Thank you for standing by and welcome to the AllianceBernstein First Quarter 2019 Earnings Review. At this time, all participants are in a listen-only mode. After the remarks, there will be a question-and-answer session and I will give you instructions on how to ask questions at that time. As a reminder, this conference is being recorded and will be available for replay for one week. I would now like to turn the conference over to your host for this call, the Head of Investor Relations for AB, Ms. Hallie Elsner. Please go ahead.

Thank you, Jack. Good morning, everyone, and welcome to our first quarter 2019 earnings review. This conference call is being webcast and accompanied by a slide presentation that's posted in the Investor Relations section of our website, www.alliancebernstein.com. Seth Bernstein, our President and CEO; John Weisenseel, our CFO; and Jim Gingrich, our COO, will present our results and take questions after our prepared remarks. Some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. So, I'd like to point out the Safe Harbor language on slide 1 of our presentation. You can also find our Safe Harbor language in the MD&A of our first quarter 2019 10-Q, which we filed this morning. Under Regulation FD, management may only address questions of a material nature from the investment community in a public forum. So, please ask all such questions during this call. Now, I’ll turn it over to Seth.

Thank you, Hallie. Good morning and thank you for joining us today. We maintained strong underlying momentum in many areas of our business in the fourth quarter. Our results reflect continued success of our revitalized active equity platform, which attracted $1 billion in net new flows and a rebound in Asia ex-Japan taxable fixed income flows. Firmwide active flows were positive $2.2 billion, translating to a 2% active annualized organic growth rate. And while adjusted revenues, operating income and margin were lower year-on-year, we remain focused on expense management. Now, let's get into the specifics. Starting with a firmwide overview on slide three, first quarter gross sales of $23.1 billion declined 32% from last year's first quarter sales of $34.1 billion, which included $10.1 billion of CRS funding and $1.3 billion of sales related to Option Advantage in Private Wealth. Excluding these lumpy fundings, gross sales were slightly higher year-over-year. On a sequential basis, firmwide gross sales increased 9%. Total firmwide net flows were positive $1.1 billion and represent our third straight quarter of net inflows. The strong market recovery in the quarter and net inflows increased total assets under management to $554.7 billion at quarter-end. That's an increase of 1% year-on-year and 7% sequentially. Average AUM was down 4% versus the prior-year period, but increased 1% versus the fourth quarter of 2018. Slide four shows our quarterly flow trend by channel. On the right side of the chart, you can see that firmwide flows were driven by Retail and Private Wealth. In Retail, gross sales of $16.4 billion increased versus both prior periods and net inflows of $5.3 billion increased significantly, driven by a resurgence in fixed income in Asia ex-Japan region and continued positive active equity flows. In Private Wealth, both gross sales and redemptions improved sequentially, leading…

Thank you, Seth. Let's start with the GAAP income statement on slide 14. First-quarter GAAP net revenues of $795 million decreased 8% from the prior-year period. Operating income of $168 million decreased 25% and the 19.9% operating margin decreased by 310 basis points. GAAP EPU of $0.49 compared to $0.60 in the first quarter of 2018. As always, I'll focus my remarks from here on our adjusted results, which remove the effects of certain items that are not considered part of our core operating business. We base our distribution to unitholders upon our adjusted results, which we provide in addition to, and not as substitutes for, our GAAP results. Our standard GAAP reporting and a reconciliation of GAAP to adjusted results are in our presentation's appendix, press release and 10-Q. Our adjusted financial highlights are included on slide 15. First quarter revenues of $658 million, operating income of $159 million and our margin of 24.1% all decreased year-on-year. We earned and distributed to our unitholders $0.49 per unit compared to $0.73 for last year's first quarter. Lower base, performance fees and Bernstein Research Services revenues primarily drove the weaker financial results. Revenue, operating income and margin decreased for the fourth quarter of 2018 due to local performance fees, Bernstein Research Services revenues and the usual first-quarter sequential increase in our compensation accrual. As discussed on our previous earnings call, our adjusted financial results for the first quarter of 2018 included $78 million of performance fee revenues, $35 million of operating income and $0.13 EPU related to the Real Estate Equity Fund I, which is in the process of liquidation. We delve into these items in more detail on our adjusted income statement on slide 16. Beginning with revenues, first quarter net revenues of $658 million decreased 16% year-on-year. First quarter…

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

All right. Thanks. And good morning. So, maybe just a first question on the Bernstein Research Services. So, when I look at the decline, whether it's year-over-year or quarter-over-quarter, it makes sense what you said in terms of the volumes and the volatility. But it seems maybe a little bit weaker. So, I'm just trying to figure out if there was anything in terms of mix. I think, in the past, you guys mentioned sometimes like timing of research payments are a bit off. So, just any color on – if that was it or if there was anything else that weighed on the results in the quarter?

Michael, it is true that – particularly when you look from fourth quarter into first quarter that you have a research timing issue and there's some modest issues year-over-year. But as John said, the biggest issue by far is just a slowdown that we've seen in terms of overall market trading volumes.

Okay, got it. And then, John, maybe just on the pretax margin. So, I think if you back out the adjustments and if we look at the year-over-year, it seems like the adjusted margin is still in maybe that 27%, 28% range. If I think about 2Q going forward, all else equal, given where markets are, is that where you'd expect like the margin to rebound? And I think you guys had a target or an expectation in 2020 being around that 30%. Obviously, 24% versus 30% seems wide, but if the adjusted 27%, 28%, that's not too far. So, just wanted to get an update on the outlook for the margin.

Sure. Michael, it's John. I think you did a great job of summarizing where we think probably the second quarter comes in in terms of from a margin perspective when we don't have those one-time items in there. We still have the margin target of 30%. However, we don't think it's likely that, with the markets currently where they are right now, that we'd hit it in 2020. When we came up with the margin target, we were assuming markets that were more favorable than where we currently are at. But that still is our target and we still believe it is achievable.

Okay. Thanks a lot.

Your next question comes from line of Bill Katz with Citi. Your line is open.

Okay. Thank you very much for taking the question this morning. Just come back to G&A for a moment. So, thank you for sort of qualifying the impact of the proxy voting. But you also had trading error within the sort of the prepared commentary or at least in the press release. Maybe it's just my lack of familiarity with that line, but it seems like that was sort of some new verbiage. So, was there an added pressure point on G&A? Or maybe the better way to ask the question is, stripping out the noise, what's a reasonable run rate for G&A?

Sure. So, Bill, it's John. The reason why I did mention those, we have errors – trading errors every quarter typically. It just deals with managing clients' money and their portfolios. The reason why I called it out this quarter, it was particularly higher than normal. And so, if we had a normalized rate of error for this quarter, our G&A actually would've been down slightly. And I think when you're looking out into the future, as we said both on the promotion and servicing and the G&A, the non-comp expenses, our goal is to try to keep them, their rate of growth, at roughly the rate of inflation.

Okay. That's helpful. And then, just couple more from me. So, just in terms of flows, certainly appreciate all the detail in the supplement, but I just want to zone in on sort of area of weakness. I apologize for focusing on that. But if you look on the Institutional business, sort of as we expected based on your monthly AUM releases, but any color you can provide on sort of the dynamics within the fixed income bucket of AUM, where there is some weakness, obviously, offset by good equity and alternative mandates and good mix underneath that. But just what are you seeing incrementally around fixed income because the industry itself seems like it's – I guess, the question is, is it [indiscernible] you guys? Is it something that's broader? Because we've really not seen that on the Retail side in US at least.

Bill, the outflows that we had were really, I think, attributable to a number of factors, but performance has been a contributing factor, as has been the cost of hedging and specific situations, as well as portfolio decisions on the part of clients. But it was largely concentrated in things like IG and so forth. So, that's where we sit.

Bill, it's Seth. But I just would add that, not necessarily as much in this quarter, but in prior quarters where we saw Institutional outflows, those were a number of non-US clients who were hedged into dollars, and that has been a broader industry phenomena.

Got you.

Yeah. And, Bill, it's John. I would just mention that this particular quarter, a large contributor to the Institutional outflows was that we had – there was a large – two large outflows from one client. And they were acquired, which led to them taking back the mandate.

Can you size those?

Let's just say it's large. How about approximately half of the institutional outflow number.

Okay. That's very helpful. Okay, I'll get back in the queue. Thank you.

Your next question comes from the line of Alex Blostein with Goldman Sachs. Your line is open. Alex Blostein, your line is open. Your next question comes from the line of Robert Lee with KBW. Your line is open.

Great. Thank you. Thanks for taking my questions this morning. I guess, my first question would be just kind of the more, high-level – as AXA kind of separates itself from Equitable and you guys go through proxy, what are your current expectations? Do you see any change in Equitable's relationship with AB? How are you currently thinking about that possibly evolving over the next several years? And then, maybe as a follow-up, you've seen in the alternative space, partnerships start converting to C Corps. Those who have done it have experienced broadening investor bases. Is that impacting your thinking on possibly changing your public entity to a C Corp?

Rob, it's Seth. Let me – I'll ask John to answer the C Corp conversion question. But with respect to the relationship with Equitable, just a couple of observations. First, since the IPO in the second quarter of last year, there have been two subsequent offerings by AXA. AXA's ownership, I think, is now around 48.3% of Equitable. And that's what triggered just – you didn't ask it this way. But I just – to be clear, that's what triggered changes in our Board and in their Board composition as per their shareholder agreement with AXA. I don't see any changes in our relationship with Equitable. We are working more closely with them on different initiatives. They seem to be content with their holdings as they stand today. And I think it's really status quo.

And, Rob, it's John. On the second question, the C Corp question, we've done the analysis. It's actually very complex analysis, looking at – if we did convert, what would be the benefits or the adverse effect on both the firm and the unitholders. And at this point – at this juncture, we do not have currently plans to convert for several reasons. And so, one is, the first is the tax leakage. There would be – we have such a low effective tax rate compared to the corporate 21% tax rate that there is very large tax leakage, if we converted. And our PE multiple after conversion would have to increase by – in percentage terms, low to mid double-digit terms in order to just avoid destroying shareholder value. The second reason is that our current partnership structure allows us to pay out all of our earnings as well as it allows us to buy back any units we issue to employees for stock-based comp to offset the EPU dilution. And this leads us to a payout ratio that's well in excess of 100%, a dividend yield that's typically 8% to 9%, and we just don't see any corporate structures with payout ratios on those orders, of those magnitudes. The third reason is that, even if we did convert, it would not necessarily increase our float because we still have the large majority owner, we also have the large employee ownership. With that large majority owner, it's not even clear that we even would be allowed to be included in an index. And then, the fourth reason is, once you convert, that's it. So, if the tax laws change and the corporate rate is increased, it's over. So, for those reasons, we'll continue to monitor it and monitor the folks who did convert. But, for us, it just doesn't seem to make sense at this particular point in time.

Thank you. I'll get back in queue. Thanks for taking my questions.

Your next question comes from the line of Dan Fannon with Jefferies. Your line is open.

This is James Steele filling in for Dan. Just had a question on the institutional channel again. It looks like the pipeline keeps building up, yet gross sales has kind of stayed the same over the past few quarters. Any insight on when maybe we might see some of the gross flows pick up, just given the pipeline trend?

A number of the – obviously, the gross sales is influenced by – as you point out, by how much of the pipeline actually funds in the quarter. Our anticipation, given the indications from clients, is that we will see a pickup in fundings here in the second quarter.

Okay, that helps. And then, just as my follow-up, now that Autonomous is closed, I think that you guys initially gave maybe slightly accretive by 2020. Just wanted to know if that's changed or if there's any new color on that deal?

No. No change. We still expect it to be accretive in 2020.

Great, thank you.

[Operator Instructions]. Your next question comes from the line of Bill Katz with Citi. Your line is open.

Okay. Thanks for taking the extra questions. So, just going back to the sell side business, so to the extent that we sort of stay in this depressed period of volatility, maybe given what's going on with the industry policy, who knows, any remedial action you can take to potentially offset any sort of the bottom line pressure? Or maybe another way to think about that, can you bifurcate the margin of the asset management business versus sell side business, so we could try and ring fence the pressure?

All of our businesses, including the sell side, we run from a P&L standpoint. So, as you might imagine, the leadership of that business has already taken a series of steps and may take continued steps to address the fall off in revenue, be that headcount or compensation related, as well as discretionary expense.

Bill, it's John. So, the second question, we only report as one segment. So, we cannot breakout the sell side separately.

Right. And just one follow-up for me. Just coming back to your margin target of just around 30% or so, certainly appreciate the market has had a tremendous decline to the end of year, but similarly we're off to a pretty strong start year-to-date. What is the biggest delta that is maybe chunking [ph] some of that margin improvement into 2020? And can you give us a sort of updated timeframe when you think you can get to that level?

Bill, again, it's John. I think what we've said is, right now, if we had flat markets where they are currently, we would not expect to get to 30% by 2020. In terms of flexing the markets, you can see what our fixed income AUM, our equity AUM. And I think if you run scenarios off of there, you'd be able to see where you think it may be reasonable that we hit that target depending upon what your market assumptions are.

And I would just add, Bill. Look, we've always said that we need revenue growth to drive margin improvement. Last year, we came in $2.9 billion or so in revenue. And we were obviously high 20s in terms of margins. So, I think, look, you should just absent some of the structural thigs that we're doing with our cost structure with respect – that will come, for example, out of the Nashville move. You should just think about the revenue level that we would need to achieve to see further margin improvement off of last year's numbers.

Okay, thank you very much.

There are no further questions at this time. I would now like to turn the call back over to the presenters.

Thank you, everyone, for participating in our call. Feel free to reach out to Investor Relations if you have any further questions. Have a great day.