Thank you for standing by, and welcome to the AllianceBernstein Fourth 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. I would now like to turn the conference over to the host for this call, Vice President of Investor Relations for AB, Mr. Ioanis Jorgali. Please go ahead.

Good morning, everyone, and welcome to our fourth 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; and Jackie Marks, CFO; Onur Erzan, Head of Global Client Group and 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 would like to point out the safe harbor language on Slide 2 of our presentation. You can also find our safe harbor language in the MD&A of our 10-K, which we will file on February 14. 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, press release and our 10-K. 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 it over to Seth.

Good morning, and thank you for joining us today. 2024 was a transformative year for AllianceBernstein. We executed successfully on key initiatives that enhance our financial profile while also expanding our investment in distribution capabilities. AB's unique value proposition is highlighted on Slide 3. We have a differentiated distribution platform, which includes our proprietary plus private wealth business. Our platform gives us an edge in growing markets like Asia, U.S. high net worth and Global Insurance. In 2024, we captured market share across all three of these segments. We can also deliver our clients' distinctive investment capabilities across traditional and alternative asset classes. Our versatile skill set allows us to capitalize an asset reallocation trends as we've seen in fixed income. This also includes our growing private markets platform, which is supported by our strategic relationship with Equitable. I will briefly cover our progress towards our 2027 targets later in my presentation. In addition, as Jackie will discuss in further detail, we have a clear line of sight for further margin improvement, which will reflect on our results as we move into 2025, assuming markets do not deteriorate. Finally, AB has a tax-efficient partnership structure that prioritizes capital returns to shareholders, ensuring a disciplined approach to growth investments. Moving to Slide 4, I'll review our business highlights from the quarter and the year. First, we closed the Bernstein joint venture with SocGen and we relocated our New York City office. The JV allowed us to monetize the value in the business and eliminate a margin drag for AB, while putting Bernstein research in the hands of a leading industry player with a vision to grow it. Our New York City relocation will contribute approximately $50 million in annual occupancy related savings that we intend to flow through the bottom line.…

Thank you, Seth, and everyone joining our call today. AB's next chapter is built on a strong foundation as evidenced by our solid fourth quarter and full-year results. Fourth quarter adjusted earnings of $1.05 per unit were up 36% versus the prior year and full-year adjusted earnings of $3.25 were up 21% versus prior year. Strong markets, a stable fee rate, improved operating leverage and robust performance fees drove EPU growth. Distribution and EPU grew uniformly as we distribute 100% of our adjusted earnings to unitholders. On Slide 11, we show our adjusted results, which remove the effect of certain items not considered part of our core operating business. For a reconciliation of GAAP and adjusted financials, please refer to our presentation appendix. Fourth quarter net revenues of $973 million were up 12% versus the prior year and up 26% on a like-for-like basis, excluding Bernstein Research Services revenue. Full-year revenues of $3.5 billion were up 5% versus prior year and up 15% excluding Bernstein Research Services. Fourth quarter base fees increased 17% versus prior year, in line with the average AUM. Full-year base management fees of approximately $3 billion were up 12%. Fourth quarter performance fees of $133 million surged versus the prior year period, reflecting strong alpha generation across our public and private alternative strategies. Full-year performance fees of $227 million increased 80% year-over-year, coming in well above our guidance of $145 million to $155 million. I will follow up with more detail shortly. Dividend and interest revenue, along with the broker-dealer related interest expense declined in the first quarter and full-year, reflecting lower client cash and margin balances within private wealth. Moving to expenses. Fourth quarter total operating expenses of $619 million were roughly flat versus the prior year with higher compensation offset by lower non-comp expenses.…

At this time, the floor is now open for questions. [Operator Instructions] Your first question comes from the line of Craig Siegenthaler with Bank of America. Please go ahead.

Hey, good morning Seth, Jackie, I hope everyone is doing well.

We're good. Thank you.

And my question is actually a follow-up to Jackie's comments earlier today on the EQH call on your corporate structure. So in my coverage, AB is the only remaining company that still doesn't exist in a C Corp structure. And now there's lots of examples across my coverage of companies that gained more passive ownership, more longly active ownership and more importantly, a much higher stock valuation. So I'm curious to how AB thinks about this, the pros and the cons because it looks like tax dilution is only something like 10% or low-teens or LPs and EQH can keep their low tax rate in an Up-C corporate structure. So it really should be a win-win for everyone.

Sure, thank you, Craig, for the follow-up. As I mentioned on the call this morning, the tax hurdle is a big one for us, bigger than the passive alternative asset managers who had converted. So that's one factor to consider. Also in the Up-C the – sorry, the Up-C example. We looked at that as well. And in that one, we would have to retain the general partnership. That, in turn, makes us ineligible for the major indices, another big factor. So at this time, this is something that we thought was too big a bet to make when you sort of need to enter the indices to really count on that multiple overall.

I think, Craig, just adding to it, I think it's important to note that the Alts managers had a very different partnership structure than we have. And much of their income was taxed at a higher rate than ours is. So the hurdle for them to equalize the tax drag they were creating was significantly lower. And I think it's important for people to recognize that because we have a fiduciary obligation to make sure we're not disadvantaging our taxable unitholders today. And at the moment in what we see, given that getting index inclusion and having a higher hurdle across than others, it just – the math didn't really add up for us as we considered the pros and cons of the trade. And so we're not close minded to the idea, but we just haven't been convinced that the upside of this offset the risks to us and more importantly, to our taxable unitholders, changing our corporate structure, recognizing that the partnership structure does limit the appetite for non-taxable investors to step into it and foreign investors. So let me just stop there.

Thank you for the comment. And I'll jump on to a new question, but I think the tax debate is definitely a real one. Although I do think if you – if EQH remains a GP, they can – your flow can get in major indexes because that is an Up-C Corp. We've seen that a lot over the last eight years. But I'm going to circle up my index team on that, and let me jump on to bond reallocation. So there was some noise in 4Q and the 10-year rose a lot, which definitely didn't help. But I wanted your updated high-level thoughts on the pace of some of this record money market AUM could move off the sidelines via duration extensions and how AB is positioned to win in both taxable and munis where you're already doing really well?

Well, let me start, and Onur may jump in on the question. He's on the phone as well. Yes, the backup in rates in December certainly didn't help. I think it reminded everybody that tariffs are inflationary. And the Fed's pause in activity, I think, reinforces more uncertainty as to the direction of rates. All of that being said, we continue to see at least through January, pretty strong interest in fixed income. And it's important to note on an after-tax basis, from a muni perspective, you are better off, much better off than sitting in cash in a taxable money market fund. I think that's been an important ingredient in people's interest there. And also, I see it as a benefit to us in the sort of short and intermediate duration, funds and ETFs we have, where we continue to see interest in those funds. Onur, do you want to add something?

Yes, sure. Craig, thanks for the question. I will add two things. One, the rear view – rear view in 2024, we were one of the biggest beneficiaries of the rate normalization, right? That's how we generated almost $25 billion of net flows. So we definitely do very well in the favorable interest rate environment. To Seth's point, in January, we continue to see fixed income demand. Obviously, given the recent volatility, still, there is some money sitting on the sidelines. But if you look at the shape of the yield curve, there is opportunity to add yield by going a little longer on the duration, and that tends to help our flagship products. So all in all, we are relatively bullish about our ability to benefit from the fixed income environment, and we are relatively hedged from a business perspective. As Seth mentioned, we have different solutions that can do well under different environments our muni SMA business continues to do well in the New Year. And then we have the short-duration products, particular as part of our growing ETF lineup that continues to get traction.

Thanks, Onur.

Question comes from the line of Alex Blostein with Goldman Sachs. Please go ahead.

Good morning. Thank you for the question. I was hoping to spend a couple of minutes on your organic base fee growth. I think it's the first time where you started to disclose that, perhaps more kind of officially in the deck, 3-plus percent for the year, so helpful there. I was wondering if you could take a step back, and I know you don't have an explicit target, but as you look through the building blocks in the business, what you're trying to achieve? Where are you seeing traction? How durable do you think this mid or low single-digit organic base fee growth is for the company? What do you hope it can go over the next couple of years?

Yes, sure, Alex. Onur, again. Let me take that question and others can chime in as needed. I mean, ultimately, as you well know, the fee rate is very business mix dependent and not all of that is within our control, given the cyclical nature of the markets and the shifting client demand based on what happens with the macro environment, et cetera. I mean that being said, if we focus on the things that are relatively more controllable and maybe focusing on those, obviously, we disclosed our institutional pipeline. If you look at the fee rate there, it went up in the last quarter with the addition of private alts mandates we won. And if you look at the effective fee rate there, the effective fee rate on the institutional pipeline is more than double our effective fee rate for the rest of the institutional business. So that gives you a positive I think, indicator in terms of ability to add fee accretive strategies and benefiting from the organic revenue growth. The other thing, I think, which is probably more math given we had pressure on institutional equities for the last couple of years, if you look at our institutional equity product base, the at-risk assets are lower. And from an outflow risk perspective, you will have a little bit of a protection from a denominator perspective, if you will, on the active equities. I mean, that being said, we have a large retail business and you can't face volatility as well. So overall, I think our diverse business mix will make our fee rate relatively resilient vis-a-vis our competitors. We definitely have a very robust distribution platform, which should help with the net flows as we have demonstrated with our sales momentum in 2024. It was our second best ever year from an overall sales perspective, and our retail sales almost hit $100 billion. So even when periods where we have some challenges on one channel, the other channel comes into basic offset the softness and we continue to get active net flows. So combining the active net flows with a favorable fee embedded in the pipeline. Definitely, there are things that can help with our fee accretion. That said, you know the markets are volatile, and we have some risks intrinsic to this industry and our business.

All right. Fair enough. And maybe just a quick follow-up to Craig's question around the corporate structure and what sounds like index conversion that's – or sorry, C Corp conversion that's relatively off the table for now. As you kind of take a step back and we've spoken about this in the past, probably not a lot of debate at the valuation of the stock is probably not overly reflective of the growth in the business, are there other things you might consider whether it's changed to your capital allocation process or broader ownership of AllianceBernstein that could unlock shareholder value if C Corp conversion is off the table?

So when you'd say capital allocation process, what – can you just clarify for me what you mean by that? Because we already distribute everything we earn.

Right, just share repurchases versus dividends?

Sorry. Well, I mean, I think we need to go and do some thinking around it. But the truth is we can't really retain anyway. So by the nature of the structure, we have to distribute it. So to do share repurchase, we effectively have to borrow to fund them. So I mean we can think about it, but it's a volatile business to start with, and we like having a fairly conservative balance sheet to deal with that volatility.

Great. All right. Fair enough.

Your next question comes from the line of Bill Katz with TD Cowen. Please go ahead.

Okay. Thank you. Just coming back to the C Corp discussion for a moment. Could you tell us what you're penciling out for dilution related to the taxes by simply say, roughly 10% hit, you're back to 11 multiple, which Alex's argument is in line despite differentiated storyline. So my broader question is, if you're unwilling to convert to a C Corp, what is the appetite to potentially sell the franchise to unlock value?

Sorry. We're modeling about a mid-20s tax rate. So you can just back into the impact of that. And effectively, that would require a minimum of a 2x multiple expansion.

Look, I think – thinking about it, Bill, I don't think we have any interest necessarily in selling the business in order to unlock value…

[Indiscernible] some experience on that Bill…

I'm sorry, I don't know what that was, but I don't think we have any interest in selling the business. We think we're operating the business very effectively, and we really think that the partnership with Equitable is a critical component of the success that we've had, and that partnership continues to expand and grow. And I think it has resulted in benefit to our third-party unitholders, significant benefit to them. So we like the model we have. We like how it positions us, particularly in the insurance space and in our ability to have a compelling story to new investment teams, particularly in private alts to be a platform that allows them to scale more quickly than they could do it on their own. So we think it is a very tax efficient and very capital structure efficient model that we have in place and are comfortable functioning within it. Let me stop there, Bill, and make sure I fully answered your question.

Yes. Thank you. Just as a follow-up, maybe to change the tone of the question. You mentioned that you're seeing a little bit better vibrancy in terms of the first month of New Year. I know AUM would be out shortly. I was wondering if you could just give us a sense of how net volumes are trending maybe across the different distribution channels or the asset classes and within that, where do you think you are in terms of the runoff risk associated with the institutional equity book? Thank you.

Sure. Happy to take that one. Onur here again. We had a positive start to the year, definitely seeing continued strength in multiple geographies and distribution channels. U.S. retail continues on a very strong trajectory. We continue to get very good traction in fixed income with our major distribution partners, large wires and independent broker dealers. Very pleased with that. We are looking to add a couple of more large strategic relationships from a retail distribution perspective in the New Year. So that will be hopefully additive to our January starts. Secondly, it was very encouraging to see our Japan business continue to do very well despite Japanese central bank actions and some of the U.S. Japanese and dynamics. Our Japan business continued on a strong trajectory. So that's a positive. Definitely seeing some momentum in Southern Europe on back of some of the economic strength in that geography. We historically had strong equity followership with the broadening of the markets a bit. We are seeing some appetite and strategies that has not been that popular until recently, some of the more defensive strategies, Low Vol type of strategies, for instance. And then on the institutional side, all the hard work that went into and the investments we put to build our insurance business is now delivering strong benefits, and we expect to accelerate. We obviously talked a lot about our new partnership with RGA. But beyond that, we continue to win new insurance mandates domestically and internationally, and that gives me a strong confidence in terms of our ability to grow insurance with Equitable as well as large insurance clients. In terms of the institutional equities, as I mentioned in my previous comments, if you look at some of the relatively performance challenged products that sits in our institutional equities, the AUM in those is relatively more modest now. As a result, if you look at our assets at risk kind of forecast, those show a more favorable picture. I mean, obviously, generating new sales is different than outflows, but it is on the outflow front, I see a positive trend. So when you add it up, I think it's a relatively positive outlook and we continue to have, again, diverse waste to win by asset class as well as by different channels. Last, but not the least, obviously, we will have now more opportunities to distribute our private credit solutions. I touched on insurance, but the other exciting development is our first interval fund out of CarVal, AB CarVal, is in the market now. It has been active in all of the large custodian platforms, i.e., available to RIA distribution, and starting with the second quarter, we are turning on some broker-dealer partners as well as we approach the AUM threshold. So very pleased with the momentum with our internal fund, which now has $200-plus million in assets, and we expect that to expand significantly as we add more distribution with large distribution partners.

I guess I would just add, Onur, that performance in equities has picked up quite a bit in the start of the year as we've seen more dispersion in performance among names and our growth portfolios are performing pretty well and gaining back some traction, and we've seen institutional equity search and win activities. So it's hard to call when the tide turns, we're not going to do it today, but it's going in the right direction.

Can I ask a third question?

Sure.

Okay. Thank you. Maybe it's a fourth question. I know it's long queue. You mentioned, Seth, in your prepared comments about some investment spending, including possibly for new products and/or teams. I'm wondering if you could just update us maybe what you're thinking about on the M&A side? And then for Jackie, you mentioned the guidance. Thank you for that. And then you mentioned that if markets go up. If markets were to go down, how much flex do you have on some of the fixed costs within the non-comp OpEx side? Thank you.

So that was really two questions. But let me answer the first one and Jackie will answer the second. Look, we look at traditional where we see opportunistically where we see a really distinctive team or capability that we think need to client demand. But we spend more of our time focused both on alts and in the wealth management area, we look in that segment as well, mindful of the multiples that are out there. But I guess what I would say in the private alts sector, we continue to look at strategies that fit into the needs of liability managers like insurance companies. So if not private credit, infrastructure, areas like that, that we would be interested in filling out our capabilities. And Jackie, why don't you take the next part of the question?

Sure. Thank you. Yes. Look, I mean, we remain very disciplined about our cost base. As I mentioned, we're investing for future and for growth, but we are very disciplined about our options and our optionality in both comp and non-comp. So whether it's in terms of how quickly we hire or do not hire or whether it's on non-comp, we know exactly what's discretionary and what's fixed and we have all those levers to us if we should need to pull them. But as of right now, we're very much focused on investing for the future.

Thank you.

Your next question comes from the line of John Dunn with Evercore ISI. Please go ahead.

Thanks. You mentioned active ETFs have come up a couple of times. Like just maybe give us a flavor of how you're seeing those scale? And how big roster do you want that to be? And then maybe the profile of the investors you're marketing them to?

Sure. Hi, John, I can comment on that. We now have 17 active ETFs. These ETFs are all in the U.S. and covers a large range of investment areas, fixed income equities as well as some of the more buffered strategies. If we think about the scale, already six out of our 17 ETFs cleared more than $0.5 billion mark. So if you think about the 5.5 that we ended 2024, six of the funds have already more than $0.5 billion. So we are really pleased with having multiple winners in that product set, and it's diversified with large fixed income products, equity products, profit products. So it allows us to play into different areas. In terms of the profile, we benefit from, obviously, our proprietary wealth channel, but more importantly, the larger opportunity remains in the third-party channels. And we have seen great opportunities opening up for us, particularly with RIAs because until you get to certain AUM thresholds and some time in the market, you're not typically on the shelf of the large broker dealers. So as a result, your first buyers and the first several $100 million typically focuses on the RIA channel, and we really benefited from using ETFs as well as our other high net worth oriented strategies like SMAs to open a lot of new doors into our RIA channel. And in terms of investments in distribution, RIA channel and specialization and the new specialty sources, we put on the ground for that along with our ETF specialists and our ETF team is definitely helping us to unlock those new opportunities. And if I reflect on the last five, six weeks, we see the continued momentum with those ETF strategies, and we are on a very positive trajectory. And in terms of the future expansion your other question, we are looking at two dimensions. One, obviously, we have a very strong Asia distribution as Asia becomes more viable for active ETFs, definitely it's on our radar. We have very strong distribution in multiple markets, as you know. So that could be a venue for us as an expansion. And then in terms of our product lineup, given some of the relative value opportunities in emerging markets, and some of the other extensions in fixed income with the rate outlook, et cetera. So emerging markets and some of the fixed income categories that are on our radar for the domestic lineup.

Makes sense. And then maybe extending from that, I think you guys said that there was a bunch of places outside the U.S. that where U.S. growth equities was thriving. You mentioned Japan. I think that's what most people associate with. Are there any other non-Japanese regions where that strategy is in demand?

Yes. So in Europe, we definitely have seen good success by deepening our partnerships with five or six regional banks and getting into multiproduct relationships and a couple of also more wealth management type institutions. If I were to call out three markets where equities have been very dominant, it would be U.K., Italy and Spain, if I take maybe last 12 to 18 months view, including 2025.

Got it. Thank you.

Your next question comes from the line of Dan Fannon with Jefferies. Please go ahead.

Thanks. Just one question for me on private wealth. Obviously, a good year in the fourth quarter as you look at Slide 9 and the breakdown of the revenues. But do you think prospectively and the investments you're making, how should we think about growth in this business? How in terms of getting new advisers, attracting new advisers, you mentioned even inorganic? So just curious about your thoughts around growth for this segment.

Sure. Yes. As you mentioned, we had record AUM in our Private Wealth business and record adviser productivity. We increased our adviser headcount by a couple of percentage points as well. And as you grow, obviously, the bar for growth goes even higher. So that means we need to add more advisers to our platform. We have been gearing up for that for the last couple of years. That will take multiple forms. We're not constraining our flexibility by just aiming for one lever. The levers available to us are: one, accelerating our traditional recruiting program. We tend to hire 35 or so advisers a year. We can definitely increase that. Second, looking at Experience Advisors. We have added a couple already in the new year from local RIAs in geographies where we are underpenetrated. So we definitely have a very active recruiting program, including a dedicated organizational structure to go after those experience advisors. And remember, we have not done that if you go back to our history, so the Experience Advisor recruiting program is net new. And then finally, we have the ability to do M&A and that will be more in the lower size RIA kind of market. We are not looking to be an RIA roll-up or we are not after the mega RIAs. But given we are in only 20 markets and some of the markets that we are in, we are underpenetrated. We have a lot of opportunity to grow our market share in a very scalable way by adding RIAs in a tuck-in fashion. And definitely, that's part of our playbook, and we also made some hires to facilitate that strategy. So those are the things that will help us. And then finally, with our new Chief Marketing Officer that joined us in 2024 from one of our competitors. We're also looking at other ways to continue to feed new clients generation sources to our existing advisors as well. So definitely, those are the investments we have made that will yield benefits in terms of sustaining and accelerating our growth.

Great. Thank you.

Your next question comes from the line of Benjamin Budish with Barclays. Please go ahead.

Hi. Good morning and thanks for taking the question. Just one for me as well. Just curious on the institutional side. You commented a little bit about the pipeline. Curious if you could share any color on sort of known upcoming redemptions deal wins, sort of things we should expect to impact in Q1? And more broadly for the year, what are your thoughts on sort of improving the overall redemption rate, which was a bit more challenged in the back half of the year versus the first? Thank you.

Yes, sure. In terms of the outlook for the institutional business, you have the institutional pipeline. The one thing I always remind ourselves in these calls is our pipeline is only institutional but we also have other sub-advisory kind of wins that we tend to have in our retail channel and then sometimes quasi-institutional business like small foundations and endowments or cash balance plans and things like that in our private wealth channel. So the institutional pipeline is only one lens into the institutional client base. In terms of what we are seeing – in terms of big outflows relative to previous two, three years, I think we're in a better spot, as I also commented before. So as a result, there isn't any massive kind of known mandates to depart that will have a disproportionate impact relative to our last two, three years of run rates, including the second half of last year. In terms of recent wins, we definitely saw an uptick in our win rate in insurance based on the investments we have made, that will be more in the taxable fixed income area. And then we continue to look for additional strategic opportunities in insurance that could be additive, again, RGA was definitely a positive for us, and we continue to look for similar strategic relationships in insurance, that could be additive to our institutional business. So those are the few things that I would highlight as the major kind of positives.

Very helpful. Thank you very much.

There are no further questions at this time. Mr. Jorgali, I turn the call back over to you.

Yes. Thank you. Thank you all for joining us today. Please reach out to Investor Relations if you have any follow-ups. I look forward to hearing back from you.