Thank you for standing by, and welcome to the AllianceBernstein First Quarter 2024 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 on our website shortly after the conclusion of this call. And I would now like to turn the conference over to the host for this call, Head of Investor Relations for AB, Mr. Mark Griffin. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to our first quarter 2024 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. With us today to discuss the company's results for the quarter are Seth Bernstein, President and CEO; Jackie Marks, CFO; and Mark Gessner, Head of US Retail; Onur Erzan, Head of Global Client Group & Private Wealth will join us for questions after our prepared remarks. Some of the information we'll 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 on Slide 2 of our presentation. You can also find our Safe Harbor language and the MD&A of our 10 Q, which we filed yesterday. Under Regulation FD, management may only address questions of material nature from the investment community in a public forum. So please ask all such questions during this call. Now, I'll turn the call over to Seth.

Good morning, and thank you for joining us today. In the first quarter, AB benefited from strong global equity market returns complemented by robust double-digit organic fixed income flows and 8% annualized growth in alternatives to multi-asset, more than offsetting equity outflows. AB's balance and diversification across asset classes and geographies coupled with broad global distribution capabilities enabled us to continue to drive market share gains in key areas. Retail led the way, driven by municipal SMA and strong cross broader fixed income flows. On April 1st, we closed the Bernstein Research joint venture with Societe Generale, improving our future profit margin profile, while using the proceeds of $304 million to pay down debt before quarter end, providing flexibility to invest in the future. Now let's get into the specifics, starting with a firm wide overview on Slide 4. First quarter gross sales were $32.6 billion up $7 billion or 27% from the year ago period. Firmwide active net inflows were $3.7 billion or 2.3% organic growth. Quarter end assets under management of $759 billion increased by 12% year-over-year and 5% from the end of the fourth quarter. And first quarter average assets under management were up 11% year-over-year and 8% sequentially. Slide 5 shows our quarterly flow trend by channel. Firmwide, first quarter net inflows were $500 million. Strong retail gross sales of $23.8 billion increased 42% year-over-year and 13% sequentially, driven by both fixed income and equities. Net inflows were $4.2 billion or 6% annualized organic as we continued to gain share in fixed income, up 23% annualized organically. Our institutional channel had gross sales of $3.3 billion up 12% from both prior periods. Net outflows of $4.2 billion included a $3 billion low fee passive partial redemption. In Private Wealth, gross sales were strong at $5.5 billion…

Thanks, Seth. And good morning everyone. I'm excited to discuss with you our U.S. Retail platform and its growth strategy. AB is well positioned for growth in the U.S. Retail channel. We have a strong track record of success through market cycles. We have increased our access to large asset pools and distribution partners, while continually evolving vehicle types to meet the changing needs of investors and their advisors. And we are operating from a position of strength, allowing us to invest in growth to meet the market's future needs. Turning to Slide 14, over the last seven years, our U.S. Retail platform has a demonstrated track record of consistent market share gains. As shown on the left hand side, sales have grown at a 15% compound annual growth rate. AUM shown on the right hand side has grown at 12% compound annual growth rate. We have generated seven straight years of organic growth averaging 6% over this period, taking market share cumulatively adding $31 billion in net flows over the period. In fact, net flows have added more to AUM than market performance. Organic growth has been driven primarily through vehicle diversification with SMAs and CITs now accounting for nearly half of AUM versus a quarter seven years ago. Turning to Slide 15, we enjoy deep established relationships with key distributors, allowing us to take advantage of this large and growing market. U.S. Retail represents a larger pool of assets than any other region in aggregate. Most key channels have experienced high single to low double-digit growth rates. On the right, we highlighted examples of significant relationships across various channels. Our largest Wirehouse clients have grown at double-digit growth rates over this time period. Likewise, we are seeing very strong growth from a national broker dealer at 25% and…

Thanks, Mark. Let's start with the GAAP income statement on Slide 21. First quarter GAAP net revenues of $1.1 billion increased 8% from the prior year period. Operating income of $242 million increased 12%, and operating margin of 21.2% increased by 110 basis points. GAAP EPU of $0.67 in the quarter increased by 14% year-over-year. I'll 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 on our adjusted results, which we provide in addition to and not as a substitute for our GAAP results. Our standard GAAP reporting and a reconciliation of GAAP to adjusted results are in our presentation appendix, our press release, and our 10-Q. Our adjusted financial highlights are shown on Slide 22, which I'll touch on as we talk through the P&L shown on Slide 23. On 23 beginning with revenues. Net revenues of $884 million increased 6% versus the prior year period. First quarter based fees increased by 8% versus the prior year period as 11% higher average AUM was offset by a lower fee rate. The first quarter fee rate of 39.3 basis points decreased 2% year-over-year, driven primarily by mix, reflecting organic growth and lower fee rate products, including Munis and money market. We expect the fee rate trajectory will continue to reflect the mix of organic growth combined with market movements. First quarter performance fees of $27 million decreased by $6 million from prior year period, primarily due to lower fees from international small cap. We now see full-year 2024 performance fees in line with 2023 levels. First quarter revenues for Bernstein Research Services of $96 million declined 4% from the prior year period. As Seth mentioned, we were…

Thank you. [Operator Instructions]. We will take our first question from Bill Katz with TD Cowen.

Okay. Thank you very much. Just given all the moving parts to the margin story from here, I was wondering Seth or Jackie, if either one of you could just sort of update the flight path the way you think the end margins get maybe with or without the impact of market action? Thank you.

Thank you, Bill. We're continuing with our expectations. As we've said previously that we have several things in flight that will add 350 to 500 basis points incremental including the national relocation and the other items that we have talked about. We have not changed that guidance. Of course, we continue to see opportunities beyond that, but we're evaluating efficiencies and scale and continuing to evaluate the strategic initiatives that we're investing in and how that will return.

And just a clarification, in your guidance for the second quarter or G&A and thank you for that. Is that first adding back the one-time benefit from the state impact or is that from the reported number in the first quarter?

So I think your question is in regard to the Tennessee credit of 20.8% in the first quarter. That is one-time and that is, obviously not recurring, but it does actually offset the increased rent expense throughout the year, which for Huntington Yards, the dual rent is $20 million deposits and offset as well.

So the guidance is from the report -- I'm sorry, just to go on this. Is that just your sequential change or do I need to add that back first before I think through the reduction? Just want to make sure I don't double count.

Yes. So we're -- you're talking year-over-year Q1 versus Q1?

Well, just second quarter over first. We can take this offline if you like. Just is your guidance on G&A on the first quarter actual number?

Yes. We'll follow-up a little bit nuanced, but yes, I think our guidance is -- well our guidance remains Q2 over Q2.

Okay, fantastic. Seth or Mark, and thank you guys for the extra disclosure this morning. Just a question on the opportunity in the democratization side -- excuse me. You listed out a whole number of products that you have a go to and sort of strengthening distribution alliances and maybe more sophisticated data analytics. A number of players are focused on driving such growth including some of the more installed alternative managers of size and scale. How do you see the opportunity here for growth in terms of the incremental market share? And then how do you sort of see the evolution of maybe the longer term winners here in terms of how many players can really benefit like let's say for instance in the BDC world direct lending et cetera, because there's a number of plays off sort of trying for the same opportunity? Thank you.

Bill, I'm happy to jump in here and Mark and I can tag team. The thing that makes us very unique and differentiated is we play in multiple channels unlike some of our competitors across our US Retail third party channel and our proprietary U.S. Private Wealth business. As a result, we are very experienced with launching private credit and other alternative strategies in for high net worth and ultra net worth clients. We had BDCs and other structures, for instance, in our U.S. Private Wealth channel. As a reminder, we have $11 billion in all -- in our Private Wealth to make that point. We are now applying that expertise into US Retail, leveraging our strong distribution partnerships. As Mark mentioned, we have strong momentum with a large number of distribution partners, large warehouses, large IBDs. With the interval funds that we cut the NAV for in the first quarter, that opens the possibilities for leveraging our scale in Private Wealth, and then having the multiplier effect from our distribution partners. And on back of that, we have a strong pipeline, including another BDC perpetual non-traded vehicle. So all in all, we recognize the competitive trends, but at the same time, given our unique multi-channel strengths, given our experience with private credit and private alts in retail channels, combined with also the global franchise as some of these products can also scale globally, like we will see in the usage part 2 or the BDC applied to our Asia franchise. We remain quite positive in our prospects in terms of gaining market share and expanding our strong sales and organic growth rate in US Retail.

Okay. Thank you.

We'll take our next question from Dan Fannon with Jefferies. Please go ahead.

Thanks. Good morning. Mark, appreciate the details. I was hoping maybe you could look at from Slide 15, kind of based on the opportunity set, where you think the biggest kind of area of growth when you think about these different channels? Where you see the biggest opportunity going forward for AB?

Yes, look I think it's a multi-pronged growth strategy across channel to Onur's point. I think we have great relationships where the high net worth households tend to take place and with the traditional wirehouses, but where the growth is in high net worth households in the RIA and independent broker dealer, I think that's probably the biggest upside from here as new pools of money reform the new eyes with researcher AUM now. So I think we have a really differentiated product set across the investment vehicles whether it's SMA, ETF and all. So I expect our growth to outpace that growth in that segment in that specific area.

Thanks. And then maybe Seth, just broadly on the kind of institutional opportunity today seeing the pipeline, obviously, that's come down a little bit. But just was hoping you could talk more generally about the conversations, the engagement, maybe compare that to a year-ago in terms of potential things that are in the market, opportunities for wins and where you see products really starting to gain some traction?

Thanks, Dan. And I'm going to ask Onur to contribute. But we're seeing more conversations around fixed income. We are seeing more activity there, albeit slower than I guess I would have thought it would have emerged. But I think that's a function, I think of the fact of the uncertainty of when the Fed will actually move into easing mode which we think won't be toward until the end of the year. But we are seeing reallocations out of equities into fixed income as people hit their targets on underlying equity valuations. And frankly, we have a very large number of deep plans that are fully funded these days. So people are trying to take risk off the table. That said, we're also then seeing more activity institutionally on value equity searches which is new for us. And again we're seeing episodic events there. We've seen a couple of mandates already be awarded, but we are seeing it there. And finally, we continue to see activity across the private alternatives area. Our private credit investors, which we highlighted last quarter, which is now celebrating its 10th anniversary, it has a number of new vehicles and we're seeing interest not just in the U.S. but also in Europe and Asia for products that they're flagging as well as what we're doing with CarVal. So I think it's pretty well mixed across the horizon. I would just think that equities are probably a smaller component of the search activity from our perspective today. And so maybe let me turn it over to Onur for more color.

Yes. No, that was a great summary. We are very pleased with our institutional sales trajectory, positive sales growth, both sequentially and year-over-year. In terms of the segment dynamics, we continue to be very excited about our prospects in insurance. We continue to build that insurance worth of it. We made a new hire, Geoff Cornell, to lead that insurance sector with us along with existing very strong team and we are seeing strong engagement and demand from the insurance clients as we have much more insurance friendly solutions across the fixed income and private credit spectrum. I think that space will continue to be quite active. And I think our engagement is going to be heavy in that part of the market. And then as an example of that, the one new story in terms of what is new versus maybe a year ago, we started funding our new NAV lending solution, which was out of the PCI platform that Seth referenced earlier. That's a great example of private credits, some of the new innovation we are realizing in the market and using it with our insurance clients, starting with [indiscernible].

Great. Thank you.

We'll take our next question from Luke Bianculli with Goldman Sachs.

Hi, everyone. Good morning and thanks for taking the question. Appreciate the commentary on the fee rate earlier. If we could just dig into that for a minute, can you help us frame maybe how you're thinking about the trajectory of the fee rate going forward? I'm just trying to square away how to think about base fee rate declines in recent quarters despite stronger equity markets, American Income Flows, which I understand to be higher fee rate and retail inflows versus institutional outflows, all of which I would have thought would have been tailwinds. So I would just like to get your thoughts there. Thanks.

Well, as I mentioned in my remarks, we expect the fee rate trajectory will continue to reflect the mix of organic growth and combined with market movements. We have -- while we continue to enjoy a favorable mix from our institutional pipeline as the fee base is 80% higher fee and the active fee rate at 56 basis points is 3x the channel average, which we expect will be supportive of fee rates over time. But as I mentioned, fee rates down 2% in the quarter was really mix based.

Got you. Okay. Thank you. One quick one. Appreciate the teaching slides on the retail business this quarter, always super helpful. You highlighted the client segment specialists. How do we think about the impact of the expected 2024 hires? And do you anticipate to keep up the same pace of hiring post 2024? And sorry, I know multipart here, but how would an eventual slowdown hiring, I guess flow through to the expense growth trajectory? Thanks.

Thanks. Let me jump in, Onur here. We basically pace our hiring based on the revenue trajectory. If you look at our U.S. Retail business along with our rest of the global retail business year-over-year, our revenue is trending up. I think it's up around 10%. So as a result, we have the ability to digest some of the new hires and some of the hiring is more mixed than always net new headcount additions. So sometimes when we have attrition in different parts of the sales organization, our bias is to add more specialists to the mix. And then furthermore, as you think about it, we always take a forward-looking view. As Mark mentioned, we had seven consecutive years of growth and we are still in the early parts of our escrow when it comes to things like our ETFs, which are only 18 months old and we are now at $2.6 billion with 12 months. So when we see these new products becoming available, obviously, we see the opportunity to add more resources to get more sales and revenue out of it. So overall, I think we can pace our hiring and expenses more in line with our revenue trajectory. I know it's not as precise as an outlook or a guidance, but that's our guiding principle.

Appreciate the color. Thanks.

We'll take our next question from John Dunn with Evercore ISI. Please go ahead.

Thank you. Maybe, just like on private wealth, you mentioned SMAs, Alts and ETFs, but maybe a little more granularity on where demand and gross sales are coming from?

In private wealth, John? Yes. So in essence in private wealth, we have a very diverse product platform that replicates obviously the diverse asset allocations of our high net worth, also high net worth institutional and family office clients. In terms of demand, we are definitely pleased with the strong track record in raising Alts assets. From a timing in the year perspective, we had a heavier Alts product launch in the second, third and fourth quarter of this year versus Q1. That is quite different than what we had in 2022 and 2023, and that by the way, might impact sometimes the sales momentum. So in the second quarter, we have several important fund raisers, which we are pleased about like CarVal's flagship funds coming to first closed. We launched that strategy as an example. So overall, you will see the upward trajectory in the private Alts bucket in Private Wealth. Second, given the equity market uncertainty, clients appreciate some of the structural protection that Buffered Solutions provide and we have been innovating on the product side there both with external as well as internal products. Our new BUFC ETF is definitely a contributor to that. And then finally, taxes are evergreen as clients deal with greater capital gains. Our proprietary direct indexing, Tax Optimization Solution, PAT [ph] had a tremendous run, and we are now approaching $5 billion in that kind of strategy. So I would say broadly speaking, Alts, some of the more structured multi-asset kind of solutions as well as tax optimization in Tax-Smart SMAs like that.

Great, okay. And then, look, obviously, American Income has been doing great. Can you kind of contextualize, how investors think about it, in the current rate environment?

Yes, sure. American Income AIP is our flagship product in Asia. It had its kind of 30th year anniversary. It's a bit of longstanding strategy with very strong followership in multiple markets in Asia. As you know, in a higher rate environment, we see different trends geographically. Like for instance, in Europe you might have higher deposit substitution than you have higher rates. In Asia, however the consumer behavior is different. Asian investors like income, like AIP provides. So as a result, we have not seen a huge change in the demand for that product despite the interest rate environment. And it's capturing relatively high share of those cross border flows that we track and hence it has been a strong contributor to our first quarter results.

I'd just add that it's yielding more than deposit rate, which is an important factor in that marketplace, and we're still seeing net inflows from Asia for that product. So not as much as we were before obviously given the backup and expectations on a rate drop, but we continue to see interest regularly.

Thank you.

And there are no further questions at this time. Mr. Griffin, I would turn the call back over to you.

Okay. Thanks everyone for joining our call. If you have any further questions, please feel free to reach out to Investor Relations. Have a great day.

Thank you. That does conclude today's presentation. Thank you for your participation today and you may now disconnect.