Thank you for standing-by and welcome to the AllianceBernstein’s Fourth Quarter 2017 Earnings Review. [Operator Instructions] As a reminder, this conference is being recorded and will be available for replay for one week. I would now like to turn the conference over to the host for this call, the Director of Investor Relations for AB, Ms. Andrea Prochniak. You may begin.

Thank you, Beth. Good morning, everyone, and welcome to our fourth quarter 2017 earnings review. This conference call is being webcast and accompanied by a slide presentation that is posted in the investor relations section of our website, www.alliancebernstein.com. Seth Bernstein, our President and CEO; John Weisenseel, our CFO; and Jim Gingrich, our COO, will present our results and take questions after our prepared remarks. Some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. So I'd like to point out the Safe Harbor language, which is on Slide 1 of our presentation. You can also find our Safe Harbor language in the MD&A of our 2017 Form 10-K, which we filed this morning. Under Regulation FD, management may only address questions of a material nature from the investment community in a public forum. So please ask all such questions during this call. We are also live tweeting today's earnings call. You can follow us on Twitter using our handle @AB_insights. Now I will turn it over to Seth.

Thanks, Andrea. Good morning. I'm delighted to report that 2017 was an exceptional year for AllianceBernstein reflecting the steady execution of our long-term growth strategy. First, alpha generation for our clients was superb across asset classes and vehicles. We ended the year with 90% or more of our AUM in both fixed income and equities performing above benchmark or peer median over five years. We also have strong track records in our multi-asset and alternatives services. Second, we experienced stellar organic growth across the platform. Active net flows of $19.1 billion in 2017 for a 4.5% organic growth rate. And our Firmwide average fee rate increased 2.7% as the mix of our overall portfolio improved. The breadth of our growth was equally impressive. Net inflows were positive across all channels and active services and in nearly every geography. Third, we continue to manage our cost structure to ensure that the robust growth we are generating translates into better earnings for our unitholders. And 2017's adjusted EPU of $2.30 was up 22% versus 2016 on 10% revenue growth due to an incremental margin above 50%. With that let's turn to the details of our 2017 results. Slide 3 provides a Firmwide overview of our fourth quarter and year. Fourth-quarter gross sales of $19.3 billion were flat year on year. Annual Gross sales of $78.8 billion were up nearly 8%. Total quarterly net flows of $4.2 billion compared with slight net outflows on last year's fourth quarter with net inflows into active strategies of $5.5 billion partially offset by passive outflows of $1.3 billion. For the year our Firmwide net flows were $13.2 billion, the $19.1 billion in active net flows I mentioned, partially offset by $5.9 billion in passive net outflows. With these strong flows and $61.1 billion worth of market…

Thank you, Seth. Let's start with the GAAP income statement on Slide 15. Fourth quarter GAAP net revenues of $919 million increased 17% from the prior year period. Operating income of $283 million increased 27% and the 29.9% operating margin increased by 250 basis points. GAAP EPU of $0.84 compares to $0.77 in the fourth quarter of 2016. As always I'll focus my remarks from here on our adjusted results which removes the effects of certain items that are not considered part of our core operating business. We base our distribution to unitholders upon our adjusted results which we provide in addition to and not as substitutes for our GAAP results. Our standard GAAP reporting and a reconciliation of GAAP to adjusted results are in our presentation's appendix, press release and 10-K. Our adjusted financial highlights are included on Slide 16. Fourth quarter revenues of $770 million, operating income of $272 million, and our margin of 35.3% all increased year-on-year. We earned and will distribute to our unitholders $0.84 per unit compared to $0.67 for last year's fourth quarter, higher base and performance fees primarily drove the improvement. For the year revenues increased by $235 million to $2.7 billion, operating income increased by $126 million to $750 million, and operating margin increased by 240 basis points to 27.7%. Adjusted EPU increased to $2.30 from the prior year's $1.89. Higher base and performance fees drove the increase in revenues and diligent expense management drove our continued margin expansion. We delve into these items in more detail on our adjusted income statement on Slide 17. Beginning with revenues, fourth quarter and full-year net revenues rose 16% and 10% respectively versus the same prior-year periods. Fourth quarter and full-year base fees rose 15% and 11% respectively year-on-year due to higher average AUM across…

[Operator Instructions] Your first question comes from the line of Robert Lee, KBW. Your line is open.

Great, thank you. Thanks for taking my question this morning. Maybe I would just like to, Seth, drill into the Private Wealth business a bit. Clearly it's – momentum there has been pretty good the last couple years, the last several quarters. Can you maybe just update us on – and I know this was an area that you thought you could put some incremental focus when you joined the firm. So can you maybe update us on what you are thinking about in that business in terms of whether it is further build out or how do you keep up or accelerate the momentum you have had there? I don't know if it is hiring more financial advisors or building new offices. Just how you're thinking about that business.

Thank you for the question. I think that business has done a remarkable job transitioning itself and now putting itself on its front foot and being aggressive about appealing to a broader array of clients, particularly those that are more affluent, particularly through our targeted services. It's a less prescriptive approach to managing money and it gives our clients the opportunity to take advantage of more thematic ideas and of course that our portfolio managers have created and it seems to have real resonance with them. And so, it's certainly been driving a significant chunk of the incremental growth in helping us penetrate more affluent clients. We are certainly aiming to hire more FAs in order to increase our penetration in markets we are already there – where were already present. It has been difficult for us. I think it's been difficult broadly for the industry to do it, but we are very focused on improving our ability to develop – both organically through the ranks but also laterally. But we are very encouraged by the productivity there, the increasing productivities of the FAs themselves, the better penetration and the fact that they are moving up market, but it's a tough slog. It's a very mature market and one that we think we have a differentiated proposition to offer.

Maybe my second question, kind of a follow-up to that. That business has also been instrumental in building out your various alternative offerings and whatnot. Could you maybe update us on where you think you may be in starting to bring some of your offerings to a broader Institutional marketplace where it just seems like demand for alternative strategies – or certain type of alternative strategies, private credit and whatnot, is almost insatiable at this point? So maybe what your plans are there, too.

I think I'd share your view that demand among Institutional clients for credit has been very strong. We have seen that in our commercial real estate and in our middle-market lending area. Both are available to our private clients, but we've seen significant acceleration in Institutional demand for both. But we've seen demand beyond just in sort of private credit space. Whether it's in some of our more thematic ideas, financials but also Aria where, if you will recall, we recruited the team a couple years ago and we have been building it out. And we've been seeing increasingly satisfying momentum in the growth of that strategy with institutions as well as private clients. So you're right, it's been a platform on which we – Private Client has been a platform on which we have launched a number of these newer capabilities, but it's growing well beyond the Private Client platform in terms of its demand from our client base.

Rob, I would just point out, again, if you look at our pipeline in the Institutional channel, now 40%-some is actually alternatives. And clearly the fee rate on alternatives is higher than it is on more traditional services, which is a big part of why, when we you look at the fees associated with that pipeline they are at an all-time high.

Great, thank you. I’ll get back in the queue. Thank you.

Your next question comes from the line of Alex Blostein, Goldman Sachs. Your line is open.

Great. Thanks for taking the question. Good morning, guys. Wanted to go back to one of your early points around the recent impact of volatility. Obviously last week was quite unprecedented on a number of different fronts – having you guys report after that and most of your peers reported obviously earnings already. It might be helpful to just kind of see what kind of trends you guys are seeing. And what are the conversations with clients like after the spike in volatility? And any sort of near-term implications you guys see for the product base.

Well, look, it's too early to make longer-term conclusions on it. I would certainly say that Retail clients are less interested in investing at the moment and we are seeing more volatility inflows. As a consequence of that it has been more concentrated in credit. Equity flows have continued to be pretty good. But on balance the overall volume of activity is down from the third quarter of last year. And I think volatility, if it continues will begin to see more meaningful outflows.

I think maybe the most important thing to note is that we are very pleased with the performance across our array of services during this period of volatility. The large majority have done as we would expect them to do, which, again, you're going to have these bouts of volatility, no doubt. But in terms of long-term growth profile for the firm and whether or not we are delivering for clients, we are very happy with how all the investment teams have done.

And Alex, this is John. I would just add that where last year the lack of volatility resulted in Bernstein research services, their revenues down 6%. Obviously they are doing much better on a year-to-date basis and the trading volatility has been helping them.

Got it, that’s helpful content. Second question just around expenses. And I guess maybe this quarter, but also as we look out into next year, the performance fee dynamic obviously very strong quarter, but it doesn't seem like we've seen much of that show up in expenses, and so obviously very high incremental margin. Is that a reasonable path for margins on your performance fees going forward? Or there was something a bit more unique about this quarter that led to a material step up in performance fees, albeit seasonal, but without a huge follow-through into expenses?

It’s John, Alex. You are absolutely correct, the fourth quarter typically is our largest quarter for performance fees because the majority of our contracts are based on an annual basis which end on a calendar basis. In terms of the incremental margin we were at I think 54% for the full-year and we were higher in the fourth quarter, I think I said 57%. I think in terms of – obviously we would have an higher incremental margin in the fourth quarter with the performance fees. But I think going forward we would be targeting – as long as the AUM and the fee rates continue at this particular level to higher, we should be around the 50% level in terms of incremental margin. And when you look out for 2018 as far as the non-compensation expenses, we really are in a cost-containment mode in terms of promotion servicing and G&A expenses. And so, when you strip out all the non-recurring things that we had going on in 2017, we would be trying to keep those promotion servicing and G&A expenses growing somewhere in line with inflation going forward.

Alex, two other points I would add on to John's comments. One is I do think it would not be correct to assume that there's no compensation associated with those performance fees, in fact there is. But we do accrue for that over the course of the year, so it doesn't necessarily line up perfectly with the revenue recognition on those performance fees. Second, as you think about performance fees, obviously there is a component of it that is driven by the beta in the market. There's another component – as John noted, there's a pretty broad array of services that have contributed to those performance fees. And as our mix, if you will, in the business continues to shift or alternatives become a bigger piece of the Company, I would expect performance fees to also become a larger piece of our overall revenue picture. In fact as John noted, we will be recognizing a large performance fee in the first quarter related to our real estate equity business.

Yes, all make sense. Thank you guys very much.

Your next question comes from the line of Surinder Thind, Jefferies. Your line is open.

Good morning. I wanted to just touch base on the investment performance and flows. With your fund performance what I would say at or near the top end versus your peer groups, all else equal, aside from the current volatility. How much more do you think you could push organic growth rate? I mean it's already currently at about 3% annualized. How much upside do you guys think you can get from here?

Look, let me say that, again, as you noted, our AUM growth is 3%. Obviously as Seth said in his remarks, the growth in our active services, which is I think the performance you were referring to, is higher than that. The growth in our active services, both in terms of active versus passive as well as mix, contributed to the fee increase we saw year-on-year. So in terms of our overall organic growth, to your point, it was pretty robust in 2017. Performance, as you've indicated, tends to be a leading indicator of future flows. And we've also continued to make investments in our distribution capabilities and the relationships that we have both with intermediary partners as well as consultants continues to improve. That has to be seen against a backdrop of what's happening in capital markets. And so where that goes in the future is, I think, very tough to predict year-on-year or quarter-to-quarter. But we are very confident that we are executing on the things that we need to do to be able to deliver consistent growth that is broad-based and durable over the long-term.

And I think it's important, I think it's also worth noting that the mix of that business, as Jim had alluded to earlier, has really changed profoundly such that we are not as dependent on a particular service to drive that.

Understood. And for my second question, just wanted to touch base on the FlexFee products. You noted that it may perhaps take a few years to get to critical mass. Can you provide any color around those thoughts? I would have thought that perhaps, given how differentiated those products are, that you might be able to pull demand forward a little bit.

Well, first, we've got to get them up on the platforms and we are going through that process at our key counterparties here in the U.S. and it's working well. We're quite hopeful. I think what will really happen is there will be options in their model portfolios and they will grow steadily with the growth of our Clients business. I point out that moving assets out of existing similar funds for a lot of our clients or their clients might create tax events. So that would be a countervailing force that would slow the growth of the underlying funds themselves. So at least in my own mind I think about it more akin to their organic growth rates and getting a bigger piece of those pies. So, we remain very pleased with the take-up with them, but we think it will grow in the normal course with the broader market rather than something that's going to drive forward flows. Maybe I'm wrong, but that's currently how we are thinking about it.

That’s help. And I’ll get back in the queue. Thank you.

Your next question comes from the line of Bill Katz, Citi. Your line is open.

Okay. Thank you for taking the question this morning. So just coming back to the expense discussion for a moment, I think you said you're going to probably update us some comps around the middle of this year, so I'm presuming at the end of the second quarter perhaps. Any early indications of how the focus on potentially migrating some of the staff outside New York City is going and the real estate consolidation? And then just a point of clarification in terms of your comp ratio, the 48.5% you said in the first quarter. Would you expect the comp ratio trend to look like last year or what would be some of the puts and takes against that?

Sure. Why don't I start off and, Bill, I will start with the second question first, then we can go to the first question. But on the comp ratio, as you know if you look at previous years, we've started previous years at 50% and then were able to work the ratio down as we got throughout the year. And last year came in at 47.1%. As we start off this year we look at where our average AUM finished last year and we are coming to this year. We look at the fee rate, which is stronger this year than it was a year ago, we feel comfortable bringing the ratio down sooner and starting out at 48.5%. Of course we are going to look at this each quarter as we go through the year as we did last year. If markets stay here or do better and AUM goes up that ratio could come down. If the reverse happens, if markets go down and AUM goes down that ratio may go up. So all we're saying is that looking where we ended last year, we're starting this year vis-à-vis where we were a year ago, we are in a much better place and we are comfortable starting out accruing at 48.5% as opposed to 50% that we did last year. Getting to the first question with regards to the move, still a work in progress here. We still don't know where we're going, what parts of the Firm would go to the new principal location or the timing. We are further along in terms of discussions with different cities, different real estate developers than we were say two or three months ago but we still have a lot more work to do. And I think the goal here would be to wrap this up in the first half of the year where by the end of the first half of the year we are able to talk about what the scale of the move is, what groups would go, where they would be going and the timeframe. But I could tell you though that this is a several year type of transition. In terms of if we start to move staff out of New York to a another location, it's going to happen over several years and we still maintain obviously a large presence in New York City.

Your next question comes from the line of Michael Carrier, Bank of America. Your line is open.

This is actually Jeff Ambrosi filling in for Mike. Congrats on a strong quarter and year as well. Just quickly a cleanup one on expenses. I get the comp ratio guide of 48.5% and the trend there. Then just on the non-comp side, I think you said expect that to grow in line with inflation in 2018. So I guess, does that include any like budget for MiFID-related research costs?

Well, what we said in the past Jeff is that in Europe we plan to actually pay the research costs out of our P&L. And those costs are included in the numbers I just mentioned to you and they actually are immaterial.

Okay, great, thank you. And then just second one on distribution in the quarter. Just given those tend to be elevated from funds in 4Q and I think I understand that you guys count them as outflows. So just curious on that $4.2 billion inflow number, what that looks like ex distributions. Thank you.

The $4.2 billion is an all-in number in terms of the flows into our funds.

But it doesn’t include reinvested dividend.

That’s correct.

Right. But it includes distributions as outflows, but anything that gets reinvested goes back into performance. Is that right?

Correct.

That’s correct.

Got it, okay. So I guess is there a way to quantify what the distribution was?

No, we don’t analyze it that way.

Okay, thanks a lot. Thanks for taking the question.

Your next question comes from the line of Bill Katz [Citi]. Your line is open.

Okay. Sorry about that. I was having some phone problems here as I was asking my questions, so I apologize. Just to follow-up, you had mentioned in your prepared commentary that the multi-strat and some other target date funds were reaching some important milestones. Can you talk about how quickly you think that could ramp? Just trying to think about the handoff between what you highlighted on the Retail slides versus the opportunity set here for some incremental drivers as we think about the full-year impact for flows.

Well, thanks, Bill, for the question. I thought we had left you speechless. But I think with respect to the multi-asset funds All Market Income is a product that I think has a potentially very big audience in the broader Retail space. As you know, multi-asset income products have been a cornerstone of a lot of our competitors' multi-asset sales and I think we have a distinctive approach to it. With regard to the target date fund, that will go through normal DC channel distribution which is an Institutional sale. And I would think of it in that kind of timeframe. It's not something that picks up immediately. We've been looking at it, beginning to understand it and it's getting adopted and embraced. But I would think about that in an Institutional rather than Retail sort of pace of pickup.

Okay, thank you.

Your next question comes from the line of Robert Lee, KBW. Your line is open.

Thanks for taking my follow-up. I’m just curious, I guess your parent company, I guess the US – AXA US is going through its spin I'm assuming maybe this quarter, next quarter, soon. Just your perspective if you feel like there will be any impacts from changing hands so to speak, even though they own the stake now. But this is – AXA US becomes a publicly traded company once again, do you envision there being any kind of change in governance or anything else?

Well as you know, we are in a quiet period. But I would tell you that we don't anticipate a change. We don't anticipate a change with respect to our relationship with either AXA US or AXA SA, the parent. We intend to continue managing money for them and it's a very close relationship for the Firm. I would say that we are going forward a much bigger proportion of AXA USA's business. And so, in that context we are certainly engaged with them regularly. But I wouldn't say the day-to-day interactions are going to change in their frequency or tenor. I think this is a very mature relationship.

Okay, that was it. Thanks for taking my question.

[Operator Instructions] We have no further questions. I'll turn the call back to our presenters.

Thank you, everyone, for joining our call today. And IR is available all day for any follow-ups you may have. Thank you.