AllianceBernstein Holding L.P. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. AB Holding is a publicly traded partnership whose income and cash flow primarily come from its investment in AllianceBernstein L.P. (AB); it accounts for that investment using the equity method. The figures below are for AB Holding unless otherwise noted.
Financial results and liquidity
- Q3 net income: $67.0 million, up 12.0% from $59.8 million a year earlier. Equity in AB net income was $73.9 million, up 10.7%; income taxes were $6.9 million.
- Q3 diluted net income per unit: $0.70 versus $0.62, up 12.9%. For the first nine months, net income was $186.2 million versus $158.5 million, and diluted net income per unit was $1.95 versus $1.65.
- Distributions: Q3 distribution was $0.69 per unit, compared with $0.63 in Q3 2019. A $0.69 distribution for the quarter was declared October 22, payable November 12, 2020. Nine-month distributions were $1.94 per unit versus $1.68.
- Cash flow: Nine-month operating cash flow was $203.6 million, up from $162.7 million, principally reflecting $43.3 million more cash distributions received from AB. Financing cash outflow was $203.5 million, largely distributions to unitholders; investing cash outflow was $0.1 million. Cash at period-end was zero.
- Balance sheet and debt: At September 30, investment in AB was $1.496 billion and total assets were $1.496 billion. Total liabilities were $0.4 million; the filing’s presented balance sheet shows no debt balance. Partners’ capital was $1.496 billion. Units outstanding were 96.2 million, down from 98.2 million at year-end 2019.
- Revenue and margins: AB Holding does not present standalone operating revenue or operating margins in these statements. AB’s revenue and operating performance are reported separately. AB’s adjusted operating margin was 28.4% for the first nine months of 2020 versus 27.5% for full-year 2019.
Changes, outlook, and risks
- Higher income at AB was the main driver of AB Holding’s earnings growth. Nine-month net income rose 17.4%; nine-month equity in AB net income rose 16.0%.
- Management said achieving AB’s 30% adjusted operating-margin target in 2020 was unlikely based on then-current revenue and expense projections. It remained committed to reaching 30% in subsequent years, subject to market conditions and business mix, and said it was taking additional steps to align expenses with expected revenue.
- Management noted that market declines in March 2020 had significantly reduced assets under management (AUM), although markets and AUM had since recovered. It warned that volatility, COVID-19-related economic disruption, investment performance, client flows, and reduced liquidity in certain securities could adversely affect AUM, revenue, and net income. Fixed-income performance rebounded in Q3, but weaker prior-period track records could contribute to future redemptions.
- AB may face losses from litigation, regulatory inquiries, or administrative proceedings; management said losses were reasonably possible but could not be estimated. It did not expect pending matters, individually or collectively, to materially harm results, financial condition, or liquidity, while noting outcomes remain uncertain.
- AB Holding’s federal and state tax status depends on retaining its grandfathered publicly traded partnership status. Losing that status could materially reduce net income and distributions. Management said AB Holding expects cash flow from AB to meet its obligations, but its liquidity depends on AB’s operating cash flow and market conditions.
Important facts for investors to verify
- Review AB’s separately filed Q3 2020 report for underlying revenue, AUM, operating expenses, margins, debt, and detailed business results; AB Holding’s results principally reflect its share of AB income.
- Confirm the distribution’s payment and the basis for Available Cash Flow, which management generally ties to adjusted diluted net income per unit and which can differ from GAAP earnings.
- Assess whether AB can sustain AUM, investment performance, and client flows amid COVID-19, market volatility, and possible fixed-income redemptions.
- Monitor progress toward the 30% adjusted operating-margin goal and the impact of expense actions and relocation-related costs.
- Track litigation and regulatory developments, and the continued qualification of AB Holding’s partnership tax status.