Thank you for standing by, and welcome to the AllianceBernstein Fourth Quarter 2022 Earnings Review. At this time, all participants are in a listen-only mode. After the remarks, there will be question-and-answer session. And I will give instructions on how to ask questions at that time. As a reminder, this conference is being recorded, and will be available for replay on our website shortly after the conclusion of this call. I would now like to turn the conference over to the host for this call, Head of Investor Relations for AB, Mr. Mark Griffin. Please go ahead.

Thank you, operator. Good morning, everyone and welcome to our fourth 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 Onur Erzan, Head of Global Client Group and Private Wealth. Bill Siemers, Controller and Chief Accounting Officer, will join us for questions after our prepared remarks. Some of the information we will 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 beginning on slide 2 of our presentation. You can also find our Safe Harbor language in the MD&A of our 10-K, which we will file on Friday, February 10. 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 will turn it over to Seth.

Good morning and thank you for joining us today. Despite a fourth quarter market rally 2022 was a challenging year for diversified investors, with equity and debt markets both down double-digits and fixed income markets posting their worst annual returns on record. Our financial results contracted along with markets with full year average AUM down 6%, revenues down 8%, and adjusted EPU down 24%. Nevertheless, I'm very proud of what our teams are able to accomplish. Our globally diversified platform grew our active assets organically for the fourth consecutive year, continuing to buck industry trends. Our effective fee rate improved for the second straight year due to a mix of organic growth and due to the CarVal acquisition. And we executed on multiple strategic transactions growing in private alternatives supported by equitable holdings and embarking on a promising growth opportunity for Bernstein Research. Let's get into specifics, starting with the firm-wide overview on slide 4. Fourth quarter gross sales of $30.9 billion, declined by $9 billion or 22% from a year ago. We saw slight firm-wide active net outflows in the quarter. For the full year, gross sales of $115.6 billion, were down 23% from the record prior year. And we posted full year active net flows of $900 million, our fourth consecutive year of active organic growth. Year-end assets under management of $646 billion declined 17% year-over-year. Fourth quarter average AUM of $636 billion, was down 16% versus the prior year, while full year average AUM of $686 billion declined by 6%. Slide 5 shows our quarterly flow trends by channel. Firm-wide fourth quarter net outflows were $1.9 billion, with net inflows in institutional offset by net outflows in retail and private wealth. Retail gross sales were $14.2 billion, with net outflows of $3.4 billion. Institutional sales were $12.6…

Thanks, Seth. Let's start with the GAAP income statement on Slide 14. Fourth quarter GAAP net revenues of $1 billion decreased 22% from the prior year period. Operating income of $204 million decreased 48% and operating margin of 20% decreased by 1,080 basis points. GAAP EPU of $0.59 in the quarter decreased by 54% year-over-year. For the full year, GAAP net revenues of $4.1 billion decreased 9%, operating income of $815 million declined 33% and operating margin of 21.5% decreased by 580 basis points. Full year GAAP EPU of $2.69 decreased by 31% 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 in our 10-K, the latter of which we expect to release on Friday, February 10. Our adjusted financial highlights are shown on Slide 15, which I'll touch on, as we walk through the P&L shown on Slide 16. On Slide 16 beginning with revenues. Fourth quarter net revenues of $802 million decreased 22% versus the prior year period. For the full year, net revenues of $3.3 billion were down 8%. Fourth quarter base fees decreased 12% versus the prior year period and for the full year period were down 3%. In both cases lower average AUM, driven by market declines were partially offset by higher fee rates. The fourth quarter fee rate of 41.3 basis points was up 5% year-over-year, driven by both higher fee rate AB carve-out base fees and by asset mix.…

[Operator Instructions] Our first question comes from the line of Alex Blostein with Goldman Sachs. Please go ahead.

Great. Thanks. Good morning everybody. Seth as usual maybe we'll get started with a question for you on fixed income. Very encouraging to get your comments on stronger flows in retail in the first quarter so far. Again it sounds like it's partially coming from the retail channel. Can you unpack that a little bit some of the regions where you're seeing the strength? And as you look out for the rest of the year, curious just to get your thoughts on sort of the differences between institutional demand for active fixed income versus retail as despite the fact that the performance numbers that you guys added are challenging it doesn't really seem to matter for retail flows given they are back in a pretty healthy way, but I wonder to what extent that might impact the institutional business?

Alex, thank you very much. Let me give you some -- a bit of color on that point. We have been positive in taxable fixed income, in January principally from Asia, but we're seeing interest in Muni SMA here in the U.S. And so that seems to be on a better track. That of course presumes that the Fed is closer to the end, than to the beginning and -- but what I do think is clear is that people think it's a more interesting entry point at current yields than obviously they've done in the last several years which is a change for us. The flows aren't as robust as they had been in the prior cycle yet, but who knows how they will evolve. With regard to investment performance, our clients particularly in Asia understand we're more globally oriented than a number of the other competitors. That's not to say we didn't underperform we have, but they have to live with us. And understand the trials and tribulations, as we go through a cycle and are confident in our ability to recover. I would further say, to you that if you dig into a number of our institutional strategies, we do have quite competitive performance whether it's in emerging markets or U.S. high yield. And so we have seen some interest there. But let me hand it over to Onur, to give you some more color.

Hi Alex. Yes, Seth summarized it well. The two things I would add are, on the institutional side if you look at the pipeline in the fourth quarter almost half of the additions came in from fixed income. So we saw that strength. And then, in January, again one month doesn't make a trend, but we have seen a couple of good wins in the international markets. And we are seeing a nice pre-pipeline development with emerging market debt high-yield as well as on the insurance investment grades which are critical priority areas for us. And on the retail side, the only other color I would add beyond the cyclical stuff is as you know the expansion of our Muni platform with the custom solutions is a priority. And in the fourth quarter, we launched our custom Muni solution set. And that's got onboarded to several very large top 10 U.S. intermediaries. So we're going to get some benefit of that expansion. And I expect us to gain market share. Hard to predict overall market volumes, but on a market share basis I feel relatively confident.

Perfect. Thanks for that color. My second question is for, Kate. Great to hear sort of non-comp expenses in the low-single digit for G&A and promotional kind of in the upper-single digit range as well, so pretty well maintained there. I guess, as you think about the environment and I appreciate you guys are being cautious around kind of baking in robust market recovery despite obviously a good start of the year, but as we think about areas where some of these expenses could drift higher if markets remain more constructive where would it be? What would that look like? Or you see kind of a pretty good line of sight on sticking within these, kind of guidance ranges even if markets are a little bit stronger? And maybe just a clarification on G&A, you're talking -- I'm assuming, you're talking for the adjusted G&A number low-single digit growth, not the GAAP number?

Yes, thanks for the question. You're correct that I was doing it off the adjusted GAAP number for G&A. Look, we -- in our forecast, we tend to be, I think, conservative in terms of looking at what the market trends would be. Where I would anticipate you could see some increase if we have stronger markets this year, is that you may see some increase on the T&E side where we would be looking to continue to support our robust sales efforts. That in and of itself is where we are going to see some higher expenses, but they are more than offset in other areas. Otherwise from a G&A perspective, I think, we feel pretty good that we used to be in sort of the up to low single digits area and we don't anticipate that that should be climbing higher even in a higher market environment.

Great. Thanks so much everyone.

Your next question comes from the line of Bill Katz with Credit Suisse. Please go ahead.

Okay. Thank you very much. Maybe just picking up on the expense discussion for a moment. So appreciate the moves reduced the headcount. Sort of a treat to hear you say, you still get it sort of an incremental $75 million to $80 million of annual run rate savings in 2025 as you sort of consolidate the headcount -- headquarters, excuse me. Is that mean you're bringing forward the timeline on that or is there still an incremental $75 million to $80 million beyond sort of the adjustments you're making pro forma into 2023?

No. For 2023, there is -- Nashville is not impacting our 2023 forecast. The $75 million to $80 million you're talking about is really the final realization of the completion of the Nashville move when we exit our New York real estate holdings. And where we -- so we won't have that double counting of real estate expense. The Nashville we were accretive this year by about $0.07. We expect that continued accretion going forward. We will provide those updates annually, as we did this year and that's -- so that part of the program continues unabated. Separately was the headcount reduction actions that we took place -- that took place earlier this month. I mean that was really a result of us examining the environment that we're entering into here in 2023 and making sure that we're positioned competitively not only to take out costs where we saw opportunities to do so, but also free up some opportunities to continue to invest in areas that we find strategically attractive. And so our hope is that as the year continues that we will be able to increase that strategic investment based on market results, but the headcount reduction is independent of what we're doing related to Nashville.

Okay. Thank you., And Seth may one for you. So you have a lot of good things going on in terms of flows. Maybe step back a little bit and truly give us a sense of as you look at your the private markets business and maybe alternatives at large what are the top two or three areas you sort of see the best opportunity in 2023?

Well, again, let me start Bill and then I'm going to hand it over to Onur. Look, while there are some headwinds in the private market, we're still very excited about what we're doing with CarVal. CarVal they have a number of new strategies and newer vintage strategies that are up and launching fundraise this year, which we're seeing pretty good receptivity toward. Additionally, we continue to see opportunities for newly raised funds in our US CRED business in a less competitive marketplace. And we are seeing better structure terms in our middle market lending business. But Onur, why don't you give some additional color?

Yes. No, thanks Seth. The things I would highlight are, one, we are very encouraged by the momentum with the Clean Energy Fund II at CarVal, which we're going to close this year. The second vintage will bring much more assets than the first vintage and that is our nice foray into the broader retail market as well. So that's one additional area I would highlight. As Seth mentioned on US real estate debt, we have been quite successful with the deployments in the second half of the year despite all the challenging market environment that's because we are sitting on pretty healthy level of dry powder. I mean given the market conditions, I think we have an advantaged dry powder position to be able to deploy at the attractive terms. So we like that space. And the demand for income driven credit strategies remained very strong in our private wealth channel. The realizations in terms of the income generation in 2022, has been very attractive for our clients despite all the challenges in the marketplace. So that should continue to have evergreen demand from our own proprietary private wealth channel. So those are a few things I would highlight.

Thank you. And just I apologize my line got dropped. Seth, when you were answering Alex's first question, did you specify the dollar amount of flows in January? I apologize.

No, we didn't. But we're releasing tonight.

Okay. Thank you.

Your next question comes from the line of Craig Siegenthaler with Bank of America. Please go ahead.

Thanks. Good morning, Seth. Hope you’re doing well.

Thanks, Craig.

So, I wanted to get another update for you on the potential rebalancing this year, and I wanted to see first, if you have any perspective if you think fixed income is going to be the big winner? And secondly, we saw passive really dominate the fixed income landscape last year. Do you think that continues if and when there is large rebalancing in the fixed income?

Look, I think that this is a particularly difficult year to forecast just given all the uncertainties embedded in it. So take it with a boulder of salt. I think that there is a lot of pent up demand for income. And so, I think you'll continue to see appetite. But inflation expectations really matter Craig you know that. And to the extent that we see shockingly strong jobs data again, that could throw that off and so, I'm hesitant to have enormous confidence in it. But I think that there is really strong demand for -- we see it in tax exempt. We see it in taxable and we really see it offshore. So I think there's a big demand for it. With regard to the question on passive, look, I think we have to assume that passive will continue to gain share in liquid markets. Fixed income isn't excluded from it, which is why we've been automating, which is why we've been lowering our cost of execution. But we have to, like everyone else, have a value proposition where we beat net of fees in order to earn our place in a sophisticated clients portfolio. We think we have that opportunity. We think our clients understand our investment profile, which is to be generally long carry in our credit funds. And so we do underperform in those markets. But ultimately, we're very comfortable with the way we structure our portfolios. We try to avoid idiosyncratic exposures in credit. And I think, overall and over long periods of time we performed very well. But I don't think the secular trend has changed. The pace of that may slow. But I don't think that trend changes.

And one other comment is obviously, some of it is the ETF trend. So there is a little bit of a vehicle overlay to the story. With the launch of our active ETFs, we are very encouraged by the early momentum we have. Obviously, we only have two fixed income ETFs. But we are encouraged that we were able to raise few $100 million in a very short amount of time and we believe we can participate in the ETF adoption in the fixed income space and we actually believe some of them will be active not only passive. So hence, we believe we are well covered given the structural trend.

Great. And then just as my follow-up. We do have these large fixed income reallocations and a lot of it does go to passive but there is an active sleeve. How do you think your bond business is positioned for that? I know the one year numbers aren't great. The five year numbers are better. But also your taxable bond business hasn't really seen good organic growth for a while. It's actually your active equity business that has seen good organic growth over the last few years. But how do you think AB is positioned for that?

Look I think that AB is building a much stronger domestic US retail presence, where we've always been underweight, understrength relative to a number of our key competitors. And so we've been always quite dependent on Asian flows. And we have seen very limited demand in fact selling over 30 odd month period. So I think we're better positioned than we were historically. We've had periods of underperformance before, where we – where that has not been a big issue for us outside the US and with respect to within the US, which may be more rating sensitive, while I suspect that would have a bigger impact in the US, I think our play is really in the tax exempt space, where we absolutely have high conviction that our distribution partners are moving aggressively into the SMA space and we have a differentiated product to capitalize upon that and I think the fact that we buck trends to do that helps. I think our US high yield capability is a competitive strength and there will be disruption in that marketplace. So I do think there are other elements of opportunity for us but it's a pretty mature market as you know. So I'd say given the stronger retail distribution footprint we're building and the success we've had early days, I'm optimistic but we have to prove that.

Thank you, Seth.

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

Thanks. Good morning. My question is on just broadly retail gross sales obviously, down versus a pre – record 2021. But if you look back it was also below 2022 and 2019 levels. So trying to think just in terms of kind of assets in motion kind of momentum in sales, how you're thinking about normalization if this – if last year seemed abnormally low or if the other periods were just more outsized then how to think about it going forward?

Thanks for the question. Onur again. You're absolutely right. 2021 was probably an outlier year. I think we should look at it more by region. From our perspective, we believe we will continue to experience growth in sales in US retail, given our investments and focus in that space, both on the sales side as well as on the expansion of products. We definitely are seeing a comeback as Seth mentioned on Asia taxable fixed income, particularly American income portfolio which has been a longstanding flagship product for us is coming back. Part of it is rates. Part of it is the opening of Asia and Hong Kong that definitely is an area -- region we are bullish about. Latin America, we are encouraged with some of the renewed appetite, when it comes to fixed income as well. It has been historically a big retail fixed income buyer for us, using the usage platform and we have been successful with some fixed maturity products lately. EMEA had a huge hit in 2022, obviously given the Russia Ukraine and proximity to the energy crisis and everything else. And we had a pretty material contraction there. So from a low base I see an upside. I think Japan is one reason we definitely will see some slowdown and that will be more driven by the movements in the Japanese Yen which will make the US denominated assets less attractive. So overall, I think probably I have more longs and shorts in terms of regions and we expect a healthy level of sales. And remember, we always focus on net flows and we're not going to hopefully have the same level of redemption that was also partially triggered by the tax loss harvesting which was quite unique for 2022.

Great. That's very helpful. And then just a quick question on Private Wealth. Advisor productivity was down year-over-year I assume that was more environmental in terms of the backdrop. But you've put in a lot of initiatives in place to kind of increase productivity over the last couple of years. Can you maybe talk about what did occur in last year and how you're thinking about that in the wealth opportunity kind of as we think about 2023 and beyond?

No. Thanks for the question. 2022 was only a small decline in productivity again from a very high peak 2021. If you look at the last kind of five years 2022 will stand out as a very strong productivity in terms of our average revenue production. The channel also delivered on an annual basis organic growth. That was the second consecutive year we achieved that. So we feel good about the momentum. Overall, in terms of the initiatives, we are trying to pivot more into ultra high net worth. And if you look at our organic growth rate with ultra high net worth versus other segments is 3x. So we are seeing a good trend line there in line with our strategy. And as you know we have been an early adopter of alternatives in our Private Wealth channel, where the penetration of alternatives is typically ahead of our competition given our history track record and the proprietary plus model and that continues with five or six products in the pipeline to be launched in our channel, both our private credits solutions that our proprietary as well as the next vintages of third party products. So all in all, I think it's healthy. The area obviously, we will work on is tuning back to financial advisor hiring, which we consciously slowed down given the economic outlook. Obviously, the new financial advisors are not as productive as the older ones. So once we accelerate that, and we have a February class coming in, you might see some change in the productivity just because the new advisors might come at lower production. But it's a high quality problem that we will discuss at the coming quarters.

But one month, we did have positive flows, net flows in Private Wealth in January.

Correct.

Your next question will come from the line of John Dunn with Evercore. Please go ahead.

Good morning. You guys talked about in terms of the $10 billion from equitable being well past the halfway mark, any early thoughts on maybe the next phase of that relationship? And could we see kind of the next round bigger order of magnitude and maybe an acceleration of timing?

Yeah. Let me start in that. Equitable continues to be critical to us in our strategic planning on how we attack the insurance industry generally and how we build our Private Alternatives capability in particular. And we are really focused on expanding our third-party, third-party insurance reach beyond Equitable important though they will continue to be critical, they will continue to be for us. And they are quite supportive of that endeavor. Our ability to expand further in private alts in Equitable general account is, directly related to the change in size of their GA over time. And so as it grows, if it grows we benefit from that. Conversely to the extent that, contracts there will be less capacity to expand. That being said, they continue to look at opportunities as do we, and so it will be more, I guess, opportunistic is probably a fair way to describe that in terms of growth. But there's continuing commitment to invest with us, where they need incremental yield on their general account portfolio. I don't know Onur, if you have anything to add to that.

No. I mean, I think the only other thing is still there is another several billion dollars the other 50% to be deployed. Obviously, that will bring incremental revenue and we need to let them digest that. And that will open the way for brainstorming new ideas that's already underway.

Makes sense. And then can you just remind us of kind of the capital impact of consolidating Bernstein?

I'm sorry, can you just clarify? You mean Bernstein Research to the – joint venture?

Yes.

Hi. It's Kate here. We're still in early stages of the work around what the ultimate integration would look like. And so we'll give further guidance on that, as we get closer to the closing of the transaction.

Got it. Thanks so much.

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

Okay, terrific. Thank you, Regina. Thanks everyone for participating in our conference call today. As always, feel free to reach back out to Investor Relations, with any additional questions and have a great day.