AllianceBernstein Holding L.P. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. AB Holding’s principal income and cash flow come from its investment in AllianceBernstein L.P. (AB); it reports its share of AB’s earnings rather than standalone operating revenue. AB provides global investment management, research and related services.
Financial performance and position
- Q3 net income: $88.7 million, up 32.4% from $67.0 million in Q3 2020. Equity in AB net income was $95.9 million, up 29.8%; income taxes were $7.2 million.
- Q3 diluted earnings per unit: $0.89, compared with $0.70 a year earlier, up 27.1%.
- Nine-month net income: $260.7 million, up 40.0% from $186.2 million. Diluted earnings per unit were $2.61 versus $1.95, up 33.8%.
- Cash flow, nine months: Operating cash flow was $268.0 million, versus $203.6 million. AB distributions received were $290.8 million. Financing cash outflow was $264.6 million, principally reflecting $269.9 million of distributions to unitholders. Cash and cash equivalents were zero at period end.
- Liquidity and debt: Total assets were $1.550 billion, primarily the $1.550 billion investment in AB; liabilities were $0.5 million. The filing reports no debt balance. Management said cash flow from the AB investment should provide resources to meet obligations.
- Margins and revenue: AB Holding does not present standalone revenue or operating margin in these statements; the filing text does not provide a clear value for these metrics. AB qualifying revenues, a tax-calculation measure, were $669.2 million for Q3, up 4.2%, and $1.956 billion for nine months, up 1.3%.
- Distribution: Q3 distribution was $0.89 per unit, versus $0.69 in Q3 2020. On October 28, 2021, the General Partner declared $0.89 per unit for the quarter, payable November 24 to holders of record November 8.
Changes and management commentary
- Higher AB earnings and a slightly higher average ownership interest in AB drove the increase in AB Holding income. Average equity ownership was 36.2% in Q3 2021 versus 35.5% a year earlier.
- Operating cash flow rose mainly because distributions received from AB increased by $65.0 million. Cash distributions paid to unitholders increased by $65.4 million from the comparable nine-month period.
- AB Holding’s effective tax rate declined to 7.6% for both the quarter and nine-month period, from 9.3% and 10.1%, respectively, in 2020.
- AB Holding distributes available cash flow under its partnership agreement; management said it expects the calculation generally to continue to be based on adjusted diluted net income per unit. No further financial guidance was provided.
Risks, contingencies and unusual items
- A September 2021 Senate Finance Committee chair’s draft tax legislation could, if enacted in its current form, end AB Holding’s grandfathered publicly traded partnership status and subject it to corporate income tax, materially reducing net income and distributions. The filing says enactment is highly uncertain.
- AB may face regulatory inquiries, administrative proceedings and litigation. Losses are reasonably possible, but management could not estimate them; management did not then expect pending matters, individually or collectively, to materially adversely affect results, financial condition or liquidity.
- AB Holding’s cash flow and ability to meet obligations depend on distributions from AB, which are exposed to market performance and other factors. Other cited risks include client assets and revenues, competition, regulation, COVID-19-related economic effects, and execution of the firm’s relocation strategy.
- AB repurchased 1.0 million AB Holding units for $50.0 million in Q3, including 892,651 open-market units to help fund incentive awards. The filing notes non-GAAP adjustments affect distribution calculations.
Important facts for investors to verify
- Review AB’s accompanying Form 10-Q for underlying revenue, margins, assets under management, operating performance and more detailed risks; AB Holding’s reported earnings are largely driven by its investment in AB.
- Monitor developments in partnership-tax legislation and the potential effect on AB Holding’s tax status and distributions.
- Compare AB distributions received with distributions paid to unitholders and assess the sustainability of available cash flow.
- Track legal and regulatory matters, for which the filing provides no estimable loss range.
- Distinguish GAAP earnings per unit from management’s adjusted measures used in calculating distributions.