AllianceBernstein Holding L.P. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. AB Holding is a publicly traded partnership whose principal income and cash flow come from its equity-method investment in AllianceBernstein L.P. (AB), an investment manager. The figures below are for AB Holding unless otherwise noted.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | First nine months 2023 | First nine months 2022 |
|---|---|---|---|---|
| Equity in AB net income | $65.8 million | $63.9 million | $211.3 million | $233.6 million |
| Net income | $57.0 million | $56.3 million | $185.0 million | $210.4 million |
| Diluted net income per unit | $0.50 | $0.56 | $1.63 | $2.11 |
| Distribution per unit | $0.65 | $0.64 | $1.92 | $2.25 |
- Q3 net income rose 1.2% year over year, as AB Holding’s higher average ownership interest in AB more than offset lower AB net income attributable to its unitholders. For the nine-month period, net income fell 12.1%, primarily reflecting lower AB net income.
- AB net income attributable to its unitholders declined 4.4% in Q3 and 16.7% year to date. AB Holding’s average equity ownership interest was 39.3% in both 2023 periods, versus 36.5% and 36.2%, respectively, in 2022.
- AB Holding’s adjusted diluted net income per unit, a non-GAAP measure, was $0.65 for Q3 and $1.92 year to date, compared with $0.64 and $2.25 in 2022. Management says distributions typically reflect adjusted diluted net income per unit.
- AB Holding does not present standalone revenue or operating-margin figures in these statements. Detailed AB operating results are referenced in Exhibit 99.1, which is not included in the supplied filing text; those values are therefore not summarized here.
- At September 30, 2023, total assets were $1.973 billion, consisting of the investment in AB; total liabilities were $552,000 and partners’ capital was $1.972 billion. No debt balance is reported in the presented statement of financial condition.
- For the first nine months, operating cash flow was $221.2 million, down from $288.7 million, mainly because cash distributions received from AB declined by $64.9 million to $248.5 million. Financing cash outflow was $221.2 million, including $223.7 million of distributions to unitholders. AB Holding reported no cash balance at period end.
- Income taxes were $8.8 million in Q3 and $26.3 million year to date; the effective tax rates were 13.3% and 12.4%, respectively, versus 11.9% and 9.9% in 2022.
Changes, outlook, and risks
- The October 26, 2023 distribution declaration was $0.65 per unit, payable November 22 to holders of record November 6. AB Holding’s partnership agreement generally requires distribution of available cash flow.
- AB repurchased 1.8 million AB Holding units on the open market during Q3 for approximately $56.9 million, primarily to help fund incentive compensation awards. Total units outstanding declined to 111.8 million from 113.8 million at year-end 2022. The Q3 repurchase plan expired October 25; future repurchases are not assured.
- Management believes cash flow from AB will meet AB Holding’s financial obligations, but that capacity depends on AB’s operating cash flow and quarterly distributions, which are exposed to capital-market and other factors.
- A putative ERISA class action alleges fiduciary-duty breaches relating to proprietary investment options in AB’s employee plan and seeks unspecified damages and other relief. The matter is at an early stage; management says the outcome is not currently determinable and does not expect a material adverse effect. Other proceedings and inquiries may result in losses that management cannot currently estimate.
- Key stated risks include financial-market performance, investment results, economic and industry conditions, competition, regulation and taxes, acquisitions, and the ability to maintain or grow client assets. Management reported no material change in risk factors or market-risk disclosures and concluded disclosure controls were effective.
Important facts for investors to verify
- Review AB’s accompanying Form 10-Q (Exhibit 99.1) for underlying revenue, operating margins, assets under management, flows, and a fuller assessment of business performance.
- Track AB’s distributions to AB Holding and the resulting coverage of AB Holding’s distributions, given its reliance on AB for cash and its lack of reported cash reserves.
- Monitor unit repurchases, incentive-compensation funding, and the effect of changes in AB Holding’s ownership share of AB on per-unit results.
- Follow developments in the ERISA class action and other legal or regulatory matters, including any changes to estimated exposure.