AllianceBernstein Holding L.P. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. AB Holding’s principal income and cash flow come from its investment in AllianceBernstein L.P. (AB); it accounts for that investment using the equity method. Accordingly, AB Holding’s reported results are not a standalone presentation of AB’s operating revenue and expenses.
Key financial results
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Equity in AB income attributable to AB unitholders | $47.9 million | $44.7 million | $97.6 million | $104.8 million |
| Net income | $41.7 million | $39.1 million | $85.7 million | $93.7 million |
| Diluted net income per unit | $0.43 | $0.40 | $0.89 | $0.95 |
| Distribution per unit | $0.49 | $0.40 | $0.95 | $0.80 |
Q2 AB net income attributable to its unitholders was $135.1 million, up 8.5%; for the first half it was $275.0 million, down 5.4%. AB Holding’s effective tax rate was 12.9% for Q2 and 12.3% for the first half, versus 12.5% and 10.7%, respectively, in 2016. The filing does not provide a meaningful standalone revenue or operating-margin measure for AB Holding.
AB Holding reported first-half operating cash flow of $108.8 million, compared with $88.2 million in 2016, mainly reflecting higher distributions received from AB ($120.8 million versus $99.7 million). Investing cash use was $9.2 million; financing cash use was $99.5 million, including $109.4 million of distributions to unitholders. Ending cash was zero. Assets were $1.441 billion, almost entirely the investment in AB; liabilities were $547,000. The filing reports no debt balance.
Changes, outlook and risks
- Q2 net income rose 6.8% and diluted earnings per unit rose 7.5% year over year. First-half net income fell 8.6% and diluted earnings per unit fell 6.3%, reflecting lower AB income attributable to unitholders and a lower AB ownership interest.
- Units outstanding declined to 93.5 million from 96.7 million at year-end 2016, principally due to 5.6 million units retired, partly offset by issuance and option exercises.
- The general partner declared a $0.49-per-unit distribution for Q2, payable August 24, 2017 to holders of record August 7. AB Holding generally distributes available cash flow, which typically is based on adjusted diluted net income per unit; this is not a guarantee of future distributions.
- No specific earnings guidance is provided. Management expects cash flow from AB to provide resources for AB Holding’s obligations, but that cash flow depends on AB’s operations, capital-market performance and other factors.
- AB disclosed pending or threatened legal and regulatory matters for which losses are reasonably possible but not currently estimable. Management did not expect the matters, individually or in aggregate, to have a material adverse effect, while noting outcomes remain uncertain.
- Principal stated risks include financial-market performance, investment results, client assets, competition, regulation and tax changes. Management reported no material change in risk factors or market-risk disclosures; disclosure controls were judged effective.
- Prior-year comparative results were revised for a tax-provision calculation error identified in 2016. The revision reduced Q2 2016 net income by $832,000 and first-half 2016 net income by $1.787 million.
Important facts for investors to verify
- Review AB’s attached 10-Q for the operating drivers behind its revenue, margins, assets under management and cash generation; AB is the source of most AB Holding income and cash flow.
- Assess the sustainability of distributions relative to AB distributions received, available cash flow and unit repurchases or retirements.
- Monitor the unresolved litigation and regulatory matters, as potential losses are not estimable in the filing.
- Consider the effect of the disclosed prior-period tax revision and the risk that a change in tax status could materially reduce AB Holding income and distributions.