AllianceBernstein Holding L.P. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. AB Holding’s principal source of income and cash flow is its equity-method investment in AllianceBernstein L.P. (AB); accordingly, its reported results reflect its share of AB’s earnings rather than standalone operating revenue.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Equity in AB net income | $61.1 million | $51.6 million | +18.4% |
| AB Holding net income | $55.5 million | $45.6 million | +21.9% |
| Diluted net income per unit | $0.56 | $0.45 | +24.4% |
| Operating cash flow | $56.0 million | $63.2 million | Down $7.2 million |
| Cash distributions received from AB | $55.9 million | $63.2 million | Down $7.3 million |
| Distribution per unit | $0.40 declared after quarter-end | $0.45 | Down 11.1% |
Net income growth reflected AB’s higher earnings, partly offset by AB Holding’s lower weighted-average ownership interest in AB (36.2% versus 36.5%). Income taxes were $5.6 million, down 7.4%; the effective tax rate was 9.1%, versus 11.7%. Adjusted diluted net income per unit, a non-GAAP measure reflecting AB adjustments, was $0.40 versus $0.45; reported GAAP diluted earnings per unit were higher in 2016.
At March 31, total assets were $1.567 billion, consisting of the investment in AB; total liabilities were $6.0 million, with no debt reported in the presented balance sheet. Partners’ capital was $1.561 billion. Cash and cash equivalents were zero at quarter-end. Financing cash outflow was $54.5 million, including $49.8 million of distributions to unitholders and $6.1 million of capital contributions to AB. Management expects cash flows from AB to provide resources for AB Holding’s obligations, but those flows depend on AB’s operating cash generation and capital-market conditions. Standalone revenue and operating margin are not presented in this filing’s AB Holding financial statements.
Material changes, outlook and notable items
- AB Holding’s units outstanding declined to 98.4 million from 100.0 million at year-end, primarily reflecting 2.0 million units retired. AB bought 1.84 million units on the open market to help fund incentive compensation and purchased additional units from employees for tax withholding.
- On April 28, 2016, the general partner declared a $0.40-per-unit distribution for the quarter, payable May 19 to holders of record May 9.
- Management cited $28.5 million of AB real-estate charges related to vacating and marketing two New York floors for sublease in Q1. AB expects approximately $3.7 million in annualized savings; both the savings and potential further charges depend on assumptions about subleasing and related costs.
- AB Holding reported a pending Philips pension-fund lawsuit alleging negligence concerning a £500 million mortgage-backed-securities portfolio. Philips alleges $177 million–$234 million of damages, plus compound interest on $125 million of realized losses. AB denies the allegations and intends to defend the case; management says it cannot estimate possible additional losses for certain matters.
- The W.P. Stewart contingent value right requires acquired-business AUM to exceed $5 billion by December 12, 2016 for a potential $4-per-share payment. AUM was approximately $4.1 billion at March 31, 2016; management said the milestone had not been met in Q1.
- Key stated risks include financial-market and investment performance, client assets under management, competition, regulation and tax treatment. Losing AB Holding’s grandfathered publicly traded partnership status could materially reduce net income and distributions. Management reported no material change in risk factors and concluded disclosure controls were effective.
Investor verification points
- Review AB’s accompanying Form 10-Q for operating revenue, margins, debt, assets under management and the drivers of AB’s earnings and cash distributions; those details are not included in this AB Holding summary.
- Verify the sustainability of the $0.40 distribution against adjusted earnings, cash received from AB and AB’s future cash generation.
- Track AB’s legal matters, particularly the Philips claim, and any changes to loss estimates or disclosures.
- Monitor the W.P. Stewart AUM milestone and the assumptions supporting the expected real-estate savings.