Equitable Holdings, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strong Growth: Non-GAAP operating earnings were $501 million or $1.53 per share, up 34% year-over-year on a per share basis. Assets under management and administration surpassed $1 trillion.
• Segment Execution: Retirement saw $1.7 billion net inflows, Asset Management had third consecutive quarter of net flows, and Wealth Management had record advisory inflows.
• Competitive Position: Equitable's integrated business model allows capture of the full retirement value chain, partnering with AB for asset sourcing and benefiting from distribution, fees, cost of funds, and G&A expense advantages.
• Financial Details: Non-GAAP EPS was $1.59, up 22% YOY; assets under management up 20% to $1 trillion. Tax rate details provided, with insurance segments having favorable tax settlements.
• Macro Sensitivities: Interest rates and equity markets impact earnings and sales, but hedging protects balance sheet; cash balances and yield curve effects discussed.
• Capital Management: Returned $330 million to shareholders, expects upper end of $1.4 billion to $1.5 billion cash generation guidance for 2024, exploring balance sheet optimization.

Segment Performance

• Retirement: Sustained demand drove net inflows of $1.7 billion in the quarter. Individual Retirement had a 9% trailing 12-month organic growth rate, but Group Retirement benefited from earnings leverage to rising markets while Individual Retirement earnings declined sequentially.
• Asset Management (AB): Reported third consecutive quarter of organic growth with total net inflows of $1.1 billion and active net inflows of $2.2 billion. AB expects a baseline adjusted operating margin of 33% in 2025 assuming neutral markets, with real estate relocation contributing margin expansion.
• Wealth Management: Reported record advisory net inflows of $1.9 billion, and assets under administration exceed $100 billion.

Guidance

• 2024 Cash Generation: Expect the high end of the $1.4 billion to $1.5 billion cash generation guidance.
• Asset Management Margin: AB anticipates a baseline adjusted operating margin of 33% in 2025 assuming flat markets.
• Payout Ratio: 65% payout ratio within the 60%-70% target range.
• Long-Term Cash: Confident in achieving $2 billion annual cash generation by 2027.

Risks

• Market Volatility: Impact of interest rate and equity market movements on earnings and sales.
• Competition: New competitors entering the RILA business, potential share loss but confident in business model's advantages.
• Mortality Volatility: Protection segment can experience volatility due to high face amount policies.

Question and Answer

Q: Suneet Kamath asked about annuity sales strength and risk to growth outlook.

A: Mark Pearson stated demographics continue to grow, awareness is high, and risks include lower rates affecting fixed annuities but RILA benefiting; Nick Lane emphasized focus on leveraging unique business model in growing market.

Q: Tom Gallagher inquired about market value adjustment gains in individual retirement.

A: Robin Raju said there will be quarterly noise but margins are strong, with NIM up 5% YOY, and over the last 10 quarters, the average impact is $15 million.

Q: Ryan Krueger asked about BlackRock LifePath Paycheck product flows.

A: Mark Pearson said no flows expected in Q4 but anticipate flows in first half of 2025, with 2027 cash targets not reliant on this business.

Q: Joel Hurwitz asked about protection mortality.

A: Robin Raju said protection is a small part of earnings, within $200 million to $300 million annual guidance, with mortality in line with expectations but some volatility.

Q: Alex Scott asked about protection mortality performance.

A: Robin Raju confirmed protection is on track to meet $200 million to $300 million guidance, with mortality in line and volatility manageable.

Q: Nick Anita asked about capital buffer.

A: Robin Raju explained HoldCo cash fluctuates based on dividend timing, expects to reduce excess cash systematically while investing in growth and returning capital.

Q: Wilma Burdis asked about investment management flows.

A: Onur Erzan said AB had strong active net flows, positive in fixed income and equities, with alternatives franchise on track to $100 billion goal.

Q: Mark Hughes asked about AB margin sensitivity.

A: Jacqueline Marks said AB expects 33% margin in 2025 assuming flat markets, with further margin expansion expected over time; Robin Raju added on annuitization in individual retirement.