"Results from this quarter reflect relentless execution of our long-term strategy." said
(US $ Thousands except per Unit amounts) |
3Q 2018 |
3Q 2017 |
3Q 2018 vs |
2Q 2018 |
3Q 2018 vs |
||||||||||||
U.S. GAAP Financial Measures |
|||||||||||||||||
Net revenues |
$ |
850,176 |
$ |
812,150 |
4.7 |
% |
$ |
844,738 |
0.6 |
% |
|||||||
Operating income |
$ |
213,819 |
$ |
162,027 |
32.0 |
% |
$ |
189,464 |
12.9 |
% |
|||||||
Operating margin |
25.1 |
% |
17.9 |
% |
720 bps |
22.4 |
% |
270 bps |
|||||||||
AB Holding Diluted EPU |
$ |
0.68 |
$ |
0.46 |
47.8 |
% |
$ |
0.59 |
15.3 |
% |
|||||||
Adjusted Financial Measures (1) |
|||||||||||||||||
Net revenues (2) |
$ |
727,143 |
$ |
662,742 |
9.7 |
% |
$ |
719,692 |
1.0 |
% |
|||||||
Operating income |
$ |
215,758 |
$ |
165,393 |
30.5 |
% |
$ |
196,744 |
9.7 |
% |
|||||||
Operating margin (2) |
29.7 |
% |
25.0 |
% |
470 bps |
27.3 |
% |
240 bps |
|||||||||
AB Holding Diluted EPU |
$ |
0.69 |
$ |
0.51 |
35.3 |
% |
$ |
0.62 |
11.3 |
% |
|||||||
AB Holding cash distribution per Unit |
$ |
0.69 |
$ |
0.51 |
35.3 |
% |
$ |
0.62 |
11.3 |
% |
|||||||
(US $ Billions) |
|||||||||||||||||
Assets Under Management |
|||||||||||||||||
Ending AUM |
$ |
550.4 |
$ |
534.9 |
2.9 |
% |
$ |
539.8 |
2.0 |
% |
|||||||
Average AUM |
$ |
546.9 |
$ |
526.6 |
3.9 |
% |
$ |
542.2 |
0.9 |
% |
|||||||
(1) The adjusted financial measures are all non-GAAP financial measures. See page 11 for reconciliations of GAAP Financial Results to Adjusted Financial Results and pages 12-13 for notes describing the adjustments. |
(2) Prior period adjusted net revenues and operating margin have been revised due to a GAAP reclassification of certain promotion and servicing expenses that impacted adjusted revenues previously presented. |
Bernstein continued: "Through the differentiation of our offering and our ability to scale and commercialize it globally, we're growing in the most promising areas of our business. In Institutional, year-to-date active equity gross sales of
The firm's cash distribution per unit of
Market Performance
US and global equity markets were higher in the third quarter, while US and global fixed income markets were mixed. The
Assets Under Management ($ Billions)
Total assets under management as of
Institutional |
Retail |
Private |
Total |
||||||||
Assets Under Management 9/30/18 |
$257.0 |
$196.3 |
$97.1 |
$550.4 |
|||||||
Net Flows for Three Months Ended 9/30/18: |
|||||||||||
Active |
$0.4 |
$2.0 |
$0.1 |
$2.5 |
|||||||
Passive |
(0.6) |
(0.8) |
0.2 |
(1.2) |
|||||||
Total |
$(0.2) |
$1.2 |
$0.3 |
$1.3 |
|||||||
Total net inflows were
Institutional channel third quarter net outflows of
Retail channel third quarter net inflows of
Private Wealth channel third quarter net inflows of
Third Quarter Financial Results
We are presenting both earnings information derived in accordance with accounting principles generally accepted in
US GAAP Earnings
Revenues
Third quarter net revenues of
Sequentially, net revenues increased 1% due to higher base fees and performance-based fees, partially offset by lower
Expenses
Third quarter operating expenses of
Sequentially, operating expenses decreased 3% due to lower promotion and servicing and G&A expenses, partially offset by higher employee compensation and benefits expense. Promotion and servicing expense decreased due to lower marketing and travel and entertainment expenses, trade execution costs and amortization of deferred sales commissions. Within G&A, the decline was driven by the
Operating Income and Net Income Per Unit
Third quarter operating income of
Third quarter diluted net income per Unit of
Non-GAAP Earnings
This section discusses our third quarter 2018 non-GAAP financial results, compared to the third quarter of 2017 and the second quarter of 2018. The phrases "adjusted net revenues", "adjusted operating expenses", "adjusted operating income", "adjusted operating margin" and "adjusted diluted net income per Unit" are used in the following earnings discussion to identify non-GAAP information.
Revenues
Third quarter adjusted net revenues of
Sequentially, adjusted revenues increased 1% due to higher investment advisory base fees and performance-based fees and lower net distribution expense, partially offset by lower
Expenses
Third quarter adjusted operating expenses of
Sequentially, adjusted operating expenses decreased 2% due to lower promotion and servicing, employee compensation and benefits and G&A expenses. The decrease in promotion and servicing expense was driven by lower marketing and travel and entertainment expenses, as well as lower trade execution costs. Within G&A, lower occupancy was partially offset by higher professional fees. Within employee compensation and benefits expense, higher severance, salaries and other employment costs were offset by lower incentive compensation.
Operating Income, Margin and Net Income Per Unit
Third quarter adjusted operating income of
Sequentially, adjusted operating income increased 10% from
Third quarter adjusted diluted net income per Unit of
Headcount
As of
Unit Repurchases
During the three and nine months ended September 30, 2018, AB purchased 1.6 million and 2.9 million AB Holding Units for
Third Quarter 2018 Earnings Conference Call Information
Management will review Third Quarter 2018 financial and operating results during a conference call beginning at
Parties may access the conference call by either webcast or telephone:
- To listen by webcast, please visit AB's Investor Relations website at http://alliancebernstein.com/corporate/investor-relations at least 15 minutes prior to the call to download and install any necessary audio software.
- To listen by telephone, please dial (866) 556-2265 in the U.S. or (973) 935-8521 outside the
U.S. 10 minutes before the scheduled start time. The conference ID# is 8977979.
The presentation management will review during the conference call will be available on AB's Investor Relations website shortly after the release of Third Quarter 2018 financial and operating results on October 24, 2018.
AB will be providing live updates via Twitter during the conference call. To access the tweets, follow AB on Twitter: @AB_insights.
A replay of the webcast will be made available beginning approximately one hour after the conclusion of the conference call on
Cautions Regarding Forward-Looking Statements
Certain statements provided by management in this news release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The most significant of these factors include, but are not limited to, the following: the performance of financial markets, the investment performance of sponsored investment products and separately-managed accounts, general economic conditions, industry trends, future acquisitions, competitive conditions, and current and proposed government regulations, including changes in tax regulations and rates and the manner in which the earnings of publicly-traded partnerships are taxed. AB cautions readers to carefully consider such factors. Further, such forward-looking statements speak only as of the date on which such statements are made; AB undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. For further information regarding these forward-looking statements and the factors that could cause actual results to differ, see "Risk Factors" and "Cautions Regarding Forward-Looking Statements" in AB's Form 10-K for the year ended
The forward-looking statements referred to in the preceding paragraph include statements regarding:
- The pipeline of new institutional mandates not yet funded: Before they are funded, institutional mandates do not represent legally binding commitments to fund and, accordingly, the possibility exists that not all mandates will be funded in the amounts and at the times currently anticipated.
- The possibility that AB will engage in open market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program: The number of
AB Holding Units AB may decide to buy in future periods, if any, to help fund incentive compensation awards is dependent upon various factors, some of which are beyond our control, including the fluctuation in the price of a Holding Unit and the availability of cash to make these purchases.
Qualified Tax Notice
This announcement is intended to be a qualified notice under Treasury Regulation §1.1446-4(b). Please note that 100% of
About
As of
Additional information about AB may be found on our website, www.alliancebernstein.com.
AB (The Operating Partnership) |
|||||||||||||||||
US GAAP Consolidated Statement of Income (Unaudited) |
|||||||||||||||||
(US $ Thousands) |
3Q 2018 |
3Q 2017 |
3Q 2018 vs. |
2Q 2018 |
3Q 2018 vs. |
||||||||||||
GAAP revenues: |
|||||||||||||||||
Base fees |
$ |
568,918 |
$ |
538,552 |
5.6 |
% |
$ |
562,810 |
1.1 |
% |
|||||||
Performance fees |
41,145 |
4,555 |
803.3 |
% |
35,298 |
16.6 |
% |
||||||||||
Bernstein research services |
103,581 |
108,385 |
(4.4) |
% |
106,211 |
(2.5) |
% |
||||||||||
Distribution revenues |
104,488 |
106,042 |
(1.5) |
% |
105,118 |
(0.6) |
% |
||||||||||
Dividends and interest |
21,942 |
17,619 |
24.5 |
% |
21,194 |
3.5 |
% |
||||||||||
Investments gains (losses) |
565 |
18,808 |
(97.0) |
% |
213 |
165.3 |
% |
||||||||||
Other revenues |
24,012 |
24,902 |
(3.6) |
% |
26,026 |
(7.7) |
% |
||||||||||
Total revenues |
864,651 |
818,863 |
5.6 |
% |
856,870 |
0.9 |
% |
||||||||||
Less: interest expense |
14,475 |
6,713 |
115.6 |
% |
12,132 |
19.3 |
% |
||||||||||
Total net revenues |
850,176 |
812,150 |
4.7 |
% |
844,738 |
0.6 |
% |
||||||||||
GAAP operating expenses: |
|||||||||||||||||
Employee compensation and benefits |
357,442 |
329,777 |
8.4 |
% |
358,248 |
(0.2) |
% |
||||||||||
Promotion and servicing |
|||||||||||||||||
Distribution-related payments |
106,372 |
106,106 |
0.3 |
% |
106,301 |
0.1 |
% |
||||||||||
Amortization of deferred sales commissions |
4,651 |
7,629 |
(39.0) |
% |
6,113 |
(23.9) |
% |
||||||||||
Trade execution, marketing, T&E and other |
50,793 |
50,266 |
1.0 |
% |
59,259 |
(14.3) |
% |
||||||||||
General and administrative |
|||||||||||||||||
General & administrative |
107,526 |
128,712 |
(16.5) |
% |
108,836 |
(1.2) |
% |
||||||||||
Real estate (credits) charges |
(155) |
18,655 |
(100.8) |
% |
6,909 |
(102.2) |
% |
||||||||||
Contingent payment arrangements |
52 |
(140) |
(137.1) |
% |
52 |
— |
% |
||||||||||
Interest on borrowings |
2,711 |
2,105 |
28.8 |
% |
2,629 |
3.1 |
% |
||||||||||
Amortization of intangible assets |
6,965 |
7,013 |
(0.7) |
% |
6,927 |
0.5 |
% |
||||||||||
Total operating expenses |
636,357 |
650,123 |
(2.1) |
% |
655,274 |
(2.9) |
% |
||||||||||
Operating income |
213,819 |
162,027 |
32.0 |
% |
189,464 |
12.9 |
% |
||||||||||
Income taxes |
9,419 |
4,547 |
107.1 |
% |
7,538 |
25.0 |
% |
||||||||||
Net income |
204,400 |
157,480 |
29.8 |
% |
181,926 |
12.4 |
% |
||||||||||
Net income (loss) of consolidated entities attributable to non-controlling interests |
726 |
16,526 |
(95.6) |
% |
261 |
178.2 |
% |
||||||||||
Net income attributable to AB Unitholders |
$ |
203,674 |
$ |
140,954 |
44.5 |
% |
$ |
181,665 |
12.1 |
% |
|||||||
AB Holding L.P. (The Publicly-Traded Partnership) |
|||||||||||||||||
SUMMARY STATEMENTS OF INCOME |
|||||||||||||||||
(US $ Thousands) |
3Q 2018 |
3Q 2017 |
3Q 2018 vs. |
2Q 2018 |
3Q 2018 vs. |
||||||||||||
Equity in Net Income Attributable to AB Unitholders |
$ |
72,802 |
$ |
49,055 |
48.4 |
% |
$ |
65,388 |
11.3 |
% |
|||||||
Income Taxes |
6,902 |
5,877 |
17.4 |
% |
6,931 |
(0.4) |
% |
||||||||||
Net Income |
65,900 |
43,178 |
52.6 |
% |
58,457 |
12.7 |
% |
||||||||||
Additional Equity in Earnings of Operating Partnership (1) |
117 |
136 |
(14.0) |
% |
115 |
1.7 |
% |
||||||||||
Net Income - Diluted |
$ |
66,017 |
$ |
43,314 |
52.4 |
% |
$ |
58,572 |
12.7 |
% |
|||||||
Diluted Net Income per Unit |
$ |
0.68 |
$ |
0.46 |
47.8 |
% |
$ |
0.59 |
15.3 |
% |
|||||||
Distribution per Unit |
$ |
0.69 |
$ |
0.51 |
35.3 |
% |
$ |
0.62 |
11.3 |
% |
|||||||
(1) To reflect higher ownership in the Operating Partnership resulting from application of the treasury stock method to outstanding options. |
|||||||||||||||||
Units Outstanding |
3Q 2018 |
3Q 2017 |
3Q 2018 vs. |
2Q 2018 |
3Q 2018 vs. |
||||||||||||
AB L.P. |
|||||||||||||||||
Period-end |
268,565,762 |
265,824,057 |
1.0 |
% |
270,222,414 |
(0.6) |
% |
||||||||||
Weighted average - basic |
269,602,398 |
265,584,566 |
1.5 |
% |
270,563,705 |
(0.4) |
% |
||||||||||
Weighted average - diluted |
269,847,693 |
265,984,518 |
1.5 |
% |
270,835,739 |
(0.4) |
% |
||||||||||
AB Holding L.P. |
|||||||||||||||||
Period-end |
96,372,964 |
93,626,313 |
2.9 |
% |
98,028,820 |
(1.7) |
% |
||||||||||
Weighted average - basic |
97,408,864 |
93,374,340 |
4.3 |
% |
98,367,626 |
(1.0) |
% |
||||||||||
Weighted average - diluted |
97,654,159 |
93,774,292 |
4.1 |
% |
98,639,660 |
(1.0) |
% |
AllianceBernstein L.P. |
|||||
ASSETS UNDER MANAGEMENT | September 30, 2018 |
|||||
($ billions) |
|||||
Ending and Average |
Three Months Ended |
||||
9/30/18 |
9/30/17 |
||||
Ending Assets Under Management |
$550.4 |
$534.9 |
|||
Average Assets Under Management |
$546.9 |
$526.6 |
|||
Three-Month Changes By Distribution Channel |
||||||||||||||||
Institutions |
Retail |
Private Wealth |
Total |
|||||||||||||
Beginning of Period |
$ |
254.4 |
$ |
190.3 |
$ |
95.1 |
$ |
539.8 |
||||||||
Sales/New accounts |
3.7 |
12.6 |
3.0 |
19.3 |
||||||||||||
Redemption/Terminations |
(1.5) |
(9.5) |
(2.3) |
(13.3) |
||||||||||||
Net Cash Flows |
(2.4) |
(1.9) |
(0.4) |
(4.7) |
||||||||||||
Net Flows |
(0.2) |
1.2 |
0.3 |
1.3 |
||||||||||||
Transfers |
0.3 |
— |
(0.3) |
— |
||||||||||||
Investment Performance |
2.5 |
4.8 |
2.0 |
9.3 |
||||||||||||
End of Period |
$ |
257.0 |
$ |
196.3 |
$ |
97.1 |
$ |
550.4 |
Three-Month Changes By Investment Service |
||||||||||||||||||||||||||||
Equity |
Equity |
Fixed |
Fixed |
Fixed |
Other (2) |
Total |
||||||||||||||||||||||
Beginning of Period |
$ |
147.2 |
$ |
53.8 |
$ |
225.9 |
$ |
41.6 |
$ |
10.1 |
$ |
61.2 |
$ |
539.8 |
||||||||||||||
Sales/New accounts |
8.7 |
(0.1) |
7.3 |
2.0 |
— |
1.4 |
19.3 |
|||||||||||||||||||||
Redemption/Terminations |
(4.7) |
— |
(6.3) |
(1.4) |
(0.1) |
(0.8) |
(13.3) |
|||||||||||||||||||||
Net Cash Flows |
(1.1) |
(1.1) |
(1.5) |
(0.2) |
— |
(0.8) |
(4.7) |
|||||||||||||||||||||
Net Flows |
2.9 |
(1.2) |
(0.5) |
0.4 |
(0.1) |
(0.2) |
1.3 |
|||||||||||||||||||||
Investment Performance |
5.8 |
3.4 |
(0.6) |
— |
(0.1) |
0.8 |
9.3 |
|||||||||||||||||||||
End of Period |
$ |
155.9 |
$ |
56.0 |
$ |
224.8 |
$ |
42.0 |
$ |
9.9 |
$ |
61.8 |
$ |
550.4 |
Three-Month Net Flows By Investment Service (Active versus Passive) |
|||||||||||||
Actively |
Passively |
Total |
|||||||||||
Equity |
$ |
2.9 |
$ |
(1.2) |
$ |
1.7 |
|||||||
Fixed Income |
(0.1) |
(0.1) |
$ |
(0.2) |
|||||||||
Other(2) |
(0.3) |
0.1 |
$ |
(0.2) |
|||||||||
Total |
$ |
2.5 |
$ |
(1.2) |
$ |
1.3 |
|||||||
(1) Includes index and enhanced index services. |
(2) Includes certain multi-asset solutions and services and certain alternative investments. |
By Client Domicile |
||||||||||||||||
Institutions |
Retail |
Private Wealth |
Total |
|||||||||||||
U.S. Clients |
$ |
155.1 |
$ |
111.9 |
$ |
95.1 |
$ |
362.1 |
||||||||
Non-U.S. Clients |
101.9 |
84.4 |
2.0 |
188.3 |
||||||||||||
Total |
$ |
257.0 |
$ |
196.3 |
$ |
97.1 |
$ |
550.4 |
AB L.P. |
|||||||||||||||||||||||||||
RECONCILIATION OF GAAP FINANCIAL RESULTS TO ADJUSTED FINANCIAL RESULTS |
|||||||||||||||||||||||||||
Three Months Ended |
|||||||||||||||||||||||||||
US $ Thousands, unaudited |
9/30/2018 |
6/30/2018 |
3/31/2018 |
12/31/2017 |
9/30/2017 |
6/30/2017 |
|||||||||||||||||||||
Net Revenues, GAAP basis |
$ |
850,176 |
$ |
844,738 |
$ |
867,787 |
$ |
919,141 |
$ |
812,150 |
$ |
802,313 |
|||||||||||||||
Exclude: |
|||||||||||||||||||||||||||
Impact of adoption of revenue recognition standard ASC 606 |
— |
— |
77,844 |
— |
— |
— |
|||||||||||||||||||||
Distribution-related payments |
(106,372) |
(106,301) |
(110,154) |
(110,517) |
(106,106) |
(100,632) |
|||||||||||||||||||||
Amortization of deferred sales commissions |
(4,651) |
(6,113) |
(6,598) |
(6,871) |
(7,629) |
(8,307) |
|||||||||||||||||||||
Pass-through fees & expenses |
(10,084) |
(10,487) |
(10,609) |
(10,664) |
(9,759) |
(9,701) |
|||||||||||||||||||||
Impact of consolidated company-sponsored investment funds |
(1,543) |
(1,494) |
(36,037) |
(16,032) |
(23,368) |
(25,701) |
|||||||||||||||||||||
Long-term incentive compensation-related investment (gains) losses |
(1,253) |
(542) |
209 |
(977) |
(2,055) |
(1,926) |
|||||||||||||||||||||
Long-term incentive compensation-related dividends and interest |
(130) |
(156) |
(93) |
(1,515) |
(130) |
(150) |
|||||||||||||||||||||
(Loss) gain on sale of software technology investment |
1,000 |
— |
— |
— |
(361) |
(4,231) |
|||||||||||||||||||||
Other |
— |
47 |
— |
— |
— |
— |
|||||||||||||||||||||
Adjusted Net Revenues |
$ |
727,143 |
$ |
719,692 |
$ |
782,349 |
$ |
772,565 |
$ |
662,742 |
$ |
651,665 |
|||||||||||||||
Operating Income, GAAP basis |
$ |
213,819 |
$ |
189,464 |
$ |
222,671 |
$ |
283,035 |
$ |
162,027 |
$ |
162,537 |
|||||||||||||||
Exclude: |
|||||||||||||||||||||||||||
Impact of adoption of revenue recognition standard ASC 606 |
— |
— |
35,156 |
— |
— |
— |
|||||||||||||||||||||
Real estate (credits) charges |
(155) |
6,909 |
(264) |
(2,732) |
18,655 |
20,747 |
|||||||||||||||||||||
Long-term incentive compensation-related items |
1,820 |
585 |
417 |
(103) |
329 |
417 |
|||||||||||||||||||||
(Loss) gain on sale of software technology investment |
1,000 |
— |
— |
— |
(361) |
(4,231) |
|||||||||||||||||||||
Acquisition-related expenses |
— |
— |
— |
— |
1,462 |
25 |
|||||||||||||||||||||
Contingent payment arrangements |
— |
— |
— |
— |
(193) |
— |
|||||||||||||||||||||
Other |
— |
47 |
— |
— |
— |
— |
|||||||||||||||||||||
Sub-total of non-GAAP adjustments |
2,665 |
7,541 |
35,309 |
(2,835) |
19,892 |
16,958 |
|||||||||||||||||||||
Less: Net (loss) income of consolidated entities attributable to non-controlling interests |
726 |
261 |
22,650 |
8,384 |
16,526 |
17,169 |
|||||||||||||||||||||
Adjusted Operating Income |
$ |
215,758 |
$ |
196,744 |
$ |
235,330 |
$ |
271,816 |
$ |
165,393 |
$ |
162,326 |
|||||||||||||||
Operating Margin, GAAP basis excl. non-controlling interests |
25.1 |
% |
22.4 |
% |
23.0 |
% |
29.9 |
% |
17.9 |
% |
18.1 |
% |
|||||||||||||||
Adjusted Operating Margin |
29.7 |
% |
27.3 |
% |
30.1 |
% |
35.2 |
% |
25.0 |
% |
24.9 |
% |
|||||||||||||||
AB Holding L.P. |
|||||||||||||||||||||||||||
RECONCILIATION OF GAAP EPU TO ADJUSTED EPU |
|||||||||||||||||||||||||||
Three Months Ended |
|||||||||||||||||||||||||||
$ Thousands except per Unit amounts, unaudited |
9/30/2018 |
6/30/2018 |
3/31/2018 |
12/31/2017 |
9/30/2017 |
6/30/2017 |
|||||||||||||||||||||
Net Income - Diluted, GAAP basis |
$ |
66,017 |
$ |
58,572 |
$ |
58,305 |
$ |
78,802 |
$ |
43,314 |
$ |
41,878 |
|||||||||||||||
Impact on net income of AB non-GAAP adjustments |
919 |
2,609 |
12,271 |
(599) |
4,960 |
5,637 |
|||||||||||||||||||||
Adjusted Net Income - Diluted |
$ |
66,936 |
$ |
61,181 |
$ |
70,576 |
$ |
78,203 |
$ |
48,274 |
$ |
47,515 |
|||||||||||||||
Diluted Net Income per Holding Unit, GAAP basis |
$ |
0.68 |
$ |
0.59 |
$ |
0.60 |
$ |
0.84 |
$ |
0.46 |
$ |
0.43 |
|||||||||||||||
Impact of AB non-GAAP adjustments |
0.01 |
0.03 |
0.13 |
— |
0.05 |
0.06 |
|||||||||||||||||||||
Adjusted Diluted Net Income per Holding Unit |
$ |
0.69 |
$ |
0.62 |
$ |
0.73 |
$ |
0.84 |
$ |
0.51 |
$ |
0.49 |
AB
Notes to Consolidated Statements of Income and Supplemental Information
(Unaudited)
Adjusted Net Revenues
Adjusted net revenues offset distribution-related payments to third parties as well as amortization of deferred sales commissions against distribution revenues. We believe offsetting net revenues by distribution-related payments is useful for our investors and other users of our financial statements because such presentation appropriately reflects the nature of these costs as pass-through payments to third parties who perform functions on behalf of our sponsored mutual funds and/or shareholders of these funds. We offset amortization of deferred sales commissions against net revenues because such costs, over time, essentially offset our distribution revenues. We also exclude additional pass-through expenses we incur (primarily through our transfer agency) that are reimbursed and recorded as fees in revenues. These fees do not affect operating income, but they do affect our operating margin. As such, we exclude these fees from adjusted net revenues.
We adjust for the revenue impact of consolidating company-sponsored investment funds by eliminating the consolidated company-sponsored investment funds' revenues and including AB's fees from such consolidated company-sponsored investment funds and AB's investment gains and losses on its investments in such consolidated company-sponsored investment funds that were eliminated in consolidation.
Adjusted net revenues exclude investment gains and losses and dividends and interest on employee long-term incentive compensation-related investments.
Lastly, in 2017 we excluded a cumulative realized gain of
Adjusted Operating Income
Adjusted operating income represents operating income on a US GAAP basis excluding (1) real estate charges (credits), (2) acquisition-related expenses, (3) the impact on net revenues and compensation expense of the investment gains and losses (as well as the dividends and interest) associated with employee long-term incentive compensation-related investments, and (4) the impact of consolidated company-sponsored investment funds, and includes the revenues and expenses associated with the implementation of ASC 606 discussed above and (5) the loss (gain) on software technology investment.
Real estate charges (credits) have been excluded because they are not considered part of our core operating results when comparing financial results from period to period and to industry peers.
Acquisition-related expenses have been excluded because they are not considered part of our core operating results when comparing financial results from period to period and to industry peers.
Prior to 2009, a significant portion of employee compensation was in the form of long-term incentive compensation awards that were notionally invested in AB investment services and generally vested over a period of four years. AB economically hedged the exposure to market movements by purchasing and holding these investments on its balance sheet. All such investments had vested as of year-end 2012 and the investments have been delivered to the participants, except for those investments with respect to which the participant elected a long-term deferral. Fluctuation in the value of these investments is recorded within investment gains and losses on the income statement and also impacts compensation expense. Management believes it is useful to reflect the offset achieved from economically hedging the market exposure of these investments in the calculation of adjusted operating income and adjusted operating margin. The non-GAAP measures exclude gains and losses and dividends and interest on employee long-term incentive compensation-related investments included in revenues and compensation expense.
We adjusted for the operating income impact of consolidating certain company-sponsored investment funds by eliminating the consolidated company-sponsored funds' revenues and expenses and including AB's revenues and expenses that were eliminated in consolidation. We also excluded the limited partner interests we do not own.
Gains and losses on the software technology investment have been excluded due to its non-recurring nature and because it is not part of our core operating results.
Adjusted Operating Margin
Adjusted operating margin allows us to monitor our financial performance and efficiency from period to period without the volatility noted above in our discussion of adjusted operating income and to compare our performance to industry peers on a basis that better reflects our performance in our core business. Adjusted operating margin is derived by dividing adjusted operating income by adjusted net revenues.
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SOURCE
Andrea Prochniak, Investors and Media, 212.756.4542, andrea.prochniak@AllianceBernstein.com