Thank you for standing by, and welcome to the AllianceBernstein Second Quarter 2022 Earnings Review. I would now like to turn the conference over to the host for this call, Head of Investor Relations for AB, Mr. Mark Griffin. Please go ahead.

Thank you, Sarah. Good morning, everyone, and welcome to our second quarter 2022 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, our President and CEO; Kate Burke, COO and CFO; and Matt Bass, Head of Private Alternatives. Bill Siemers, Controller and Chief Accounting Officer, will join us for questions after our prepared remarks. Some of the information we'll present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. So I'd like to point out the safe harbor language on Slide 2 of our presentation. You can also find our safe harbor language in the MD&A of our 10-Q, which we filed earlier this morning. 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. Our second quarter results reflected adverse market conditions as negative market sentiment was amplified by a sharp decline in asset prices in the quarter. Despite outflows from taxable fixed income, we generated continued organic growth and market share gains in municipals and active equities and grew in alternatives, multi-asset, highlighting the strength of our globally diversified and differentiated services. Our fee rate improved by 2% year-over-year, driven by a mix as higher fee active equities and alternatives, both grew organically by 7% on a trailing 12-month basis. Our institutional business saw inflows in the quarter and our pipeline grew driven by alternatives. We closed on the CarVal acquisition on July 1, providing complementary private credit capabilities and specific strategies sought by our clients. AB now has a $54 billion private markets platform, which we are growing in partnership with Equitable. Let's get into specifics, starting with a firm-wide overview on Slide 4. Gross sales were $23.8 billion, down $12 million or 34% from a year ago, excluding the impact of a onetime $8.7 billion venerable sale in the prior year quarter. Firm-wide active net outflows were $3.4 billion or $2.8 billion, excluding AXA redemptions. Quarter end assets under management of $647 billion declined 12%, both year-over-year and sequentially, an average AUM of $689 billion was down 5% year-over-year and 8% sequentially. Slide 5 shows our quarterly flow trend by channel. Firm-wide, second quarter net outflows were $2.7 billion or $2.1 billion excluding AXA redemptions. Retail gross sales of $17 billion continued to moderate from a record 2021, resulting in net outflows of $2.2 billion. Investors continued to shed risk assets and returns were negative amidst rapidly increasing inflation and interest rate expectations. Organic growth in munis, alternatives, multi-asset and active equities…

Thanks, Seth. It's a pleasure to be with you this morning. Let's start with the GAAP income statement on Slide 13. Second quarter GAAP net revenues of $971 million decreased 10% from the prior period. Operating income of $193 million decreased 32% and operating margin of 22.6% decreased by 340 basis points. GAAP EPU of $0.69 in the quarter decreased by 24% year-over-year. I'll focus my remarks from here on our adjusted results, which remove the effect of certain items that are not considered part of our core operating business. We base our distribution to unitholders on our adjusted results which we provide in addition to and not as a substitute for our GAAP results. Our standard GAAP reporting and a reconciliation of GAAP to adjusted results are in our presentation appendix, press release and 10-Q. Our adjusted financial highlights are shown on Slide 14, which I'll touch on as we walk through the P&L shown on Slide 15. On Slide 15, beginning with revenues. Net revenues of $816 million decreased 7% versus the prior year period and were down 10% sequentially. Base fees decreased 3% versus the prior year period as 5% lower average AUM, lower across all 3 distribution channels was driven by market declines, offset by trailing 12-month net inflows in each channel. The second quarter fee rate of 39.4 basis points was up 2% year-over-year and up 1% sequentially. We continue to believe that although our fee rate may be volatile from time to time, given the potential for large low DC mandates, such as the new Target Date mandate, one in July referenced in our earlier remarks, over the long term, it should continue to grind higher. Second quarter performance fees of $18 million declined by $36 million from the prior year period. reflecting lower…

Thanks, Kate, and good morning, everyone. Just to reemphasize what Seth and Kate mentioned, we are thrilled to officially welcome the CarVal team to AB. We've been able to partner with a terrific firm that has an excellent cultural strategic, product and financial fit for both clients and unitholders. As previously mentioned, the addition of AB-CarVal brings our private markets platform to nearly $54 billion in AUM, getting capabilities in opportunistic and distressed credit, renewable energy, specialty finance and transportation investments, while complementing our existing scaled capabilities in corporate direct lending, commercial real estate lending and private placements. Since the acquisition announcement in March, client activity and fundraising momentum has been strong with approximately $2.1 billion raised by AB-CarVal across their diversified product line, including our clean energy strategy. At the same time, work continues regarding new product development opportunities for AB-CarVal across client channels, including high net worth, retail and institutional as well as insurance with our partner Equitable. Some current areas of focus include a residential mortgage whole loan strategy, clean energy, hard assets, transportation and opportunistic credit strategies. Speaking of Equitable, one year post announcement of our $10 billion private markets partnership, we continue to make progress, working together across both organizations to expand AB's existing strategies and launch new strategies towards meeting Equitable's general account needs and deployment goals. Looking forward, Equitable remains supportive of AB's strategy to grow our private markets offerings, including additional commitments in the future, for existing and new services AV may develop, subject to Equitable's risk and return objectives. With that, operator, we're ready for questions.

And our first question will come from Alexander Blostein with Goldman Sachs.

Congrats, Kate on the new role, expanded role. I wanted to start maybe with a question around just, Seth, your kind of pulse on fixed income market allocations given kind of the rapidly changing backdrop. I guess given sort of stabilizing interest rate dynamic, are you starting to see any green shoots in terms of people sniffing around on adding back to the asset class or a wider credit spreads risk still kind of weighing on the appetite there. And I guess within fixed income broadly, any particular area that you're starting to kind of see some green shoots and kind of how is AllianceBernstein positioned to benefit from that potential improvement?

Thanks, Alex, for the question. And I'm kind of nervous to be pointing out green shoots, but the last -- I have to say the last couple of weeks we have in fact seen some more stability in interest rates. And frankly, there's been a bit of a rally in risk assets, and we have seen better flows in the strategies that we really saw outflows from. So I don't want to suggest to you that, that is a -- something that we're going to count on because I think there's still going to be volatility ahead for rates. But there seems to be a little more consensus around the Fed's direction and the rate of change in inflation. So that given dollar strength as well gives us perhaps an opportunity to recoup some traction here. But I guess, from our own perspective, we always tend to underperform in risk-off environment because we tend to have pretty significant credit positions in our portfolio. We try to avoid idiosyncratic name and sector bets. So when we really do see a strong divergence between like corporate and high yield, you'll see our high-yield portfolio is going to suffer. And in American income and global high yield, of course, we have emerging markets as well. So that has been a headwind in this regard. But yes, we are seeing better both performance and better flows. And just to add to that, we continue to see very strong flows in munis, which I find very surprising just given the rate of backup in interest rates but they've proven to be pretty attractive. And I think we have a value proposition that distributors and clients are taking interest in. But muni should follow suit as well, if, in fact, we are reaching some sort of plateau here on rates, although I'm not calling that.

Got it. All right. Fair enough. And then, Kate, question for you just around the overall pretax or operating margins in the business. I appreciate the updated guidance on the comp rate. And obviously, nice to see G&A pull back maybe a little bit in light of a tougher revenue backdrop. But as you think about where the margins could end up once we get through kind of the near-term volatility but also taking into account, obviously, higher inflation that everybody else has seen as well, if we anchor around kind of pre-COVID levels, I think you guys were kind of in the 27% to 28% operating margin. Should we think there's kind of scale and operating leverage on top of that? Or is that likely to be the place where the firm as a whole can sort of live for time being?

Thanks for the question. Look, I think your description of the environment we're in is accurate and that we are recognizing and as you've seen in the change to our comp ratio guidance that we recognize that there is certainly wage inflation, particularly in the lower compensation bands that we are well aware of and want to manage through as well as we are continuing to invest. Our headcount is up largely due to strategic investments that we're continuing to make and that we want to continue to make through the cycle so that we're well positioned strategically in a recovery to be able to optimize those strategies. But that being said, we are also being vigilant around our expenses, and that we are -- as I mentioned, we're targeting D&A growth to be at the lower end of our prior guidance of that mid- to high single digit. We are looking at areas like travel -- T&Es to see where we can be focused in terms of bringing in some of those expenses here in the third quarter. We expect that to be down slightly versus our second quarter spend. Second quarter, I think, was the real return of a lot of client-related travel as we recovered from the pandemic, but we do anticipate that to come down in the third and fourth quarter. And ultimately, I think you can expect our margins to be in the high 20s as we round out the year, subject, of course, to market conditions and our ability to respond to them.

Our next question comes from Daniel Fannon with Jefferies.

Another question on flows on equities. Clearly, a very long and consistent trend of inflows, but as we kind of think about the industry still facing a lot of headwinds for active equities and you guys kind of bucking that trend. If you think about performance and maybe the channels for what you've had success, are there any changes or trying to think about the outlook for that asset class as you think about your complex of products?

Yes, let me take that. Look, it's been a pretty tough market, as you rightly characterized it. And we've seen lower gross sales, I think, as a consequence of that. But I would say we continue to have a suite of services that resonate with our clients. And we have continued to see strength there. Now there are stories within that. You know that large cap growth, we continue to see interest in it and as growth has begun to rally relative to value that interest has been renewed, and we have interest in Japan for that product. That has -- that also has a dollar impact to it. So I think we benefited from that as well and that to reverse of course. But we continue to see interest there. We have seen a pickup of interest in some value strategies, particularly institutionally, which has been gratifying, and we also are seeing interest in some of our more discrete strategies in different parts of the market. So all in all, I think it's more selective. I think if conditions continue to prove -- argue it, I'm not sure we'll continue bucking the trend. But as given where we are right now, I'm comfortable that we'll continue to find an audience who is receptive to our services. But look, we're ultimately, I think there's a lot of uncertainty still in the marketplace. So I don't want to sit here and bang the table about it, but we continue to see pretty good flows.

Great. That's helpful. And then I did want to clarify one of your comments, Seth, around the Private Wealth channel. Obviously, you had tax-related outflows this quarter, but I think you mentioned kind of ongoing potential, I guess, headwinds to assets, but I know you have a lot of initiatives that are also are enhancing productivity. So maybe just to kind of recap and enhance upon some of your comments around the outlook for that channel.

Yes, we continue to see pretty strong new client interest, and that's pretty broad-based. As you know, we have a client base that is has a fairly large component of entrepreneurs who are really in the process or have been talking about transformational states where selling or bringing on other investors into their businesses. And so we are sensitive to capital markets and M&A activity. So our flow has been, I think, adversely impacted there as a consequence of that. But we continue to see growth there. We continue to see interest, particularly in alternatives in that client base and tax managed solutions. So it's been pretty good. I think second quarter is always challenging for tax reasons for 2022, obviously was particularly hard, just given the convergence of incredible results in 2021 in investment results and the fact that we had such a widespread drawdown in markets. So we continue to see interest, but it's going to be affected by the direction of overall conditions. So look, we continue to invest in bringing new FAs on board, we tend to develop ours organically. We don't buy teams. And so it's a longer build out, and so progress is slow but methodical.

Our next question comes from John Dunn with Evercore ISI.

A little bit ago, you mentioned Japan. Can you remind us what the more notable like flow trends going on in Asia or outside of American income and global high yield and maybe also kind of a thumbnail sketch of what's going on in Europe?

Sure. I mean you've highlighted 2 of the biggest ones, and we have seen a bit of more interest coming for global high yield and American income more recently, as I mentioned a little earlier. We also see interest in Asia for a number of our multi-asset strategies. Although those tend to be sponsored by distributors and some new programs come and go, but there has been interest there. And when you look over to Europe, we've seen institutional interest in a number of strategies, particularly in alts. Less so on the more traditional side. I think more traditional side has seen the similar risk aversion that we've seen here in the U.S. So those are sort of the headlines I gave you from a regional perspective.

Got you. And then just given where we've been over the past few quarters, any changes to the discussions for investor appetite for ESG, both on the retail and -- side and then maybe to just regionally.

Sure. Look, a number of ESG funds, and we're not unique, has been certainly less interest for sure, just given the outperformance of commodities in the context of the markets today. That being said, we continue to have strong consultant support institutionally for those strategies. We see support for ESG in our private wealth business, where that continues to resonate. And frankly, look, I think that its very healthy for investors interested in ESG to recognize they have to separate growth and momentum factors from companies that are really practicing ESG values because there was a very high correlation, as you know, historically, between those that screened well and those factors that we're outperforming. So I think it's a welcome slowdown in my view because I think clients are becoming more discerning particularly with regard to strategies where you may still be investing, for example, in carbon emitting industries, but investing in companies with green patents or who are on a course to significantly reduce their carbon footprint over time. I think there's a lot of resonance there, and we're seeing interest with clients. So I think it's temporary and the trend will continue, and it's certainly continuing in Europe. In U.S., it's in a much earlier stage. I just also would like to just go back and give a little more color that we are seeing low vol equities in Asia ex-Japan also having some resonance and we see large cap growth continuing to grow in Japan. So I think I should have just added those when you -- for your prior question.

I'm showing no further questions at this time. Mr. Griffin, I turn the call back over to you.

Thank you, Sarah, and thank you, everyone, for participating in our conference call today. Feel free to reach out to Investor Relations with any further questions, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.