Thank you for standing-by and welcome to the AllianceBernstein's first quarter 2018 earnings review. At this time, all participants are in a listen-only mode. After the remarks, there will be a question-and-answer session and I will give you instructions on how to ask questions at that time. 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. Please go ahead.

Thank you Kim. Good morning everyone and welcome to our first quarter 2018 earnings review. This conference call is being webcast and accompanied by a slide presentation that's 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 would like to point out the Safe Harbor language on slide one of our presentation. You can also find our Safe Harbor language in the MD&A of our first quarter 2018 Form 10-Q, 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.

Thank you. Good morning. After a robust 2017, mounting concerns over inflation, rising interest rates and geopolitical made for turbulent markets in the first quarter of 2018. In this environment, I am proud of how our investment teams managed to maintain strong longer term track records. The quarter's market volatility and client rebalancing activity did affect our active flows which were just over negative $1 billion for the quarter. However, it's worth noting that we still ended the quarter with slightly positive organic revenue growth. Higher fees in our inflows into equity alternative and multi-asset strategies more than offset lower fees on our larger outflows from fixed income and passive. And our average fee rate continued to improve by 1% sequentially and 2% year-on-year. Let's get into the results, starting with a firmwide overview on slide three. Due largely to a $10 billion in customized retirement strategies or CRS fundings in our institutional business, total first quarter gross sales of $34.1 billion were up nearly 80% versus both prior periods. But higher gross redemptions in retail and institutional fixed income as well as $7 billion from CRS reversed our three-quarter trend of net positive flows. Net outflows were $2.4 billion. Our assets under management finished up the year-on-year in line with the strength of the global markets last year and slightly lower on a sequential basis as they pulled back in the first quarter. Average assets under management were up versus both prior periods as the strong markets of 2017 extended into January of this year. Slide four shows what flows did during the quarter. Of a roughly $15 billion year-on-year and sequential increase in total gross sales, about two thirds came from new institutional CRS fundings I mentioned. The rest came from higher sales across all three of our…

Thank you Seth. Let's start with the GAAP income statement on slide 14. First quarter GAAP net revenues of $868 million increased 13% from the prior-year period. Operating income of $223 million increased 34% and the 23% operating margin increased by 340 basis points. GAAP EPU of $0.60 compares to $0.46 in the first quarter of 2017. As always, I will focus my remarks from here on our adjusted results which remove the effect 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-Q. Our adjusted financial highlights are included on slide 15. First quarter revenues of $782 million, operating income of $235 million and our margin of 30.1%, all increased year-on-year. We earned and will distribute to our unitholders $0.73 per unit compared to $0.46 for last year's first quarter. Higher base and performance fees combined with flat G&A expenses primarily drove the improvement. Operating income and margin decreased from the fourth quarter of 2017, despite an increase in revenue due to the usual first quarter sequential increase in our compensation accrual. As discussed on our previous earnings call and in our quarterly filings, we have deferred the recognition of $35 million of operating income relating to our real estate equity investment fund which required a higher threshold to achieve under the former accounting rules. ASC 606, the new revenue recognition accounting standard we implemented as of January 1, 2018, lowers the required threshold allowing performance fees to potentially be recognized as revenue sooner. As a result, the opening 2018 balance…

[Operator Instructions]. Your first question comes from Michael Carrier with Bank of America Merrill Lynch. Your line is open.

Hi. Thanks guys. Seth, maybe a first question, you highlight some of the trends on the fee rates and the revenue growth has been favorable. Just on the flow trends and maybe the outlook, we saw really strong sales across channels. But the retail institutional, you mentioned in terms of the pickup in redemptions, like any indication on how much that was driven by like the market volatility and some of the shifts that we have seen in the quarter versus anything that's more product performance geared? Just trying to get some sense on the outlook on what's more environmental versus fundamental?

Thanks Mike for the question. And I am going to start but I think John might jump in when I lead you astray. But my own view is that a lot of it is environmental, just given the heightened level of volatility in the markets. I think that's most evident in Asia where our own investment performance remained quite strong, but market volatility which we have seen before had popped up again and I think we made note of that at the last earnings call that we are beginning to see greater volatility there. I think the trend toward more outflows is continuing generally. I think it's more industry related. The one that I would highlight that's more related to us may have been investment performance and spread tightening and investment grade. That would be the one area that I would highlight as probably more unique to us in the industry. But John?

Mike I would add that particularly the redemption rates were very high in the high yield strategies, much higher than the average for the portfolio. And I think here really the good news for the quarter was that even despite that and those are high fee products, we still had positive annual fee rate base add to the portfolio, which means that even though we had outflows, the net increase in revenue from the flows for the quarter was positive, which is a very strong thing. And then when we look at the institutional market, there the flows, the effective fee rate on the new flows were actually more than twice the fee rate on the outflows. So we are gaining there high fee business, losing low fee business. And then on the retail side, we lost some high fee business, but overall in the entire portfolio the revenues, we had positive contribution to revenues from the flows for the quarter.

Okay. Got it. And then just on the Bernstein Research services. You mentioned somewhat like the revenue recognition, like maybe timing. Just trying to get some color on, like was it a quarter impact that we would expect to see some of that come in throughout the year? Just trying to figure out like the MiFID stuff versus higher activity levels and then whatever that factor was and how much that weighed on the quarterly revenues?

Sure. Mike, it's John again. And I think the way to think about this is, in the past we were paid a commission when we executed the trade. That commission covered both trading and the resources we were providing. What happened with the unbundling, we executed the trade. But, of course we were paid a commission just for the trading piece and we are supplying the research to the client, but haven't necessarily been paid for it. So for this, we are on a cash basis recognition for revenue. So you are absolutely correct. We would expect that there is a lag here and that we would record that revenue when we get paid for that research in subsequent quarters.

Okay. All right. Thanks a lot.

Thank you. And your next question comes from the line of Bill Katz with Citi. Your line is open.

Okay. Thank you very much for taking the question this morning. Just coming back to CRS platform. Could you size what that stands in terms of residual AUM? And maybe take a little bit layer deeper and sort of give us a sense of why you are seeing the lumpy outflows now? And how to size the revenue impact of that?

Bill, in terms of the last part of your question, lumpy, it's a business that you might imagine that is from a outflow standpoint often impacted by corporate mergers or other types of events of that sort which can lead to decisions that are unrelated to performance, which is how I characterize both the situation that Seth mentioned, with respect to April as well as what we saw in the first quarter. I can see John is in the process of looking at the AUM.

Well, the AUM right now is about $44 billion that we currently have for the CRS strategies and keeping in mind these are all low fee. They are typically just a couple of basis points.

Okay. That's very helpful. And then the broader question is and I appreciate your guidance for the second quarter in terms of the comp ratio. You laid out a margin target of 30% by year-end as well as the potential for incremental margin improving on top of that from relocation. Could you give us an update on sort of how you can track relative to that 30% given where you are today? And then any update in terms of timing or decisions on the relocation that you can share with us today?

Sure. Bill, it's John. I think we are you are on track towards that 30%. And when we stripped out the real estate fees, as I mentioned, we were just below 28% for the quarter. So I think we are in good shape with regards to the 30% margin target. On the new office location, I think we have made some very good progress with regards to that during the quarter in terms of selecting a potential location and determining the potential scale of that office and anticipate that we will be able to make an announcement soon with regards to that. As we talked about before, this will take place over a several year period. We would expect to incur transitional costs for the first couple of years before we achieve ongoing expense savings in the future. Not in a position to talk about that now, because we are still sizing everything up, but hope that when we have our next quarter call in July for the second quarter, that we will be able to give you some guidance with regards to that.

Okay. Thank you.

Thank you. Your next question comes from the line of Alex Blostein with Goldman Sachs. Your line is open.

Hi. Good morning everybody. I wanted to pick back up the discussion around fixed income trends and obviously, not particularly surprising again to see a little more volatility here high interest rates. But just taking a step back, can you guys spend a minute on just the lay of the land of your fixed income franchise today? When I look at the taxable side by channel and geography and then specifically again zoning in on high yield, maybe you guys can give us a again a sense of who are the holders in terms of retail, institutional and geographically to help us size the impact of volatility of higher rates?

Let me start and say, the Asian business is principally a credit business from the fixed income perspective and that's retail, principally again. I mean there are some large institutional, but that's more traditional global investment grade oriented for the most part. The institutional nature of the business in the U.S. is much more significant and again it's a more traditional category and it runs the gamut of what we offer. But from a retail perspective in the U.S., I would say, it's again more high yield oriented in terms of the asset classes within fixed income that we have our allocations in. And in Europe, again like Asia, more credit oriented. John, do you have specific numbers?

No. I think I would have nothing to add there.

Okay. Thanks. And I guess like my second question is just an update on FlexFee Funds. I know you highlighted a couple of distribution partnerships that you formed already. But maybe just an update on what the uptick has been? Any sense of the assets on those platforms in these funds already? And kind of the puts and takes as you guys continue to market this?

The asset from the funds remain small because we are now in startup mode with our distributors. But they are gearing pretty aggressively as are we from a marketing perspective to bring this forward into the channels. But as we have said, this is just a long lead time build and we want to manage expectations around that.

Sure. But I guess like any concerns or sounds of enthusiasm, positive or negative, early reads that you guys are getting from the channels?

The channels, we think, are quite excited about it. So I don't have reservations in that regard. My only hesitation is, I just don't want people to think that's going to impact 2018 or 2019 results materially, because I think it's really a long build out because remember, a lot of assets are in taxable accounts. for example and you don't want to trigger taxable events for clients moving them in and out as a consequence. So I just want to manage expectations from that perspective.

Yes. Makes a lot of sense. Great. Thanks guys.

Thank you. And your next question comes from the line of Craig Siegenthaler with Credit Suisse. Your line is open.

Thanks. Good morning Seth. First, as a follow-up here, with FlexFee. Do you think we will see other asset manager adopt this vehicle in 2018? I know we have seen some already with Allianz.

I think it's Allianz, I think also Fidelity, if I am not mistaken in Europe adopted it as well. I don't know whether we will see others. I know they are talking about it or at least I have heard they are talking about it.

Okay. And then my second question here and listen I know you are limited on what you can say that the AXA USA split, but when you think about the business relationships you have between AXA SA and the parent, do you think this could provide new business opportunities for you when the firm's split?

It's hard to gauge that. We are very comfortable with relationships with both AXA SA and AXA Equitable and we have assurance that they want to maintain the relationship from the AXA SA level, which we have received recently. But I think on balance, the opportunities with AXA are pretty well explored. We continue to talk about new opportunities and they are supportive of it, particularly on seeding new ideas, but I would say the other opportunities away from it would be with regard to competitors of AXA who might consider us for more business than they might have in the prior structure. I think only time will tell there.

Got it. Thank you Seth.

Thank you. [Operator Instructions]. Your next question comes from the line of Rob Lee with KBW. Your line is open.

Thanks. Good morning guys. I guess my first question, maybe this is a question, maybe it's a little bit of a request. But given you have the improving fee rate and positive mix shift in your business, if we were to try to back into the revenue contribution of flows in this quarter despite the kind of modest negative number, I am assuming that would be positive and any sense of the magnitude of that? And I guess maybe the second part of that, if the FlexFee products do start to take off and gather assets, would you consider adding that type of disclosure so we can get a sense of how the impact of that is impacting the net revenue mix in the short term at least?

Rob, as Seth indicated, I think, in his remarks, we did while our active equity flows were negative just over $1 billion, the actual if you were to measure organic growth in revenue terms to your point, it was slightly positive, about 1% positive, which contributed to the fee rate being up 1% sequentially. And that's just a function of the mix. And as you indicated, it's a combination of things like equities and alternatives or multi-asset which carry higher fees in some of the areas where we saw outflows.

Okay. Great. And maybe as a follow-up, Seth, I think when you joined, I guess, about a year ago now, give or take, almost, I think one of the things you talked about when you came onboard was how the firm had spent a lot of time rightly so expanding its product line in a lot of different areas over the years. And I think you felt that one of the things that you could value or need to be done was kind of really maximizing the sales of all these strategies that you had across the platform. And clearly there is evidence of that, given the good gross sales numbers. But can you maybe talk a little bit about what type of maybe distribution changes, if any, you implemented or you think maybe things that maybe could still be kind of tweaked to continue to drive the stronger gross sales, besides the obvious thing of having good performance to help?

Thanks, Rob, for the question. I wish I could claim credit for the increasing momentum. I think it was already here and growing given the investments that were made and as you pointed out the performance that we have been able to demonstrate for clients. I did say and continue to believe that we have a full suite of services that I think offer a compelling value proposition for perspective clients. Our challenge was to effectively sell them through our clients. And I would tell you that probably the largest investment we are making globally is in distribution, whether it's in Europe where we are continuing to build out on the ground on the continent where we are seeing real tick-up, in Asia to a lesser degree, where we are already pretty well-developed but we continue to explore opportunities there and then particularly here in the United States. And that build out isn't just people. In fact, it may more be technology where we are spending our time and effort to leverage our salespeople more and provide more immediate and actionable feedback to our clients and distributors. And so it is where we are focusing a lot of our time and effort. And I think the results so far have been promising but it's a long build.

Great. Thank you for taking my questions.

Thank you. There are no further questions at this time. I will turn the call back to Ms. Prochniak for closing remarks.

Thank you everyone for participating in our conference call today. If you have any follow up, feel free to contact Investor Relations. Thanks and have a great day.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.