ALLIANCEBERNSTEIN HOLDING L.P. ANNOUNCES SECOND QUARTER RESULTS
AllianceBernstein (NYSE: AB) reported its Q2 2024 financial results. GAAP diluted net income per unit was $0.99, a significant increase of 86.8% year-over-year. Adjusted diluted net income per unit was $0.71. The firm declared a cash distribution of $0.71 per unit. Net revenues rose 1.9% year-over-year to $1.03 billion, while operating income increased 5.6% to $199 million. However, sequentially, net revenues fell 6.9% and operating income dropped 17.6% from Q1 2024. Ending assets under management (AUM) were $769.5 billion, up 11.3% year-over-year. Retail channel net inflows were $2.8 billion, while institutional net outflows improved but remained negative at $1.8 billion. Adjusted operating income increased 15% year-over-year, with an adjusted operating margin of 30.8%. Investment performance improved in equities and remained strong in fixed income.
- GAAP diluted net income per unit increased 86.8% YoY to $0.99.
- Adjusted diluted net income per unit rose 16.4% YoY to $0.71.
- Net revenues increased 1.9% YoY to $1.03 billion.
- Operating income increased 5.6% YoY to $199 million.
- Adjusted operating income grew 15% YoY.
- Adjusted operating margin improved by 380 basis points to 30.8%.
- Ending AUM rose 11.3% YoY to $769.5 billion.
- Retail channel net inflows were $2.8 billion.
- Sequential net revenues fell 6.9% from Q1 2024.
- Operating income decreased 17.6% sequentially.
- Institutional net outflows were $1.8 billion.
Insights
AllianceBernstein's Q2 results demonstrate solid performance amid a challenging market environment. Some key highlights:
- Adjusted operating income increased 14.5% year-over-year to $254.2 million
- Adjusted operating margin expanded 380 basis points to 30.8%
- Adjusted diluted EPS grew 16.4% to $0.71 per unit
- Assets under management (AUM) rose 11.3% year-over-year to $769.5 billion
The firm saw net inflows of $0.9 billion, driven by $2.8 billion of retail inflows, offsetting institutional outflows. This demonstrates AB's ability to attract retail investors in a challenging environment. The 9% increase in base fees is particularly encouraging, as it indicates AB is growing its recurring revenue streams.
However, the deconsolidation of Bernstein Research Services impacted top-line growth. Investors should monitor how this strategic move affects future results. Overall, AB's expanding margins and AUM growth paint a positive picture, but sustained institutional outflows remain a concern to watch.
GAAP Diluted Net Income of
Adjusted Diluted Net Income of
Cash Distribution of
"AB performed well in the second quarter, as global equity markets continued their solid gains," said Seth P. Bernstein, President and CEO of AllianceBernstein. "AB posted active net inflows of
(US $ Thousands except per Unit amounts) | 2Q 2024 | 2Q 2023 | % Change | 1Q 2024 | % Change | ||||
Net revenues | $ 1,027,943 | $ 1,008,456 | 1.9 % | $ 1,104,151 | (6.9 %) | ||||
Operating income | $ 199,289 | $ 188,661 | 5.6 % | $ 241,997 | (17.6 %) | ||||
Operating margin | 19.0 % | 18.4 % | 60 bps | 21.2 % | (220 bps) | ||||
AB Holding Diluted EPU | $ 0.99 | $ 0.53 | 86.8 % | $ 0.67 | 47.8 % | ||||
Adjusted Financial Measures (1) | |||||||||
Net revenues | $ 825,833 | $ 822,631 | 0.4 % | $ 884,176 | (6.6 %) | ||||
Operating income | $ 254,186 | $ 221,947 | 14.5 % | $ 267,426 | (5.0 %) | ||||
Operating margin | 30.8 % | 27.0 % | 380 bps | 30.3 % | 50 bps | ||||
AB Holding Diluted EPU | $ 0.71 | $ 0.61 | 16.4 % | $ 0.73 | (2.7 %) | ||||
AB Holding cash distribution per Unit | $ 0.71 | $ 0.61 | 16.4 % | $ 0.73 | (2.7 %) | ||||
(US $ Billions) | |||||||||
Assets Under Management ("AUM") | |||||||||
Ending AUM | $ 769.5 | $ 691.5 | 11.3 % | $ 758.7 | 1.4 % | ||||
Average AUM | $ 755.5 | $ 678.4 | 11.4 % | $ 738.9 | 2.2 % |
(1) The adjusted financial measures represent non-GAAP financial measures. See page 13 for reconciliations of GAAP Financial Results to Adjusted Financial Results and pages 14-15 for notes describing the adjustments. |
Bernstein continued, "Retail sales remained strong, driven by demand for taxable and municipal fixed income. When combined with active equity net inflows, Retail generated net inflows of
Bernstein concluded, "The S&P 500 continues to reach new highs, reflecting AI-related technology gains, combined with expectations that
The firm's cash distribution per Unit of
Market Performance
Global equity and fixed income markets were mixed in the second quarter of 2024.
2Q 2024 | |
S&P 500 Total Return | 4.3 % |
MSCI EAFE Total Return | (0.2) |
Bloomberg Barclays US Aggregate Return | 0.1 |
Bloomberg Barclays Global High Yield Index - Hedged | 1.2 |
Assets Under Management
($ Billions)
Total assets under management as of June 30, 2024 were
Institutional | Retail | Private Wealth | Total | |||||
Assets Under Management 6/30/2024 | ||||||||
Net Flows for Three Months Ended 6/30/2024: | ||||||||
Active | ( | ( | ||||||
Passive | — | (0.9) | 0.5 | (0.4) | ||||
Total | ( | ( |
Total net inflows were
Institutional channel second quarter net outflows of
Retail channel second quarter net inflows of
Private Wealth channel second quarter net outflows of
Second Quarter Financial Results
We are presenting both earnings information derived in accordance with accounting principles generally accepted in
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). Available Cash Flow typically is 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, with concurrence of the Board of Directors, that one or more adjustments made to adjusted net income should not be made with respect to the Available Cash Flow calculation.
US GAAP Earnings
Effective April 1, 2024, AB and Societe Generale completed their previously announced transaction to form a global joint venture with two joint venture holding companies, one outside of
Revenues
Second quarter net revenues of
Sequentially, net revenues of
Second quarter Bernstein Research Services revenues decreased
Expenses
Second quarter operating expenses of
Sequentially, operating expenses of
Operating Income, Margin and Net Income Per Unit
Second quarter operating income of
Sequentially, operating income decreased
Second quarter diluted net income per Unit was
Non-GAAP Earnings
This section discusses our second quarter 2024 non-GAAP financial results, compared to the second quarter of 2023 and the first quarter of 2024. 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.
Adjusted Revenues
Second quarter adjusted net revenues of
Sequentially, adjusted net revenues of
Adjusted Expenses
Second quarter adjusted operating expenses of
Sequentially, adjusted operating expenses of
Adjusted operating Income, Margin and Net Income Per Unit
Second quarter adjusted operating income of
Sequentially, adjusted operating income of
Second quarter adjusted diluted net income per Unit was
Headcount
As of June 30, 2024, we had 4,264 employees, compared to 4,606 employees as of June 30, 2023 and 4,708 employees as of March 31, 2024. The decrease in headcount as of June 30, 2024 is due to our deconsolidation of the Bernstein Research Services business and transferring 546 employees to the newly formed joint ventures.
Unit Repurchases
Three Months Ended June 30, | Six Months Ended June 30, | |||||||
2024 | 2023 | 2024 | 2023 | |||||
(in millions) | ||||||||
Total amount of AB Holding Units Purchased (1) | 0.9 | — | 1.0 | 0.5 | ||||
Total Cash Paid for AB Holding Units Purchased (1) | $ 29.0 | $ — | $ 33.3 | $ 18.8 | ||||
Open Market Purchases of AB Holding Units Purchased (1) | 0.6 | — | 0.6 | — | ||||
Total Cash Paid for Open Market Purchases of AB Holding Units (1) | $ 21.5 | $ — | $ 21.5 | $ — | ||||
(1) Purchased on a trade date basis. The difference between open-market purchases and units retained reflects the retention of AB Holding Units from employees to fulfill statutory tax withholding requirements at the time of delivery of long-term incentive compensation awards. |
Second Quarter 2024 Earnings Conference Call Information
Management will review second quarter 2024 financial and operating results during a conference call beginning at 9:00 a.m. (CST) on Friday, July 26, 2024. The conference call will be hosted by Seth Bernstein, President & Chief Executive Officer; Jackie Marks, Chief Financial Officer and Onur Erzan, Head of Global Client Group & Head of Private Wealth.
Parties may access the conference call by either webcast or telephone:
1. To listen by webcast, please visit AB's Investor Relations website at https://www.alliancebernstein.com/corporate/en/investor-relations.html at least 15 minutes prior to the call to download and install any necessary audio software.
2. To listen by telephone, please dial (888) 440-3310 in the
The presentation management will review during the conference call will be available on AB's Investor Relations website shortly after the release of our second quarter 2024 financial and operating results on July 26, 2024.
A replay of the webcast will be made available beginning approximately one hour after the conclusion of the conference call.
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, integration of acquired companies, competitive conditions, and 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, 2023 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 revenues, financial condition, results of operations and business prospects.
The forward-looking statements referred to in the preceding paragraph include statements regarding:
- 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, or that mandates ultimately will not be funded.
- The possibility that AB will engage in open market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program: The number of AB Holding Units AB may decide to buy in future periods, if any, to help fund incentive compensation awards depends on various factors, some of which are beyond our control, including the fluctuation in the price of an AB Holding Unit (NYSE: AB) and the availability of cash to make these purchases.
Qualified Tax Notice
This announcement is intended to be a qualified notice under Treasury Regulation §1.1446-4(b)(4). Please note that
About AllianceBernstein
AllianceBernstein 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, 2024, including both the general partnership and limited partnership interests in AllianceBernstein, AllianceBernstein Holding owned approximately
Additional information about AllianceBernstein may be found on our website, www.alliancebernstein.com.
AB (The Operating Partnership) | |||||||||
US GAAP Consolidated Statement of Income (Unaudited) | |||||||||
(US $ Thousands) | 2Q 2024 | 2Q 2023 | % Change | 1Q 2024 | % Change | ||||
GAAP revenues: | |||||||||
Base fees | $ 774,017 | $ 703,371 | 10.0 % | $ 754,239 | 2.6 % | ||||
Performance fees | 43,310 | 18,307 | 136.6 | 30,166 | 43.6 | ||||
Bernstein research services[1] | — | 91,847 | (100.0) | 96,222 | (100.0) | ||||
Distribution revenues | 172,905 | 144,798 | 19.4 | 165,690 | 4.4 | ||||
Dividends and interest | 43,986 | 50,193 | (12.4) | 44,515 | (1.2) | ||||
Investments (losses) gains | (23,629) | 670 | n/m | 11,743 | n/m | ||||
Other revenues | 39,167 | 24,719 | 58.4 | 25,293 | 54.9 | ||||
Total revenues | 1,049,756 | 1,033,905 | 1.5 | 1,127,868 | (6.9) | ||||
Less: Broker-dealer related interest expense | 21,813 | 25,449 | (14.3) | 23,717 | (8.0) | ||||
Total net revenues | 1,027,943 | 1,008,456 | 1.9 | 1,104,151 | (6.9) | ||||
GAAP operating expenses: | |||||||||
Employee compensation and benefits | 423,324 | 428,079 | (1.1) | 452,772 | (6.5) | ||||
Promotion and servicing | |||||||||
Distribution-related payments | 179,908 | 150,038 | 19.9 | 172,982 | 4.0 | ||||
Amortization of deferred sales commissions | 13,348 | 8,767 | 52.3 | 11,799 | 13.1 | ||||
Trade execution, marketing, T&E and other | 40,940 | 54,138 | (24.4) | 54,991 | (25.6) | ||||
General and administrative | 145,732 | 149,935 | (2.8) | 137,910 | 5.7 | ||||
Contingent payment arrangements | 2,558 | 2,443 | 4.7 | 2,558 | — | ||||
Interest on borrowings | 11,313 | 14,672 | (22.9) | 17,370 | (34.9) | ||||
Amortization of intangible assets | 11,531 | 11,723 | (1.6) | 11,772 | (2.0) | ||||
Total operating expenses | 828,654 | 819,795 | 1.1 | 862,154 | (3.9) | ||||
Operating income | 199,289 | 188,661 | 5.6 | 241,997 | (17.6) | ||||
Gain on divestiture | 134,555 | — | n/m | — | n/m | ||||
Non-Operating income | 134,555 | — | n/m | — | n/m | ||||
Pre-tax income | 333,844 | 188,661 | 77.0 | 241,997 | 38.0 | ||||
Income taxes | 20,092 | 9,901 | 102.9 | 16,042 | 25.2 | ||||
Net income | 313,752 | 178,760 | 75.5 | 225,955 | 38.9 | ||||
Net income of consolidated entities attributable to non-controlling interests | 4,180 | 3,023 | 38.3 | 8,028 | (47.9) | ||||
Net income attributable to AB Unitholders | $ 309,572 | $ 175,737 | 76.2 % | $ 217,927 | 42.1 % | ||||
______________________ |
1 On April 1, 2024, AB and Societe Generale, a leading European bank, completed their transaction to form a jointly owned equity research provider and cash equity trading partner for institutional investors. AB deconsolidated the Bernstein Research Services business and contributed the business to the joint venture. |
AB Holding L.P. (The Publicly-Traded Partnership) | |||||||||
SUMMARY STATEMENTS OF INCOME | |||||||||
(US $ Thousands) | 2Q 2024 | 2Q 2023 | % Change | 1Q 2024 | % Change | ||||
Equity in Net Income Attributable to AB Unitholders | $ 122,705 | $ 69,121 | 77.5 % | $ 86,281 | 42.2 % | ||||
Income Taxes | 9,182 | 8,563 | 7.2 | 9,059 | 1.4 | ||||
Net Income | $ 113,523 | $ 60,558 | 87.5 % | $ 77,222 | 47.0 % | ||||
Net Income - Diluted | $ 113,523 | $ 60,558 | 87.5 % | $ 77,222 | 47.0 % | ||||
Diluted Net Income per Unit | $ 0.99 | $ 0.53 | 86.8 % | $ 0.67 | 47.8 % | ||||
Distribution per Unit | $ 0.71 | $ 0.61 | 16.4 % | $ 0.73 | (2.7) % | ||||
Units Outstanding | 2Q 2024 | 2Q 2023 | % Change | 1Q 2024 | % Change | ||||
AB L.P. | |||||||||
Period-end | 286,773,773 | 285,730,404 | 0.4 % | 287,322,525 | (0.2) % | ||||
Weighted average - basic | 287,191,726 | 285,670,383 | 0.5 | 286,875,671 | 0.1 | ||||
Weighted average - diluted | 287,191,726 | 285,670,383 | 0.5 | 286,875,671 | 0.1 | ||||
AB Holding L.P. | |||||||||
Period-end | 114,619,452 | 113,555,480 | 0.9 % | 115,163,604 | (0.5) % | ||||
Weighted average - basic | 115,034,220 | 113,493,799 | 1.4 | 114,704,111 | 0.3 | ||||
Weighted average - diluted | 115,034,220 | 113,493,799 | 1.4 | 114,704,111 | 0.3 | ||||
AllianceBernstein L.P. | ||||
ASSETS UNDER MANAGEMENT | June 30, 2024 | ||||
($ Billions) | ||||
Ending and Average | Three Months Ended | |||
6/30/24 | 6/30/23 | |||
Ending Assets Under Management | ||||
Average Assets Under Management | ||||
Three-Month Changes By Distribution Channel | ||||||||
Institutions | Retail | Private Wealth | Total | |||||
Beginning of Period | $ 322.5 | $ 308.0 | $ 128.2 | $ 758.7 | ||||
Sales/New accounts | 3.3 | 23.2 | 5.4 | 31.9 | ||||
Redemption/Terminations | (3.5) | (16.7) | (5.5) | (25.7) | ||||
Net Cash Flows | (1.6) | (3.7) | — | (5.3) | ||||
Net Flows | (1.8) | 2.8 | (0.1) | 0.9 | ||||
Investment Performance | 2.0 | 5.6 | 2.3 | 9.9 | ||||
End of Period | $ 322.7 | $ 316.4 | $ 130.4 | $ 769.5 | ||||
Three-Month Changes By Investment Service | ||||||||||||||
Equity Active | Equity Passive(1) | Fixed Income Taxable | Fixed Income Tax-Exempt | Fixed Income Passive(1) | Alternatives/ Multi-Asset Solutions(2) | Total | ||||||||
Beginning of Period | $ 264.1 | $ 64.7 | $ 212.1 | $ 64.0 | $ 11.2 | $ 142.6 | $ 758.7 | |||||||
Sales/New accounts | 12.5 | 0.3 | 10.3 | 4.9 | — | 3.9 | 31.9 | |||||||
Redemption/Terminations | (13.4) | (0.1) | (7.4) | (3.1) | (0.1) | (1.6) | (25.7) | |||||||
Net Cash Flows | (5.2) | (0.9) | 1.5 | 0.1 | 0.1 | (0.9) | (5.3) | |||||||
Net Flows | (6.1) | (0.7) | 4.4 | 1.9 | — | 1.4 | 0.9 | |||||||
Investment Performance | 6.4 | 1.8 | (0.5) | 0.3 | (0.2) | 2.1 | 9.9 | |||||||
End of Period | $ 264.4 | $ 65.8 | $ 216.0 | $ 66.2 | $ 11.0 | $ 146.1 | $ 769.5 | |||||||
Three-Month Net Flows By Investment Service (Active versus Passive) | ||||||
Actively Managed | Passively Managed (1) | Total | ||||
Equity | $ (6.1) | (0.7) | $ (6.8) | |||
Fixed Income | 6.3 | — | 6.3 | |||
Alternatives/Multi-Asset Solutions (2) | 1.1 | 0.3 | 1.4 | |||
Total | $ 1.3 | $ (0.4) | $ 0.9 | |||
(1) Includes index and enhanced index services. |
(2) Includes certain multi-asset solutions and services not included in equity or fixed income services. |
By Client Domicile | ||||||||
Institutions | Retail | Private Wealth | Total | |||||
$ 242.8 | $ 189.5 | $ 127.7 | $ 560.0 | |||||
Non- | 79.9 | 126.9 | 2.7 | 209.5 | ||||
Total | $ 322.7 | $ 316.4 | $ 130.4 | $ 769.5 | ||||
AB L.P. | ||||||||||||||||
RECONCILIATION OF GAAP FINANCIAL RESULTS TO ADJUSTED FINANCIAL RESULTS | ||||||||||||||||
Three Months Ended | ||||||||||||||||
(US $ Thousands, unaudited) | 6/30/2024 | 3/31/2024 | 12/31/2023 | 9/30/2023 | 6/30/2023 | 3/31/2023 | ||||||||||
Net Revenues, GAAP basis | $ 1,027,943 | $ 1,104,151 | $ 1,090,720 | $ 1,032,056 | $ 1,008,456 | $ 1,024,091 | ||||||||||
Exclude: | ||||||||||||||||
Distribution-related adjustments: | ||||||||||||||||
Distribution revenues | (172,905) | (165,690) | (151,339) | (149,049) | (144,798) | (141,078) | ||||||||||
Investment advisory services fees | (20,350) | (19,090) | (15,302) | (16,156) | (14,005) | (15,456) | ||||||||||
Pass through adjustments: | ||||||||||||||||
Investment advisory services fees | (11,488) | (15,513) | (27,162) | (14,567) | (11,046) | (9,763) | ||||||||||
Other revenues | (20,447) | (8,761) | (8,811) | (8,661) | (8,096) | (9,343) | ||||||||||
Impact of consolidated company-sponsored investment funds | (3,292) | (8,374) | (13,670) | 1,931 | (2,975) | (10,409) | ||||||||||
Incentive compensation-related items | (1,521) | (2,547) | (3,509) | 238 | (4,905) | (5,443) | ||||||||||
Equity loss on JVs | 27,893 | — | — | — | — | — | ||||||||||
Adjusted Net Revenues | $ 825,833 | $ 884,176 | $ 870,927 | $ 845,792 | $ 822,631 | $ 832,599 | ||||||||||
Operating Income, GAAP basis | $ 199,289 | $ 241,997 | $ 238,500 | $ 175,250 | $ 188,661 | $ 215,260 | ||||||||||
Exclude: | ||||||||||||||||
Real estate | (206) | (206) | (206) | (206) | (206) | (206) | ||||||||||
Incentive compensation-related items | 751 | 1,097 | 1,126 | 1,354 | 1,103 | 1,608 | ||||||||||
EQH award compensation | 291 | 215 | 179 | 142 | 215 | 191 | ||||||||||
Acquisition-related expenses | 19,035 | 14,981 | 14,879 | 44,941 | 20,525 | 17,725 | ||||||||||
Equity loss on JVs | 27,893 | — | — | — | — | — | ||||||||||
Interest on borrowings (1) | 11,313 | 17,370 | 12,800 | 13,209 | 14,672 | 13,713 | ||||||||||
Total non-GAAP adjustments | 59,077 | 33,457 | 28,778 | 59,440 | 36,309 | 33,031 | ||||||||||
Less: Net income (loss) of consolidated entities attributable to non-controlling interests | 4,180 | 8,028 | 13,384 | (2,164) | 3,023 | 9,767 | ||||||||||
Adjusted Operating Income(1) | $ 254,186 | $ 267,426 | $ 253,894 | $ 236,854 | $ 221,947 | $ 238,524 | ||||||||||
Operating Margin, GAAP basis excl. non-controlling interests | 19.0 % | 21.2 % | 20.6 % | 17.2 % | 18.4 % | 20.1 % | ||||||||||
Adjusted Operating Margin(1) | 30.8 % | 30.3 % | 29.2 % | 28.0 % | 27.0 % | 28.7 % | ||||||||||
AB Holding L.P. | ||||||||||||||||
RECONCILIATION OF GAAP EPU TO ADJUSTED EPU | ||||||||||||||||
Three Months Ended | ||||||||||||||||
($ Thousands except per Unit amounts, unaudited) | 6/30/2024 | 3/31/2024 | 12/31/2023 | 9/30/2023 | 6/30/2023 | 3/31/2023 | ||||||||||
Net Income - Diluted, GAAP basis | $ 113,523 | $ 77,222 | $ 79,198 | $ 56,991 | $ 60,558 | $ 67,437 | ||||||||||
Impact on net income of AB non-GAAP adjustments | (32,232) | 6,176 | 6,228 | 17,077 | 8,124 | 7,401 | ||||||||||
Adjusted Net Income - Diluted | $ 81,291 | $ 83,398 | $ 85,426 | $ 74,068 | $ 68,682 | $ 74,838 | ||||||||||
Diluted Net Income per Holding Unit, GAAP basis | $ 0.99 | $ 0.67 | $ 0.71 | $ 0.50 | $ 0.53 | $ 0.59 | ||||||||||
Impact of AB non-GAAP adjustments | (0.28) | 0.06 | 0.06 | 0.15 | 0.08 | 0.07 | ||||||||||
Adjusted Diluted Net Income per Holding Unit | $ 0.71 | $ 0.73 | $ 0.77 | $ 0.65 | $ 0.61 | $ 0.66 | ||||||||||
(1) During the second quarter of 2023, we adjusted operating income to exclude interest on borrowings in order to align with our industry peer group. We have recast prior periods presentation to align with the current period presentation. |
AB
Notes to Consolidated Statements of Income and Supplemental Information
(Unaudited)
Adjusted Net Revenues
Net Revenue, as adjusted, is reduced to exclude all of the company's distribution revenues, which are recorded as a separate line item on the consolidated statement of income, as well as a portion of investment advisory services fees received that is used to pay distribution and servicing costs. For certain products, based on the distinct arrangements, certain distribution fees are collected by us and passed through to third-party client intermediaries, while for certain other products, we collect investment advisory services fees and a portion is passed through to third-party client intermediaries. In both arrangements, the third-party client intermediary owns the relationship with the client and is responsible for performing services and distributing the product to the client on our behalf. We believe offsetting distribution revenues and certain investment advisory services fees 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 that perform functions on behalf of our sponsored mutual funds and/or shareholders of these funds. Distribution-related adjustments fluctuate each period based on the type of investment products sold, as well as the average AUM over the period. Also, we adjust distribution revenues for the amortization of deferred sales commissions as these costs, over time, will offset such revenues.
We adjust investment advisory and services fees and other revenues for pass through costs, primarily related to our transfer agent and shareholder servicing fees. Also, we adjust for certain investment advisory and service fees passed through to our investment advisors. We also adjust for certain pass through costs associated with the transition of services to the JVs entered into with SocGen. These amounts are expensed by us and passed to the JVs for reimbursement. These fees do not affect operating income, as such, we exclude these fees from adjusted net revenues.
We adjust for the revenue impact of consolidating company-sponsored investment funds by eliminating the consolidated company-sponsored investment funds' revenues and including AB's fees from such consolidated company-sponsored investment funds and AB's investment gains and losses on its investments in such consolidated company-sponsored investment funds that were eliminated in consolidation.
We also adjust net revenues to exclude our portion of the equity income or loss associated with our investment in the JVs. Effective April 1, 2024, following the close of the transaction with SocGen, we record all income or loss associated with the JVs as an equity method investment income (loss). As we no longer consider this activity part of our core business operations and our intent is to fully divest from both joint ventures, we consider these amounts temporary and as such, we exclude these amounts from our adjusted net revenues.
Adjusted net revenues exclude investment gains and losses and dividends and interest on employee long-term incentive compensation-related investments. Also, we adjust for certain acquisition related pass through performance-based fees and performance related compensation.
Adjusted Operating Income
Adjusted operating income represents operating income on a US GAAP basis excluding (1) real estate charges (credits), (2) the impact on net revenues and compensation expense of the investment gains and losses (as well as the dividends and interest) associated with employee long-term incentive compensation-related investments, (3) the equity compensation paid by EQH to certain AB executives, as discussed below, (4) acquisition-related expenses, (5) equity income (loss) on JVs (6) interest on borrowings and (7) the impact of consolidated company-sponsored investment funds.
Real estate charges (credits) incurred 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. However, beginning in the fourth quarter of 2019, real estate charges (credits), while excluded in the period in which the charges (credits) are recorded, are included ratably over the remaining applicable lease term.
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 as of year-end 2012 and the investments have been delivered 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. Management believes it is useful to reflect the offset achieved from economically hedging the market exposure of these investments 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.
The board of directors of EQH granted to Seth P. Bernstein, our CEO, equity awards in connection with EQH's IPO. Additionally, equity awards were granted to Mr. Bernstein and other AB executives for their membership on the EQH Management Committee. These individuals may receive additional equity or cash compensation from EQH in the future related to their service on the Management Committee. Any awards granted to these individuals by EQH are recorded as compensation expense in AB's consolidated statement of income. The compensation expense associated with these awards has been excluded from our non-GAAP measures because they are non-cash and are based upon EQH's, and not AB's, financial performance.
Acquisition-related expenses 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. Acquisition-related expenses include professional fees and the recording of changes in estimates to contingent payment arrangements associated with our acquisitions. Beginning in the first quarter of 2022, acquisition-related expenses also include certain compensation-related expenses, amortization of intangible assets for contracts acquired and accretion expense with respect to contingent payment arrangements.
We also adjust operating income to exclude our portion of the equity income or loss associated with our investment in the JVs. Effective April 1, 2024, following the close of the transaction with SocGen, we record all income or loss associated with the JVs as an equity method investment income (loss). As we no longer consider this activity part of our core business operations and our intent is to fully divest from both joint ventures, we consider these amounts temporary and as such, we exclude these amounts from our adjusted operating income.
We adjust operating income to exclude interest on borrowings in order to align with our industry peer group.
We adjusted for the operating income impact of consolidating certain company-sponsored investment funds by eliminating the consolidated company-sponsored funds' revenues and expenses and including AB's revenues and expenses that were eliminated in consolidation. We also excluded the limited partner interests we do not own.
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.
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SOURCE AllianceBernstein
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