099

Net income (loss) of consolidated entities attributable to non-controlling interests

6,675

(7,014)

339

Net income attributable to AB Unitholders

$

149,094

$

$

$

85

$

$

(80)

$

$

$

$

149,099

 

 

First Quarter 2015 GAAP to Non-GAAP Reconciliation

In US $ Thousands

Adjustments

GAAP

Distribution Related Payments

Pass Through Expenses

Deferred Comp. Inv.

Venture Capital Fund

Real Estate Charges

Contingent Payment Adjust

Acquisition-Related Expenses

Other

Non-GAAP

(A)

(B)

(C)

(D)

(E)

(F)

(G)

(H)

Investment advisory and services fees

$

493,988

$

(2,458)

$

491,530

Bernstein research services

126,046

126,046

Distribution revenues

109,184

(112,785)

(3,601)

Dividend and interest income

5,094

(151)

4,943

Investment gains (losses)

3,888

(2,426)

(1,373)

89

Other revenues

24,990

(9,383)

15,607

Total revenues

763,190

(112,785)

(11,841)

(2,577)

(1,373)

634,614

Less: interest expense

619

619

Net revenues

762,571

(112,785)

(11,841)

(2,577)

(1,373)

633,995

Employee compensation and benefits

326,327

(2,634)

(16)

323,677

Promotion and servicing

168,322

(112,785)

(9,252)

46,285

General and administrative

106,950

(2,589)

383

16

104,760

Contingent payment arrangements

443

443

Interest on borrowings

854

854

Amortization of intangible assets

6,461

6,461

Net income (loss) of consolidated entities attributable to non-controlling interests

(98)

(98)

Total expenses

609,357

(112,785)

(11,841)

(2,634)

383

(98)

482,382

Operating income

153,214

57

(1,373)

(383)

98

151,613

Income taxes

10,470

4

(26)

10,448

Net income

142,744

53

(1,373)

(357)

98

141,165

Net income (loss) of consolidated entities attributable to non-controlling interests

1,275

(1,373)

98

Net income attributable to AB Unitholders

$

141,469

$

$

$

53

$

$

(357)

$

$

$

$

141,165

 

 

Fourth Quarter 2014 GAAP to Non-GAAP Reconciliation

In US $ Thousands

Adjustments

GAAP

Distribution Related Payments

Pass Through Expenses

Deferred Comp. Inv.

Venture Capital Fund

Real Estate Charges

Contingent Payment Adjust

Acquisition-Related Expenses

Other

Non-GAAP

(A)

(B)

(C)

(D)

(E)

(F)

(G)

(H)

Investment advisory and services fees

$

514,515

$

(1,228)

$

513,287

Bernstein research services

128,409

128,409

Distribution revenues

112,929

(116,576)

(3,647)

Dividend and interest income

8,799

(2,605)

6,194

Investment gains (losses)

(4,185)

882

(3,398)

(6,701)

Other revenues

27,426

(9,495)

17,931

Total revenues

787,893

(116,576)

(10,723)

(1,723)

(3,398)

655,473

Less: interest expense

541

541

Net revenues

787,352

(116,576)

(10,723)

(1,723)

(3,398)

654,932

Employee compensation and benefits

313,900

(1,195)

(482)

312,223

Promotion and servicing

174,517

(116,576)

(9,495)

48,446

General and administrative

105,188

(1,228)

405

(284)

104,081

Contingent payment arrangements

(3,899)

4,375

476

Interest on borrowings

628

628

Amortization of intangible assets

6,448

6,448

Net income (loss) of consolidated entities attributable to non-controlling interests

(252)

(252)

Total expenses

596,782

(116,576)

(10,723)

(1,195)

405

4,375

(766)

(252)

472,050

Operating income

190,570

(528)

(3,398)

(405)

(4,375)

766

252

182,882

Income taxes

9,999

(7)

(120)

(60)

10

9,822

Net income

180,571

(521)

(3,398)

(285)

(4,315)

756

252

173,060

Net income (loss) of consolidated entities attributable to non-controlling interests

3,146

(3,398)

252

Net income attributable to AB Unitholders

$

177,425

$

$

$

(521)

$

$

(285)

$

(4,315)

$

756

$

$

173,060

 

 

Third Quarter 2014 GAAP to Non-GAAP Reconciliation

In US $ Thousands

Adjustments

GAAP

Distribution Related Payments

Pass Through Expenses

Deferred Comp. Inv.

Venture Capital Fund

Real Estate Charges

Contingent Payment Adjust

Acquisition-Related Expenses

Other

Non-GAAP

(A)

(B)

(C)

(D)

(E)

(F)

(G)

(H)

Investment advisory and services fees

$      496,503

$    (1,304)

$      495,199

Bernstein research services

112,147

112,147

Distribution revenues

115,513

(119,093)

(3,580)

Dividend and interest income

4,744

(145)

4,599

Investment gains (losses)

(6,278)

1,646

4,374

(258)

Other revenues

27,589

(8,864)

18,725

Total revenues

750,218

(119,093)

(10,168)

1,501

4,374

626,832

Less: interest expense

470

470

Net revenues

749,748

(119,093)

(10,168)

1,501

4,374

626,362

Employee compensation and benefits

317,259

946

(228)

317,977

Promotion and servicing

173,147

(119,093)

(8,864)

45,190

General and administrative

106,987

(1,304)

980

(138)

106,525

Contingent payment arrangements

476

476

Interest on borrowings

620

620

Amortization of intangible assets

6,551

6,551

Net income (loss) of consolidated entities attributable to non-controlling interests

(126)

(126)

Total expenses

605,040

(119,093)

(10,168)

946

980

(366)

(126)

477,213

Operating income

144,708

555

4,374

(980)

366

126

149,149

Income taxes

9,410

8

(370)

5

9,053

Net income

135,298

547

4,374

(610)

361

126

140,096

Net income (loss) of consolidated entities attributable to non-controlling interests

(4,500)

4,374

126

Net income attributable to AB Unitholders

$

139,798

$

$

$

547

$

$

(610)

$

$

361

$

$

140,096

 

 

Second Quarter 2014 GAAP to Non-GAAP Reconciliation

In US $ Thousands

Adjustments

GAAP

Distribution Related Payments

Pass Through Expenses

Deferred Comp. Inv.

Venture Capital Fund

Real Estate Charges

Contingent Payment Adjust

Acquisition-Related Expenses

Other

Non-GAAP

(A)

(B)

(C)

(D)

(E)

(F)

(G)

(H)

Investment advisory and services fees

$

492,348

$

(410)

$

491,938

Bernstein research services

118,973

118,973

Distribution revenues

110,342

(111,294)

(952)

Dividend and interest income

4,678

(154)

4,524

Investment gains (losses)

828

(3,415)

(136)

(2,723)

Other revenues

27,093

(9,106)

17,987

Total revenues

754,262

(111,294)

(9,516)

(3,569)

(136)

629,747

Less: interest expense

614

614

Net revenues

753,648

(111,294)

(9,516)

(3,569)

(136)

629,133

Employee compensation and benefits

327,472

(3,663)

(1,406)

322,403

Promotion and servicing

170,230

(111,294)

(9,106)

49,830

General and administrative

105,408

(410)

505

(51)

105,452

Contingent payment arrangements

320

320

Interest on borrowings

768

768

Amortization of intangible assets

6,010

6,010

Net income (loss) of consolidated entities attributable to non-controlling interests

(139)

(139)

Total expenses

610,208

(111,294)

(9,516)

(3,663)

505

(1,457)

(139)

484,644

Operating income

143,440

94

(136)

(505)

1,457

139

144,489

Income taxes

7,008

1

(143)

20

6,886

Net income

136,432

93

(136)

(362)

1,437

139

137,603

Net income (loss) of consolidated entities attributable to non-controlling interests

(3)

(136)

139

Net income attributable to AB Unitholders

$

136,435

$

$

$

93

$

$

(362)

$

$

1,437

$

$

137,603

 

 

First Quarter 2014 GAAP to Non-GAAP Reconciliation

In US $ Thousands

Adjustments

GAAP

Distribution Related Payments

Pass Through Expenses

Deferred Comp. Inv.

Venture Capital Fund

Real Estate Charges

Contingent Payment Adjust

Acquisition-Related Expenses

Other

Non-GAAP

(A)

(B)

(C)

(D)

(E)

(F)

(G)

(H)

Investment advisory and services fees

$

454,884

$

454,884

Bernstein research services

123,009

123,009

Distribution revenues

106,186

(107,599)

(1,413)

Dividend and interest income

4,101

(179)

3,922

Investment gains (losses)

559

(1,297)

(2,005)

(2,743)

Other revenues

26,680

(8,445)

18,235

Total revenues

715,419

(107,599)

(8,445)

(1,476)

(2,005)

595,894

Less: interest expense

801

801

Net revenues

714,618

(107,599)

(8,445)

(1,476)

(2,005)

595,093

Employee compensation and benefits

307,033

(1,565)

(613)

304,855

Promotion and servicing

161,244

(107,599)

(8,445)

45,200

General and administrative

109,429

(1,942)

(246)

107,241

Contingent payment arrangements

321

321

Interest on borrowings

781

781

Amortization of intangible assets

5,907

5,907

Net income (loss) of consolidated entities attributable to non-controlling interests

(192)

(192)

Total expenses

584,715

(107,599)

(8,445)

(1,565)

(1,942)

(859)

(192)

464,113

Operating income

129,903

89

(2,005)

1,942

859

192

130,980

Income taxes

11,365

1

33

12

11,411

Net income

118,538

88

(2,005)

1,909

847

192

119,569

Net income (loss) of consolidated entities attributable to non-controlling interests

1,813

(2,005)

192

Net income attributable to AB Unitholders

$

116,725

$

$

$

88

$

$

1,909

$

$

847

$

$

119,569

 

 

AB Notes to Consolidated Statements of Income and Supplemental Information (Unaudited)

 

A.  Adjusted net revenues exclude distribution-related payments to third parties as well as amortization of deferred sales commissions against distribution revenues. We believe excluding distribution-related payments from net revenues is useful for our investors and other users of our financial statements because such presentation appropriately reflects the nature of these costs as pass-through payments to third parties who perform functions on behalf of our sponsored mutual funds and/or shareholders of these funds. We exclude amortization of deferred sales commissions from net revenues because such costs, over time, essentially offset our distribution revenues. These adjustments have no impact on operating income, but they do have an impact on our operating margin.

B.  We exclude pass-through expenses we incur (primarily through our transfer agency) that are reimbursed and recorded as fees in revenues from our adjusted net revenues. These fees have no impact on operating income, but they do have an impact on our operating margin.

C.  Prior to 2009, a significant portion of employee compensation was in the form of long-term incentive compensation awards that were notionally invested in AB investment services and generally vested over a period of four years. AB economically hedged the exposure to market movements by purchasing and holding these investments on its balance sheet. All such investments had vested by year-end 2012 and the investments have been distributed to the participants, except for those investments with respect to which the participant elected a long-term deferral. Fluctuation in the value of these investments is recorded within investment gains and losses on the income statement and also impacts compensation expense. Management believes it is useful to reflect the offset achieved from economically hedging the investments' market exposure in the calculation of adjusted operating income and adjusted operating margin. The non-GAAP measures exclude gains and losses and dividends and interest on employee long-term incentive compensation-related investments included in revenues and compensation expense.

D.  Most of the net income or loss of consolidated entities attributable to non-controlling interests relates to the 90% limited partner interests held by third parties in our consolidated venture capital fund. We own a 10% limited partner interest in the fund. Because we are the general partner of the venture capital fund and are deemed to have a controlling interest, US GAAP requires us to consolidate the financial results of the fund. However, recognizing 100% of the gains or losses in net revenues and operating income while only retaining 10% is not reflective of our underlying financial results at the net revenue and operating income level. As a result, we exclude the 90% limited partner interests we do not own from our adjusted net revenues and adjusted operating income.

E.  Real estate (credits)/charges have been excluded because they are not considered part of our core operating results when comparing financial results from period to period and to industry peers.

F.  Recording changes in estimates of the contingent consideration associated with a 2010 acquisition have been excluded because this is not considered part of our core operating results.

G.  Acquisition-related expenses, primarily severance and professional fees incurred as a result of acquisitions in the fourth quarter of 2013 and the second quarter of 2014, have been excluded because they are not considered part of our core operating results when comparing results from period to period and to industry peers.

H.  Net income of joint ventures attributable to non-controlling interests, although not significant, is excluded because it does not reflect the economic interest attributable to AB.

Adjusted Operating Margin

Adjusted operating margin allows us to monitor our financial performance and efficiency from period to period without the volatility noted above in our discussion of adjusted operating income and to compare our performance to industry peers on a basis that better reflects our performance in our core business. Adjusted operating margin is derived by dividing adjusted operating income by adjusted net revenues.

 

SOURCE AB



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