Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Equitable Holdings 2024 Second Quarter Earnings Results Conference Call. [Operator Instructions] After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Erik Bass, Head of Investor Relations. You may begin.

Thank you. Good morning, and welcome to Equitable Holdings' second quarter 2024 earnings call. Material for today's call can be found on our website at ir.equitableholdings.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 differ materially from those expressed in or indicated by such forward-looking statements. Please refer to the safe harbor language on slide two of our presentation for additional information. Joining me on today's call are Mark Pearson, President and Chief Executive Officer of Equitable Holdings; Robin Raju, our Chief Financial Officer; Nick Lane, President of Equitable Financial; Jackie Marks, AllianceBernstein's Chief Financial Officer; and Onur Erzan, Head of AllianceBernstein's Global Client Group and Private Wealth business. 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 may be found on the Investor Relations portion of our website and in our earnings release, slide presentation and financial supplement. I will now turn the call over to Mark.

Good morning, and thank you for joining today's call. Equitable Holdings' second quarter results showcase the company's building earnings momentum, driven by strong organic growth across our Retirement, Asset Management and Wealth Management businesses. It continues to be a great time to operate in the U.S. retirement market, and Equitable and AllianceBernstein are well positioned to capitalize on favorable demographic trends and current macro tailwinds. We provided ambitious growth targets at our Investor Day last May, and the entire management team is focused on executing our strategy. As I'll discuss in a few minutes, we are tracking well against our plan, and I feel confident in our ability to deliver on our commitments to shareholders. First, turning to slide three. I'll provide a few highlights from the second quarter. Non-GAAP operating earnings were $494 million or $1.43 per share, which is up 23% year-over-year on a per share basis. Adjusting for non-recurring items in the period, non-GAAP operating EPS was $1.52, which is up 20%, compared to the prior year and above our 12% to 15% annualized growth guidance. Assets under management and administration increased 11% year-over-year to $986 billion, supported by another quarter of favorable markets and positive net inflows across our Retirement, Asset Management and Wealth Management businesses. Turning to capital. We returned $325 million to shareholders during the quarter, which equates to a 65% payout ratio, within our target range of 60% to 70%. We continue to maintain capital flexibility, ending the quarter with $1.6 billion of cash at the holding company and a combined NAIC RBC ratio of approximately 425% to 450%, above our 375% to 400% target. In July, we paid an ordinary dividend of $440 million from our Arizona insurance entity. And as Robin will discuss shortly, we have approval to take an additional…

Thank you, Mark. Turning to slide six. I will highlight results from the quarter. On a consolidated basis, Equitable Holdings reported non-GAAP operating earnings of $494 million in the quarter, or $1.43 per share, up 23% year-over-year. Notable items in the quarter were $0.10, which includes $0.03 per share of expenses related to the early termination of debt and $0.07 per share of below-plan alternative investment income. Adjusting for these items, non-GAAP EPS was $1.52 per share, or up 20% year-over-year, driven by healthy organic growth, favorable markets and ongoing share repurchases. GAAP net income was $428 million in the quarter, reflecting modest impacts from our hedge program and minimal realized gains and losses on investments. Details by segment are included in the appendix, but there are a few items I want to highlight. Investment income increased over $160 million year-over-year as base net investment income continues to benefit from growth in the general account assets and higher interest rates. During the quarter, we invested new money at 5.6%, about 120 basis points above the portfolio yield. The annualized return on our alternative investments portfolio was approximately 5% during the second quarter, which was consistent with our guidance but below our 8% to 12% long-term assumption. Individual life mortality was in line with a normal range of expectations, which continued the recent trend of stabilizing claims activity. Adjusting for below-plan variable investment income, the Protection segment earnings for the first half of the year were $123 million, tracking in line with our $200 million to $300 million guidance range for the year. Finally, our consolidated tax rate was 19% in the second quarter, consistent with our full-year guidance. However, the insurance businesses benefited from a favorable state tax true-up this quarter. And the 15% rate reported this quarter is below…

Thanks, Robin. In closing, Equitable's second quarter results highlight the healthy organic growth momentum across our Retirement, Asset Management and Wealth Management businesses, which is driving strong bottom line results. Excluding notable items, non-GAAP EPS increased 20%, compared to the prior year quarter, and we expect to deliver 12% to 15% annual EPS growth through 2027. We're also on track to generate $1.4 billion to $1.5 billion of cash in 2024 and grow this to $2 billion annually by 2027. Our predictable cash flow, half of which comes from non-insurance businesses, enables us to fund organic growth while also consistently paying out 60% to 70% of our earnings to shareholders. Putting it all together, I believe Equitable has the right business model and strategy to take advantage of the current favorable environment for growth and deliver value to all our stakeholders. We'll now open the line for questions.

[Operator Instructions] Your first question comes from the line of Suneet Kamath with Jefferies. Your line is open.

Thanks. Good morning. I wanted to start on Individual Retirement sales. I think last quarter, you guys talked about a lot of the sales being funded by 401(k) rollovers. I just want to get a sense of -- is that still happening? And then somewhat relatedly, how sensitive do you think the sales would be if the Fed starts cutting short-term interest rates?

Great. Thank you for the question. This is Nick. First, we see structural demographic changes, coupled with a heightened and persistent sense of macro instability from consumers continuing to drive robust growth for buffered annuities. As you mentioned, America's growing retirement population is looking for new solutions. So we see them shifting out of target date funds and into protected equity and income solutions. For reference, LIMRA projects the RILA market to grow at high single digits annually over the next two years, making it the fastest-growing segment. As Mark highlighted, we continue to see that coming through in RILA sales up 20% year-over-year and $1.9 billion in positive net flows. We view RILAs as offering strong returns with a simple spread return profile. As a reminder, we reprice every two weeks to reflect interest rates, option pricing in the credit spread environment. As a pioneer in this market over a decade ago in low interest rate environments, we think the core value proposition of protected equities continue to resonate out there.

And then the sensitivity to rates if the Fed starts cutting?

On the sensitivity to rates, I think that has more of an impact on fixed annuity sales than on RILA sales. The value proposition for RILAs or protected equity story. It allows you exposure to the markets but gives you a downside protection for any unforeseen events out there. And that's a powerful value proposition in any environment. We believe that the privileged distribution network that we've created with both Equitable advisers and our third-party networks. And communicating that value proposition through many macro, I would say, events over the last 10-years puts us in a privileged position to continue to capture a disproportionate share of the value in the market.

Got it. And then my second question is, I guess, for Robin. So you've been writing a lot of individual retirement product. Now you're writing a lot of group with LPT. Does capital strain become an issue at some point? Or could you sell even more product if the demand was there? Thanks.

Thanks, Suneet. So we've been very intentional as part of our strategy to focus on capital-light products like the RILA SCS offering that Nick spoke about. And so to-date, we haven't had to choose between returning capital to the shareholders or growth because the growth that we're funding is capital light. So it makes it very efficient for us. We do view growth at a 15% IRR is a good investment and it will drive future cash flows and future earnings for us. That being said, we're fully committed to the IR day targets, returning 60% to 70% to shareholders and the $2 billion of cash generation. If we do see upside in terms of implant annuities coming in relative to our plan, we'll continue to focus on capital optimization initiatives, and we think we'd be an attractive partner to source third-party capital to fund that growth as well. So we think we have everything in the toolkit and the strategy is proving out to drive the cash flows that we need and to support the future growth.

Very good, thank you.

Your next question comes from the line of Tom Gallagher with Evercore. Your line is open.

Good morning. First question is, are you still planning on some type of solution to reduce mortality volatility for protection despite the improved results recently?

Yes, Tom. So just put in protection in context, it's about 10% of our earnings. Our guide for the year is $200 million to $300 million of earnings. And through the first-half, we're at $120 million. So we're in a good position to achieve that guidance that we've given. But to your point, given our large face amounts and retention, you should still expect some quarterly volatility. So as a result, we continue to explore solutions to improve the return on capital on that business and reduce volatility. I wouldn't expect anything -- any material updates from us until early 2025. But we are exploring multiple solutions to improve the returns on this business.

And Robin, I get it on timing, these things can take a while. But can you comment a little further on the range of things you're looking at? Is it -- from you the sidecar, where it would be something you would do internally? Is it full on risk transfer where you might do something third-party? Or are you looking at XOL reinsurance? Any -- are you leaning in 1 direction when you think about potential solutions?

Yes. So when I think about -- I look -- what's going to provide the best shareholder value and return on capital. So that could simply start with just getting after expenses and making sure we're efficient to improve the returns on the business. Second, as you know, we've looked at excess reinsurance to reinsurers, that's given up some economic costs. But we'll also look at sidecars, Bermuda, third-party solutions. So we have to look at everything as we work to return a return -- work to improve the returns on capital for this business. So everything.

Okay, thanks. And just one final one, if I could sneak it in. The partnership with BlackRock, what type of ROE or ROI you're getting on those products? Is it below RILA? Maybe just talk about where pricing is right now. And how that will affect your overall ROE, ROI? Thanks.

Yes. Still early days on that product. We're excited. It's a monumental time for us to get that first $500 million of inflows. Pricing expected just similar to our other products, we're looking to get above the 15% IRR for that product.

Thanks.

And your next question comes from the line of Jimmy Bhullar with JPMorgan. Your line is open.

Hi. So first, a question on just competition on the -- in the RILA market. A lot of other companies have come into the business. And obviously, over the last few years, the market has expanded enough to absorb the added supply. But how do you -- can you comment on what you're seeing some of the newer competitors doing in terms of terms and conditions? And are they being disciplined? Or are you seeing competition pick up on the fringes, specifically in RILA?

Sure. Look, in the second quarter, we don't see any material change in the competitive dynamics. We do hear people exploring the market, but we haven't seen any net new entrants in the last six months. At Equitable, we continue to be focused on profitable growth, as Robin highlighted, and continue to price to achieve a mid-teen IRRs on our new business. Net-net, we still view any competitive competition as raising adviser and consumer awareness, further growing the pie. As a pioneer in the space, we believe we're in a privileged position given our distribution networks. Both Equitable advisers and third-parties, which are very difficult to replicate. Our track record of innovation, we continue to leverage insights we get from our distribution networks on new segments or new value propositions and our partnership with AB to continue to capture a disproportionate share. So it's easy to file a product. It's very difficult to get a distribution network, and it's very difficult to get advisers. Traditionally, advisers will work with three carriers as they think through the different segments. They get repriced every two weeks.

Okay. And then on Group Retirement, obviously, your flows benefited from LifePath. If I take the LifePath number out, you would have been at negative flows, and it's been negative flows for the past several quarters. So if you could just unpack what's going on in that market? Because I would have thought with wage inflation, the good labor market, there would have been some sort of a tailwind to the business overall.

Sure. To unpack that, our Group Retirement business is comprised of three lines, our tax-exempt business or corporate and then our new institutional line, which Mark referenced. In tax exempt, we are the number one provider of retirement plans regarding -- through 12th grade educators. Here, we continue to see growing demand for advice and solutions. Educators electing to work with advisers contribute 70% more of their retirement plans on an annual basis. And we serve this market through a worksite advice model with over 1,000 advisers dedicated to over 9,000 school districts around the country where we have payroll slots delivering, I think, a unique solution that can't be replicated. From a performance standpoint, second quarter results in our core markets were positive, up 18% in both tax exempt and corporate. Within tax-exempt specifically, we continue to see positive net flows of roughly $91 million in the quarter. The outflows are driven in our noncore sort of 401(k) channels and runoff from our older products. Like most of the industry, higher interest rates and higher account balances have impacted flows, with higher surrenders offsetting premium growth in the corporate market. However, I would highlight, 25% of those outflows were participate-driven as people use the product as intended. And of the actual outflows ,50% are being retained by Equitable advisers and other solutions, speaking to the power of our integrated model.

Okay. Thank you.

And your next question comes from the line of Ryan Krueger with KBW. Your line is open.

Okay, thanks. Good morning. First question was on Individual Retirement spread. Robin, I know you said they likely peaked. I just wanted to confirm, would you expect them to be pretty stable from here? Or could there be some modest downside?

Yes. Thank you, Ryan. So just overall Individual Retirement earnings up 5% year-over-year, normalized. The net investment spread was up 17% year-over-year. But as I mentioned on the call, spreads have peaked as we see less tailwind from higher interest rates. So going forward, we would see NIM spread would probably grow more in line with the general account book value. We do have some exposure to floating rate assets, but we manage that tactically from quarter-to-quarter. So you may get some noise. But going forward, I'd expect NIM to stabilize -- NIM spread to stabilize and to grow at book value.

Okay. Great, thanks. And then just on the LifePath Paycheck product. Can you -- just from a capital requirement standpoint. So I know it's a spread product and the capital requirement is higher typically, but I think there's also no distribution costs like there would be on a traditional fixed annuity. So does any -- can you provide any perspective on how to think about the capital strain from growth in that product?

Sure, Ryan. I don't want to get too much in details on the product. It's a new product. It's growing. It's still small, but we're happy with the $500 million. Generally, as you see on our SCS capital light product, it's about a 2% to 3% required capital related to general count. This one is slightly higher as we get more general account assets, less acquisition expense. But more -- it's more like a fixed annuity from that sense. That being said, we price it at 15% plus IRR.

Okay, thank you.

Your next question comes from the line of Wilma Burdis with Raymond James. Your line is open.

Hey, good morning. Has there been any shift in thinking on the Legacy block? It seems like it's generating good cash flow, and there's no pressing need to make any divestitures, but has anything changed there?

Wilma, yes, nothing's changed from what we mentioned at IR Day. It continues to run off. It's going to be 5% of our earnings by 2027, be free cash flow accretive as it releases capital during that time. And so going forward, we're focused on the growth ambitions and the growth opportunity that we have in the retirement market and AllianceBernstein, and we'll let that business run off. If there are opportunities to accelerate down the line, we'll certainly evaluate it if it's shareholder accretive as well, but it's not a core part of our strategy at all.

Could you talk about the opportunity or the pipeline to add additional kind of relationships, like the BlackRock relationship? Is it kind of a long sales process? Just maybe talk a little bit about that and what you're seeing out there. Thanks.

Thanks very much, Wilma, it's Mark. Look, we're very excited about the opportunity for implant annuities within 401(k) plans. And as you know, there's been a lot of media interest in this, a lot of discussion across the marketplace. So we're very happy to be in the position of having two partnerships already with AB and now with BlackRock with the over $500 million coming in -- in net new flows in this quarter. We are talking to other fund managers. But you are right, there was a long lead time on these types of products. And that's, again, one of the reasons why we put out, you should expect flows here to be lumpy, both from the existing relationships and indeed, if we land any future nuance.

Thank you.

Your next question comes from the line of Mark Hughes with Truist Securities. Your line is open.

Yes, thank you. Good morning. The LifePath, you suggested probably not much activity in the third quarter, but more likely to be 4Q or 1Q. Would one expect the size of any inflows to be similar in future quarters?

I -- we can't give too much more color on what we've got because we don't know. What we know at this stage is that third quarter is likely to be low. And then we should expect more flows to come back on in quarter four and in the first-half of 2025. But we're not in a position to give you an accurate number at the moment.

Then when we think about the wealth management business, you suggested the growth in assets, maybe a mix shift could help offset declining short-term rates. Does wealth management kind of take a pause in growth as those things work out? Or are you able to sustain still a good positive momentum?

Yes, this is Nick. As Mark mentioned, we see Wealth Management earnings is growing and robust. Maybe on color just related to cash today, only 20% of our pretax earnings are driven by cash sweeps, compared to other industry players out there. Total cash balances said at less than $6 billion across solutions such as sweeps for immediate liquidity to money market funds. And it's remained relatively constant. Looking forward, we see strong organic growth in advisory, as highlighted by our $1.5 billion in net flows this quarter, driven by adviser productivity, that's up 10%. We believe our Wealth Management business brings a unique edge to the market to meet the growing demand for advice, both for consumers and for advisers looking to grow their practice. And based on the last 12-month run rate, we're tracking well ahead of plan to reach $200 million in post-tax earnings by 2027 communicated on Investor Day. So we see that as a source of growth and momentum going forward.

Thank you very much.

And your final question comes from the line of Mike Ward with Citi. Your line is open.

Thanks, guys. I was wondering, I noticed G&A expenses or comp and benefit types of expenses were -- seemed fairly low in the quarter. I was just wondering if there's anything, any kind of concerted effort across the business or just sort of normal expense management?

Mike, so for Investor Day, when we came out with our targets to grow cash to $2 billion, to grow earnings and have our EPS grow from 12% to 15%. And behind that were plans to, obviously, to have organic growth, which we're seeing come through, but obviously, to manage our expenses across Equitable and AB efficiently and grow to net investment income. So you're seeing expense productivity across both firms. We'll get the big real estate savings in AB starting later in the year. And then we'll also continue to reach our efficiency target in Equitable as well. In addition, you're going to see the deconsolidation from BRS this quarter. That comes through on AB side, and it will flow through. That's improved margins at AllianceBernstein as well for the quarter on a run rate basis over 200 basis points at AB. So we feel quite good about the efficiency that we managed the organization.

And then maybe a question for AB on -- AB flows, sorry. I was wondering how you guys are seeing your ability to consistently lead peers in terms of new business? I'm kind of wondering how you guys see the outlook for private credit. It seems like that's at the crux -- just getting more attention.

Sure. Thanks, Mike. We remain confident in our ability to outpace our directly comparable peers, which are the other publicly traded traditional asset managers for the most part. If you look at the last five years, we delivered positive organic active flows consistently, and that was always a couple of 100 percentage points ahead of the peers at the minimum. If you look at the first-half of '24, we had $5 billion of active net flows. And we had two positive quarters, both first and second in terms of the active net flows. In terms of the outlook, our global retail franchise continues to deliver strong sales growth and flows. If you look at our sales, it's up in global retail, 40% year-over-year. And it's white-based, broad-based. If you look at the drivers, we continue to gain market share in U.S. retail, particularly through our tax-exempt franchise. If you look at our ETFs, less than two years after our first product, we had $4.6 billion of assets. That makes us a top 20 active ETF provider. In Asia ex-Japan taxable fixed income franchise, which is our signature, continues to do well. And remember, the Asian investors are income oriented. So they are less sensitive to the current rates vis-a-vis some other markets. So hence, we are constructed on the outlook for particularly global high yield and other taxable fixed income strategies. And remarkably, we had active equity retail net flows in the second quarter, and we see continued demand for active equity strategies, particularly in our strong Japan retail franchise. So overall, Global Retail will continue to be an area of strength. And definitely, there is more seasonal upside in our Bernstein Private Wealth management business, given second quarter tends to be seasonally low with tax payments and we had record private alt cap raise in that channel. Private credits, last thing, I'll say, our alternative assets are up mid-single digits year-over-year. That's very healthy with $3-plus billion of deployments in the second quarter, which means you start earning fees on that. And if you look at our strategy expanding into new channels, that's going to pick momentum with new semi-liquid wrappers we are launching both in the U.S. and overseas, as well as some of the insurance-oriented IG strategies in addition to our flagship products. So private credit remains on track relative to our Investor Day 2027 goals of achieving $90 billion to $100 billion in private ops.

Great. Thank you. And I think on the last question, so I hope to have one follow-up just on CRE. Wondering if you guys could give us any update or specifics in terms of resolution activity on office loans in the general account? Thank you.

Sure, Mike. So our CRE portfolio remains healthy. The office sector, though, in aggregate, obviously, is a sector that we have to be careful for and watch continuously and work with our offices to make sure that they stay in good standing. We currently have about a 90% occupancy rate, 2.3 times debt-to-service coverage ratio on the offices, that's above where it was last year. So we feel good about the underlying fundamentals. We had four loans coming up this year. We extended one in the first quarter at market rates. And we continue to work on the other three. So we feel good about the loans that we have coming up this year, and we'll continue to work through the overall portfolio.

Thank you, guys.

Thank you so much. Any additional questions can be directed to the Equitable Holdings Investor Relations team. This does conclude today's conference call. You may now disconnect.