AllianceBernstein Holding L.P. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. AB Holding’s principal asset and source of income is its partnership interest in AllianceBernstein L.P. (“AB”), the operating business. Unless noted, operating results below refer to AB.
Business context
AB provides investment management, research and related services through Institutional, Retail, Private Wealth Management and Bernstein Research Services. Revenue is largely tied to assets under management (AUM) and fee rates. Year-end AUM rose to $725.2 billion from $646.4 billion in 2022, but remained below $778.6 billion in 2021. EQH and its affiliates are the largest client and held approximately 16% of AUM at year-end.
Key financial metrics
| Metric | 2023 | 2022 |
|---|---|---|
| AB net revenues | $4.155 billion | $4.054 billion |
| AB operating income | $817.7 million | $815.1 million |
| AB operating margin (GAAP) | 19.1% | 21.5% |
| AB adjusted operating income | $951.2 million | $965.1 million |
| AB adjusted operating margin | 28.2% | 28.9% |
| Net income attributable to AB Unitholders | $764.6 million | $831.8 million |
| Diluted net income per AB Unit | $2.65 | $3.01 |
| Net cash from AB operating activities | $872.3 million | $1.121 billion |
| AB debt at year-end | $1.154 billion | $990.0 million |
| AB Holding net income / diluted income per Unit | $264.2 million / $2.34 | $274.2 million / $2.69 |
AB reported $1.0 billion of cash and cash equivalents available for liquidity, excluding consolidated fund and held-for-sale cash. It also had an undrawn $800 million bank revolver; the $900 million committed EQH facility was fully drawn, and $254.3 million of commercial paper was outstanding. AB Holding reported $294.0 million of operating cash flow, principally distributions received from AB; Holding distributes available cash to unitholders.
Changes versus 2022
- AUM increased 12.2%, driven by $85.8 billion of market appreciation, partly offset by $7.0 billion of net outflows. Institutional outflows were $11.8 billion; Retail and Private Wealth had inflows of $3.7 billion and $1.1 billion, respectively.
- Net revenue increased 2.5%. Investment gains improved by $116.6 million versus 2022 losses, and dividend and interest income rose $76.4 million. These gains were partly offset by lower Bernstein Research Services revenue and distribution revenues.
- Operating expenses increased 3.0%, including higher compensation, borrowing costs and intangible amortization. General and administrative expenses fell $60.1 million.
- AB’s GAAP net income attributable to unitholders declined 8.1%; diluted income per unit fell 12.0%. Adjusted operating income declined 1.4% and adjusted margin fell 70 basis points.
- AB’s operating cash flow decreased by approximately $249 million. Year-end debt increased, including $254.3 million of commercial paper, while average borrowing costs rose materially.
Outlook, commentary, risks and unusual items
- Management expects approximately $75 million of annual expense savings from the Nashville headquarters relocation beginning in 2025. Through 2023, cumulative relocation costs were $140 million versus $175 million of savings; total transition costs are estimated at $145–$155 million and savings at $205–$215 million through 2024. These are estimates subject to execution and cost uncertainty.
- EQH announced a second $10 billion intended permanent-capital allocation to AB’s private, illiquid strategies, following an initial $10 billion commitment that was approximately 90% deployed. The commitments are not binding and may be withdrawn under specified conditions.
- AB and Société Générale revised plans for joint ventures involving Bernstein Research Services; closings were expected in the first half of 2024, subject to regulatory clearances. Management anticipated a 200–250 basis-point improvement in annual adjusted margin upon deconsolidation. The business remained classified as held for sale; AB recorded a $6.6 million non-cash valuation adjustment in 2023.
- A one-time $22.4 million tax benefit from releasing a valuation allowance contributed to lower 2023 income tax expense. A $28.4 million expense related to revised contingent consideration estimates for the Autonomous acquisition reflected better-than-expected revenues.
- Management highlighted market volatility, interest rates, investment performance, active-to-passive shifts, fee pressure, client withdrawals, foreign exchange, cyber and operational risks, regulation and competition. EQH concentration is also material: affiliates represented about 5% of 2023 net revenues, and related agreements can generally be terminated on short notice.
- An ERISA class action concerning proprietary investment options in AB’s employee profit-sharing plan seeks unspecified damages and other relief. AB stated it could not estimate reasonably possible losses for significant litigation matters, but did not expect the identified case to materially affect results, financial condition or liquidity. The auditor identified performance-based fee measurement as a critical audit matter. PwC issued unqualified opinions and concluded internal control over financial reporting was effective.
Investor verification priorities
- Track net flows and organic growth by channel and strategy, particularly Institutional flows and active equity performance.
- Reconcile GAAP and adjusted margins, including the effects of compensation, investment gains, borrowing costs and one-time items.
- Review debt maturities, EQH facility renewal and commercial-paper funding, as well as cash available after broker-dealer and other operating requirements.
- Monitor the execution, regulatory approvals, accounting treatment and expected economics of the SocGen joint ventures.
- Confirm deployment terms and progress for EQH’s intended capital allocations, and assess the assumptions behind relocation savings and contingent acquisition payments.