ALLIANCEBERNSTEIN HOLDING L.P. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Impact of COVID-19 AB continues to actively monitor COVID-19 developments and their impact on our employees, business and operations. The aggregate extent to which COVID-19, including its impact on the global economy, affects AB’s business, liquidity, results of operations and financial condition, will depend on future COVID-19 developments that are highly uncertain, including the scope and duration of COVID-19 and any recovery period, the emergence, spread and seriousness of COVID-19 variants, the continuing prevalence of severe, unconstrained and/or escalating rates of infection and hospitalization in various countries and regions, the availability, adoption and efficacy of treatments and vaccines, and future actions taken by governmental authorities, central banks and other parties in response to COVID-19. Further, we have benefited from certain of our adjusted operating expenses declining significantly due to COVID-19, generally owing to depressed levels of travel and entertainment and in-person client meetings, during both 2020 and 2021. While these costs started to return in 2022, results in 2022 did not reach historical levels; the prior-year savings are not indicative of our future performance. Additionally, as most of our workforce continues working in a hybrid model, which includes the option of two remote days each week, we are mindful of increased risk related to cybersecurity, which could significantly disrupt our business functions. Executive Overview (1) Our total assets under management (" AUM ") as of December 31, 2022 were $646.4 billion, down $132.2 billion, or 17.0%, during 2022. The decrease was driven primarily by market depreciation of $140.4 billion and net outflows of $3.6 billion (reflecting Retail net outflows of $11.6 billion, offset by Institutional net inflows of $6.3 billion and Private Wealth Management net inflows of $1.7 billion), offset by the addition of $12.2 billion due to the acquisition of CarVal Investors L.P. (" CarVal ") in the third quarter. AXA S.A.(" AXA ") redeemed approximately $4.5 billion of low-fee fixed income and equity mandates in 2022. Going forward, any AXA-related redemptions or new sales (reflecting, for example, recent commitments by AXA to certain of our private alternative strategies) will be considered as part of our normal course of business. Institutional AUM decreased $39.8 billion, or 11.8%, to $297.3 billion during 2022, primarily due to market depreciation of $57.8 billion, partially offset by the addition of $12.2 billion due to the acquisition of CarVal and net inflows of $6.3 billion. Gross sales increased $0.5 billion, from $31.7 billion in 2021 to $32.2 billion in 2022. Redemptions and terminations decreased $10.1 billion, from $23.4 billion in 2021 to $13.3 billion in 2022. Institutional net inflows included $2.3 billion of AXA redemptions. Retail AUM decreased $77.0 billion, or 24.1%, to $242.9 billion during 2022, primarily due to market depreciation of $65.5 billion and net outflows of $11.6 billion. Net outflows included $2.2 billion of AXA redemptions. Gross sales decreased $34.1 billion, from $100.0 billion in 2021 to $65.9 billion in 2022. Redemptions and terminations increased $1.2 billion, from $65.1 billion in 2021 to $66.3 billion in 2022. Private Wealth Management AUM decreased $15.4 billion, or 12.6%, to $106.2 billion during 2022, due to market depreciation of $17.1 billion, offset by net inflows of $1.7 billion. Gross sales decreased $0.8 billion, from $18.3 billion in 2021 to $17.5 billion in 2022. Redemptions and terminations increased $0.5 billion, from $15.3 billion in 2021 to $15.8 billion in 2022. Bernstein Research Services (" BRS ") revenue decreased $35.7 million, or 7.9%, in 2022. The decrease was driven by significantly lower customer trading activity in Europe and Asia due to local market conditions. In the fourth quarter of 2022, AB and Société Générale (EURONEXT: SCGLY, “ SocGen ”), a leading European bank, announced plans to form a joint venture combining their respective cash equities and research businesses. As a result, the BRS business has been classified as held for sale. For further discussion, see Note 24 Acquisitions and Divestitures to our consolidated financial statements in Item 8 . Our 2022 net revenues of $4.1 billion decreased $387.3 million, or 8.7%, compared to net revenues of $4.4 billion in the prior year. The decrease was primarily driven by lower base advisory fees of $123.6 million, higher investment losses of $101.8 million, lower performance-based fees of $99.9 million, lower distribution revenues of $45.0 million, lower Bernstein Research Services revenue of $35.7 million and lower shareholder servicing fees of $3.6 million, partially offset by higher net dividend and interest income of $21.6 million. Our operating expenses of $3.2 billion increased $14.1 million, or 0.4%, compared to the prior year. The increase was primarily due to higher general and administrative expenses of $86.0 million, higher amortization of intangible assets of $20.9 million, higher interest on borrowings of $12.8 million and higher contingent payment arrangements of $3.9 million, offset by lower promotion and servicing expenses of $60.1 million and lower employee compensation and benefits expenses of $49.4 million. Our operating income decreased $401.4 million, or 33.0%, to $0.8 billion from $1.2 billion in 2021 and our operating margin decreased to 21.5% in 2022 from 27.3% in 2021. 1 Percentage change figures are calculated using assets under management rounded to the nearest million, while financial statement amounts are rounded to the nearest hundred thousand. 2022 Annual Report 33 Table of Contents Part II Market Environment While equity markets were positive in the fourth quarter of 2022, with the S&P 500 Index (" S&P ") and Dow Jones Industrial Average both registering gains, both indexes declined for the full year ended December 31, 2022. The S&P declined 18.1% for the full year, while the Nasdaq declined by 33.1% and was down 8.7% in December. Inflation remains the dominant issue for U.S. markets, fueling consumer concerns of a potential recession. While the U.S. consumer has been largely resilient so far, higher interest rates have weighed on home building, trade and business investments. Despite signs that the labor market and inflation are easing, the Federal Reserve has maintained its aggressive stance on monetary policy. At its December meeting, the Federal Reserve increased interest rates and indicated that, while future rate increases are likely to be less severe, they continue to be needed. In the U.K., the new prime minister reversed the tax cuts introduced by his predecessor and added some tax increases. These actions calmed the market and reduced the pressure on mortgage rates. However, monetary tightening, steep energy prices and supply-side constraints from Brexit create a challenging outlook for consumers. In China, key watch-points include the property market and overall growth in the economy. The Chinese government has announced new support measures, but it is unclear whether these measures will be sufficient to re-create historical growth patterns. Relationship with EQH and its Subsidiaries EQH (our parent company) and its subsidiaries are our largest client. EQH is collaborating with AB in order to improve the risk-adjusted yield for the General Accounts of EQH's insurance subsidiaries by investing additional assets at AB, including the utilization of AB's higher-fee, longer-duration alternative offerings. Equitable Financial Life Insurance Company, a subsidiary of EQH (" Equitable Financial "), has agreed to provide $10 billion in permanent capital 2 to build out AB's private illiquid offerings, including private alternatives and private placements. Deployment of this capital commitment is more than 50% completed and is expected to continue over approximately the next two years. We expect this anticipated capital from Equitable Financial will continue to accelerate both organic and inorganic growth in our private alternatives business, allowing us to continue to deliver for our clients, employees, unitholders and other stakeholders. For example, included in this $10 billion commitment by EQH is $750 million in capital to be deployed through AB CarVal. Relocation Strategy As previously announced, we have established our corporate headquarters in Nashville, TN, at 501 Commerce Street. Our Nashville headquarters houses Finance, IT, Operations, Legal, Compliance, Internal Audit, Human Capital, and Sales and Marketing, and at year-end 2022 we had 1,079 employees in Nashville. We expect to reach a total of 1,250 employees in Nashville by the end of 2024. We will continue to maintain a principal location in New York City, which houses our Portfolio Management, Sell-Side Research and Trading, and New York-based Private Wealth Management businesses. We believe relocating our corporate headquarters to Nashville affords us the opportunity to provide an improved quality of life alternative for our employees and enables us to attract and recruit new talented employees to a highly desirable location while improving the long-term cost structure of the firm. During the transition period, which began in 2018 and is expected to continue through 2024, we currently estimate that we will incur transition costs of between $145 million to $155 million. These costs include employee relocation, severance, recruitment, and overlapping compensation and occupancy costs. Over this same period, we expect to realize total expense savings of between $205 million to $215 million. However, we did incur some transition costs before we began to realize expense savings. For the period beginning in 2018 and ending in the fourth quarter of 2022, we incurred $120 million of cumulative transition costs compared to $132 million of cumulative savings. In addition, we incurred $24 million of transition costs for the twelve months ended December 31, 2022, compared to $43 million of expense savings, resulting in an overall net savings of $19 million for the period. In 2022, our net income per unit (" EPU ") increased $0.07 as a result of our relocation strategy, which compares to the $0.06 EPU increase that occurred in 2021. We also expect to achieve EPU accretion in each future year. Beginning in 2025, once the transition period has been completed, we estimate ongoing annual expense savings of approximately $75 million to $80 million, which will result from a combination of occupancy and compensation-related savings. Our estimates for both the transition costs and the corresponding expense savings are based on our current assumptions of employee relocation costs, severance, and overlapping compensation and occupancy costs. In addition, our estimates for both the timing of when we incur transition costs and realize the related expense savings are based on our current relocation implementation plan and the timing for execution of each phase. The actual total charges we eventually record, the related expense savings we realize, and the timing of EPU impact may differ from our current estimates as we implement each phase of our headquarters relocation. 2 Permanent capital means investment capital of indefinite duration, which may be withdrawn under certain conditions. Although Equitable Financial has indicated its intention over time to provide this investment capital to AB, which is mutually beneficial to both firms, it has no binding commitment to do so. 34 AllianceBernstein Table of Contents Part II During October 2018, we signed a lease, which commenced in the fourth quarter of 2020, relating to 218,976 square feet of space at our new Nashville headquarters. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 15-year initial lease term is $134 million. Although we have presented many of our transition costs and annual expense savings with numerical specificity, and we believe these targets to be reasonable as of the date of this report, the uncertainties surrounding the assumptions we discuss above create a significant risk that these targets may not be achieved. Accordingly, the expenses we actually incur and the savings we actually realize may differ from our targets, particularly if actual events adversely differ from one or more of our key assumptions. The transition costs and expense savings, together with their underlying assumptions, are Forward-Looking Statements and can be affected by any of the factors discussed in “Risk Factors” and “Cautions Regarding Forward-Looking Statements” in this 2022 10-K. We strongly caution investors not to place undue reliance on any of these assumptions or our cost and expense targets. Except as may be required by applicable securities laws, we are not under any obligation, and we expressly disclaim any obligation, to update or alter any assumptions, estimates, financial goals, targets, projections or other related statements that we may make. AB Holding AB Holding’s principal source of income and cash flow is attributable to its investment in AB Units. The AB Holding financial statements, notes to the financial statements and management’s discussion and analysis of financial condition and results of operations (“ MD&A ”) should be read in conjunction with those of AB. Results of Operations Years Ended December 31 % Change 2022 2021 2020 2022-21 2021-20 (in thousands, except per unit amounts) Net income attributable to AB Unitholders $ 831,813 $ 1,148,623 $ 865,952 (27.6) % 32.6 % Weighted average equity ownership interest 36.7 % 36.2 % 35.6 % Equity in net income attributable to AB Unitholders $ 305,504 $ 416,326 $ 308,404 (26.6) 35.0 Income taxes 31,339 30,483 29,024 2.8 5.0 Net income of AB Holding $ 274,165 $ 385,843 $ 279,380 (28.9) 38.1 Diluted net income per AB Holding Unit $ 2.69 $ 3.88 $ 2.88 (30.7) 34.7 Distributions per AB Holding Unit (1) $ 2.95 $ 3.90 $ 2.91 (24.4) 34.0 (1) Distributions reflect the impact of AB’s non-GAAP adjustments. AB Holding had net income of $274.2 million in 2022 compared to $385.8 million in 2021, reflecting lower net income attributable to AB Unitholders, partially offset by higher weighted average equity ownership interest. AB Holding had net income of $385.8 million in 2021 compared to $279.4 million in 2020, reflecting higher net income attributable to AB Unitholders and higher weighted average equity ownership interest. AB Holding's partnership gross income is derived from its interest in AB. AB Holding’s income taxes, which reflect a 3.5% federal tax on its partnership gross income from the active conduct of a trade or business, are computed by multiplying certain AB qualifying revenues (primarily U.S. investment advisory fees, brokerage commissions and direct payments for research services) by AB Holding’s ownership interest in AB, multiplied by the 3.5% tax rate. AB Holding’s effective tax rate was 10.3% in 2022, 7.3% in 2021 and 9.4% in 2020. See Note 6 to AB Holding’s financial statements in Item 8 for a further description. As supplemental information, AB provides the performance measures “adjusted net revenues,” “adjusted operating income” and “adjusted operating margin,” which are the principal metrics management uses in evaluating and comparing the period-to-period operating performance of AB. Management principally uses these metrics in evaluating performance because they present a clearer picture of AB's operating performance and allow management to see long-term trends without the distortion primarily caused by long-term incentive compensation-related mark-to-market adjustments, real estate charges ( discussed below in Adjusted Operating Income) and other adjustment items. Similarly, management believes that these management operating metrics help investors better understand the underlying trends in AB's results and, accordingly, provide a valuable perspective for investors. Such measures are not based on generally accepted accounting principles (“ non-GAAP measures ”). These non-GAAP measures are provided in addition to, and not as substitutes for, net revenues, operating income and operating margin, and they may not be comparable to non-GAAP measures presented by other companies. Management uses both GAAP and non-GAAP measures in evaluating the company’s financial performance. The non-GAAP measures alone may pose limitations because they do not include all of AB’s revenues and expenses. Further, adjusted diluted net income per AB Holding Unit is not a liquidity measure and should not be used in place of cash flow measures. See “Management Operating Metrics” in this Item 7 . 2022 Annual Report 35 Table of Contents Part II The impact of these adjustments on AB Holding’s net income and diluted net income per AB Holding Unit are as follows: Years Ended December 31 2022 2021 2020 (in thousands, except per unit amounts) AB non-GAAP adjustments, before taxes $ 75,745 $ 2,959 $ 6,393 AB Income tax (expense) benefit on non-GAAP adjustments (6,395) 71 (523) AB non-GAAP adjustments, after taxes 69,350 3,030 5,870 AB Holding’s weighted average equity ownership interest in AB 36.7 % 36.2 % 35.6 % Impact on AB Holding’s net income of AB non-GAAP adjustments $ 25,468 $ 1,098 $ 2,090 Net income - diluted, GAAP basis $ 274,167 $ 385,873 $ 279,436 Impact on AB Holding’s net income of AB non-GAAP adjustments 25,468 1,098 2,090 Adjusted net income - diluted $ 299,635 $ 386,971 $ 281,526 Diluted net income per AB Holding Unit, GAAP basis $ 2.69 $ 3.88 $ 2.88 Impact of AB non-GAAP adjustments 0.25 0.01 0.03 Adjusted diluted net income per AB Holding Unit $ 2.94 $ 3.89 $ 2.91 The degree to which AB’s non-GAAP adjustments impact AB Holding’s net income fluctuates based on AB Holding's ownership percentage in AB. Tax Legislation For a discussion of tax legislation, see “Risk Factors - Structure-related Risks” in Item 1A . Capital Resources and Liquidity During the year ended December 31, 2022, net cash provided by operating activities was $362.6 million, compared to $355.1 million during the corresponding 2021 period. The increase primarily resulted from higher cash distributions received from AB of $9.3 million. During the year ended December 31, 2021, net cash provided by operating activities was $355.1 million, compared to $270.0 million during the corresponding 2020 period. The increase primarily resulted from higher cash distributions received from AB of $86.3 million. During the years ended December 31, 2022, 2021 and 2020, net cash used in investing activities was $1.8 million, $3.4 million and $0.1 million, respectively, reflecting investments in AB with proceeds from exercises of compensatory options to buy AB Holding Units and capital contributions to AB. During the year ended December 31, 2022, net cash used in financing activities was $360.8 million, compared to $351.7 million during the corresponding 2021 period. The increase was due to cash distributions to Unitholders of $3.5 million and proceeds from exercise of compensatory options to buy AB Holding Units of $3.2 million, offset by lower capital contributions from AB of $2.3 million. During the year ended December 31, 2021, net cash used in financing activities was $351.7 million, compared to $269.9 million during the corresponding 2020 period. The increase primarily was due to higher cash distributions to Unitholders of $86.6 million, offset by higher proceeds from exercise of compensatory options to buy AB Holding Units of $3.3 million. Management believes that AB Holding will have the resources it needs to meet its financial obligations as a result of the cash flow AB Holding realizes from its investment in AB. Cash Distributions AB Holding is required to distribute all of its Available Cash Flow, as defined in the AB Holding Partnership Agreement, to its Unitholders (including the General Partner). Available Cash Flow typically is the adjusted diluted net income per unit for the quarter multiplied by the number of units outstanding at the end of the quarter. Management anticipates that Available Cash Flow will continue to be based on adjusted diluted net income per unit, unless management determines, with concurrence of the Board of Directors, that one or more adjustments made to adjusted net income should not be made with respect to the Available Cash Flow calculation. See Note 2 to AB Holding’s financial statements in Item 8 for a description of Available Cash Flow. 36 AllianceBernstein Table of Contents Part II Commitments and Contingencies For a discussion of commitments and contingencies, see Note 7 to AB Holding’s financial statements in Item 8 . AB Assets Under Management Assets under management by distribution channel are as follows: As of December 31 % Change 2022 2021 2020 2022-21 2021-20 (in billions) Institutions $ 297.3 $ 337.1 $ 315.6 (11.8 %) 6.8 % Retail 242.9 319.9 265.3 (24.1) 20.6 Private Wealth Management 106.2 121.6 105.0 (12.6) 15.8 Total $ 646.4 $ 778.6 $ 685.9 (17.0) 13.5 Assets under management by investment service are as follows: As of December 31 % Change 2022 2021 2020 2022-21 2021-20 (in billions) Equity Actively Managed $ 217.9 $ 287.6 $ 217.8 (24.2 %) 32.1 % Passively Managed (1) 53.8 71.6 64.5 (24.8) 10.9 Total Equity 271.7 359.2 282.3 (24.3) 27.2 Fixed Income Actively Managed Taxable 190.3 246.3 263.2 (22.8) (6.4) Tax–exempt 52.5 57.1 50.3 (7.9) 13.6 Total 242.8 303.4 313.5 (20.0) (3.2) Passively Managed (1) 9.4 13.2 8.5 (28.9) 55.3 Total Fixed Income 252.2 316.6 322.0 (20.3) (1.7) Alternatives/Multi-Asset Solutions (2) Actively Managed 115.8 97.3 79.1 19.1 23.0 Passively Managed (1) 6.7 5.5 2.5 21.5 116.6 Total Alternatives/Multi-Asset Solutions 122.5 102.8 81.6 19.2 25.9 Total $ 646.4 $ 778.6 $ 685.9 (17.0 %) 13.5 % (1) Includes index and enhanced index services. (2) Includes certain multi-asset solutions and services not included in equity or fixed income services. 2022 Annual Report 37 Table of Contents Part II Changes in assets under management during 2022 and 2021 are as follows: Distribution Channel Institutions Retail Private Wealth Management Total (in billions) Balance as of December 31, 2021 $ 337.1 $ 319.9 $ 121.6 $ 778.6 Long-term flows: Sales/new accounts 32.2 65.9 17.5 115.6 Redemptions/terminations (13.3) (66.3) (15.8) (95.4) Cash flow/unreinvested dividends (12.6) (11.2) — (23.8) Net long-term inflows (outflows) (1) 6.3 (11.6) 1.7 (3.6) Adjustments (2) (0.4) — — (0.4) Acquisition (3) 12.2 — — 12.2 Transfers (0.1) 0.1 — — Market depreciation (57.8) (65.5) (17.1) (140.4) Net change (39.8) (77.0) (15.4) (132.2) Balance as of December 31, 2022 $ 297.3 $ 242.9 $ 106.2 $ 646.4 Balance as of December 31, 2020 $ 315.6 $ 265.3 $ 105.0 $ 685.9 Long-term flows: Sales/new accounts 31.7 100.0 18.3 150.0 Redemptions/terminations (23.4) (65.1) (15.3) (103.8) Cash flow/unreinvested dividends (6.0) (14.1) — (20.1) Net long-term inflows (1) 2.3 20.8 3.0 26.1 Transfers (0.2) 0.2 — — Market appreciation 19.4 33.6 13.6 66.6 Net change 21.5 54.6 16.6 92.7 Balance as of December 31, 2021 $ 337.1 $ 319.9 $ 121.6 $ 778.6 (1) Net flows include $4.5 billion and $1.3 billion of AXA redemptions for 2022 and 2021, respectively. (2) Approximately $0.4 billion of Institutional AUM was removed from our total assets under management during the second quarter of 2022 due to a change in the fee structure. (3) The CarVal acquisition added approximately $12.2 billion of Institutional AUM in the third quarter of 2022. 38 AllianceBernstein Table of Contents Part II Investment Service Equity Actively Managed Equity Passively Managed (1) Fixed Income Actively Managed- Taxable Fixed Income Actively Managed-Tax- Exempt Fixed Income Passively Managed (1) Alternatives/ Multi-Asset Solutions (2) Total (in billions) Balance as of December 31, 2021 $ 287.6 $ 71.6 $ 246.3 $ 57.1 $ 13.2 $ 102.8 $ 778.6 Long-term flows: Sales/new accounts 46.0 1.8 25.5 16.0 (0.1) 26.4 115.6 Redemptions/terminations (39.0) (3.1) (32.6) (15.0) (1.5) (4.2) (95.4) Cash flow/unreinvested dividends (9.7) (4.0) (10.8) (0.4) 0.3 0.8 (23.8) Net long-term (outflows) inflows (3) (2.7) (5.3) (17.9) 0.6 (1.3) 23.0 (3.6) Adjustments (4) — — — — — (0.4) (0.4) Acquisition (5) — — — — — 12.2 12.2 Market (depreciation) (67.0) (12.5) (38.1) (5.2) (2.5) (15.1) (140.4) Net change (69.7) (17.8) (56.0) (4.6) (3.8) 19.7 (132.2) Balance as of December 31, 2022 $ 217.9 $ 53.8 $ 190.3 $ 52.5 $ 9.4 $ 122.5 $ 646.4 Balance as of December 31, 2020 $ 217.8 $ 64.5 $ 263.2 $ 50.3 $ 8.5 $ 81.6 $ 685.9 Long-term flows: Sales/new accounts 72.9 1.4 44.9 13.5 4.6 12.7 150.0 Redemptions/terminations (39.6) (1.1) (52.6) (7.8) (0.4) (2.3) (103.8) Cash flow/unreinvested dividends (11.4) (7.8) (2.2) 0.3 0.8 0.2 (20.1) Net long-term inflows (outflows) (3) 21.9 (7.5) (9.9) 6.0 5.0 10.6 26.1 Market appreciation (depreciation) 47.9 14.6 (7.0) 0.8 (0.3) 10.6 66.6 Net change 69.8 7.1 (16.9) 6.8 4.7 21.2 92.7 Balance as of December 31, 2021 $ 287.6 $ 71.6 $ 246.3 $ 57.1 $ 13.2 $ 102.8 $ 778.6 (1) Includes index and enhanced index services. (2) Includes certain multi-asset solutions and services not included in equity or fixed income services. (3) Net flows include $4.5 billion and $1.3 billion of AXA redemptions for 2022 and 2021, respectively. (4) Approximately $0.4 billion of Institutional AUM was removed from our total assets under management during the second quarter of 2022 due to a change in the fee structure. (5) The CarVal acquisition added approximately $12.2 billion of Institutional AUM in the third quarter of 2022. 2022 Annual Report 39 Table of Contents Part II Net long-term (outflows) inflows for actively managed investment services as compared to passively managed investment services during 2022 and 2021 are as follows: Years Ended December 31 2022 2021 (in billions) Actively Managed Equity $ (2.7) $ 21.9 Fixed Income (17.3) (3.9) Alternatives/Multi- Asset Solutions 20.9 8.3 Total 0.9 26.3 Passively Managed Equity (5.3) (7.5) Fixed Income (1.3) 5.0 Alternatives/Multi- Asset Solutions 2.1 2.3 Total (4.5) (0.2) Total net long-term (outflows) inflows $ (3.6) $ 26.1 Average assets under management by distribution channel and investment service are as follows: Years Ended December 31 % Change 2022 2021 2020 2022-21 2021-20 (in billions) Distribution Channel: Institutions $ 308.4 $ 325.7 $ 285.9 (5.3 %) 13.9 % Retail 267.8 291.0 236.5 (8.0) 23.0 Private Wealth Management 110.3 114.1 97.1 (3.3) 17.5 Total $ 686.5 $ 730.8 $ 619.5 (6.1) 18.0 Investment Service: Equity Actively Managed $ 239.7 $ 252.2 $ 179.8 (4.9) 40.2 Equity Passively Managed (1) 60.4 68.7 57.1 (12.1) 20.5 Fixed Income Actively Managed – Taxable 210.0 253.1 254.4 (17.1) (0.5) Fixed Income Actively Managed – Tax-exempt 54.1 53.8 47.9 0.6 12.3 Fixed Income Passively Managed (1) 11.5 9.6 9.4 20.2 1.4 Alternatives/Multi-Asset Solutions (2) 110.8 93.4 70.9 18.6 31.7 Total $ 686.5 $ 730.8 $ 619.5 (6.1) 18.0 (1) Includes index and enhanced index services. (2) Includes certain multi-asset solutions and services not included in equity or fixed income services. 40 AllianceBernstein Table of Contents Part II During 2022, our Institutional channel average AUM of $308.4 billion decreased $17.3 billion, or 5.3%, compared to 2021, primarily due to this AUM decreasing $39.8 billion, or 11.8%, to $297.3 billion from December 31, 2021. The $39.8 billion decrease in AUM resulted primarily from market depreciation of $57.8 billion, partially offset by an addition of $12.2 billion due to the acquisition of CarVal and net inflows of $6.3 billion. During 2021, our Institutional channel average AUM of $325.7 billion increased $39.8 billion, or 13.9%, compared to 2020, primarily due to this AUM increasing $21.5 billion, or 6.8%, to $337.1 billion during 2021. The $21.5 billion increase in AUM resulted primarily from market appreciation of $19.4 billion and net inflows of $2.3 billion. During 2022, our Retail channel average AUM of $267.8 billion decreased $23.2 billion, or 8.0%, compared to 2021, primarily due to this AUM decreasing $77.0 billion, or 24.1%, to $242.9 billion from December 31, 2021. The $77.0 billion decrease in AUM resulted primarily from market depreciation of $65.5 billion and net outflows of $11.6 billion. During 2021, our Retail channel average AUM of $291.0 billion increased $54.5 billion, or 23.0%, compared to 2020, primarily due to this AUM increasing $54.6 billion, or 20.6%, to $319.9 billion during 2021. The $54.6 billion increase in AUM resulted primarily from market appreciation of $33.6 billion and net inflows of $20.8 billion. During 2022, our Private Wealth Management channel average AUM of $110.3 billion decreased $3.8 billion, or 3.3%, compared to 2021, primarily due to this AUM decreasing $15.4 billion, or 12.6%, to $106.2 billion from December 31, 2021. The $15.4 billion decrease in AUM resulted from market depreciation of $17.1 billion, offset by net inflows of $1.7 billion. During 2021, our Private Wealth Management channel average AUM of $114.1 billion increased $17.0 billion, or 17.5%, compared to 2020, primarily due to this AUM increasing $16.6 billion, or 15.8%, to $121.6 billion during 2021. The $16.6 billion increase in AUM resulted primarily from market appreciation of $13.6 billion and net inflows of $3.0 billion. Absolute investment composite returns, gross of fees, and relative performance as of December 31, 2022 compared to benchmarks for certain representative Institutional equity and fixed income services are as follows: 1-Year 3-Year (1) 5-Year (1) Global High Income - Hedged (fixed income) Absolute return (11.1%) (1.2%) 1.3% Relative return (vs. Bloomberg Barclays Global High Yield Index - Hedged) (0.1) — 0.1 Global Plus - Hedged (fixed income) Absolute return (11.6) (2.3) 0.5 Relative return (vs. Bloomberg Barclays Global Aggregate Index - Hedged) (0.4) 0.3 0.2 Intermediate Municipal Bonds (fixed income) Absolute return (5.2) 0.2 1.6 Relative return (vs. Lipper Short/Int. Blended Muni Fund Avg) 0.2 0.7 0.7 U.S. Strategic Core Plus (fixed income) Absolute return (13.3) (2.3) 0.4 Relative return (vs. Bloomberg Barclays U.S. Aggregate Index) (0.3) 0.4 0.4 Emerging Market Debt (fixed income) Absolute return (18.4) (4.7) (1.4) Relative return (vs. JPM EMBI Global/JPM EMBI) (1.9) (0.2) (0.4) Sustainable Global Thematic Absolute return (26.5) 8.6 8.9 Relative return (vs. MSCI ACWI Index) (8.1) 4.6 3.7 2022 Annual Report 41 Table of Contents Part II 1-Year 3-Year (1) 5-Year (1) International Strategic Core Equity Absolute return (13.9) 0.7 2.3 Relative return (vs. MSCI EAFE Index) 0.6 (0.2) 0.8 U.S. Small & Mid Cap Value Absolute return (15.2) 6.7 4.8 Relative return (vs. Russell 2500 Value Index) (2.1) 1.5 — U.S. Strategic Value Absolute return (6.1) 7.0 5.0 Relative return (vs. Russell 1000 Value Index) 1.4 1.0 (1.6) U.S. Small Cap Growth Absolute return (38.4) 2.0 7.8 Relative return (vs. Russell 2000 Growth Index) (12.0) 1.3 4.3 U.S. Large Cap Growth Absolute return (28.3) 7.9 11.8 Relative return (vs. Russell 1000 Growth Index) 0.8 0.1 0.8 U.S. Small & Mid Cap Growth Absolute return (35.5) 3.6 7.1 Relative return (vs. Russell 2500 Growth Index) (9.3) 0.7 1.2 Concentrated U.S. Growth Absolute return (23.3) 7.3 12.2 Relative return (vs. S&P 500 Index) (5.2) (0.3) 2.8 Select U.S. Equity Absolute return (13.0) 10.0 10.7 Relative return (vs. S&P 500 Index) 5.1 2.3 1.3 Strategic Equities Absolute return (19.8) 5.9 7.5 Relative return (vs. Russell 3000 Index) (0.6) (1.2) (1.2) Global Core Equity Absolute return (19.5) 2.2 5.6 Relative return (vs. MSCI ACWI Index) (1.2) (1.8) 0.4 U.S. Strategic Core Equity Absolute return (9.4) 7.1 9.8 Relative return (vs. S&P 500 Index) 8.7 (0.6) 0.4 Select U.S. Equity Long/Short Absolute return (8.6) 6.8 7.6 Relative return (vs. S&P 500 Index) 9.5 (0.9) (1.8) Global Strategic Core Equity Absolute return (10.7) 5.0 7.3 Relative return (vs. S&P 500 Index) 7.5 — 1.2 (1) Reflects annualized returns. 42 AllianceBernstein Table of Contents Part II Consolidated Results of Operations Years Ended December 31 % Change 2022 2021 2020 2022-21 2021-20 (in thousands, except per unit amounts) Net revenues $ 4,054,290 $ 4,441,602 $ 3,708,536 (8.7) % 19.8 % Expenses 3,239,194 3,225,140 2,801,100 0.4 15.1 Operating income 815,096 1,216,462 907,436 (33.0) 34.1 Income taxes 39,639 62,728 45,653 (36.8) 37.4 Net income 775,457 1,153,734 861,783 (32.8) 33.9 Net (loss) income of consolidated entities attributable to non-controlling interests (56,356) 5,111 (4,169) n/m n/m Net income attributable to AB Unitholders $ 831,813 $ 1,148,623 $ 865,952 (27.6) 32.6 Diluted net income per AB Unit $ 3.01 $ 4.18 $ 3.19 (28.0) 31.0 Distributions per AB Unit $ 3.26 $ 4.19 $ 3.20 (22.2) 30.9 Operating margin (1) 21.5 % 27.3 % 24.6 % (1) Operating income excluding net (loss) income attributable to non-controlling interests as a percentage of net revenues. Net income attributable to AB Unitholders for the year ended December 31, 2022 decreased $316.8 million from the year ended December 31, 2021. The decrease primarily is due to (in millions): Lower base advisory fees $ (123.6) Higher investment losses (101.8) Lower performance-based fees (99.9) Higher general and administrative expenses (86.0) Lower distribution revenues (45.0) Lower Bernstein Research Services revenue (35.7) Lower promotion and servicing expenses 60.1 Higher net loss of consolidated entities attributable to non-controlling interest 61.5 Lower employee compensation and benefits 49.4 Other 4.2 $ (316.8) Net income attributable to AB Unitholders for the year ended December 31, 2021 increased $282.7 million from the year ended December 31, 2020. The increase primarily was due to (in millions): Higher base advisory fees $ 486.6 Higher distribution revenues 122.5 Higher performance-based fees 112.5 Higher employee compensation and benefits (221.8) Higher promotion and servicing expenses (153.5) Higher general and administrative expenses (64.5) Other 0.9 $ 282.7 2022 Annual Report 43 Table of Contents Part II Units Outstanding Each quarter, we consider whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (“ Exchange Act ”). A plan of this type allows a company to repurchase its shares at times when it otherwise might be prevented from doing so because of self-imposed trading blackout periods or because it possesses material non-public information. Each broker we select has the authority to repurchase AB Holding Units on our behalf in accordance with the terms and limitations specified in the plan. Repurchases are subject to regulations promulgated by the SEC, as well as certain price, market volume and timing constraints specified in the plan. There was no plan adopted during the fourth quarter of 2022. We may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program and for other corporate purposes. Cash Distributions We are required to distribute all of our Available Cash Flow, as defined in the AB Partnership Agreement, to our Unitholders and the General Partner. Available Cash Flow typically is the adjusted diluted net income per unit for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. In future periods, management anticipates that Available Cash Flow will continue to be based on adjusted diluted net income per unit, unless management determines, with concurrence of the Board of Directors, that one or more adjustments that are made for adjusted net income should not be made with respect to the Available Cash Flow calculation. See Note 2 to our consolidated financial statements contained in Item 8 for a description of Available Cash Flow. Management Operating Metrics We are providing the non-GAAP measures “adjusted net revenues,” “adjusted operating income” and “adjusted operating margin” because they are the principal operating metrics management uses in evaluating and comparing period-to-period operating performance. Management principally uses these metrics in evaluating performance because they present a clearer picture of our operating performance and allow management to see long-term trends without the distortion primarily caused by long-term incentive compensation-related mark-to-market adjustments, real estate charges and other adjustment items. Similarly, we believe that these management operating metrics help investors better understand the underlying trends in our results and, accordingly, provide a valuable perspective for investors. These non-GAAP measures are provided in addition to, and not as substitutes for, net revenues, operating income and operating margin, and they may not be comparable to non-GAAP measures presented by other companies. Management uses both accounting principles generally accepted in the United States of America (" US GAAP ") and non-GAAP measures in evaluating our financial performance. The non-GAAP measures alone may pose limitations because they do not include all of our revenues and expenses. 44 AllianceBernstein Table of Contents Part II Years Ended December 31 2022 2021 2020 (in thousands) Net revenues, US GAAP basis $ 4,054,290 $ 4,441,602 $ 3,708,536 Adjustments: Distribution-related adjustments: Distribution revenues (607,195) (652,240) (529,781) Investment advisory services fees (57,139) (90,242) (66,858) Pass-through adjustments: Investment advisory services fees (65,116) (40,628) (18,279) Other revenues (38,959) (37,209) (39,333) Impact of consolidated company-sponsored funds 57,436 (6,933) 954 Incentive compensation-related items (7,083) (6,694) (6,772) Write-down of investment — 1,880 859 Adjusted net revenues $ 3,336,234 $ 3,609,536 $ 3,049,326 Operating income, US GAAP basis $ 815,096 $ 1,216,462 $ 907,436 Adjustments: Real estate (825) (3,162) 2,880 Incentive compensation-related items 3,461 687 (83) EQH award compensation 606 940 802 Write-down of investment — 1,880 859 Acquisition-related expenses 72,503 2,614 1,935 Sub-total of non-GAAP adjustments 75,745 2,959 6,393 Less: Net (loss) income of consolidated entities attributable to non-controlling interests (56,356) 5,111 (4,169) Adjusted operating income 947,197 1,214,310 917,998 Adjusted income taxes 46,034 62,658 46,176 Adjusted net income $ 901,163 $ 1,151,652 $ 871,822 Diluted net income per AB Unit, GAAP basis $ 3.01 $ 4.18 $ 3.19 Impact of non-GAAP adjustments 0.25 0.02 0.02 Adjusted diluted net income per AB Unit $ 3.26 $ 4.20 $ 3.21 Operating margin, GAAP basis 21.5% 27.3% 24.6% Impact of non-GAAP adjustments 6.9 6.3 5.5 Adjusted operating margin 28.4% 33.6% 30.1% Adjusted operating income for the year ended December 31, 2022 decreased $267.1 million, or 22.0%, from the year ended December 31, 2021, primarily due to lower performance-based fees of $130.9 million, lower investment advisory base fees of $99.1 million, lower Bernstein Research Services revenue of $35.7 million and higher general and administrative expenses of $32.3 million, partially offset by lower employee compensation and benefits expense of $58.4 million. Adjusted operating income for the year ended December 31, 2021 increased $296.3 million, or 32.3%, from the year ended December 31, 2020, primarily due to higher investment advisory base fees of $460.9 million and higher performance-based fees of $91.7 million, partially offset by higher employee compensation and benefits expenses of $221.4 million and higher general and administrative expenses of $49.2 million. 2022 Annual Report 45 Table of Contents Part II Adjusted Net Revenues Net Revenue, as adjusted, is reduced to exclude all of the company's distribution revenues, which are recorded as a separate line item on the consolidated statement of income, as well as a portion of investment advisory services fees received that is used to pay distribution and servicing costs. For certain products, based on the distinct arrangements, certain distribution fees are collected by us and passed through to third-party client intermediaries, while for certain other products, we collect investment advisory services fees and a portion is passed through to third-party client intermediaries. In both arrangements, the third-party client intermediary owns the relationship with the client and is responsible for performing services and distributing the product to the client on our behalf. We believe offsetting distribution revenues and certain investment advisory services fees 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 that perform functions on behalf of our sponsored mutual funds and/or shareholders of these funds. Distribution-related adjustments fluctuate each period based on the type of investment products sold, as well as the average AUM over the period. Also, we adjust distribution revenues for the amortization of deferred sales commissions as these costs, over time, will offset such revenues. We adjust investment advisory and services fees and other revenues for pass through costs, primarily related to our transfer agent and shareholder servicing fees. Also, we adjust for certain performance-based fees passed through to our investment advisors. These fees do not affect operating income, 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. Also, we adjust for certain acquisition-related pass-through performance-based fees and performance related compensation. During the fourth quarter of 2021, we wrote down an equity method investment; this write-down brought the investment balance to zero. Additionally, during the first quarter of 2020, we wrote-down an investment that had been received in exchange for the sale of software technology; the write-down brought the investment balance to zero. Previously, we had been excluding the investment from adjusted net revenues. Adjusted Operating Income Adjusted operating income represents operating income on a US GAAP basis excluding (1) real estate charges (credits), (2) 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, (3) the equity compensation paid by EQH to certain AB executives, as discussed below , (4) the write-down of investments ( discussed immediately above ), (5) acquisition-related expenses and (6) the impact of consolidated company-sponsored investment funds. Real estate charges (credits) incurred during the fourth quarter of 2019 through the fourth quarter of 2020, while excluded in the period in which the charges (credits) were recorded, are included ratably over the remaining applicable lease term. 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, which also impacts compensation expense, is recorded within investment gains and losses on the income statement. 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. The board of directors of EQH granted to Seth Bernstein, our CEO, equity awards in connection with EQH's IPO. Additionally, equity awards were granted to Mr. Bernstein and other AB executives for their membership on the EQH Management Committee. These individuals may receive additional equity or cash compensation from EQH in the future related to their service on the Management Committee. Any awards granted to these individuals by EQH are recorded as compensation expense in AB’s consolidated statement of income. The compensation expense associated with these awards has been excluded from our non-GAAP measures because they are non-cash and are based upon EQH's, and not AB's, financial performance. The write-down of investments discussed above in Adjusted Net Revenues have been excluded due to their non-recurring nature and because they are not part of our core operating results. 46 AllianceBernstein Table of Contents Part II 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. Acquisition-related expenses include professional fees and the recording of changes in estimates to contingent payment arrangements associated with our acquisitions. Beginning in the first quarter of 2022, acquisition-related expenses also include certain compensation-related expenses, amortization of intangible assets for contracts acquired and accretion expense with respect to contingent payment arrangements. During 2022 and 2021, these expenses included an intangible asset impairment charge of $5.6 million and $1.0 million, respectively, related to various historical acquisitions. The recording of changes in estimates of contingent consideration payable with respect to contingent payment arrangements associated with our acquisitions are not considered part of our core operating results and, accordingly, have been excluded. 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. Adjusted Net Income and Adjusted Diluted Net Income per AB Unit As previously discussed, our quarterly distribution is typically our adjusted diluted net income per unit (which is derived from adjusted net income) for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. Adjusted income taxes, used in calculating adjusted net income, are calculated using the GAAP effective tax rate adjusted for non-GAAP income tax adjustments. 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. 2022 Annual Report 47 Table of Contents Part II Net Revenues The components of net revenues are as follows: Years Ended December 31 % Change 2022 2021 2020 2022-21 2021-20 (in thousands) Investment advisory and services fees: Institutions: Base fees $ 581,987 $ 540,478 $ 458,449 7.7 % 17.9 % Performance-based fees 77,299 45,580 53,351 69.6 (14.6) 659,286 586,058 511,800 12.5 14.5 Retail: Base fees 1,321,645 1,442,178 1,186,560 (8.4) 21.5 Performance-based fees 1,564 50,669 24,412 (96.9) 107.6 1,323,209 1,492,847 1,210,972 (11.4) 23.3 Private Wealth Management: Base fees 922,159 966,749 817,801 (4.6) 18.2 Performance-based fees 66,384 148,870 54,863 (55.4) 171.3 988,543 1,115,619 872,664 (11.4) 27.8 Total: Base fees 2,825,791 2,949,405 2,462,810 (4.2) 19.8 Performance-based fees 145,247 245,119 132,626 (40.7) 84.8 2,971,038 3,194,524 2,595,436 (7.0) 23.1 Bernstein Research Services 416,273 452,017 459,744 (7.9) (1.7) Distribution revenues 607,195 652,240 529,781 (6.9) 23.1 Dividend and interest income 123,091 38,734 50,923 n/m (23.9) Investment (losses) gains (102,413) (636) (16,401) n/m (96.1) Other revenues 105,544 108,409 104,703 (2.6) 3.5 Total revenues 4,120,728 4,445,288 3,724,186 (7.3) 19.4 Less: Interest expense 66,438 3,686 15,650 n/m (76.4) Net revenues $ 4,054,290 $ 4,441,602 $ 3,708,536 (8.7) 19.8 Investment Advisory and Services Fees Investment advisory and services fees are the largest component of our revenues. These fees generally are calculated as a percentage of the value of AUM as of a specified date, or as a percentage of the value of average AUM for the applicable billing period, and vary with the type of investment service, the size of account and the total amount of assets we manage for a particular client. Accordingly, fee income generally increases or decreases as AUM increase or decrease and is affected by market appreciation or depreciation, the addition of new client accounts or client contributions of additional assets to existing accounts, withdrawals of assets from and termination of client accounts, purchases and redemptions of mutual fund shares, shifts of assets between accounts or products with different fee structures, and acquisitions. Our average basis points realized (investment advisory and services fees divided by average AUM) generally approximate 30 to 105 basis points for actively managed equity services, 10 to 70 basis points for actively-managed fixed income services and 2 to 50 basis points for passively managed services. Average basis points realized for other services could range from 3 basis points for certain Institutional third party managed services to over 150 basis points for certain Retail and Private Wealth Management alternative services. These ranges include all-inclusive fee arrangements (covering investment management, trade execution and other services) for our Private Wealth Management clients. We calculate AUM using established market-based valuation methods and fair valuation (non-observable market) methods. Market-based valuation methods include: last sale/settle prices from an exchange for actively-traded listed equities, options and futures; evaluated bid prices from recognized pricing vendors for fixed income, asset-backed or mortgage-backed issues; mid prices from recognized pricing vendors and brokers for credit default swaps; and quoted bids or spreads from pricing 48 AllianceBernstein Table of Contents Part II vendors and brokers for other derivative products. Fair valuation methods include: discounted cash flow models or any other methodology that is validated and approved by our Valuation Committee ( see paragraph immediately below for more information regarding our Valuation Committee). Fair valuation methods are used only where AUM cannot be valued using market-based valuation methods, such as in the case of private equity or illiquid securities. The Valuation Committee, which consists of senior officers and employees, is responsible for overseeing the pricing and valuation of all investments held in client and AB portfolios. The Valuation Committee has adopted a Statement of Pricing Policies describing principles and policies that apply to pricing and valuing investments held in these portfolios. We also have a Pricing Group, which is overseen by the Valuation Committee and is responsible for managing the pricing process for all investments. We sometimes charge our clients performance-based fees. In these situations, we charge a base advisory fee and are eligible to earn an additional performance-based fee or incentive allocation that is calculated as either a percentage of absolute investment results or a percentage of investment results in excess of a stated benchmark over a specified period of time. Some performance-based fees include a high-watermark provision, which generally provides that if a client account underperforms relative to its performance target (whether absolute or relative to a specified benchmark), it must gain back such underperformance before we can collect future performance-based fees. Therefore, if we fail to achieve our performance target for a particular period, we will not earn a performance-based fee for that period and, for accounts with a high-watermark provision, our ability to earn future performance-based fees will be impaired. We are eligible to earn performance-based fees on 10.6%, 9.2% and 0.5% of the assets we manage for institutional clients, private wealth clients and retail clients, respectively (in total, 6.6% of our AUM). Our investment advisory and services fees decreased by $223.5 million, or 7.0%, in 2022, due to a $123.6 million, or 4.2%, decrease in base fees and a $99.9 million decrease in performance-based fees. The decrease in base fees is primarily due to a 6.1% decrease in average AUM, partially offset by a slight increase in our portfolio fee rate. Our investment advisory and services fees increased by $599.1 million, or 23.1%, in 2021, due to a $486.6 million, or 19.8%, increase in base fees and a $112.5 million increase in performance-based fees. The increase in base fees was primarily due to a 18.0% increase in average AUM, as well as a slight increase in our portfolio fee rate. Performance-based fees decreased $99.9 million, or 40.7%, in 2022, primarily due to lower performance-based fees earned on Financial Services Opportunities fund, U.S. Select Equity fund, Arya Partners fund and Private Credit Services fund, partially offset by higher U.S. Real Estate Funds fees. Performance-based fees increased $112.5 million, or 84.8%, in 2021, primarily due to higher performance-based fees earned on Private Credit Services, U.S. Real Estate Funds, Financial Services Opportunities and U.S. Select Equity, partially offset by lower Arya Partners fees. Institutional investment advisory and services fees increased $73.2 million, or 12.5%, in 2022, due to an increase in base fees of $41.5 million, or 7.7%, and an increase in performance-based fees of $31.7 million. The increase in base fees is primarily due to a higher portfolio fee rate, partially offset by a 5.3% decrease in average AUM. Institutional investment advisory and services fees increased $74.3 million, or 14.5%, in 2021, due to an increase in base fees of $82.0 million, or 17.9%, partially offset by a decrease in in performance-based fees of $7.8 million. The increase in base fees was primarily due to a 13.9% increase in average AUM, an increase in portfolio fee rate and a shift in product mix from fixed income to active equities and alternatives, which generally earn higher fees. Retail investment advisory and services fees decreased $169.6 million, or 11.4%, in 2022, due to a decrease in base fees of $120.5 million, or 8.4%, and a $49.1 million decrease in performance-based fees. The decrease in base fees is primarily due to a 8.0% decrease in average AUM. Retail investment advisory and services fees increased $281.9 million, or 23.3%, in 2021, due to an increase in base fees of $255.6 million, or 21.5%, and a $26.3 million increase in performance-based fees. The increase in base fees is primarily due to a 23.0% increase in average AUM. Private Wealth Management investment advisory and services fees decreased by $127.1 million, or 11.4%, in 2022, due to a decrease in base fees of $44.6 million, or 4.6%, and an $82.5 million decrease in performance-based fees. The decrease in base fees is primarily due to a 3.3% decrease in average AUM. Private Wealth Management investment advisory and services fees increased $243.0 million, or 27.8%, in 2021, due to an increase in base fees of $148.9 million, or 18.2%, and a $94.0 million increase in performance-based fees. The increase in base fees is primarily due to a 17.5% increase in average AUM. Bernstein Research Services We earn revenues for providing investment research to, and executing brokerage transactions for, institutional clients. These clients compensate us principally by directing us to execute brokerage transactions on their behalf, for which we earn commissions, and to a lesser extent, but increasingly, by paying us directly for research through commission sharing agreements or cash payments. In the fourth quarter of 2022, AB and SocGen, a leading European bank, announced plans to form a joint venture combining their respective cash equities and research businesses. As a result, the BRS business has been classified as held for sale. For further discussion, see Note 24 Acquisitions and Divestitures to our consolidated financial statements in Item 8 . 2022 Annual Report 49 Table of Contents Part II Revenues from Bernstein Research Services decreased $35.7 million, or 7.9%, in 2022. The decrease was driven by significantly lower customer trading activity in Europe and Asia due to local market conditions. Revenues from Bernstein Research Services decreased $7.7 million, or 1.7%, in 2021. The decrease was due to lower trading activity driven by lower global market volatility as compared to the COVID-related volatility in 2020. This was partially offset by higher research payments across Bernstein and Autonomous Research products. Distribution Revenues Two of our subsidiaries act as distributors and/or placement agents of company-sponsored mutual funds and receive distribution services fees from certain of those funds as full or partial reimbursement of the distribution expenses they incur. Period-over-period fluctuations of distribution revenues typically are in line with fluctuations of the corresponding average AUM of these mutual funds. Distribution revenues decreased $45.0 million, or 6.9%, in 2022, primarily due to the corresponding average AUM of these mutual funds decreasing 12.4%, partially offset by a shift in product mix from mutual funds with lower distribution rates to mutual funds with higher distribution rates. Distribution revenues increased $122.5 million, or 23.1%, in 2021, primarily due to the corresponding average AUM of these mutual funds increasing 17.2%. Dividend and Interest Income and Interest Expense Dividend and interest income consists primarily of investment income and interest earned on customer margin balances and U.S. Treasury Bills as well as dividend and interest income in our consolidated company-sponsored investment funds. Interest expense principally reflects interest accrued on cash balances in customers’ brokerage accounts. Dividend and interest income increased $84.4 million in 2022, primarily due to higher interest earned on customer margin balances, higher interest earned on U.S. Treasury Bills as well as higher dividend and interest income in our consolidated company-sponsored investment funds. Interest expense increased $62.8 million in 2022, due to higher interest paid on cash balances in customers' brokerage accounts. Dividend and interest income decreased $12.2 million, or 23.9%, in 2021, primarily due to lower interest earned on U.S. Treasury Bills as well as lower dividend and interest income in our consolidated company-sponsored investment funds. Interest expense decreased $12.0 million, or 76.4%, in 2021, due to lower interest paid on cash balances in customers' brokerage accounts. 50 AllianceBernstein Table of Contents Part II Investment Gains (Losses) Investment gains (losses) consist primarily of realized and unrealized investment gains or losses on: (i) employee long-term incentive compensation-related investments, (ii) U.S. Treasury Bills, (iii) market-making in exchange-traded options and equities, (iv) seed capital investments, (v) derivatives and (vi) investments in our consolidated company-sponsored investment funds. Investment gains (losses) also include equity in earnings of proprietary investments in limited partnership hedge funds that we sponsor and manage. Investment gains (losses) are as follows: Years Ended December 31 2022 2021 2020 (in thousands) Long-term incentive compensation-related investments: Realized gains $ 1,345 $ 2,213 $ 2,655 Unrealized (losses) gains (10,626) 2,446 2,914 Investments held by consolidated company-sponsored investment funds: Realized (losses) gains (46,293) (2,341) 3,357 Unrealized (losses) (73,194) (1,882) (854) Seed capital investments: Realized gains (losses) Seed capital and other 17,272 20,263 25,002 Derivatives 41,236 (22,313) (30,343) Unrealized (losses) gains Seed capital and other (31,261) (6,907) (12,387) Derivatives (177) 8,992 (5,220) Brokerage-related investments: Realized (losses) (1,384) (829) (1,188) Unrealized gains (losses) 669 (278) (337) $ (102,413) $ (636) $ (16,401) Other Revenues Other revenues consist of fees earned for transfer agency services provided to company-sponsored mutual funds, fees earned for administration and recordkeeping services provided to company-sponsored mutual funds and the General Accounts of EQH and its subsidiaries, and other miscellaneous revenues. Other revenues decreased $2.9 million, or 2.6%, in 2022, primarily due to lower shareholder servicing fees. Other revenues increased $3.7 million, or 3.5%, in 2021, primarily due to higher shareholder servicing fees, partially offset by lower brokerage income. 2022 Annual Report 51 Table of Contents Part II Expenses The components of expenses are as follows: Years Ended December 31 % Change 2022 2021 2020 2022-21 2021-20 (in thousands) Employee compensation and benefits 1,666,636 $ 1,716,013 $ 1,494,198 (2.9) % 14.8 % Promotion and servicing: Distribution-related payments 629,572 708,117 569,283 (11.1) 24.4 Amortization of deferred sales commissions 34,762 34,364 27,355 1.2 25.6 Trade execution, marketing, T&E and other 215,556 197,486 189,787 9.2 4.1 879,890 939,967 786,425 (6.4) 19.5 General and administrative 641,635 555,608 491,070 15.5 13.1 Contingent payment arrangements 6,563 2,710 1,855 142.2 46.1 Interest on borrowings 17,906 5,145 6,180 n/a (16.7) Amortization of intangible assets 26,564 5,697 21,372 n/a (73.3) Total $ 3,239,194 $ 3,225,140 $ 2,801,100 0.4 15.1 Employee Compensation and Benefits Employee compensation and benefits consist of base compensation (including salaries and severance), annual short-term incentive compensation awards (cash bonuses), annual long-term incentive compensation awards, commissions, fringe benefits and other employment costs (including recruitment, training, temporary help and meals). Compensation expense as a percentage of net revenues was 41.1%, 38.6% and 40.3% for the years ended December 31, 2022, 2021 and 2020, respectively. Compensation expense generally is determined on a discretionary basis and is primarily a function of our firm’s current-year financial performance. The amounts of incentive compensation we award are designed to motivate, reward and retain top talent while aligning our executives' interests with the interests of our Unitholders. Senior management, together with the Compensation and Workplace Practices Committee of the Board of Directors of AllianceBernstein Corporation (“ Compensation Committee ”), continue to believe that the appropriate metric to consider in determining the amount of incentive compensation is the ratio of adjusted employee compensation and benefits expense to adjusted net revenues. Adjusted net revenues used in the adjusted compensation ratio are the same as the adjusted net revenues presented as a non-GAAP measure ( discussed earlier in this Item 7 ). Adjusted employee compensation and benefits expense is total employee compensation and benefits expense minus other employment costs such as recruitment, training, temporary help and meals (which were 1.1%, 0.9% and 0.9% of adjusted net revenues for 2022, 2021 and 2020, respectively), and excludes the impact of mark-to-market vesting expense, as well as dividends and interest expense, associated with employee long-term incentive compensation-related investments and the amortization expense associated with the awards issued by EQH to some of our firm's executives relating to their roles as members of the EQH Management Committee. Senior management, with the approval of the Compensation Committee, has established as an objective that adjusted employee compensation and benefits expense, excluding the impact of performance-based fees, generally should not exceed 50% of our adjusted net revenues in any year, except in unexpected or unusual circumstances. Our ratios of adjusted compensation expense as a percentage of adjusted net revenues were 48.4%, 46.5% and 47.9%, respectively, for the years ended December 31, 2022, 2021 and 2020. In 2022, employee compensation and benefits expense decreased $49.4 million, or 2.9%, primarily due to lower incentive compensation of $107.7 million, partially offset by higher base compensation of $39.8 million, higher commissions of $12.7 million and higher other employment costs of $5.3 million. In 2021, employee compensation and benefits expense increased $221.8 million, or 14.8%, primarily due to higher incentive compensation of $124.6 million, higher base compensation of $48.9 million, higher commissions of $25.0 million, higher fringes of $20.1 million and higher other employment costs of $3.3 million. Promotion and Servicing Promotion and servicing expenses include distribution-related payments to financial intermediaries for distribution of AB mutual funds and amortization of deferred sales commissions paid to financial intermediaries for the sale of back-end load shares of AB mutual funds. Also included in this expense category are costs related to trade execution and clearance, travel and entertainment, advertising and promotional materials. 52 AllianceBernstein Table of Contents Part II Promotion and servicing expenses decreased $60.1 million, or 6.4%, in 2022. The decrease was primarily due to lower distribution-related payments of $78.5 million, lower transfer fees of $4.9 million and lower trade execution and clearance expenses of $3.1 million, partially offset by higher travel and entertainment expenses of $15.4 million and higher firm meeting expenses of $8.8 million. Promotion and servicing expenses increased $153.5 million, or 19.5%, in 2021. The increase primarily was due to higher distribution-related payments of $138.8 million, higher transfer fees of $10.1 million, higher amortization of deferred sales commissions of $7.0 million and higher marketing expenses of $4.9 million, partially offset by lower trade execution and clearance expenses of $7.4 million. General and Administrative General and administrative expenses include portfolio services fees, technology fees, professional fees and office-related expenses (occupancy, communications and similar expenses). General and administrative expenses as a percentage of net revenues were 15.8%, 12.5% and 13.2% for the years ended December 31, 2022, 2021 and 2020, respectively. General and administrative expenses increased $86.0 million, or 15.5%, in 2022. The increase was primarily due to higher professional fees of $27.3 million, higher portfolio services fees of $21.3 million, higher technology fees of $19.1 million, a valuation adjustment of $7.4 million associated with the classification of BRS as held for sale, higher office-related expenses of $6.9 million and a $5.6 million impairment of certain acquisition related intangible assets. General and administrative expenses increased $64.5 million, or 13.1%, in 2021. The increase was primarily due to higher portfolio services of $34.0 million, higher technology fees of $14.3 million, higher office-related expenses of $7.6 million, higher professional fees of $6.6 million and an unfavorable foreign exchange translation impact of $5.2 million, partially offset by lower charitable contributions of $4.9 million. Contingent Payment Arrangements Contingent payment arrangements reflect changes in estimates of contingent payment liabilities associated with acquisitions in current and previous periods, as well as accretion expense of these liabilities. In 2022, we recognized $6.6 million in accretion expense related to our contingent considerations payable. The expense of $2.7 million for 2021 reflects accretion expense of $3.3 million, offset by the change in estimate of the contingent consideration payable relating to our 2016 acquisition of $0.6 million. Interest on Borrowings Interest expense increased $12.8 million in 2022, reflecting higher interest rates on borrowings and higher weighted average borrowings. Average daily borrowings for the EQH facilities and commercial paper were $845.5 million at a weighted average interest rate of 1.7% during 2022 compared to $561.6 million and 0.2% during 2021. Interest expense decreased $1.0 million, or 16.7%, in 2021, reflecting lower interest rates partially offset by higher weighted average borrowings. Average daily borrowings for both the EQH facility and commercial paper were $561.6 million at a weighted average interest rate of 0.2% during 2021 compared to $554.0 million and 0.5% during 2020. Amortization of Intangible Assets Amortization of intangible assets reflects our amortization of costs assigned to acquired investment management contracts with a finite life. These assets are recognized at fair value and generally are amortized on a straight-line basis over their estimated useful life. On July 1, 2022, AB acquired CarVal, which resulted in recording of $303.0 million of finite-lived intangible assets primarily relating to investment management contracts and investor relationships with useful lives ranging from 5 to 10 years ( see Note 24 Acquisitions and Divestitures to our consolidated financial statements in Item 8 ). Amortization of intangible assets increased $20.9 million in 2022. The increase was primarily due to the acquired intangible assets associated with the CarVal acquisition. Amortization of intangible assets decreased $15.7 million, or 73.3%, in 2021. The decrease in the prior year was primarily due to the full amortization of intangible assets related to the Bernstein acquisition. Income Taxes AB, a private limited partnership, is not subject to federal or state corporate income taxes. However, AB is subject to a 4.0% New York City unincorporated business tax ( “UBT” ). Our domestic corporate subsidiaries are subject to federal, state and local income taxes, and generally are included in the filing of a consolidated federal income tax return. Separate state and local income tax returns also are filed. Foreign corporate subsidiaries generally are subject to taxes in the jurisdictions where they are located. Income tax expense decreased $23.1 million, or 36.8%, in 2022 compared to 2021. This decrease is due to lower pre-tax book income and one-time discrete items which resulted in a lower effective tax rate in 2022 of 4.9% compared to 5.2% in 2021. Income tax expense decreased $17.1 million, or 37.4%, in 2021 compared to 2020. This increase is due to higher pre-tax book income which resulted in a higher effective tax rate in 2021 of 5.2% compared to 5.0% in 2020. 2022 Annual Report 53 Table of Contents Part II Net (Loss) Income of Consolidated Entities Attributable to Non-Controlling Interests Net (loss) income of consolidated entities attributable to non-controlling interests primarily consists of limited partner interests owned by other investors in our consolidated company-sponsored investment funds. In 2022, we had $56.4 million of net loss of consolidated entities attributable to non-controlling interests, primarily due to losses on investments held by our consolidated company-sponsored investment funds. In 2021, we had $5.1 million of net income of consolidated entities attributable to non-controlling interests, primarily due to gains on investments held by our consolidated company-sponsored investment funds. In 2020 we had $4.2 million of net losses of consolidated entities attributable to non-controlling interests, primarily due to losses on investments held by our consolidated company-sponsored investment funds. Capital Resources and Liquidity Cash flows from operating activities primarily include the receipt of investment advisory and services fees and other revenues offset by the payment of operating expenses incurred in the normal course of business. Our cash flows from operating activities have historically been positive and sufficient to support our operations. We do not anticipate this to change in the foreseeable future. Cash flows from investing activities generally consist of small capital expenditures and, when applicable, business acquisitions. Cash flows from financing activities primarily consist of issuance and repayment of debt and the repurchase of AB Holding units to fund our long-term deferred compensation plans. We are required to distribute all of our Available Cash Flow to our Unitholders and the General Partner. During 2022, net cash provided by operating activities was $1.1 billion, compared to $1.3 billion during 2021. The change primarily was due to lower earnings of $265.1 million (after non-cash reconciling items), a decrease in accrued compensation of $200.8 million and a decrease in broker-dealer related payables (net of receivable and segregated U.S. Treasury Bills activity) of $169.2 million, partially offset by net activity of our consolidated company-sponsored investment funds of $252.0 million and an increase in fees receivable of $193.3 million. During 2021, net cash provided by operating activities was $1.3 billion, compared to $1.5 billion during 2020. The change primarily was due to net activity of our consolidated company-sponsored investment funds of $560.6 million, an increase in other assets of $75.7 million and higher net purchases of broker-dealer investments of $33.3 million, partially offset by higher earnings of $346.2 million, an increase in broker-dealer related payables (net of receivable and segregated U.S. Treasury Bills activity) of $72.9 million and an increase in accounts payable and accrued expenses of $25.2 million. During 2022, net cash used in investing activities was $22.0 million, compared to $65.7 million during 2021. The change is primarily due the acquisition of CarVal, net cash acquired of $40.3 million in 2022. During 2021, net cash used in investing activities was $65.7 million, compared to $59.1 million during 2020. The change is primarily due to higher purchases of furniture, equipment and leasehold improvements of $20.4 million, partially offset by lower cash paid for acquisitions, net of cash acquired, of $9.8 million and lower purchases of equity method investments of $4.1 million. During 2022, net cash used in financing activities was $1.1 billion, compared to $0.9 billion during 2021. The change reflects lower net purchases of non-controlling interests of consolidated company-sponsored investment funds in 2022 of $309.9 million, repayment of CarVal debt subsequent to acquisition of $42.7 million and an decrease in overdrafts payable of $41.6 million, partially offset by higher net borrowings of debt of $155.0 million and a decrease in the net purchases of AB Holding Units to fund long-term incentive compensation plans of $51.3 million. During 2021, net cash used in financing activities was $0.9 billion, compared to $1.1 billion during 2020. The change reflects the net purchases of non-controlling interests of consolidated company-sponsored investment funds in 2021 as compared to net redemptions in 2020 (impact of $532.7 million), partially offset by higher distributions to the General Partner and Unitholders of $223.0 million as a result of higher earnings (distributions on earnings are paid one quarter in arrears) and an increase in the net purchases of AB Holding Units to fund long-term incentive compensation plans of $113.2 million. As of December 31, 2022, AB had $1.1 billion of cash and cash equivalents (excluding cash and cash equivalents of consolidated company-sponsored investment funds and cash held for sale), all of which is available for liquidity but consist primarily of cash on deposit for our broker-dealers related to various customer clearing activities and cash held by foreign subsidiaries of $497.0 million. 54 AllianceBernstein Table of Contents Part II Debt and Credit Facilities See Note 12 to our consolidated financial statements in Item 8 for disclosures relating to our debt and credit facilities. Our financial condition and access to public and private debt markets should provide adequate liquidity for our general business needs. Management believes that cash flow from operations and the issuance of debt and AB Units or AB Holding Units will provide us with the resources we need to meet our financial obligations. See “Risk Factors” in Item 1A and “Cautions Regarding Forward-Looking Statements” in this Item 7 for a discussion of credit markets and our ability to renew our credit facilities at expiration. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations Guarantees Under various circumstances, AB guarantees the obligations of its consolidated subsidiaries. AB maintains a guarantee in connection with an $800 million committed, unsecured senior revolving credit facility (the " Credit Facility "). If SCB LLC is unable to meet its obligations, AB will pay the obligations when due or on demand. SCB LLC currently has five uncommitted lines of credit with five financial institutions. Four of these lines of credit permit us to borrow up to an aggregate of approximately $315.0 million, with AB named as an additional borrower, while the other line has no stated limit. AB has guaranteed the obligations of SCB LLC under these lines of credit. AB maintains guarantees totaling $415.0 million for SCB LLC’s five uncommitted lines of credit. AB maintains a guarantee with a commercial bank, under which we guarantee the obligations in the ordinary course of business of each of SCB LLC, our U.K.-based broker-dealer and our Cayman subsidiary. We also maintain three additional guarantees with other commercial banks under which we guarantee approximately $263.4 million of obligations for our U.K.-based broker-dealer and $99.0 million of obligations for our India-based broker-dealer. In the event that any of these three entities is unable to meet its obligations, AB will pay the obligations when due or on demand. We also have two smaller guarantees with a commercial bank totaling approximately $1.9 million, under which we guarantee certain obligations in the ordinary course of business of one of our foreign subsidiaries. We have not been required to perform under any of the above agreements and currently have no liability in connection with these agreements. Aggregate Contractual Obligations During 2010, as general partner of AllianceBernstein U.S. Real Estate L.P. (“ Real Estate Fund ”), we committed to invest $25.0 million in the Real Estate Fund. As of December 31, 2022, we had funded $22.4 million of this commitment. During 2014, as general partner of AllianceBernstein U.S. Real Estate II L.P. (“ Real Estate Fund II ”), we committed to invest $27.3 million, as amended in 2020, in the Real Estate Fund II. As of December 31, 2022, we had funded $21.6 million of this commitment. We have various compensation and benefit obligations, including accrued salaries and fringes, commissions, payroll taxes, incentive payments and deferred compensation arrangements. The majority of our compensation and benefits obligations are paid out in less than one year, while the deferred compensation obligations are payable over various periods, with the majority payable over periods of up to three years. Accrued compensation and benefits as of December 31, 2022 totaled $399.3 million. This amount excludes our accrued pension obligation. Offsetting our accrued compensation obligations are long-term incentive compensation-related investments and money market investments we funded totaling $49.2 million, which are included in our consolidated statement of financial condition. Any amounts reflected on the consolidated statement of financial condition as payables (to broker-dealers, brokerage clients and company-sponsored mutual funds) and accounts payable and accrued expenses are excluded from the aforementioned accrued compensation and benefits obligation amount. We expect to make contributions to our qualified profit sharing plan of approximately $17.5 million in each of the next four years. We do not currently anticipate that we will contribute to the Retirement Plan during 2023. The 2017 Tax Act (enacted in the U.S. on December 22, 2017) imposed a federal transition tax on mandatory deemed repatriation of certain deferred foreign earnings. Management elected to pay the transition tax in installments over an eight-year period from 2018 to 2025. The federal transition tax obligation as of December 31, 2022 totaled $11.7 million and is recorded to income tax payable on our consolidated statement of financial condition. See Note 21 to our consolidated financial statements in Item 8 for further discussion of our taxes. See Note 13 to our consolidated financial statements in Item 8 for discussion of our leases. See Note 12 to our consolidated financial statements in Item 8 for a discussion of our debt. 2022 Annual Report 55 Table of Contents Part II Contingencies See Note 14 to our consolidated financial statements in Item 8 for a discussion of our commitments and contingencies. Critical Accounting Estimates The preparation of the consolidated financial statements and notes to consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management believes that the critical accounting policies and estimates discussed below involve significant management judgment due to the sensitivity of the methods and assumptions used. Goodwill Our acquisitions are accounted for under the acquisition method of accounting, where the cost of the acquisition is allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. The excess of the purchase price over the fair value of identifiable assets acquired, net of liabilities assumed, results in the recognition of goodwill. On July 1, 2022, AB Holding acquired a 100% ownership interest in CarVal Investors L.P. (“ CarVal ”). Immediately following its acquisition of CarVal (the " CarVal acquisition "), AB Holding contributed 100% of its equity interests in CarVal to AB in exchange for AB Units (s ee Note 24 Acquisitions and Divestitures to our consolidated financial statements in Item 8) . On November 22, 2022, AB and SocGen, a leading Eu ropean bank, announced plans to form a joint venture combining their respective cash equities and research businesses. As such, the BRS business has been classified as held for sale and $159.8 million of goodwill recorded on the consolidated statement of financial condition has been allocated to the held for sale disposal group. As AB is a single reporting unit, we have allocated goodwill to the disposal group based on the relative fair values of (1) the disposal group and (2) the portion of the reporting unit that will be retained. For further discussion, see Note 24 Acquisitions and Divestitures to our consolidated financial statements in Item 8 . As of December 31, 2022, we had goodwill of $3.6 billion on the consolidated statement of financial condition, which included $666.1 million as a result of the CarVal acquisition in the third quarter of 2022, $2.8 billion as a result of the Sanford C. Bernstein Inc. (“ Bernstein ”) acquisition in 2000 and $291.9 million in regard to various smaller acquisitions. Approximately $159.8 million of goodwill has been classified as assets held for sale on the consolidated statement of financial condition. We have determined that AB has only one reporting segment and reporting unit. We test our goodwill annually, as of September 30, for impairment or if certain events or changes in circumstances occur and trigger an interim impairment test. The carrying value of goodwill is also reviewed if facts and circumstances occur that suggest possible impairment, such as, but not limited to significant transactions including acquisitions or divestitures and significant declines in AUM, revenues, earnings or the price of an AB Holding Unit. Any of these changes in circumstances could suggest the possibility that goodwill is impaired, but none of these events or circumstances by itself would indicate that it is more likely than not that goodwill is impaired. Instead, they are merely recognized as triggering events for the consideration of impairment and must be viewed in combination with any mitigating or positive factors. A holistic evaluation of all events since the most recent quantitative impairment test must be done to determine whether it is more likely than not that the reporting unit is impaired. For our annual impairment test, we utilize the market approach where the fair value of the reporting unit is based on its unadjusted market valuation (AB Units outstanding multiplied by AB Holding's Unit price) and earnings multiples. The price of a publicly traded AB Holding Unit serves as a reasonable starting point for valuing an AB Unit because each represents the same fractional interest in our underlying business. Our market approach analysis also includes comparable industry earnings multiples applied to our earnings forecast and assumes a control premium (when applicable). The announcement of the joint venture between AB and SocGen and classification of the BRS business as held for sale during the fourth quarter of 2022 was a triggering event requiring an interim impairment test; as such, we tested our goodwill as of December 31, 2022. The impairment test indicated that goodwill was not impaired. Under ASU 2017-04, Simplifying the Test for Goodwill Impairment, a goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Under this guidance, the goodwill impairment test no longer includes a determination by management of whether a decline in fair value is temporary. However, it is important that management's determination of fair value reflect the impact of changing market conditions, including the severity and anticipated duration of any such changes. 56 AllianceBernstein Table of Contents Part II Business Combinations We account for business combinations using the acquisition method of accounting whereby the identifiable assets and liabilities of the acquired business, as well as any noncontrolling interest in the acquired business, are recorded at their estimated fair values as of the date that we obtain control of the acquired business. Any purchase consideration in excess of the estimated fair values of the net assets acquired is recorded as goodwill. Acquisition-related expenses are expensed as incurred. Often, as part of the business combination, intangible assets are recorded based on their estimated fair value at the time of acquisition and primarily relate to acquired investment management contracts. We periodically review indefinite-lived intangible assets for impairment as events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value exceeds fair value, we perform additional impairment tests to measure the amount of the impairment loss, if any. We periodically enter into contingent payment arrangements in connection with our business combinations. In these arrangements, we agree to pay additional consideration to the sellers to the extent that certain performance targets are achieved. We estimate the fair value of these potential future obligations at the time a business combination is consummated and record a liability on a discounted basis on our consolidated statement of financial condition. We then accrete the obligation to its expected payment amount over the measurement period. If our expected payment amount subsequently changes, the obligation is modified in the current period resulting in a gain or loss. Both gains and losses resulting from changes to expected payments and the accretion of these obligations to their expected payment amounts are reflected within contingent payment arrangements in our consolidated statements of income. Several valuation methods may be used to determine the fair value of assets acquired and liabilities assumed. For intangible assets and contingent liabilities, we typically use a method that is a form of the income approach, whereby a forecast of future cash flows attributable to the asset are discounted to present value using a risk-adjusted discount rate. Similarly for contingent liabilities, we develop a forecast of future cash flows attributable to the performance objectives that are then discounted to present value using a risk-adjusted discount rate. Some of the more significant estimates and assumptions inherent in the income approach include the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows. See Note 24 Acquisitions and Divestitures to our consolidated financial statements in Item 8 . Assets and Liabilities Held for Sale The Company classifies assets and liabilities to be sold (disposal group) as held for sale in the period when all of the applicable criteria are met, including: (i) management commits to a plan to sell, (ii) the disposal group is available to sell in its present condition, (iii) there is an active program to locate a buyer, (iv) the disposal group is being actively marketed at a reasonable price in relation to its fair value, (v) significant changes to the plan to sell are unlikely, and (vi) the sale of the disposal group is generally probable of being completed within one year. Management performs an assessment of held for sale at least quarterly or when events or changes in business circumstances indicate that a change in classification may be necessary. Assets and liabilities held for sale are presented separately within the consolidated statements of financial condition with any adjustments necessary to measure the disposal group at the lower of its carrying value or fair value less costs to sell. Depreciation of property, plant and equipment and amortization of intangible and right-of-use assets are not recorded while these assets are classified as held for sale. For each reporting period the disposal group remains classified as held for sale, the carrying value of the disposal group is adjusted for subsequent changes in fair value less costs to sell. A loss is recognized for any subsequent decrease in fair value less costs to sell, while a gain is recognized in any subsequent period for any subsequent increase in fair value less cost to sell, but not in excess of the cumulative loss previously recognized. If, in any period, the carrying value of the disposal group exceeds the estimated fair value less costs to sell, a loss is recognized on sale rather than an impairment loss. Loss Contingencies Management continuously reviews with legal counsel the status of regulatory matters and pending or threatened litigation. We evaluate the likelihood that a loss contingency exists and record a loss contingency if it is both probable and reasonably estimable as of the date of the financial statements. See Note 14 to our consolidated financial statements in Item 8 . 2022 Annual Report 57 Table of Contents Part II Accounting Pronouncements See Note 2 to our consolidated financial statements in Item 8. Cautions Regarding Forward-Looking Statements Certain statements provided by management in this report 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, integration of acquired companies, competitive conditions and government regulations, including changes in tax regulations and rates and the manner in which the earnings of publicly-traded partnerships are taxed. We caution readers to carefully consider such factors. Further, these forward-looking statements speak only as of the date on which such statements are made; we undertake 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” in Item 1A . Any or all of the forward-looking statements that we make in this Form 10-K, other documents we file with or furnish to the SEC, and any other public statements we issue, may turn out to be wrong. It is important to remember that other factors besides those listed in “Risk Factors” and those listed below could also adversely impact our revenues, financial condition, results of operations and business prospects. The forward-looking statements referred to in the preceding paragraph, most of which directly affect AB but also affect AB Holding because AB Holding’s principal source of income and cash flow is attributable to its investment in AB, include statements regarding: • Our belief that the cash flow AB Holding realizes from its investment in AB will provide AB Holding with the resources it needs to meet its financial obligations: AB Holding’s cash flow is dependent on the quarterly cash distributions it receives from AB. Accordingly, AB Holding’s ability to meet its financial obligations is dependent on AB’s cash flow from its operations, which is subject to the performance of the capital markets and other factors beyond our control. • Our financial condition and ability to access the public and private capital markets providing adequate liquidity for our general business needs: Our financial condition is dependent on our cash flow from operations, which is subject to the performance of the capital markets, our ability to maintain and grow client assets under management and other factors beyond our control. Our ability to access public and private capital markets on reasonable terms may be limited by adverse market conditions, our firm’s credit ratings, our profitability and changes in government regulations, including tax rates and interest rates. • The outcome of litigation: Litigation is inherently unpredictable, and excessive damage awards do occur. Though we have stated that we do not expect any pending legal proceedings to have a material adverse effect on our results of operations, financial condition or liquidity, any settlement or judgment with respect to a legal proceeding could be significant, and could have such an effect. • The possibility that we 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 depends on various factors, some of which are beyond our control, including the fluctuation in the price of an AB Holding Unit (NYSE: AB) and the availability of cash to make these purchases. • Our determination that adjusted employee compensation expense, excluding the impact of performance-based fees, generally should not exceed 50% of our adjusted net revenues on an annual basis: Aggregate employee compensation reflects employee performance and competitive compensation levels. Fluctuations in our revenues and/or changes in competitive compensation levels could result in adjusted employee compensation expense exceeding 50% of our adjusted net revenues. • The adverse impact of COVID-19: The aggregate extent to which COVID-19, including its impact on the global economy, affects AB’s business, liquidity, results of operations and financial condition, will depend on future COVID-19 developments that are highly uncertain, including the scope and duration of the disease and any recovery period, the emergence, spread and seriousness of COVID-19 variants, the continuing prevalence of severe, unconstrained and/or escalating rates of infection and hospitalization in various countries and regions, the availability, adoption and efficacy of treatments and vaccines, and future actions taken by governmental authorities, central banks and other parties in response to COVID-19. • The impact of our acquisition of CarVal: The impact of our acquisition of CarVal: These statements concern expected growth, client and stockholder benefits, key assumptions, revenue realization, financial benefits or returns, accretion and integration costs. Actual results may differ materially from future results expressed or implied by our forward-looking statements as a result of similar risks to those that impact our other similar business lines, as well as the risk that we are not able to realize the anticipated benefits of the transaction, including the realization of revenue, accretion, and financial benefits or returns, in full or that we may take longer to realize benefits than expected, due, among other reasons, to the 58 AllianceBernstein Table of Contents Part II challenges of integrating a new business and personnel. The anticipated benefits may also be adversely impacted by the risk that AB Holding units to be issued after the closing are issued at a price below anticipated levels. We caution readers to carefully consider such factors. • Our Relocation Strategy: While many of the expenses, expense savings and EPU impact we expect will result from our Relocation Strategy are presented with numerical specificity, and we believe these figures to be reasonable as of the date of this report, the uncertainties surrounding the assumptions on which our estimates are based create a significant risk that our current estimates may not be realized. These assumptions include: • the amount and timing of employee relocation costs, severance, and overlapping compensation and occupancy costs we experience; and • the timing for execution of each phase of our relocation implementation plan.