AllianceBernstein Holding L.P. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. AB Holding’s primary income and cash flow come from its investment in AllianceBernstein L.P. (AB); its results largely reflect its share of AB’s earnings rather than standalone operating revenue.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Change |
|---|---|---|---|
| Equity income from AB | $63.2 million | $59.0 million | +7.1% |
| Net income | $56.9 million | $52.3 million | +8.9% |
| Diluted net income per unit | $0.59 | $0.54 | +9.3% |
| Distribution per unit | $0.61 | $0.56 | +8.9% |
For the six months ended June 30, equity income from AB was $133.1 million, up 19.2% year over year; net income was $119.2 million, up 20.7%; and diluted earnings per unit were $1.23, up 19.4%. The filing does not present AB Holding operating margins as a meaningful standalone measure. It reports AB’s adjusted operating margin at 27.8% for the first half of 2020, versus 27.5% for full-year 2019.
Cash flow, financial position and distributions
- First-half operating cash flow was $144.6 million, versus $108.7 million a year earlier, mainly reflecting $38.6 million more cash distributions received from AB.
- First-half cash distributions to AB Holding unitholders were $145.5 million; investing cash outflow was $0.1 million and financing cash outflow was $144.4 million. Cash and cash equivalents were zero at both the start and end of the period.
- At June 30, 2020, total assets were $1.487 billion, principally the $1.487 billion investment in AB. Total liabilities were $266,000, and partners’ capital was $1.487 billion. The filing reports no debt balance.
- The General Partner declared a $0.61-per-unit distribution on July 23, payable August 20 to holders of record August 3, 2020. AB Holding’s distributions depend on cash received from AB.
Changes, outlook and risks
- AB Holding’s earnings growth reflected higher AB earnings and a slightly higher average ownership interest in AB. The first-half effective tax rate was 10.5%, compared with 11.6% in 2019.
- AB repurchased 1.32 million AB Holding units in Q2 for approximately $27.8 million, primarily in open-market purchases to help fund incentive compensation. The repurchase plan expired July 22; future repurchases are not assured.
- Management said achieving AB’s 30% adjusted operating-margin target in 2020 was unlikely, while reaffirming its longer-term commitment to that target and noting further expense-alignment actions.
- Management cited COVID-19-related market and economic uncertainty, possible renewed market declines and reduced asset values, potential fund redemptions following weak relative fixed-income performance in Q1, and possible deterioration in securities-market liquidity. These factors could reduce assets under management, revenue and earnings.
- AB may face litigation, regulatory inquiries and proceedings. Management said losses are reasonably possible but could not estimate them; it did not expect pending matters to have a material adverse effect, while acknowledging uncertainty.
- AB Holding’s tax treatment as a grandfathered publicly traded partnership depends on not engaging in a substantial new line of business. Losing that status could materially reduce net income and distributions.
Investor facts to verify
- Review AB’s accompanying Form 10-Q (Exhibit 99.1) for operating revenue, margins, assets under management, performance and the drivers of AB’s earnings.
- Monitor AB’s cash distributions to AB Holding and whether they support future per-unit distributions.
- Track COVID-19, market liquidity, client redemptions and fixed-income performance for effects on AB’s assets and earnings.
- Assess progress toward the margin target and any changes to repurchases, incentive-compensation funding or partnership tax status.