Equitable Holdings, Inc. Third Quarter Earnings Call - EQUITABLE HOLDINGS INC

Financial Performance:

• Non-GAAP operating earnings per share (excl. notable items) reached $1.98, up 19% year-over-year; year-to-date EPS growth is 22%, exceeding the >15% guidance.
• Consolidated non-GAAP operating earnings were $595 million ($2.13/share), while net income was $1.1 billion ($4.05/share).
• Assets under management and administration (AUMA) totaled $1.2 trillion, up 4% year-over-year, driven by positive net flows and equity market appreciation.
• Retirement segment net interest margin (NIM) increased 12% YoY; fee-based revenues rose 16% YoY.
• Alliance Bernstein (AB) reported $152 million in earnings (flat YoY) with total AUM of $900 billion.
• Wealth Management earnings grew 27% YoY to $75 million, driven by 22% growth in advisory assets and 14% increase in advisor productivity.
• Corporate & Other reported a loss of $82 million (excl. notable items); full-year forecast remains $350–$400 million loss.
• Returned $320 million to shareholders (59% payout ratio in Q3; 66% YTD), staying within the 60–70% target range.
• Holding company cash and liquid assets ended at $900 million; full-year 2026 cash generation forecast remains $1.8 billion (excluding Hartford proceeds).
• Adjusted book value per share (excl. AOCI) was $34.25, with an adjusted leverage ratio of 25.5%.

Guidance and Future Outlook:

• Full-year 2026 non-GAAP EPS growth guidance remains >15%.
• Merger with CoreBridge expected to close in Q4 2026; regulatory approvals anticipated to be finalized in the quarter.
• Full-year 2026 non-GAAP operating earnings per share guidance excludes notable items and aligns with the 22% YTD growth trend.
• AB full-year performance fee guidance raised to $135–$150 million (implying $62–$77 million for Q4).
• Q4 2026 NIM expected to normalize toward H1 2026 levels as timing factors (cash drag, RILA resets) resolve.
• Q4 2026 alternatives return guidance lowered to low single digits due to interest rate pressure on real estate; long-term target remains 8–12%.
• Post-merger synergy targets: $100 million in run-rate savings realized in H1 2027, on track for $150 million Year 1 savings and $500 million by end of 2028.
• New Equitable projected to generate over $70–$80 billion in annual liabilities, with AB and partners (BlackRock, Blackstone) positioned to manage significant portions.
• Long-term outlook emphasizes capture of the $50+ trillion U.S. retirement market, demographic wealth transfer, and decumulation needs.

Business Segments and Product Lines:

• Retirement: Reported $1.1 billion in net inflows driven by 14% sales growth; record RILA sales of $4.2 billion and $5.5 billion total individual retirement sales.
• Wealth Management: Recorded $2.7 billion in advisory net inflows; advisor productivity up 14%; headcount flat but aging demographic (avg. age 10 years below industry) supports renewal.
• Alliance Bernstein: Reported $6.6 billion in net inflows (institutional strength offsetting retail/private wealth outflows); private markets AUM hit $105 billion (up 33% YoY).
• Strategic Expansions: AB onboarded $12 billion in commercial mortgage loans from Equitable to enhance private markets capabilities; fees begin Q4.
• Divestiture: Sold employee benefits business to Hartford effective October 1st; proceeds to be redeployed into core scale businesses.
• Product Focus: Strong demand for protected equity solutions (RILAs), annuities, and guaranteed retirement income; tax-deferred annuity sales continue to outpace.

Market and Competitive Landscape:

• U.S. retirement asset pool exceeds $50 trillion, growing at a 7% CAGR over the past decade; over $1 trillion in IRA rollovers annually.
• Combined Equitable and CoreBridge hold ~10% market share with $48+ billion in trailing 12-month annuity sales, the largest in the industry.
• New Equitable will be the only entity with a top-five position in every major product category (retirement, asset management, wealth management).
• Competition in the annuity space remains disciplined; no new major entrants in the RILA space since Q1 2025.
• Regulatory shifts (NAIC rules on offshore investments) viewed as net positive, favoring trusted, highly capitalized brands.
• Demographic tailwinds: 4 million Americans turning 65 annually and a massive wealth transfer to the next generation drive long-term demand.

Risks and Challenges:

• Interest Rate Sensitivity: Higher rates create timing mismatches in spread returns (RILAs resetting faster than asset yields) and pressure real estate equity returns in the alternatives portfolio.
• Credit Risk: Maintaining rigorous underwriting and stress testing for credit and commercial mortgage loan (CML) portfolios; RBC ratio remains above 430% in stress scenarios.
• Lapse Rates: Recent assumption updates reflect higher lapse rates, accelerating DAC amortization (non-cash), though pricing assumes economic reality.
• Market Volatility: Negative fixed income returns partially offset positive net flows in AB's AUM.
• Integration Risk: Execution of the merger integration and realization of the $500 million synergy target by 2028.

Management Commentary and Tone:

• Management expressed high confidence in the company's momentum and the strategic value of the CoreBridge merger.
• Mark Pearson (outgoing CEO) praised the team's execution over 15 years and transitioned to Executive Chair, expressing excitement for the combined entity under Mark Constantini.
• The tone was optimistic regarding the "flywheel" effect between Equitable's distribution and AB's asset management capabilities.
• Emphasis placed on "profitable growth" rather than just top-line expansion, with a focus on unit cost reduction via scale.
• Management highlighted the differentiated ability to source liabilities and the full value-chain business model (manufacturer, distributor, asset manager).

Analyst Questions and Answers:

• Interest Rates: Confirmed high rates are net positive for business (driving annuity sales) despite short-term spread noise and real estate pressure; $40M operating earnings sensitivity per 50bps.
• Flows: Retirement flows dipped from Q2 ($1.7B) to Q3 ($1.1B) due to seasonal group retirement factors and market rotation; individual retirement remained robust.
• Advisor Headcount: Wealth management advisor count flat, but productivity up; pipeline of 2,000 advisors and younger average age compared to industry.
• Reinsurance Adjustment: $37 million out-of-period benefit was an accounting timing true-up (RGA), not a cash flow change or economic adjustment.
• Synergies: $100 million of run-rate savings already identified via leadership consolidation and headcount reduction, on track for $150M Year 1 savings.
• Private Wealth: AB sees renewed demand in private wealth; retail flows returning to normalized trends after September outflows.
• Hartford Proceeds: Confirmed sale proceeds will be deployed to scale businesses, not for buybacks; $1.8B cash flow target excludes these funds.

Other Key Points:

• Board of directors for the new Equitable (post-merger) has been selected; top 500 leaders named to ensure immediate operational readiness in January.
• Tax rate guidance remains consistent at 20% for the quarter.
• AB's adjusted margin increased 50 basis points sequentially, despite a decline in base fee rate due to fee mix and timing of the CML portfolio.
• The merger will reset GAAP shareholders' equity to reflect fair value, improving book value and ROE visibility.
• AI and technology leverage are highlighted as key differentiators for integrating the two organizations and improving customer experience.