Good morning, my name is Carol, and I will be your operator today. At this time, I would like to welcome everyone to the AXA Equitable Holdings First Quarter 2019 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, we will have a question-and-answer session. [Operator Instructions] At this time, I would like to turn the call over to Kevin Molloy, Head of Investor Relations. Mr. Molloy, you may begin.

Thank you. Good morning and welcome to AXA Equitable Holdings First Quarter 2019 Earnings Call. Materials for today's call can be found in our website at ir.axaequitableholdings.com. Before we begin, I would like to note that some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. Our results may materially differ from those expressed in or indicated by such forward-looking statements. I'd like to point out the Safe Harbor language on Slide 2 of our presentation. You can also find our Safe Harbor language in our 10-Q. Joining me on today's call is Mark Pearson, President and Chief Executive Officer of AXA Equitable Holdings; and Anders Malmstrom, our Chief Financial Officer. Also on the line is John Weisenseel, AllianceBernstein's Chief Financial Officer. During this call, we will be discussing certain financial measures that are not based on Generally Accepted Accounting Principles, also known as non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and related definitions may be found on the Investor Relations portion of our website, in our earnings release, slide presentation and our financial supplement. I would now like to turn the call over to Mark and Anders for their prepared remarks.

Thank you, Kevin, and good morning everyone. Thank you for joining our call today. We are pleased to present our results for the first quarter of 2019. I'd like to begin by providing some key highlights from our performance for the period. Next, I'll share an update on our progress against these strategic priorities and financial goals, we've previously articulated to you. Before we turn to the numbers, I thought it'd be helpful to provide some context around current capital market conditions, as well as some recent developments in the unique story of our company. During the first quarter of 2019, we saw a mixed picture in the macroeconomic environment. While the equity markets recovered from the correction during the fourth quarter with the S&P 500 rising 13%, treasury yields turned weaker with the 10-year declining by approximately 30 basis points while higher rates in equities are good for our business, our hedge program ensures we are protected through volatile periods. With this as a backdrop, our hedge program continued to perform as expected protecting our balance sheet and supporting our strong capitalization levels in excess of CTE98 for our VA business. We further enhanced our long-term financial flexibility to an offering that raised $1 billion in contingent capital to provide a committed alternative source of capital and diversify our funding sources. The favorable rates at which we obtained this facility speaks to market recognition for our capital strength and stability. We also continue to deliver on the shareholder commitments we made more than a year ago. Actions, which are in line with a target payout ratio we revised upwards to 50% to 60% of non-GAAP operating earnings. In fact in the first quarter of 2019, we returned $818 million in the form of share repurchases and dividends for the…

Thank you, Mark, and good morning everyone. On Slide 6, I will review our consolidated results for the first quarter before providing more detail on segment results and our capital management program. As Mark noted, we reported solid first quarter results with non-GAAP operating earnings of $509 million, up 5% from the prior year quarter or 14% on a per share basis, as the impact from our share repurchase program has reduced outstanding shares by over 12% since the IPO. This growth was primarily attributable to higher net investment income, which had a positive impact of higher asset balances and yields. And from our general account portfolio optimization, partially offset by lower income from alternative investments due to the reporting lag for private equity. Also contributing to the growth was lower DAC amortization and lower operating expenses. The GAAP net loss for the quarter was $775 million. As with prior quarters, driving this figure are non-economic items related to VA product features. This includes nonperformance risk and the impact of our hedging program, which together generated a negative GAAP impact as expected, driven by double-digit equity market growth and the tightening of our own credit spread in the quarter. Overall, this result was in line with expectations and our previously communicated guidance. As a result of AXA's ownership falling below 50%, we now commence our separation from AXA and we expect to incur additional one-time expenses of $300 million to $350 million over the next three years. We anticipate the cumulative amount of separation costs to be between $650 million and $700 million, of which $330 million has been incurred since 2017, including $24 million in the first quarter of 2019. Total company assets under management ended the quarter at $664 billion, rebounding 7% sequentially following the equity market decline…

Thanks, Anders. Before we turn to taking your questions, I'd like to close by reiterating our solid results and some highlights as we step into 2019. The first quarter was a strong start to the year for our company as we continue to perform well across various market environments and delivered growth in earnings with contributions from across our business segments. We continue to make significant progress against our strategic initiatives and remain confident we will achieve our 2020 targets, including annual non-GAAP operating earnings growth of 5% to 7%. We are delivering on our commitments to shareholders with $818 million in dividends and share repurchases in the first quarter of 2019, in line with our increased payout target ratio of 50% to 60% of earnings. Our long-term financial flexibility is further enhanced, thanks to the successful launch of a $1 billion contingent capital facility, which provides increased liquidity and diversification of funding sources. And following the March secondary offer, we are one of the largest independent publicly traded financial services companies in the country, with independent governance and a commitment to deliver for our clients and maximize shareholder value over the long-term. With that, we'll open it up for questions and answers.

[Operator instructions]. Our first question comes from the line of Elyse Greenspan from Wells Fargo. Please go ahead.

Hi, good morning. My first question on the investment portfolio optimization. You guys seem to be running a little bit ahead. You guys had said about $120 million to $140 million will come through this year. And you're at $108 million after the first quarter. Is there any sense could we maybe see some of the earnings that are expected for 2020, come into 2019?

Good morning this is Anders speaking. Look, I think as you said, I mean, the general account rebalancing is moving well toward the target of $160 million. As we stated, it's $108 million. I think from my perspective, it's really running on track, so that we should get the full amount reflected in 2020. And then the program will be basically finished by Q3, Q4 this year.

Okay, great. And then on capital return. You guys have $200 million left on your authorization. As you think about -- and you now have some contingent capital that you could raise some debt. As we potentially think about additional offerings by AXA, would you guys potentially be willing to go above the target level this year? There is more stock coming to the market and can you just give us some comments and thoughts about maybe going to the higher end and maybe front-loading some 2020 buyback.

Yeah, look, I think it's -- as we said, we have the 50% to 60% payout ratio, which is already higher than what we said a year ago. I think we really want to stick to the 50% to 60%. And I think the authorization we have right now is $800 million, we already front-loaded that in order to participate with the buyback. So I don't anticipate any other front-loading, because I think we really want to maintain the range, and later in the year we are going to use the extra $200 million that we still have authorization from.

Okay, and then one last quick question. In terms of, it seems like there was one, some one-off benefit to investment income within corporate, but there was no kind of one-off number that went through the investment income line within any of the segments, correct?

So what we saw in Q1 is really because of the market rebound. And we have some seed money that we invest into our business and generate funds and then this is allocated to the corporate and other and that's where we saw a one-time benefit that came through in Q1 after the very strong rebound of the market.

Okay, thank you very much.

Our next question comes from Ryan Krueger from KBW. Please go ahead.

Hi, thanks. Good morning. SCS have remained pretty strong as new competitors have been entering that market. Can you talk a little bit about the competitive dynamics there and I guess, why it doesn't seem like some of the new competition is having much of an impact on your sales?

Good morning, Ryan. It's Mark Pearson, yes, we had a very, very good quarter on the individual retirement side, particularly as you say through SCS. Yes, we do see more competition in the market. A number of players have followed our product design and are out there competing. But I think one of the things that really sets us apart is the depth and breadth of our distribution. It can be not too difficult to copy a product but it's quite hard to copy a distribution footprint like ours. So we are benefiting from good product design, but also very good reach through AXA advisors affiliated sales force into the traditional banks and warehouses, where we've always played but also into new channels like general insurance players, where we've been particularly successful. That's what's really fueling our superior growth.

Thanks. And then in Group Retirement, we've seen a lot of fee pressure in the 401(k) industry, doesn't seem like there's been that much in tax exempt. So just hoping you could talk a little bit about what you're seeing there and the differences between tax-exempt markets versus 401(k) markets at this point?

I think the key in the Texas markets is the business model we have, where principally we are advising teachers, it's an advice model, it's a work-site model, if you like, where our advisors are with teachers helping them through what is quite a complex situation, they tend to have a defined benefit scheme. And we are advising them on their supplementary retirement needs and because it's advice we're giving rather than just a pure platform, the margin pressure is less there.

Okay. Thank you.

Our next question comes from Suneet Kamat from Citi. Please go ahead.

Thanks. Wanted to start with AB and the margin outlook there, I think in the past you talked about 30% plus by 2020. Obviously, lower than that in the quarter. So can you just give us an update in terms of how you're thinking about that target?

Sure. This is John from AB. We still believe that a 30% margin target is achievable. We believe this is a 30% margin business that we run. It's, obviously, dependent upon the markets. And so the function of when we actually hit that target will depend upon the markets. But it's definitely our target and we think it's definitely achievable.

Okay. But with the market kind of coming back now to where it was in September, is there any reason why we shouldn't think the 30% plus by 2020 is -- is there any reason why you're not citing that specific date in terms of the target anymore?

I think when you look at the composition of our AUM, where over 50% is fixed assets -- fixed income and about 38%, 39% is equities. You can run your models and I think there's definitely scenarios under which you look at increases in markets, where we get to the 30% by 2020. And there is other scenarios that you may run where we do not get there. So it really depends upon, I think, the probability that you attach to each one of those market assumptions, as far as when we actually get to the 30% margin target.

Okay. And then on the individual retirement, Mark, you talked about the strength of the distribution, can you give us a sense in terms of your sales, how much of your individual retirement sales are third-party versus AXA advisors?

It's 60%, 40%, Suneet.

It's 60% third-party, Suneet, and 40% AXA advisors.

Okay. Thanks.

Our next question comes from the line of Tom Gallagher from Evercore. Please go ahead.

Good morning. John, just a follow-up on AB. I know there was a sharp drop in Bernstein Research revenues and earnings in 1Q. Should we assume that's a new run rate or is there an expectation that's going to recover in 2Q. And also last year 2Q was a higher performance fee quarter, is that a -- should we have a similar expectation for this year?

Sure. Let's take the first question first. With regards to the -- I'm sorry, let's go with the Bernstein question first. It really was -- the drop was global and it really is a function of less trading volume globally, whether we're talking about Europe, Asia or the US. And it's really we've looked at our peers and our peers are down similar percentage drops in terms of revenue. So it really was more of an industry dynamic as far as anything specific to us. So the lower volatility hurt us as well. So we just have to keep an eye on in terms of how that proceeds through the rest of the year, but if volumes pick up, the volatility picks up in the market. We'd expect the Bernstein business to do better as well. In terms of the performance fees, last year we had a total of $195 million in performance fees for the full year; $130 million of that was due to two portfolios that were in liquidation. So the Real-Estate Equity Fund 1 portfolio, which impacted us in the first quarter comparison period and then there was also the Financial Services Opportunity Fund 1 portfolio. So we actually had some significant performance fees in the Financial Services Opportunity Fund 1 portfolio in the second quarter of last year. In fact, I think it probably accounted for somewhere roughly about maybe half the performance fees that we have recorded in the second quarter of last year. So I think when you think about the second quarter, you have to realize that you won't see those Financial Services Opportunity Fund 1 performance fees this year.

Understood, thanks. And the $200 million remaining share repurchase authorization, should we expect that to be used ratably over the next three quarters or how should we think about that?

Yes, so I think, look, Tom, I think it's a good question. You know, I mean, we have this authorization of $800 million, usually basically spread over the year. We front-loaded $600 million in order to participate them with the offering. I think you can expect that the remaining $200 million would be spread over the, basically the rest of the year. But don't expect us to front load because when it comes to the cash actually that we have at the holding company, now we have the surplus note that we repaid in March, which helped us then to pay the $600 million for the repurchase. But the dividend we expect from the operating entity will come later in the year, usually around June/July framework, and after that we can then use it for the remaining $200 million tons. Don't expect it to front load even more, we're already very much front loaded.

Got you. And then just one final one, the contingent capital facility. So if I am hearing you correctly, this is really for downside scenario planning over a long period of time. From a contingency standpoint, it doesn't sound like you have any intention of using this over the next year or so, is that a fair way to characterize it?

Yeah, absolutely, I mean, it's really coming from capital, it's a good time to basically set it up now because you fix the terms. And then you have access to that capital whenever you need it. And particularly, you know, if there is a crisis, it's usually very difficult, very expensive to get this facility, that's why we set it up now. But there is no, really no intention to use that in the near term.

Okay. Thanks.

Our next question comes from Andrew Kligerman from Credit Suisse. Please go ahead.

Okay. Good morning. Maybe some numbers to start. So in the fourth quarter, the swing in statutory capital, statutory plus, you gained $1.4 billion in that down market probably largely in unassigned surplus. So I'm wondering what that swing was in 1Q '19 and then where you ended at total adjusted capital in the quarter?

You know, Andrew, good morning. We don't give the detailed stat numbers on a quarterly basis. But what I can tell you, we were at the year-end, we had a target capitalization, an RBC of 670%, that was the RBC we had at year-end. And you know our target capitalization is CTE98 for VAs and 350% to 400% for non-VAs. And that brings you to 550% to 600%, that's the target RBC. So you saw we were significantly above that. Since then, we, obviously, paid back the surplus note out of the operating company, but we generated new earnings. And what I can tell you, we are still meaningfully above our target capitalization, which is our goal, our stated goal. But I don't give you usually on a quarterly basis all the statutory numbers. But we are well capitalized.

Okay. So maybe I'll ask another one that I might not get an answer too, but I want to get a sense of your dividend capacity from the insurance entities. If you were to desire some capital to be dividended up on a one-time basis, could you give a sense of how much that number might be?

Yeah. So look, I think the overall dividend capacity I think its about $1.6 billion we have and this is dividend like. Because we already paid $600 billion [ph] or concretely $572 billion back in the form of a surplus note in March. And we have another billion left as capacity out of the operating entity, which we intend to distribute later in the year.

Got it. Perfect. And then just lastly, just maybe, I think the question was asked on the portfolio optimization going $108 million to $160 million, how about on the cost saves you mentioned, $21 million on track for $75 million. Is that kind of a gradual trajectory or maybe a little sense on that timing?

Yes. I think on the expenses it's usually not gradual because you make all the investments in order to get the save, so you can see it more as a hockey stick and I think '21, I think that's where we are and we are pretty happy that we are there. But I mean still a way to go and we expect that to -- that we get the saves related to this year and then in particular next year, when all the investments actually pay off.

Thanks so much.

Our next question comes from the line of Jimmy Bhullar from JPMorgan. Please go ahead.

Hi, good morning. Some of my questions were answered, but first on the AllianceBernstein business, your fees were down sequentially and I was just trying to understand if you could -- what drove that? Because average assets -- at least equity assets were up, not a lot, but up a little bit and so if you could just give us some idea on how much of the weakness was caused just by Bernstein on the research side versus maybe some of the international business and maybe fixed income?

When you say sequentially, are you saying, fourth quarter to first quarter or are you --?

Yeah, just looking at fee income, specifically?

So fee income, the average AUM was down just slightly, what happened , if you think about all declines in the fourth quarter in the market, we had lost over 6% off of our AUM from the end of the third quarter to the end of the fourth quarter. We basically got that back in the first quarter, but it's really just the timing and when you look at the average AUM, so the average AUM for the first quarter was slightly below where it was in the fourth quarter.

Although your revenues were actually -- or fees were down more than 5% I think. So it seems like a bigger decline than change in assets, and that's what I was trying to get to.

No, I think the base fees were only down about $5 million which was going from fourth quarter of '18 to the first quarter '19, so that's only about 1% drop.

Okay. And so what's the rest of the drop, is it all Bernstein or what is it $696 million [ph] to $657 million [ph] or $658 million [ph]?

So let's confirm. So when we talk about the base fees, we're referring to the investment fees on the portfolio.

Okay.

They were only down 1% is entirely due to a lower average AUM. If you're looking at our adjusted net revenues, they were down 5% and there are two changes there. One is the performance fees. So they were $35 million in the fourth quarter and they are typically larger in the fourth quarter than the first quarter of the year. So there's really no surprise there, because many of our strategies that -- our ongoing performance fee-based strategies with funds have annual calculation periods and the majority of those end in the fourth quarter. So again the performance fee is $35 million in the fourth quarter last year, down to $4 million in the first quarter. And then the third, the other part was the Bernstein Research Services that you did mention, they were down, their revenues were down 22% sequentially and 21% year-over-year. And again, it was really due primarily to the drop in the trading volume and the volatility and it's global.

Okay. And then on annuity flows, they got a lot less negative from 4Q to this Q. And typically, I think 2Q ends up being a seasonally strong quarter for the industry and you guys as well. Do you envision positive flows in annuities for the year or for the second quarter?

Momentum is good, Jimmy. We don't like to be, to give a forecast such for momentum, particularly on the gross flows, remains very good from our view.

And then just lastly on retirement. You had a good quarter on flows there, but probably not a good run rate for the year, right? Because you typically have weakness, and I think you mentioned in your comments as well. But we shouldn't assume this level of flows recurring through the rest of the year?

Yeah, I think we were very clear. You know, it's, we have very strong flows in the first quarter, quarter one and quarter two. Usually it's weak at quarter three and then kind of mixed quarter four, that's kind of the annual mix of flows. But we are very happy with the Q1.

Thank you.

Our next question comes from the line of Josh Shanker from Deutsche Bank. Please go ahead.

Yeah, Jimmy in the flows question I guess. Given that we had a huge sell-off in 4Q and a big recovery, has that changed consumer appetite in individual retirement? Does that cause any change in your producer education? And are there capital-intensive products that you'd like to sell more, because they're attractive but the appetite is not there on the market?

I think from a consumer point of view, one of the best, well, the best selling product we have now is SCS and it works very well with consumers. Because it gives some downside protection, plus an upside kept into an index of choice either over 5 years, 10 years or 15 years. So it's a really good product to volatile times. Because you can get the upside and is there's any newnessness about the markets and volatility, you got some protection on the way down. So I don't believe we've seen any significant change in the mix across those quarters. But it's because of the design of the product.

Yeah. But I think maybe just one thing to add, I think the product portfolio we have is really an all weather portfolio. I think that's and what Mark mentioned, It's really good to have an SCS type, and then we also have Retirement Cornerstone, which is more income-oriented and SCS is actually very attractive when you have a high volatility in the market, that's when the caps become kind of cheap. And I think we really saw that but there is times where volatility is lower and that's where basically then we see more sales in the other product. But overall, I think it's pretty stable. You would expect more volatility from the mix because of that, but I think it's more macro trended. People like the downside protection of SCS but people also like the income of the other product and it really depends on the market environment, is also their need.

And producer education, is there any ramp ups or it's just steady?

This is very steady. And I think our producers they know that we have this all weather portfolio, they know that different products suit different end purposes and I think we have a high education and our advisors, they have to go through a lot of training in order to be prepared for this and for their doing their job.

Thank you very much.

Our next question comes from the line of Mark Hughes from SunTrust. Please go ahead.

Yeah. Thank you very much. Good morning. On the protection solutions front, I wonder if you could just talk about the -- refresh us where you're seeing more success in employee benefits business and overall there, any strategies for expanding distribution both for the VUL and employee benefits?

Hi, it's Mark. Let me deal with the EB one and then I'll pass to Anders on the VUL. Look we are very pleased with the momentum inside the EB. If you remember, three, four years ago, this was when we started as one of our big bets, if you like, for the future. So in terms of employees we are covering now, people we are covering now, it's over 300,000. So that's a really nice number. I think in the quarter we kicked over $100 million of premiums collected totally. So certainly the model is working out there, it's still a couple of years before we can see meaningful profits coming out of the unit. But we really are where we hope to be and we feel very confident about it. On the VUL side, Anders?

Yeah, look, I think, in particular, on the individual life side, we are very selective where we operate and where we -- and what kind of products we sell, it's really VUL and IUL, these are the products, we think we can add value. As a stock company, we don't go into whole life and also term life is not a key product for us. We have it but that's something where we don't focus on, it's really on the IUL and VUL. I think we have strong performance there and sales has a strong momentum there. So I think that's moving in the right direction.

Then on the benefit ratio was up this quarter, I think you talked about the higher large case mortality, what's a good run rate on that benefit ratio? Do you think that'll calm down in Q2?

Yeah, look, I think, we mentioned that on the call. I think overall the mortality was in line with expectation. In particular, when it comes to frequency, we had an uptick in high claim and cases. But I think overall, you can expect somewhere in the high 60s. I think that's a good run rate.

Thank you.

Our next question comes from the line of Ian Ryave from Bank of America. Please go ahead.

Good morning. Thanks for taking the question. So just revisiting a few questions that other analysts have asked about your ability to participate in further offerings. I mean, AXA is essentially, their intention is to continue to sell down. There's no material lock ups and the markets are near highs, you had talked about getting about $1 billion or so in subsidiary dividends in the June or July period. So should we take it out, there's nothing really stopping you from being able to materially participate in any further offerings?

Yeah, look, I think, I mean, I want to reiterate what I said before, I think our target and payout ratio is 50% to 60% of operating earnings. I think that's really key for us. I think we have an authorization of $800 million and $200 million left. This together with the dividends and that we pay out, I think brings us in the middle of that range and right now, so the $200 million that are left, I think as we said before, I think we want to use a majority of that, particularly of the total one, but also of the $200 million together with AXA. But we also opportunistically looking at open market repurchases. But I think don't expect that this is going to materially increase.

Okay, Thank you.

Thank you.

Now I'll turn the call back over to Mr. Pearson for closing remarks.

Great, thanks. This is Kevin Molloy, the Head of Investor Relations. Thanks for your participation today. And if you have any follow-up questions, please don't hesitate to give us a call or send us an email. Thank you.

This concludes today's conference. You may now disconnect.