Equitable Holdings, Inc.

Ladies and gentlemen, thank you for standing by. My name is Bhavesh and I will be your conference operator today. At this time, I would like to welcome everyone to the Equitable Holdings second quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star followed by the one once again. Thank you. I will now hand the call over to Tom Lewis, Equitable Holdings Investor Relations. You may begin your conference.

Good morning and welcome to Equitable Holdings' second quarter 2023 earnings call. Materials 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 materially differ from those expressed in or indicated by such forward-looking statements. So, I'd like to refer you to the Safe Harbor language on slide two of our presentation for additional information. Joining me on today's call is Mark Pearson, President and Chief Executive Officer of Equitable Holdings, Robin Raju, our Chief Financial Officer, Nick Lane, President of Equitable Financial, and Bill Siemers, Alliance Bernstein's Interim Chief Financial Officer Controller, and Chief Accounting Officer. 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 and related definitions may be found on the investor relations portion of our website, in our earnings release, slide presentation, and financial supplement. I would now like to turn the call over to Mark and Robin for their prepared remarks.

Good morning and thank you for joining today's call. On May 10th, we held our investor day and presented our strategy and go forward guidance for the next five years. Today, we will provide both our quarterly results as well as progress against our strategic initiatives. Highlights from the second quarter on slide three. Equitable holdings is unique. We have integrated advice, retirement and asset management businesses enabling us to deliver superior client returns and participate in all parts of the value chain. This quarter, non-GAAP operating earnings were $441 million, or $1.17 per share. Adjusting for notable items in the period, which included lower alternative returns and elevated mortality, non-GAAP operating earnings per share was $1.27, which is up 2% compared to prior year quarter and up 5% compared to the first quarter of this year. We've had a record quarter in retirement with record $1.4 billion of net inflows. In asset management, we reported net outflows of $4 billion, which includes $6 billion of pre-announced low-fee redemptions in April, with a return to positive flows in May and June. as demand for AB's fixed income offerings offset pressure from active equity outflows. Collectively, our businesses have delivered approximately $900 million of cash generation to holdings year-to-date, including a $600 million dividend from our insurance entity in July. Given this progress, we are confident in our ability to achieve our 2023 cash generation guidance of $1.3 billion. Our capital ratios remain resilient with a combined insurance company RBC ratio of approximately 425 to 450% as of quarter end. We also continue to maintain financial flexibility at holdings with $1.6 billion of available cash. We returned $304 million to shareholders in the quarter including $226 million in share repurchases, in line with our enhanced 60% to 70% target payout ratio. We have taken meaningful actions over the last five years to optimize our capital structure, and now over 50% of cash flows come from non-insurance regulated sources today, compared to only 17% at IPOs. With the completion of our internal reinsurance transaction this quarter, we further diversify and improve the stability of regulated cash flows moving forward. Robin will provide more details on this in a few minutes. While it is early days, we can report good initial progress against our growth strategy in both our core and adjacent businesses. In our new wealth management segment, we continue to see demand for advice with 1.3 billion of net inflows in the quarter. Operating earnings this quarter were up 75% year over year and 30% compared to prior quarter, benefiting from higher interest rates on cash sweep accounts. Today, out of our 4,100 equitable advisors, we have 700 wealth planners who generate three times more revenue than the average advisor. In private markets, AB continues to grow AUM, now $61 billion, up 13% following the acquisition of Carvel last year, which is behind a 2% year-over-year fee rate improvement at AB. Strategic initiatives are on track, including productivity savings and generating incremental income from our general account. We're very pleased with the reaction to our investor day. and we intend to track progress against the guidance provided at least twice a year. Turning to slide four, our growth strategy is built on our competitive edges, which enables us to, one, capture greater margin through premier investment capabilities, two, protect policyholders and ensure cash generation through fair value economic management, and three, leverage a large diversified distribution platform aligned across equitable advisors, AB private wealth, and third-party partnerships to drive profitable new business. All of this is underpinned by our track record of execution. We are focused on defending and growing our core businesses, scaling adjacent businesses, and seeding future growth, all whilst ensuring we are a force for good in the communities in which we live and work. We have defined success through our new financial goals to increase cash generation by 50% to $2 billion by 2027, to deliver on an increased payout ratio of 60 to 70% of non-GAAP operating earnings, and to generate a 12 to 15% non-GAAP operating EPS annual growth rate in 2027. On slide five, I will highlight some early progress as we execute against our strategy. Our first priority is to defend and grow our core retirement and asset management businesses. These today drive over 90% of free cash flow generated. Our core retirement businesses generated approximately two-thirds of our earnings today. Year-to-date, core retirement AUM is up 5%. and with strong new business activity and current market conditions, we generated over $200 million in value of new business through the half year, putting us on track for our forecast at 2023 level of $400 million. As we've seen from this quarter's earnings cycle, this is a more challenging time for asset managers. At AB, AUM is up 7% year over year, and margins are down 100 basis points, compared to the prior year quarter, reflecting lower Bernstein Research Services revenues and lower performance fees, combined with a higher compensation ratio. We expect the close of the Bernstein Research Joint Venture with SocGen in the first half of 2024. And once deconsolidated, this will improve AB margins by 200 to 250 basis points. Equitable's relocation of its headquarters is on track, helping to secure $30 million of savings on the 1st of January, 2024. The AB move to Nashville is now complete, and in Q1 of 2025, we expect to realize the full run rate benefit from the completion of AB's $75 million annual savings initiative. One important synergy we have is the use of the general account. to help build a faster growing, high multiple alternative strategies in Alliance Bernstein. To date, we have deployed $7.5 billion of our initial $10 billion capital commitment. And in May, we announced a further $10 billion capital commitment, bringing the total to $20 billion. The second element of our strategy is to scale adjacent businesses. These are smaller businesses where we have the opportunity to grow at a faster rate. Early contributions from the Carvel acquisition have been positive, and private markets now constitute 13% of year-to-date asset management revenues at AB. AB's institutional pipeline of $14 billion has a fee rate that is three times the channel average, with private alternatives representing over 80%. the pipeline fee base. In wealth management, 7% annualized organic growth in the quarter, and strong markets supported a 6% increase in AUA compared to Q1, now totaling $80 billion. This business provides good operating leverage given our technology platform is outsourced, and our long-term focus is to grow fee-based advisory assets. Please turn to slide six. In order to ensure long-term success, it's important we continue to invest through the cycle and see businesses that we believe will provide significant opportunities for the future. In asset management, we see opportunities to build on AB's global footprint, leveraging their strong brand recognition in Asia. And we are in the final phase of licensing agreements, which would enable us to serve China's large and growing domestic market. AB is also uniquely positioned to leverage over 40 years of expertise managing insurance assets, benefiting from the relationship with Equitable to grow third-party insurance AUM. Today, AB manages approximately $60 billion of third-party insurance AUM, in addition to the $115 billion managed for Equitable. We are also optimistic about the long-term prospects for both AB and Equitable, incorporating in-plan guarantees into corporate retirement plans. AB is a leader in this space, pioneering this category over a decade ago, and Equitable benefited from over $750 million of premium last year. In addition to our partnership with AB, Equitable stands to benefit from progress being made by our partner, BlackRock, with 11 large plan sponsors to date and onboarding underway. We also believe delivering business performance and contributing to society are inextricably linked, and that we bring value to each of our stakeholders through outstanding business performance and focusing on our mission to help our clients secure their financial well-being so they can live long and fulfilling lives. We released our second sustainability report earlier this year, which included meaningful disclosures demonstrating our progress. And this resulted in improved ratings by firms like Sustainalytics, who have recently rated equitable in the top quartile within our industry. Turning to slide seven. A product of our strategy since our IPO is to further diversify both earnings and cash flows, orienting our business towards lower capital, higher value segments. Since our IPO, we have meaningfully shifted our business mix with nearly 30% of earnings associated with our legacy business to only 8% today, and we expect its contribution to be less than 5% of total earnings after 2027. I will now turn over to Robin to provide additional insights into the quarter. Robin.