AllianceBernstein Holding L.P. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. AB Holding’s primary source of income and cash flow is its equity-method investment in AllianceBernstein L.P. (AB), an investment management and research firm. These figures are for AB Holding unless otherwise specified.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Equity in AB net income attributable to AB unitholders | $65.7 million | $49.7 million | +32.3% |
| AB Holding net income | $58.2 million | $43.9 million | +32.5% |
| Diluted net income per unit | $0.60 | $0.46 | +30.4% |
| Operating cash flow | $80.1 million | $64.3 million | +$15.8 million |
| Cash distributions received from AB | $88.7 million | $70.4 million | +$18.3 million |
| Cash distributions to unitholders | $81.8 million | $64.8 million | +$17.0 million |
At March 31, total assets were $1.561 billion, consisting entirely of the investment in AB. Total liabilities were $126,000; the filing reports no debt balance. Partners’ capital was $1.561 billion. AB Holding reported no cash and cash equivalents at quarter-end. Revenue and operating margins for AB Holding are not separately presented; consult AB’s accompanying Form 10-Q (Exhibit 99.1) for operating-company results. Management metrics such as adjusted operating margin are non-GAAP measures.
Changes, distributions, and unusual items
- Management attributed higher net income primarily to growth in AB’s net income and a slightly higher average AB ownership interest (35.7%, versus 35.5%).
- AB adopted ASC 606 on January 1, 2018. The adoption increased AB partners’ capital by $35.0 million and increased AB Holding’s partners’ capital by approximately $12.5 million. AB Holding’s reported results were not otherwise affected by the standard’s revenue-recognition change.
- AB Holding reported $0.13 per unit of AB non-GAAP adjustments, primarily associated with ASC 606. Adjusted diluted net income per unit was $0.73, compared with GAAP diluted net income per unit of $0.60. The $0.73 distribution declared for the quarter was payable May 17, 2018; the prior-year distribution was $0.46 per unit.
Outlook, risks, and contingencies
Management said AB Holding expects cash flows from its AB investment to provide resources to meet its financial obligations. Its ability to do so depends on AB’s operating cash flow and distributions, which are exposed to capital-market performance and other factors outside AB Holding’s control. No specific quarterly earnings or distribution guidance is provided.
The filing refers to AB’s 2020 margin target but does not state a clear numerical target here. Management says the target is reasonable as of the filing date, while noting uncertainty around net flows, alternatives growth, costs, cost reductions, business investment, and market conditions. Forward-looking risks also include investment performance, client assets, competition, regulation, tax treatment, and access to capital markets.
AB is involved in legal and regulatory matters. Management says losses are reasonably possible but cannot currently estimate additional losses; it does not presently expect pending matters, individually or collectively, to materially affect results, financial condition, or liquidity. AB Holding’s grandfathered publicly traded partnership tax status is important: losing that status could materially reduce net income and distributions. Management reported no material change in risk factors or market risk and concluded disclosure controls were effective.
Key facts for investors to verify
- Review AB’s accompanying Form 10-Q for revenue, assets under management, operating margins, and underlying drivers of AB’s earnings and distributions.
- Assess how much of the per-unit distribution reflects recurring cash generation versus the ASC 606-related adjustment; the distribution exceeded GAAP diluted earnings per unit by $0.13.
- Monitor AB’s cash flow and distributions to AB Holding, since Holding’s liquidity depends principally on those receipts and it reported no cash at quarter-end.
- Review developments in legal and regulatory matters and the risks to AB Holding’s partnership tax status.