Ladies and gentlemen, thank you for standing by. Welcome to the SEI Third Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for questions and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I'd now like to turn the conference over to Chairman and CEO, Al West. Please go ahead..

Welcome everyone. All of our segment leaders are on the call as well as Dennis McGonigle, SEI's CFO; and Kathy Heilig, SEI's Controller. I'll start by recapping the third quarter 2019. I'll then turn it over to Dennis to cover LSV and the investment in new business segment.

After that, each of the business segment leader's will comment on the results for their segments, with one exception. Since Wayne Withrow is on vacation, Steve Onofrio, Head of Sales and Service for the Investment Advisors Segment will report on that business. Then finally, Kathy Heilig will provide you some important company-wide statistics.

As usual, we will field questions at the end of each report. So let me start with the third quarter of 2019. Third quarter earnings increased by 3% from a year ago. Diluted earnings per share for the third quarter of $0.86 represents, an 8% increase from the $0.80 per share reported for the third quarter of 2018.

We also reported a 2% increase in revenue from third quarter 2018 to third quarter 2019. Also during the third quarter of 2019, our non-cash asset balance under management increased by $1 billion. At the same time, LSV assets under management decreased by $3.3 billion.

These increases in AUM were primarily due to market appreciation, while the decreases were caused by negative cash flow. A milestone was reached at the end of the quarter. SEI reached the $1 trillion mark in total assets under management, assets under administration and advised assets.

In addition, during the third quarter of 2019, we repurchased approximately 1.4 million shares of SEI stock at an average price of $58.12 per share. That translates to $81.4 million of stock repurchases during the quarter.

Finally, in the third quarter, as part of the investments we make to create growth, we capitalized approximately $7.3 million of the SWP development and amortized approximately $12 million of previously capitalized SWP and IMS development.

Third quarter 2019 sales events, net of client losses totaled approximately $42.7 million and are expected to generate net annualized recurring revenues of approximately $33.2 million. We are satisfied with our third quarter sales results in our technology and operational businesses, and we are becoming bullish about our future.

While slow contract negotiations in this tightly regulated environment is still considered a headwind, we are becoming less troubled as our active pipelines grow. Our asset management businesses continue to face with headwinds, while our advisor business began to see positive flows during the quarter. The institutional investment business with U.S.

corporate DB plans continues to be a challenge. Now all that being said, there are bright spots. One is that across the company, we have fully engaged sales teams and a lot of activity. Two, IMS sales continue to be strong; three, the advisor – I'm sorry, the migration of advisors to SWP is now behind us. This allows our full attention to be on growth.

And now four, we signed significant new SWP business. And fifth and last, we are moving forward with some of our promising new initiatives. Our market unit heads will speak to the bright spots and their specific sales activities. This concludes my formal remarks.

So I'll now turn it over to Dennis to give you an update on LSV and the investment in new business segment. I'll then turn it over to the other business segment heads.

Dennis?.

Thanks, Al. Good afternoon, everyone. I will cover the third quarter results for the investments in new business segment and discuss the results of LSV Asset Management.

During the third quarter of 2019, the investments in new business segment continued its focus on the ultrahigh net worth investor segment through our private wealth management group and additional research initiatives, including the digital services and hosting opportunity and the modularization of larger technology platforms and the standalone components for the wealth management and investment processing space.

During the quarter, the investments in new business segment incurred a loss of $4.5 million, which compared to a loss of $2.9 million during the third quarter of 2018. This increase in loss reflects the growth of our private wealth management business more than offset by other areas of investment.

Regarding LSV, our earnings from LSV represent our approximate 39% ownership interest during the third quarter. LSV contributed $37.6 million in income to SEI during the quarter. This compares to a contribution of $41.7 million in income during the third quarter of 2018. Assets during the third quarter were down approximately $3.3 billion.

LSV experienced net negative cash flow during the quarter of approximately $3.5 billion, which was offset by market appreciation. Revenue for LSV was approximately $121.2 million and performance fees were minimal. Our effective tax rate for the quarter was 18.9%. And I will now take any questions..

[Operator Instructions] And we actually have no lines queuing up at this time..

Okay. Thank you, Dennis. I'm now going to turn it over to Steve Meyer to discuss our Private Banking segment.

Steve?.

The two deals previously discussed on our second quarter call. As a reminder, they are CIBC U.S. private wealth management, who is a leading North American financial institution, its U.S. private wealth management business offers investment management, wealth strategies and legacy planning solutions.

The second was a long time client law firm Dorsey & Whitney. During the quarter, we also signed two additional clients to SWP. Both our existing Trust 3000 clients, which are scheduled to migrate their existing books of business to the SEI Wealth Platform in the second half of 2020.

Additionally, as you might have seen in the press, we are pleased to announce that after the quarter end, but before today's call, we entered into an agreement with the Principal Financial Group to provide our Trust platform to service their acquired Wells Fargo Institutional Retirement and Trust business.

The deal is not included in our announced events for this quarter and we will work over this quarter to finalize the contract. This deal is significant for us not only from a financial standpoint, but also Principal as a market leader and we are encouraged about the opportunity to expand our relationship from here.

And turning to an update on our TRUST 3000 business. In the third quarter, we successfully converted three TRUST 3000 clients to the SEI Wealth Platform. They were BMO Wealth Management, Rockland Trust Company, and Security and Trust company.

All three conversions went very well and demonstrated our ability to increasingly scale our implementation strategy as well as prove our value proposition against the increasingly aggressive competition. We also re-contracted one Trust client with the contract term of five years.

As an update on our backlog, our total signed, but not installed backlog is approximately $48.6 million in net new recurring revenue, not including the Principal business mentioned previously.

From an asset management standpoint, total assets under management ended the period at $22.6 billion, representing flat quarter-over-quarter and slightly lower year-over-year assets. We did see negative cash flows of $106 million, however, we continue to build a strong global pipeline in our AMD business. Turning to a couple of client updates.

First an update on the Department of Interior business that we previously disclosed will be leaving us. After several rescheduled conversion date, this business did reconvert offer Trust platform at the end of the third quarter.

The full effect of that loss will be in our fourth quarter numbers and as mentioned several times before, we will need to navigate this headwind, as we continue to gain momentum and grow our business. Also during the quarter, we worked with Wells Fargo on a number of initiatives.

As mentioned previously, Wells has recently sold their institutional retirement and Trust business. Also as disclosed in the past, Wells continues to have other important and impressing technology projects and have recently had the appointment of a new CEO.

In light of the need to change parties, Wells Fargo has informed us that it must pause the scheduled SWP implementation in order to redirect resources to other more immediate technology leads, including the IRT conversion.

SEI is working closely with Wells Fargo on these other priorities and we will be providing Wells with professional service support around these initiatives. Currently no dates have been finalized for when the SWP implementation will restart and we will work with Wells in their current priorities in the interim.

These recent developments have demonstrated to us that there are factors that have significant influence over Wells expense and business priorities that are not within our control. Consequently, we cannot reasonably estimate the timing of implementation. Accordingly, we will not be giving updates on new conversion dates until Wells finalizes them.

More importantly, we will focus on the momentum of the business is generating both the U.S. and U.K. and focus on implementing our current growing backlog, including the conversion of the IRT business, which will result in a new client to SEI to Principal Financial Group. In closing, I would like to highlight our momentum.

As you can see by our backlog of signed, yet to be installed clients combined with our market activity, we feel resurgence of growth momentum. We have an active pipeline across the U.S. and U.K. and look to continue that momentum into 2020.

We feel well-positioned to grow our private banking business and feel we have great opportunity offering the power and capabilities of all of SEI's Technology and Processing platforms across the wealth management market. We are excited for the future. That concludes my prepared remarks and I'll now turn it over for any questions you may have..

[Operator Instructions] We do have a question from Robert Lee with KBW. Please go ahead..

Great. Thanks. Good afternoon, Steve..

Good afternoon, Rob..

Quick question. So just to make sure I understand kind of the moving pieces. The $18.8 million of net sales, I mean, if I remember correctly when you had talked about CIBC and the other transaction in the last earnings call.

That was about $16 odd million of recurring sales, is that $18.8 million kind of include that $16 million, the new and then you're also backing out Wells from that?.

No. So you're right, up until the Wells point. So if you remember, we announced CIBC, you heard I mentioned CIBC at the end of the second quarter call, we did not include that in those events. They are included in Q3 events the $18.8 million. Wells has no impact on that net sales number. They are still a client and we still have them in the backlog.

That is a net number though that $18.8 million, so it takes in the sales, the gross sales we had minus any net downs or losses in clients for the quarter as normally we announced..

And did I have it correct that the Wells and the other one were about $16 million recurring, you had announced them in the last quarter?.

You keep mentioning Wells, I think, Rob, if I'm not -- if I'm hearing….

CIBC, sorry..

CIBC. Yeah, CIBC is the other one we announced last quarter at $16.2 million. And then we had other events this quarter. There is other events plus CIBC. And I believe it was Dorsey, minus any net downs or losses is what results in the net $18.8 million for the quarter..

Okay. Great. Thanks for taking my question..

Sure, no problem..

Thank you. And for our next question, we'll go to Chris Donat at Sandler O'Neill. Please go ahead..

Hey, good afternoon, Steve..

Good afternoon, Chris..

Just on the Department of Interior contract, can you remind us what the revenue -- the expected revenue hit should be in the fourth quarter and is there are any expense offset you expect for fourth quarter or over time with that?.

Well, Chris, not to be smart, but we never really told you the amount. We don't really talk to specific amount. I think there was speculation on the amount. But it is a larger amount, it was a very profitable account. And again, that will all come out in Q4, but we don't specifically tie revenue to individual clients..

Okay.

And then just on the expense side, there is -- should I assume that there is -- will there be any expense change related to this or not really?.

A very little expense change..

Okay. All right..

Any of those expense savings we've been working on all along the way. So, very little..

Thank you. And we'll move now to Chris Shutler at William Blair. Please go ahead..

Hi, Steve, how are you?.

Good.

How are you, Chris?.

Good. So let's see, the -- I wanted to talk about the new conversions that happened in the quarter.

So BMO and the other two, how should we think about the incremental revenue that we will see in Q4 from the combination of those clients relative to the current quarter -- to Q3?.

Well, I'd say two things. One, keep in mind on Trust, Chris, typically there -- we only announce in the events, we announce them. We only announce the net up from the SWP pricing from the Trust 3000. Two, I would say the net uptick in revenue from them and others will be somewhat muted by the Department of Interior loss and other losses.

So it will probably get lost a little bit in the shuffle of the revenue decreases versus the revenue increases..

Okay.

And then the -- I know, it's tough to isolate clients but like Wells is the fact that they are kind of putting a pause on things, how does that impact the P&L?.

Wells is still an active client and a large client for Trust 3000 and will continue to be. And also we will continue as I mentioned in the script, we will continue to work with them on a number of initiatives that we can -- currently are working on with them, but also some new initiatives on some of the new projects they have.

So I would expect some of our one-times and implies to continue..

Okay. And then lastly, Trust 3000 attrition and net downs, you mentioned a couple of times.

Could you maybe give any more specifics on what happened in the quarter there if anything?.

We did have one loss of Trust 3000 client that was netted out of our events and we also had one re-contract for 5 years that I mentioned..

And now in -- the net down?.

Well, there was a net down of revenue from the lost clients that we netted against our gross event. But that is in that net $18.8 million..

Okay. Thank you..

[Operator Instructions] We do have a follow up from Robert Lee at KBW. Please excuse me, no, we have no one in queue at this time now..

Thank you, Steve. And our next segment today is Investment Managers and Steve Meyer will also discuss this segment.

Steve?.

Great. Thanks again, Al. And turning to Investment Managers, for the third quarter of 2019, revenues for the segment totaled $112.2 million, which was $10.9 million or 10.8% higher as compared to our revenue in the third quarter of 2018. This year-over-year revenue increase was due primarily to net new client funding and existing client expansion.

Our quarterly profit for the segment of $40.3 million was $4.3 million or 12% higher as compared to the third quarter of 2018. Higher profits were primarily driven by an increase in revenue, offset by a smaller increase in personnel expense and investments.

Third-party asset balances at the end of the third quarter of 2019 were $638 billion or 5.1% higher as compared to the asset balances at the end of the second quarter of 2019. This was due to an increase in assets due to net new client fundings of $21.1 billion, as well as market appreciation of $9.8 billion.

And turning to market activity, during the third quarter of 2019, we had a very strong sales quarter with net new business events totaling $15.1 million in recurring revenues. Encouragingly, these sales were diverse and spanned our entire business and included both new-name business and expansion of wallet share with current clients.

These events included the following highlights, in our alternative market unit, in the third quarter we converted a $16 billion debt the workshop from a competitor and launched several new multi-billion dollar funds to our growing private equity business.

In our traditional market units, we continue to have success across all product lines and particularly in collective investment trusts. We are also pleased to announce a mandate one in our 40 Act turnkey series Trust from $1 trillion global manager who is establishing a family of mutual funds.

SEI Archway had new sales events in both the single-family office and multi-family office market segments. At the end of the third quarter, our backlog of announced, but not yet converted business was $39.6 million, an increase of $1.2 million over the end of the second quarter of 2019.

From a market standpoint, we remain excited at the growth opportunities ahead of us. Our vision is to provide the leading integrated platform covering the front, middle and back office for wealth managers.

We feel the investments we have made in our technology and platforms have not only differentiated us, but they are resonating extremely well in the market. That concludes my prepared remarks, and I will now turn it over for any questions you may have..

[Operator Instructions] We go to Chris Shutler at William Blair. Please go ahead..

All right.

The expenses in the quarter, Steve, look like they bumped up about $3 million quarter-over-quarter, just what was that related to how much of that was performance related given the strong sales?.

Well, keep in mind, Chris, so sales we amortize, so it's less of the sales compensation, if that was your question.

The $3 million was primarily a little bit like the private banking market, we had the impact of mid-year market compensation adjustments, we also had an increase in investments and an increase of -- obviously, we're bringing in business faster. So we're obviously hiring and adding people..

So we should look at the -- I guess, we should look at that third quarter number as a jumping-off point for subsequent quarters?.

I wouldn't say that necessarily. I would say, depending on where we stick with investments and we continue to look to scale the business. I think I've said this before, it's tough to look at a quarter-over-quarter look from -- especially from an expense standpoint.

As you can see, we're in a pretty good sales mode and I want to keep that sales mode up and certainly adding the expense we have to add to support that revenue. So depending on quarter-over-quarter that will impact it..

Okay. And then just I wanted to also ask about the trillion dollar manager.

Could you just explain that a little bit more, what exactly you want and who this client is?.

Well, certainly, we can't mention the name, but it's a very large manager and similar to what we've looked at with other business, we think this is an initial product that they are looking to start.

They have quite a bit of funding to start a range of mutual funds that they have been looking for and they're asking us to provide the full service, full front, middle, back-office and we are looking at this as an opportunity to starting new relationship and expand from there..

All right. Thank you..

At this time, there are no more questions in queue. Please continue..

Thank you, Steve. Our next segment is Investment Advisors. Steve Onofrio standing in for Wayne Withrow, will cover this segment.

Steve?.

Thanks, Al. In the third quarter of 2019, we continue to build sales momentum after the completion of the migration onto the SEI Wealth Platform. We also continued our focus on value-added technology development and client technology adoption. Third quarter revenues totaled $103 million, up only slightly from the third quarter of last year.

These results were primarily driven by market appreciation, offset in part by negative cash flow in the first six months of this year. Expenses were down over 3% from last year's third quarter, savings were realized in most categories with technology leading the way.

We did have increased direct cost primarily tied to our managed accounts growth, but other savings more than offset these increases.

Our profits increased $2.2 million from last year's third quarter due to cost savings, assets under management were essentially flat from the third quarter of 2018 with market appreciation being offset by negative cash flow. During the third quarter, our net cash flow was a positive $70 million.

We are encouraged with our quarterly progress as we regain sales traction. We recruited 75 new advisers during the quarter and our pipeline of new advisers remains active. In summary, during the third quarter, we posted a good profit results and while cash flow is short of where it needs to be, it is trending in the right direction.

We are focused on reaping the benefits of the SEI Wealth Platform now that we are fully migrated. I welcome any questions you may have..

[Operator Instructions] We first go to Glenn Greene at Oppenheimer. Please go ahead..

Yeah. Hey, good afternoon.

Could you just give us any color on if you're getting any traction, given that you've now converted to SWP in terms of new pools of assets or higher -- bigger advisers or just sort of a different pool of advisers that might be being attractive, it's not really showing up yet in the flows, but it give us a sense for what you're seeing in terms of business activity..

Well, whether they would be a larger advisers or a larger share of an adviser's book. The expanded services of the Wealth Platform include the ability to consolidate advisers on one platform. I think it would be a good option to a broader segment of advisers as we move forward..

Okay. Thank you..

And next we'll go to Robert Lee at KBW. Please go ahead..

Great. Thanks for taking my question. Just also give me a little bit of color on the flows. I mean, you mentioned kind of feel like you're seeing some benefit from re-engagement of sales. But are you seeing, our advisers kind of starting to reengage more of their clients.

I mean, kind of lack of better way of putting in any signs kind of re-risking or whatnot? Or is this really just a function of more sales, I mean, out there, more focused on generate.

Just trying to get a sense of kind of the underlying momentum?.

I don't think its necessary related to the advisers clients re-risking. I think we're encouraged by the sales that we have in the short term, we're headed in the right direction.

It's difficult to predict going forward, but we have seen a correlation between the time that we spend with the advisers helping them to adopt the technology, the new Wealth Platform technology after the migration and the ease in doing business with SEI, so we're seeing a correlation in asset growth based on that work that we've been doing..

And maybe just one follow-up, I think Wayne -- Wayne has definitely talked in the past about, you've been seeing good demand for your -- I guess your ETF allocation product, which I assume has somewhat lower fee structure compared to more traditional products.

Is that still the case and, I guess, to some degree, maybe been a little bit surprise that the fee rate, if you just look at revenue to average AUM has held up pretty well, despite kind of some of the underlying shifts.

So I don't know if there is -- are we making too much of this kind of movement to the ETF kind of allocation product or kind of what's helping support kind of fee rate where it is?.

Well, I think you're right, I mean, fee pressure is real in the industry and we've only had a slight impact to ours, and I do believe that the result of the continued growth of our ETF program. It's also the growth in our mutual fund models that offer the option of our large cap passive fund.

But I think the real strength of SEI is the fact that we have a fully comprehensive SME program, a comprehensive mutual fund program, we offered in taxable and tax managed. And when you look at in the advisers business, they have a diverse set of clients that use all of those products.

So the blended fee that we receive is across the entire product line, which we think is more resilient to market pressure..

Okay. Great. Thanks for taking my question..

And at this time we have no further questions in queue..

Thank you. Thanks, Steve. Our final segment today is the Institutional Investors segment. Paul Klauder will report on this segment.

Paul?.

one, lower-than-anticipated sub-adviser expenses in certain products in the third quarter of 2019; and two, an operations there -- that resulted in a higher than normal expenses in the third quarter of 2018. Quarter end asset balances of $89.5 billion, reflect a $2.5 billion decrease compared to the third quarter of 2018.

This decrease is driven primarily by negative client fundings. Net sales were negative $1.7 billion for the quarter. Gross sales were $1.1 billion. However, client losses were about $2.8 billion. Losses were primarily tied to three clients. Two losses were acquisition-related and one loss was an unsuccessful rebid of a long-term client.

The unfunded new client backlog at the quarter-end was $650 million and we would expect the majority of this to fund in the fourth quarter. The new client signings were diversified across new clients in endowments and foundations, UK Fiduciary Management, U.S. defined benefit and a UK defined contribution win.

We believe that new business focus on longer-term asset pools across all global markets is paying dividends for the business and our sales pipeline is strong. We continue to stay focused in all client situations, especially those that are in rebid process or in M&A activity. Thank you very much.

And I'm happy to entertain any questions that you may have..

[Operator Instructions] And our first question will come from Patrick O'Shaughnessy with Raymond James. Please go ahead..

Hey, good afternoon. I was just hoping to dig into your commentary about lower than anticipated sub-adviser expenses.

Is that a onetime issue, some sort of catch-up in the quarter, because I think your commentary suggested it was one-time or is that something that we could think about kind of be sustained going forward?.

Yeah, it was -- Patrick, it was just one-time for the quarter. So some of our alternative investment, sub-adviser expenses we make an estimate based on the contract where the run rate is. And in this particular quarter, two of the alternatives we were over accrued for the first two quarters and we had a true up.

So we had lower expenses in the third quarter and also a write down of what the expenses were for the first six months. So we're able to get that onetime benefit for the quarter only. So that's not an adjusted run rate..

Got it. And then maybe a bigger picture question about margins.

I think it's, obviously, somewhat unusual to see a business that's having top-line pressures showing the year-over-year margin improvements that you guys have shown year-to-date and it does sound like some of that might be non-recurring in nature, but how do you think about the sustainability of margins kind of in this general range?.

That is what I would just say that it's a good management, but I guess that's not a good answer. I think we've been very smart at managing expenses and doing it judiciously, but also looking at the business strategically.

When we have the Investor Day, we'll be talking about some other initiatives that we're looking for to really springboard us into other incremental markets that we're not in now. So there may be some investment from that standpoint. We've got a benefit of getting more diversification and alternative investments.

The reality is, is that we're more efficient and how we service our clients, technology is part of that process now that wasn't part of the process, maybe 3, 4 or 5 years ago. But as we move forward, the sustainability of 53% profit margins earn-out there for the business given some of the headwinds that we would expect that to come down.

And more importantly, we're really thinking about how we get focused on long-term growth and how we get into new markets to be able to get us back a growth engine for SEI..

Great. Thank you..

And next we'll go to Chris Donat at Sandler O'Neill. Please go ahead..

Hey, Paul. Actually, the Patrick's question, the way you covered it that satisfies me and I don't want to make any more trouble for you with Dennis..

Thanks, Chris. I appreciate it..

Thank you. We'll move then to Robert Lee at KBW. Please go ahead..

Great. Thanks. Good afternoon, Paul..

Hi, Robert..

Hi. Just kind of curious, I mean, you gave some color about the backlog and the sources of it and just maybe if you could update us on some of your USBC initiatives. I know it's something you guys have talked about is, the channel you had some priority on, although it feels like it's been, maybe a little tough sledding, getting too much there.

Can you maybe just give us a quick update on what you see there?.

Sure. Well, I'll just pivot real quick to the U.K. So our master trust in the UK, which is our largest way that people consume our defined contribution services was approved by the FCA. So we had a nice incremental win in the third quarter of a new client coming into that.

So we're quite positive about that as we move forward, because we're one of the early ones that got the approval. Pivoting to your question with respect to the U.S., it has been slower on DC. One of the realities with regard to defined contribution plans as we still are in a market that ostensibly is going up.

So there is not as much pain on the line up for client sponsors. Consequently, they're less likely to change their diversification options. So I've talked about this before.

This is one of those markets that if we had some more volatility and we had some frustration either at the participant level or at the sponsor level, we think we would be in a better position for getting the multi-manager kind of white label approach into DC plans. We're still actively talking to a lot of our defined benefit customers.

But again, it's a little bit of an inertia, just because the line-ups are doing pretty well. We do think long-term and, again, we're talking about the Investor Day about some other things that could happen in the 401(k) defined contribution world that we think could be beneficial.

But we don't see them on the short-term horizon and they would be more long-term initiatives..

Great. And maybe just a quick follow-up.

Again, I'm going back to the sub-adviser expense question, could you size that what that impact was in the quarter?.

That was about $800,000..

Okay, great. Thanks so much..

Yes. No problem. Thank you..

Thank you. Next we have Chris Shutler at William Blair. Please go ahead..

Hey, Paul..

Hi, Chris..

So I want to follow up on that, and just -- so you just gave the one-time benefit from sub-adviser.

On the second piece, the operations error, I guess, can you size that? And can you just reiterate, exactly what that item was?.

Yes. That was from the third quarter of 2018. That was a little bit --.

Got you..

So it's not in 2019. So it's a little bit less than $1 million that was in 2018. So from a comparative perspective, that's why I called that out..

Okay. Got it. It makes sense. Thank you..

Thank you..

There are now no more questions in queue..

Thank you, Paul. Before I turn it over to Kathy Heilig, I'm going to give the mic to Steve Meyer to cover something that's come up..

Yeah, this is just a response, Chris, just two follow-ups. One, you had asked about the Department of Interior. I get to plead ignorance, because it was pretty steep, but apparently we did in the Q4 of 2017. I have a conversation during the call about the amount of that client, it was $17.8 million. So I just wanted to clarify that.

And secondly, on the expense uptick, Chris, that you brought up, the one thing I think you're probably looking for that might help you in our personnel expense an uptick, due to the performance of IMS. We did do a catch up for our IC, because where we are tracking in Scholes in the quarter. So that one-time uptick was about $2.4 million for the year.

I just want to follow-up to clarify this. Thanks..

Thank you. And now, Kathy would like to give a few company-wide statistics..

Thanks, Al. Good afternoon, everyone. And I do have some additional corporate information about this quarter. Third quarter 2019 cash flow from operations was $163.9 million or $1.6 per share, bringing year-to-date September cash flow from our operations to $381.5 million or $2.45 per share.

Third quarter free cash flow was $144 million and year-to-date free cash flow is $324.2 million. In the third quarter, we had capital expenditures excluding capitalized software of $12.3 million, a significant part of that was related to our facility expansion.

In the fourth quarter, we would expect to have capital expenditures excluding capitalized software of $15 million and about half of that would be related to the facility. Our projected capital expenditures for next year are about $40 million, and again about half of that is related to the facility.

We also would like to remind you that many of our comments are forward-looking statements that are based upon assumptions that involve risks and that the financial information presented in our release and on this call is unaudited.

In some cases, you can identify forward-looking statements by terminologies such as may, will, expect, believe, continue or appear.

Our forward-looking statements include our expectations as to revenue that we believe will be generated by sales events that occurred during the quarter, or when our unfunded backlog may fund, the benefits we will derive from our investments, our ability to manage our expenses and scale our offerings, the timing of our implementations in conversions, the services we may provide to clients, the momentum of our businesses, the strength of our pipeline and growth opportunities and our ability to execute on and the success of our strategic objectives.

You should not place undue reliance on forward-looking statements as they are based on current beliefs and expectations of our management and subject to significant risks and uncertainties, many of which are beyond our control or subject to change.

Although we believe the assumptions upon which we base our forward-looking statements are reasonable, they could be inaccurate.

Some of the risks and important factors that could cause actual results to differ from those are described in our forward-looking statements can be found in the Risk Factors section of our Annual Report Form 10-K for the year 2018. And now, please feel free to ask any other questions that you may have..

[Operator Instructions] We do have a question from Chris Shutler at William Blair. Please go ahead..

Hey guys. Just a couple more. First for Dennis, on the investments in new business, the expenses grew about $1 million sequentially in Q2, and then another $1 million sequentially in Q3. Could you just explain why that was -- I think you said growth in the private wealth management business.

But just explain what that was and how sustainable that is?.

And the growth in expenses is really a result of spending on some of our newer initiatives that we're capturing those costs and the investments in new business segment. And the two that, I mentioned on the call earlier, were the digital services offering, we called SEI IT services, so that will be used to call hosting services.

So the development and build out of that, those capabilities and beginning to take those to market as well as some of the modularization work on different technology components around the company that we believe are going to open up access for those capabilities to new markets.

And then those costs were offset by growth in the private wealth management business..

Okay. Got it..

You bet..

So it sounds like those expenses at current run rate, that's the run rate in Q3 is the --going forward..

Yeah. We're going forward with that..

Okay..

And then, we'll spend more time with that at the Investor Conference as well..

Okay, great. And then one last one for Steve on Wells.

Just curious when were you made aware of Wells being on hold, and was it post the new CEO coming on board, and any idea if this pause by Wells was specific to SEI or if they paused a bunch of their IT projects or any more color that would be great?.

Well, as far as when we knew, we've been in conversations with Wells over the past several weeks. I would not tie this directly to the new CEO. I think there is a number of things on Wells is place that caused that. As far as speculating to other providers, I do not believe this is just focused on SEI.

But from our standpoint, I don't want to speak for Wells or speculate on their point, on their part. I think the most important thing out of this is Wells has asked us, and their time and need for us to be a good partner. And that's what we're going to do.

We've done that for the past 40 years, and quite frankly, I think that’s all as we get is that we're putting our clients needs buzz ours. We're a little disappointed obviously in pushing this, but we're going to continue to work on their current priorities. Wells will continue to be a large client of SEI.

And I think the bigger story for us and private banking is the large backlog we have that is growing, in the momentum that is putting off. And that's what I want to focus on..

And I guess confidence, there is no change in the long-term relationship with Wells as a result of this extremely high or how you would describe it?.

Well, again, my view is, Wells we've had a long history of 40 years with Wells and I expect that to continue for a very long time. They are currently a large client. And will continue with that. And as I said, we're going to help them work on their current priorities right now, as we wait for them to look at when they can re-consider SWP base.

And when they are ready to reconsider SWP base, we're ready and logging in..

Okay. Thank you, Steve..

Sure..

Our next question is from Robert Lee at KBW. Please go ahead..

Great, thanks for taking my follow-ups. Actually, Steve, maybe I just have one or two quick questions for you. The onetime revenue the $7 million did that -- I assume that all flowed through in the quarter.

I mean, I know every quarter you've got some, but there are--?.

No, as I said, the 73 announced, which obviously is tied to new business simplification is about $1 million of that flowed in Q3. The rest will come in over the next 12 or so months..

Okay, great. And then, I know you have -- I don't think you've mentioned this call. And I apologize, if you did and I missed it.

But the CIBC fairly large new client, any sense of when do you think that's going to begin coming on board?.

Well, we're in active implementation with them. Obviously there is a large project on their side and our side. We will look to work through the next 12 to 14 months. But I think it will be phases that we start to brand towards the end of 2020.

But obviously, there is an implementation fee that will start to recognize, as we go through the implementation as well..

Great, and then, maybe Dennis, I just had a quick question for you. I mean, obviously I know, the tax rate moves around with particularly around the options and equity-based comp and things.

But, how should we be thinking you've kind of any change in kind of your expectations for a quote normal tax rate or kind of basic core tax rate?.

I mean fourth quarter will look more like first and second quarter. Third quarter, we also get the benefit of tax years closing out. So you get some reserve -- reversals as a result of benefit to us. So third quarter, both are usually a quarter where the tax rates a little bit lower,....

Right..

…historically, fourth quarter will be similar to the first and second, in the 21% range..

Thanks for taking my questions..

You're welcome..

And now, there are no further questions in queue..

Thank you. And so, ladies and gentlemen, our sales results were solid this quarter. And we are encouraged by the size of our pipelines and the progress we're making, throughout the company. Further, we believe that the investments we are making in our platforms and organization will help us, benefit from all the changes taking place in our industry.

Now before you go, please note that we are holding an Investor Conference in November 12th and 13th, at SEI's Oaks headquarters. And dinner will be served on 12th followed by the conference in the 13th. I hope you'll make it. Thank you very much for attending this afternoon. And have a great day..

That does conclude our conference for today. Thank you for your participation. And you may now disconnect..